The guys also realized that the failure was all their fault. Instead of creating something innovative, they had spent their time playing dress up: They tried making the site the gay Facebook, then the gay Yelp, and even the gay Groupon.
"[We had to] admit that what we had built over the previous year was not a success," says Shellhammer.
The brilliant part: Shellhammer says finally admitting that their site was not a success gave the duo the confidence to start over. From scratch.
"We asked ourselves, 'If we could do anything, what would we do?'" says Goldberg. "Then we asked three questions: What are we most passionate about? What are we good at? Where is there an underserved market? The answer was design, design, design."
Shellhammer adds that admitting to utter failure "gave us the confidence to go to their board and 'Hey, we have your money but we want to do something completely different.'"
The glorious fallout: Once a rather dramatic pivot plan was in place, the duo shut down Fabulis. Three months later, in June 2011, it relaunched as Fab.com, a flash-sales site that sells indie designer housewares, apparel, and vintage items.
Since the pivot, Fab, which is based in New York City, has seen stellar growth.
In July, the company raised $100 million, just seven months after raising $40 million in funding, putting it at a $600 million valuation. What about breaking that 150,000 user mark? Fab says it now has close to 5 million members and plans to do $140 million in sales this year in roughly 20 countries.
"There was risk [in pivoting], but we looked at it as an opportunity, not a failure," adds Shellhammer. —Nicole Carter
3. Glassybaby: Can Outsourcing 'Artisan' Work?
Entrepreneurial mistake: Lee Rhodes first had the idea for Glassybaby—her company that makes colorful, hand-crafted candle holders—when she dropped a candle in one of the creations her husband made in glass-blowing class. She opened a production studio to keep making them; four years later, in 2003, she opened her own shop.
She had a dedicated business model that made her situation unique: after battling lung cancer, she decided 10 percent of her sales would always go toward charitable causes. Only that business model wasn't too attractive to investors.
"One of the things we've always run into is no bank will loan us money," Rhodes says. "No one will really understand the life extent of our product, how will we make money. It's a real leap of faith to believe in what we do."
She heard the same business advice from all corners: You can't make these in American and still have a profitable business. So she agreed to outsource to save money, ordering 150,000 Glassybaby votive holders from China.
What's so brilliant? Once the Chinese-made votives arrived, Rhodes opened a case, examined the product, and then let the rest sit in the warehouse for nine months. They looked close enough in design to the original ones. But accuracy wasn't the problem.
"I didn't know how to fit them into my story," she says. "There was no authenticity to them whatsoever."
That authenticity was important: the company had billed itself as a caring purveyor of handmade goods that gave back as much as it could to the local community. Offering some Glassybabys made in China and others touted as being made by local glass blowers who get health insurance, didn't make sense.
"There was no opening in my story to put in the China Glassybaby," Rhodes says. She ended up giving them away to hospitals at a loss of $150,000 to the business.
Lesson learned: The outsourcing incident showed how important having a relatable story was to running a successful company that hopes to do more than make money.
"It really cemented the idea that we are made in America," she said. "We support glassblowers. The actual experience of watching Glassybaby being born is beautiful."
For a company that is competing with much cheaper similar products found at places like Pottery Barn, taking out the locally made angle would have diminished her story.
"It had a really profound effect on me," she says. "That's the last time I'm going to go off mission and off message.
Not everyone is going to understand Glassybaby."
At least some people have supported the message: Not only has it expanded to several cities, including New York City, Amazon founder Jeff Bezos bought a 20 percent stake in the company after being impressed by its model. The company is expecting $8 million in sales this year, with plans to expand to San Francisco and elsewhere. —Tim Donnelly