Fabfitfun's Success Story: A Loss Math That Generate $300M
FabFitFun, which co-founders Katie Rosen Kitchens, Daniel Broukhim and Michael Broukhim began as an online magazine dedicated to beauty, fitness, and fashion in 2010, has since layered different offerings into its business in a way that feels natural to its members. In 2013, the company joined the burgeoning subscription box market with a quarterly delivery designed to mimic the “swag bag” given to editors at brand-sponsored events — that is, about $200 worth of full-size products, rather than sample sizes, for $50 per season.
FabFitFun’s Founding Story: “Not So Unintended” Media Company
On purpose or not, FabFitFun as first was a media company which reviews the current beauty and healthcare product in the market, during a time when Los Angeles had witnessed a new trend in gift box services.
The founders claim they had no intention of entering this box delivery business initially. FabFitFun was simply a lifestyle community that offered articles on beauty, health, fitness etc. They spent years creating great content which helped to build a base of faithful customers who trusted them – just for the sake of a media site.
There comes one day, while attending a social event as guests they were offered many impressive VIP gift hampers. After such fateful morning, the Broukhim brothers started thinking of how they could help their readers have the same experience – and that is how the idea of a subscription gift box business was born. Broukhim loved the feeling of surprise and being introduced to new brands or products he wouldn’t have purchased on his own. Their idea was to turn the swag bag into a customizable seasonal box delivered four times a year
They started doing research on various subscription box services available in Los Angeles and noticed Birchbox and other competitors had gone for narrow industries and trial-size products. And the hole here is that no one has got style.
The founders could not find any enterprise that sold all lifestyle needs in a single box. Finally, made their first experiment in 2013, the company tried their hand at the gift box business by arranging 2000 boxes for their readers. Within just two days of starting the offer, they sold all out.
And that is some good sign for a potential business. Ever since, the company saw a growth rate of 300 percent every year. Quite soon, more subscribers flowing in, and FabFitFun became a social trend.
The Success of a Loss Math and the Company’s Secret Sauce
Generally, for $50 a box, four times a year of $180, subscribers get $300 to $400 worth of items shipped to their door.
The math seems like it should not work, but FabFitFun’s founders are out to prove that its subscription box, is more than just any regular gift box.
The secret sauce here is that brand has got style. For example, each box comes with a magazine that explains the products and the company produce its own “seasons” of video content to match the box. The box gets personalized ad FabFitFub learns and takes care of its subscribers. The company also grant access to member-only sales, like you are subscribing not just to get gift boxes but rather be in the community, to join something special. “It’s almost a personal shopper crossed with a life coach,” Broukhim says.
"If you think about what we do — members are paying us for something that they have no idea what it is," Rosen Kitchens said of the difficulties in curation. "In order to make that work, in order for them to continue to give us $49.99 every quarter, they really have to trust us, and we have to continue to deliver value, surprise, delight and really enrich their lives in a way that feels meaningful."
However, to get where they are today it was no easy cake. There are questions they have to answer it themselves with failures and time. Let’s break down some.
Break Down the Challenges and How They Did It?
When it comes to subscription-based business, it’s always the retention that trouble you most. In case of FabFitFun, it is about how they maintain excitement around a product that comes on a regular basis. Challenges with retentions vary depending on the source of the analysis, but according to Kitchens, at the company they found that almost 40% of subscribers end up canceling their services, and only 55% of consumers who consider a subscription actually signing up for it.
So, their solution to this retention issue was to launch with a seasonal service rather than a monthly one, which Rosen Kitchens believes is a big driver of the brand’s user-generated content. And that just seems perfect for what the company is having, both at their site and the gift factory.
It always the first day that most difficult, how did FabFitFun caught their first thousand customers?
Broukhim recalls it is the best of bargain on the market, and they were very lucky to have a strong data base of customer to count on.
The already had the media list with a couple hundred thousand people signing up to be receiving daily emails from the FabFitFun newsletter. So, when the first launch the box to that group, they reveal as a spoiler, everyone was going to get a Moroccan Hair Oil in their first box, which worth $40 already. Even if you just wanted that only one bottle, still worth it since the whole box cost $50 but $10 off your first box. The deal works, everyone believes that there is something worth it and the company made it all sold in just the first week.
Seeing a growing business, there must be a lot of effort in terms of customer acquisition, to Kitchens the most effective thing to do is from studying cancel experiences in any sort of subscription service. Negative experiences can spread quickly by word-of-mouth so it’s crucial that you have all your holes covered. At FabFitFun, Kitchens said she always tried to have the best in-class, across the board, from people to processes when it comes to paid acquisition. You have to be versatile whether it’s Facebook, Instagram, Pinterest, or YouTube, you should be exposed in all channels.
And the main formula should be revolved around just being very data driven and test driven. You do that formula consistently and deliberately with some touch of creativity behind it, you will get to a great place.
The Stressor of Personalizing 300,000 People
As Kitchens plays it right, subscribers started to flow in. The fun of wrapping 2,000 gifts is now replaced with 350,000, for all different 350,000 people. Who all have their own character of own styles and own needs, the fact that business was scaling created its own stressors when it comes to products. All customers want the gift to be the right one for them!
In case of audience that in a similar demographic as her, Kitchens said it was an easier process to choose what would go in the boxes. She was confident about what would appeal to the members. But having the broader audience has kicked things into a higher gear.
“Now that we are curating for hundreds and hundreds of thousands of women, it’s a different game. The members are much more diverse,” explains Kitchens. “A 17-year-old in San Diego probably does not want the same product as a 65-year-old in Kansas City.” Another new wrinkle is that while now brands are more eager to be a part of a FabFitFun box, they don’t necessarily have the capacity to fulfill that scale Kitchens and her team are after.
But Kitchens says that it is the feedback from her customers that inspires her the most when things get challenging. She says the biggest lesson she has learned over the last several years is to not be afraid to seek help from her support system and trusting that the people she has empowered to lead, like the company’s consumer insights and merchandising teams, will find products that will most resonate with their members.
Rosen Kitchens: What I Had Learned?
As a female entrepreneur partnering with two brothers. The growth of FabFitFun means everything to her, the company is a proof for her internal as well as professional maturation. During which journey, Kitchens has many savvy lessons to pass on – as a woman and a creative.
#1 Practice Perseverance
“She owns it” is no longer a rare thing, but for those that is still looking for their spark on their own companies and their brand. What are the key principles Kitchens would suggest for funding in the beginning?
Practice perseverance – do the hard work, stamina. When it comes to fundraising, partner collaborations or hiring, you will hear “no” a lot. But be resilient, keep the faith in what you are doing, take advice without ego, and power through. That’s her success recipe.
The founder recalls when the idea was first brought on the table, against many players like Birch Box and Sephora Play, it was only cold calls she could make. You can actually feel soul crushing at times, but no one who is ever started a business will tell you it is easy. Second to that, she mentions the important of making sure all of your partners – whether they are investor, or employees – believes in your mission and vision from the get-go. The character does not have to be, but the faith and look must be, align with your brand values. It’s just an essential part of the equation.
Especially, as women, you have to be comfortable with hard conversations and asking for whatever you deserve. You should always be chasing whatever it is calling you. It’s crucial to advocate for yourself and be comfortable claiming your worth. Particularly, as leaders, you have to hold yourself accountable. You need to look at pay bands to ensure you are helping all of your team rise and thrive within the company.
#2 Self-Motivation Does Not Come from within at All
Toward challenges and hardship, self-motivated is the best cure, how does Kitchens tackle it?
To Kitchens, it is doing more work with more people – blending in and be a part of a bigger thing – that helps. In the beginning, it felt easier and faster to try and do things on her own, before she realized how unhealthy that is, especially when it comes to startup. It took a while for her to completely get rid of that mentality, and able to work effectively with people which outcome is giving fruit more than expectation.
Kitchens shares she and the cofounders have spent years building a really amazing team that has been the absolute key to the company growth, where no one could shy away from new ideas and challenges. An amazing network that allows her to bounce ideas, work through adversity knowing there are talented people to have her back all the way.
#3 Gain Failure to Earn Success
A quote and one person that help her make it through days?
"The real test is not whether you avoid this failure, because you won't. It's whether you let it harden or shame you into inaction, or whether you learn from it; whether you choose to persevere." – Barack Obama.
The fact that she has quite a fair share of failures, it never stops her from continuing, with Kitchens, it is impossible to be successful without some kind of failure. The founder remembers back when they first launched the boxes, it was months after months of convincing and chasing after investors. Until it works, you just have to keep on going.
Kitchens also reveals the one woman that inspires her most. It’s her mom who is a psychologist and got her own PhD when Kitchens was still a kid. She was the first in her family to go to college. And while you know it was not easy, she made it very clear that it is 100 percent possible to be an amazing mom while having a great career. “I think true work and life balance is a bit of a myth. But if I do half as much as she did, I will be in good,” said Kitchens.
#4 The Simple Art of Leading
Great company’s culture comes from great-mind leaders. What is the core principle of Kitchens when it comes to winning and transforming people?
It’s should always be the passion that you chase after, not the money, with everything the founder is having, she found this to be most legitimate value needed for a fulfilling life. For years, she spends most of her day with co-workers and colleagues like family. With which time, beside working, she tries to ask questions, figure out about their dream jobs – not to be inspired but also remind people of what they are after.
Kitchens also stresses the point of treating people like adults. At FabFitFun, there is not a lot of micromanaging, you want to trust them to get their shift done either in the office or at home. As their co-workers, it’s important to let your team know that they have the flexibility to live their lives, they own it. At the same time, as leaders, let them know that you have hugely high expectation and all that would create are dynamic message of everybody can be success in their own terms.
The Bottom Lines
FabFitFun is not playing it alone, but against many like Dollar Shave Club, Ipsy, Birchbox, Sephora Play, Barkbox, Stitchfix, and ShoeDazzle, who are all strong players.
So, when it comes to a successful subscription startup, what's the ultimate playbook? It’s complicated, while value is still important when it comes to boxes, still consumers are clearly looking for more – they want to be delighted, to discover wonderful new objects, and immerse themselves in an exciting experience whenever the box arrives at their door.
In the end, it was how the company’s founders understand and take care of their members that thrive the business – a foremost moral any success story would try to deliver.
SUBSCRIBE FOR THREE TIPS
Three tips or links to improve small business presence every week.
P.S.: This is your “University” to solve small business challenges.