How These Founders Almost Killed Their $12 Billion Business

It's weird that there aren't more hundred-billion-dollar companies, because it doesn't seem that hard to do, Max Rhodes caught himself thinking one day in 2021.

He was sure making it look easy. The company he'd cofounded, called Faire, had gone from stumbling startup to galloping unicorn. Fueled by a steady diet of VC money, its valuation kept climbing: $1 billion, then $2.5 billion, up to $12.4 billion, and even $12.59 billion, the numbers rising like bubbles in champagne, jubilant and intoxicating.

As with so many tech startups then, Faire was fully embracing the unofficial motto of Silicon Valley: "Growth, growth, growth at all costs." And why not? After four years of building and iterating, investors were finally behind them. The company had over a billion dollars of their capital to spend. Faire's leaders doubled their team. Then they doubled it again. They'd be the next DoorDash or Airbnb at this rate, they figured.

Then the trouble began.

At Faire — an online wholesale marketplace that connects indie brands (that want to be sold in local stores and shops) with small retailers (looking to find the best products to stock) — suddenly, many of these business owners were getting upset. And loud. "The customer service is quite slow," said Sarah Kim, founder of a stationery business called Selah Paper, on her YouTube channel at the time. Another YouTube reviewer, business coach Dallas Gordon, griped, "They used to be proactive, but now it takes days and days to get an answer. If you get an answer at all."

As Faire burned through $30 million a month, by the second quarter of 2022, its breathtaking gallop went slo-mo. Decisions took forever, and its explosive growth was petering, leaving its leadership in a fog.

In the difficult months that followed, they'd have to question and probe, face hard truths, and take even tougher steps to turn the business around. Survival, they realized, meant doing something more meaningful than just watching their customer counts and valuations rise. They'd need to reach sustainable growth.

"The lesson for me here," says Rhodes, "was that if it feels easy, it probably means you're doing it wrong."

Image Credit: Zohar Lazar

For years, the startup world had one rousing anthem: Scale! The idea was to move fast, spend heavily, capture as many customers as possible, and then monetize later (if at all). But that model meant toast for a lot of founders and investors, and in many ways seems incompatible with our current economy. So VCs and advisors began urging a different objective: sustainable growth.

"The goal is to create a business that is profitable, enduring, and generates a lot of economic value for its stakeholders," says Gary Pisano, a Harvard Business School professor who studies company growth. "In the long term, you're much better off growing 12% a year, every year, instead of 25% one year and then 2% the next. At a 12% growth rate, you double every six years in size."

When companies skyrocket without proper planning, Pisano wrote recently in the Harvard Business Review, they risk destroying the very things that made them successful in the first place — typically their agility, awesome customer service, or signature culture. Many a startup has gone for speed, then been dashed on the rocks for not being able to deliver on their promises — like Brex, a corporate card for startups valued at $12.3 billion that lost its identity after expanding in too many directions, and Peloton, which grew furiously during the pandemic and, according to Pisano, outpaced its supply chain, leading to poor quality and customer service. Both struggled afterward. And Faire, it seemed, was headed for the same fate.

At the beginning, it was hardly a billion-dollar moonshot. Faire just started because of an annoying problem. About a decade ago, Rhodes was working as a product manager at Square, and had a side hustle getting a high-end umbrella brand into stores. As he schlepped to trade shows all over the country, he realized it was an inefficient way for local retailers and brands to discover each other. Soon, he joined forces with three Square colleagues — Jeff Kolovson, Marcelo Cortes, and Daniele Perito — to create a better way to make that connection. They launched in 2017, just as stores were closing and the media was declaring a "retail apocalypse," but the Faire founders believed that small businesses would always be resilient and cherished by their communities. And they were right.

With Rhodes as CEO and Kolovson as COO, the founders set up an office at 2 Mint Plaza in San Francisco. Their wholesale platform had two major benefits. The first was personalization; retailers could sign up, share details about themselves, and get algorithmic recommendations for which brands were a good fit and most likely to sell. The second big offering came in deal terms: Retailers got 60 days before they had to pay for an order, along with free returns. That meant they could physically examine products, offer them to customers, and if those items didn't sell in two months, they could send them back at no cost. Because most small brands couldn't wait 60 days for payment, Faire would pay them immediately and assume the risk of the retailer defaulting. The company would only make money when a sale went through, collecting commission from the seller brands and (later) payment fees.

Although this seemed like a great deal, there were few takers at first. Brands wouldn't sell on Faire because there weren't many retailers there, and retailers weren't interested because there weren't enough brands to choose from. Rhodes and his team were flummoxed. Then he picked up a copy of a new book called Hacking Growth by Sean Ellis and Morgan Brown. It stresses the importance of describing your value proposition in a catchy way that answers customers' main question: "How is this thing going to improve my life?" Rhodes was at a trade show trying to rustle up interest when the answer came to him: "Try before you buy."

That framing was lighter fluid. By joining Faire, retailers could try out inventory for free! Almost instantly, the marketplace ignited as users flocked to it. But the honeymoon was short. One day, FedEx showed up at 2 Mint Plaza with boxes. And the boxes kept coming. These were all the free returns that Faire had offered, now being sent by retailers who didn't like or couldn't sell the products they'd found there. "We had this beautiful, very well-lit office," recalls Rhodes, "and all of a sudden it was dark, because all those boxes were piling up and blocking the windows." The return rate hit 30%. Even worse, defaults climbed to 15% as retailers who kept the merchandise never paid. Faire started losing 50 cents on every dollar.

The founders spent the next six months solving those problems. They programmed their algorithm to flag products with high return rates, implemented credit limits, and made other adjustments. By mid-2018, the situation stabilized, and it was time for the business to grow.

At first, the founders approached that growth sustainably. Up until then, they'd been using a sales team and paid marketing to find new customers. But they spotted a cheaper and much more effective strategy — by turning its brand partners into sales partners.

It worked like this: Imagine a candlemaker sells its product on the platform. This brand also has relationships with non-Faire retailers — businesses that Faire would really like as customers too. To make that happen, the company created a program called Faire Direct. Now any time the candlemaker referred a retailer who signed up on Faire, there would be no commission on future business between the two. Plus, the retailer got $100 off its first order. It was a heck of an incentive, and brands jumped on it. Soon the new retailers, eager to enjoy Faire's benefits, began referring their outside brands to join — creating a viral loop that quickly spun 50% to 60% of the company's growth, and ushered in unicorn status in October 2019.

Just months later, however, the pandemic would lead to Faire's undoing — and not the way anyone expected.

Those first weeks were utter chaos, as stores everywhere closed. Then retailers moved online, and Faire helped drive their digital transformation — setting up websites, adopting e-commerce tools, figuring out live selling and local delivery. As demand exploded, Faire's founders quickly built out its infrastructure. Investors poured more than $1 billion into the company over the course of a year. Everyone's focus became growth.

Throughout 2021, Faire spent lavishly on marketing campaigns and incentives that brought in new retailers. They branched out into adjacent markets: larger retailers, higher-end apparel, Europe. They hired rapidly. "We were trying to grow super fast in order to stay ahead of potential competitors, because we felt like we'd found this golden goose and we needed to do everything possible to make sure we held on to it," says Rhodes. "That's what Uber had done. That's what DoorDash had done. Like, that was the playbook. And it felt really good at first. But it also kind of felt icky; it seemed so easy."

In the second quarter of 2022, just as Faire reached its highest valuation of $12.59B with a team of over 1,200, the founders knew something was off. Like a strange hum when you drive the car too fast, it was tough to say exactly what the problem was. But the signs were hard to ignore. Competitors started popping up. Customers complained that the platform was slow, the service bad, the brands not as high-quality as they'd once been. And internally, it took forever to make decisions.

Then Faire started missing its numbers. "We'd come up with an explanation — and then we'd still be missing even once we adjusted for it," says the company's president Lauren Cooks Levitan, who'd joined as CFO six months before the pandemic. Now, she had to steer the company out of its treacherous haze.

"Well, it wasn't fun. I'll start with that," she says.

Faire's leadership went into SWAT-team mode. Cooks Levitan, who has more than 30 years of retail experience, resorted to the way she's always tackled a problem: "Let's start by figuring out how much of this is due to what's happening to us, and how much is due to things we're doing. It's the difference between what we can control and what we can't."

Rhodes talked to customers. Kolovson looked at how they'd deployed their capital. What they all came back with was simple: Faire's fast growth had created a slower, less efficient operation, and attracted transactional customers with low lifetime value.

How they got themselves into this mess was more complicated, and took some time to unravel. First, the pandemic drove interest rates down, VCs were heavily investing, and Faire assumed the surge in business among its brands and retailers would just keep on going forever. Because of that, it rushed into new markets, which drew resources away from its core customers. The expansion also created a lot of noise. Retailers told Rhodes that the platform was overwhelming; they couldn't find what they were looking for the way they had before. Plus, they had to sift through a lot of junk — because Faire's carefully curated marketplace was now awash with low-quality brands.

More bad news followed. As the company's leaders looked at their user behavior, they discovered that the soaring customer growth was followed by rapid churn. The newest retailers had been lured in by pandemic-era incentives and promotions — but these people just scooped up the deals and then left. "We were overly aggressive in thinking, All we need to do is to get you to try our great solution and you will stay," says Cooks Levitan. "Anyone will take $100 to join up, but they haven't made an emotional attachment. They don't have skin in the game, and might not be a good fit. They could be too small, didn't buy regularly, weren't interested in changing their behavior. That's very different from determining an incentive that's appropriate for someone who'd likely be a good fit."

On top of all that, Faire had a ballooning headcount. It wasn't so much that the company hired the wrong people — but to scale, it inserted two layers of management, which was now crippling its former agility. "We had just added way too much bureaucracy," says Rhodes.

All this needed to be fixed. Fast.

The reckoning lifted the fog, to everyone's relief. Once Faire's leaders got a clear line of sight on how to rescue their startup, they snapped into course correction.

The founders threw out their roadmap and started fresh. Instead of chasing new markets, they pulled back and worked on website speed, improved their algorithm's abilities to search and personalize, increased quality control, and deactivated thousands of low-quality suppliers. "We emailed our retailers," says Rhodes, "and told them we screwed up — we shouldn't have let these brands on the platform, as they weren't a fit."

Faire also took a new approach to customer acquisition, targeting appropriate retailers and building lasting relationships. This included a major partnership in which Shopify made Faire its recommended wholesale marketplace and took a stake in the company; in turn, Shopify's point-of-sale system became Faire's preferred provider. The new arrangement started driving healthy business to the platform, says Rhodes. In a separate effort launched in 2021, Faire leaned into helping early-stage shop owners open their first store — aiming to develop lifetime customers.

As all this happened, Faire laid off 7% of its workforce in October 2022 — and then around 20% more in November 2023. "I was terrified of what the folks who were staying would think of me as a leader, and about how well the business was doing," says Rhodes. The company still had plenty of cash, but he and the other founders decided they needed fewer layers, checkpoints, and meetings, and their large organization would probably run fine — maybe even better — with a smaller team.

In a second bold move, Faire lowered its nearly $13B valuation down to $5B, something the founders haven't talked about publicly until now. "It was another decision that we really agonized over," says Kolovson. "But we felt like we were going to be faced with reality at some point — when we potentially go public or if we raise more capital — and the sooner that we can embrace that, the better."

Jarring as these changes were, they didn't feel out of line with the tech industry at large. Between July 2022 and last year, giants like Google, Meta, and Amazon pink-slipped tens of thousands of employees, and fintech darlings Stripe, Ramp, and Klarna also lowered their valuations. "Still, it was a really hard moment in the company," says Kolovson.

Since then, Faire has refocused on relationships that matter — giving more equity to their remaining employees, and having candid conversations with investors. Ravi Gupta, a partner at Sequoia — which has backed Faire since its seed round — applauded the team's courage. "It was pretty amazing to watch," he says. "I don't think they're the only company in the world that has faced this challenge. I do think they're one of the few that has faced it the way they have."

Faire declined to disclose its current revenue or estimated time to profitability, so it's hard to know exactly how well these changes worked. But the founders believe they've shifted the company's trajectory in the right direction. The platform is generating billions of dollars in volume, which they say has about doubled in the last year. And they're hiring again — this time building out their team of more than 920 at a careful and steady pace. "We feel like we've righted this," says Cooks Levitan, "and we're still in the earlier stage of our growth. We should be growing fast, and we have a giant opportunity in front of us. But it took some cleanup to get to the place where we were able to do that again."

If Faire's team had a chance to do it all over again, what would they change? Should they not have taken VC money? Tried to grow slowly but surely? Or, to play devil's advocate, what if Faire did need to gun it in those years to box out its competitors and hold onto its long-term position, even at the cost of growing pains? What if that explosive growth is the only reason it survived?

It's a curious question for Pisano. "There are certainly times where you gotta make the sprint and mop up later," he says. "But you need to assess: Can it be mopped up? Or will you create a permanent vicious circle you can't get out of?" For any startup faced with that kind of situation, he advises founders to stop and understand the risks; think through every choice ahead and how it could impact everything that makes you successful, like serving your clients and preserving what you're known for. "Then you can hit the gas and you've got a robust enterprise. It still may shake a bit, but at least the wheels won't come off."

Setting guardrails can be helpful, adds Zeynep Ton, a professor at the MIT Sloan School of Management and author of The Case for Good Jobs, who has studied the success of companies like Costco and Trader Joe's. That could be a rule you commit to, like "14% markup limit" or "promotion from within" — or even keeping the valuation low — that guides decisions. Or it could be a set of questions you ask when considering any new product or service. Costco's are: Can we do it well? Can we save our customers money? Can we make a profit on it? "Every company should have their own questions that enable them to see the impact of their decisions on their employees and on the customers," Ton says. "And that can, at least, create boundaries where you can experiment."

Faire's founders interrupted what could have been a fatal downslide by being quick studies who took a hard look at their mistakes and acted decisively. Whether they should or shouldn't have taken the investments, they came away with a new playbook for growing fast while following a path to sustainable profitability. Rhodes says their questions going forward are: Will it make life better for our customers? And will it do that better than the alternatives? "When the money is free, you can talk yourself into doing things that just don't make sense," he says. "If you're trying to build a $100 billion company and have a massive impact on the world, it's really hard work."

Back in early 2019, before Faire was a unicorn, Rhodes told a podcaster, "When I think about the mistakes I made, they really came down to being overeager, thinking I knew more than I did, and trying to jump forward in my career and getting ahead of my skis."

Reminded of the comment in light of the roller coaster he's just been on, he can only laugh at himself. "There's a little pattern there," he acknowledges. "I'm worried it might be a lesson that I just am going to keep learning over and over again."

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