A simple but often overlooked analysis of unit economics can help entrepreneurs know early on whether they are driving for unhealthy losses.
The bike-sharing company Ofo was founded in 2014 by members of a Peking University bike-riding club without much fanfare. They initially focused on bike tourism but swiftly switched to what they saw as the bigger prize: a bike-sharing app. In the next three years, the company’s growth exploded. By 2016, Ofo had a fleet of 85,000 bicycles in China, and it soon began to open locations around the world, including India, Europe, Australia, and the United States. The company would eventually raise a staggering $2 billion in funding. But by 2018, facing stiff com-petition and cash flow stress, its leaders considered filing for bankruptcy several times. A year later, Ofo was out of business.