When Losing Money Is Strategic — and When It Isn’t

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 competition and cash flow stress, its leaders considered filing for bankruptcy several times. A year later, Ofo was out of business. What went wrong? Ofo, like many new ventures — especially those backed by venture capital — focused on growth in its early years. Often, that means a venture will lose money. That’s not unexpected in a startup, of course, but the key question is whether such losses are healthy or unhealthy.