Burning Cash as a Business Plan

I'm not a business person, and don't follow business news very closely. However, there has been a lot of press recently about the company MoviePass and how they have been hemorrhaging money, requiring multiple changes to their subscription model.

From what I can tell from the press reports, the original MoviePass model was to offer folks unlimited movies (in theaters) for a low monthly fee. I assume that they had some kind of deal with theaters to get admission at a discount, otherwise the monthly subscription would barely cover the typical cost of a ticket for a single movie, let alone multiple movies. (More bodies in the theater means more concession sales, so the theater has a potential upside.)

Even to an outsider like me, it is unclear how this model is supposed to work. I suppose that MoviePass was envisioning something akin to insurance, where folks who make frequent use of the service are subsidized by those who pay more in premiums than the company pays out in claims. The more people you can sell insurance to, especially if a large number won't need or bother to make a claim, the better.

MoviePass obviously wasn't able to cover their expenses off revenue, and were dependent on multiple rounds of financing. If you are running your business off of cash from investors rather than revenues, you have an unsustainable business model (unless you can convince investors to keep giving you cash forever).

This seems like a classic case of mistaking "growth" for "sustainability."

Although it is several years old now, there is a great interview between serial entrepreneur Jason Calcanis and Basecamp.com co-founder David Heinemeier Hansson (known as DHH, he also created the Ruby on Rails web framework on which Instructure's Canvas is built) where debate the "focus on growth" versus "focus on profit" approaches. For the record, I was more convinced by DHH's "provide a useful service and charge enough to cover your expenses" argument.