Around 2017 to 2019, bike sharing was a big thing in tech in China. Bikes were everywhere on the street in major cities, often invading limited walkways (picture on the left, taken in November 2017 in Shanghai). Then pictures of bike graveyards began to circulate (picture on the right).
One failed startup, Ofo, illustrates the problem well (yellow bikes in the pictures). Sharing bikes is a great idea – reduce CO2 emission while providing convenience to users, especially when such a seemingly old-tech idea is armed with smart apps. Users loved it. Investors loved it, pumping $2.2B into the company, and Ofo went through an explosive growth. As we entered 2010s, the old silicon valley mantra that startups should focus on a narrow segment in its initial development (‘Crossing the Chasm’ by Geoffrey Moore) was thrown out of the window in favor of full throttle growth to secure one’s place by building ‘moats’ around the business. Within a few short years, Ofo not only expanded to major cities in China, but also to cities in other countries. This rapid growth stretched Ofo’s management capacity. After all, the bikes were owned by Ofo and Ofo had to maintain them. They could not. Other companies mimicked Ofo and entered the chase. This eventually led to bike graveyards shown in the picture, and Ofo went bankrupt and the industry had to restructure. A great idea turned into tremendous waste of money and resources and pollution of the environment.
Such excess is by no means a Chinese phenomenon alone. Remember WeWork?
What are the lessons learned from this?
- Capital alone does not guarantee success: maybe if the investors of companies like Ofo had taken a walk along streets saturated with bikes or had had some sustainability sensitivity, they might have been more conscious of the consequence of their decisions?
- Human capacity is limited: humans are limited in how much we can do during a given time. Scaling a startup is not easy, especially when one has to deal with physical issues. We ignore such limitations at our own peril.
- Users tend not to take care of goods that are cheap and easy to get/dispose of: do I need to say more?
- Regulation is needed when it comes to public space: In this case, regulation (rules on parking) would be a constraint to startups but good for their long term growth. Now cities across China have added rules governing this.
- A good environment for success is about aligning different parties’ incentives: it is about capital’s incentive to invest not over-invest, startups’ incentive to grow sustainably, users’ incentive to use not abuse the goods and services, and governments’ incentive to foster growth yet balance other citizens’ interests… yes, it is complicated.