Spikes imported Europe's subscription theater model to the US, proving demand with 19,000 signups in days during the San Francisco beta. He built a workaround using debit cards so theaters got paid full price without needing their cooperation.
What Changed
New investors Farnsworth and Low slashed the price from $50 to $9.95 to chase growth, ignoring unit economics. They lied to investors about profitability and cash runway while losing $2.60 per revenue dollar. When cash ran out mid-2018, they blocked heavy users and changed terms without notice.
Where it Landed
Chapter 7 bankruptcy in 2020. Farnsworth and Low pled guilty to securities fraud, facing 5-10 years in prison. Stock crashed from $32 to pennies. Spikes bought the assets and relaunched with sustainable pricing.
The Principles
1.
Unit economics aren't optional. If you lose money on every transaction, volume makes it worse, not better.
2.
Selection bias kills bad models faster. MoviePass attracted movie lovers who actually used the service, not gym-style no-shows.
3.
Lying to investors buys time, not salvation. Farnsworth's false cash claims delayed the inevitable and earned felony charges.
Builder's Takeaway
3 warning signs your growth model is a time bomb:
•
Negative gross margins mean every new customer accelerates the crash
•
If your bet requires customers NOT to use your product, rethink it
•
Desperation moves (blocking users, changing terms) signal the end is near
