[xenospn]

I just can't understand how someone can be so irresponsible. They knew exactly what their ad spend was and how many pre-orders they had in the pipeline. Since they only had several hundred pre-orders, they could have easily set that money aside for refunds, but they didn't.

[mattlondon]

As others have pointed out it is obvious at the outset what ads cost, and you can set budgets. None of this should have come as a surprise or a "opps we spend 150K in one day" kinda thing.

I am assuming their line of thought was:

1 - make some sales

2 - spend income from step 1 on more ads to drive traffic to site

3 - go to 1

Kinda like they put themselves into their own recursive ad-pyramid-scheme or something.

Condolences for the customers who go burnt by this.

[braythwayt]

Another possibility is that their reasoning was:

1. Raise some money.

2. Spend it on sales, even if their COS exceeds the margin on each scooter.

3. Rack up some "engagement" and "traction."

4. Raise another round.

That's basically what WeWork was doing: Spend so much on commissions that they were losing money acquiring tenants, but raise money based on various BS "metrics."

[nugget]

Digital advertising can be as addictive (and dangerous) as heroin. You give FB some money and customers start to show up - it feels like you suddenly have a real business. If your analytics are off or you don’t even have the right KPIs to start with, you can kill a business very fast, even while the intoxication of traffic distracts an inexperienced team until the very end.

[chillacy]

Moreso, they should know their conversion rate and cost per click, and could adjust their spend at any moment. Sounds like they're just trying to pass the blame.

[greenyoda]

If they took customers' money knowing that they could neither deliver the product nor refund the money, wouldn't that be fraud?

[danimal88]

Hard to say. One way is that they say got 100K in sales on 10K in ads. Then they said, hm, lets take 50K from sales and put it into more ads so we can get 500K in sales and the remaining 40K went to tooling/production. When that 50K ad buy didn't really pan out, now they have 40K towards fulfilment which probably doesn't meet their suppliers MOQ if it even covered the NRE (non recurring engineering) and tooling. Its more or less the same problem that all companies encounter when they do preorders/crowdfunding/etc.

There is a solution of course - you need to raise enough money (or commit, in the case of Tile founder who should have had enough personal capital to make this work) to never be in a financial position that you couldn't simply return all your customers money in the event that the product or business didn't make sense. As long as you can gaurentee that you hold onto enough money for the returns, you are operating responsibly. If you take 100% of the money you get from sales and commit it, you cant take back ad spend or tooling/engineering spend. Is it fraudulent - I'm not sure. Is it irresponsible - most definitely.