Negative Gross Margins
The thing that is wrong with this strategy is that taking prices up, or using your volume to drive costs down, in order to get to positive gross margins is a lot harder than most people think. If there are other startups competing with you and offering a similar service, you aren't going to be able to take prices up without losing customers to a similar competitor, unless your service truly has "lock in." And most don't. Using volume to drive costs down can work, but if there are similar services out there, the provider who is being asked to take a cut by you might just move their supply over to another competitor offering a higher price.
A brilliant and simply explained piece on why most VC-backed companies are doomed to fail…eventually.
On the topic of “lock in”, only Apple makes iPhones but what if people don’t want iPhones anymore? It’s unlikely but something to consider.