1) Evaluate this potential venture and the progress that Chase has made.

Zipcar is a car sharing service, launched in Boston, which delivers convenience, ease of use, freedom of travel and hassle free ownership for urban dwellers. The company was started by two friends, Antje Danielson and Robin Chase. Danielson got the business idea from Germany, where she witnessed the idea in action. She believed that this business model could be replicated in the urban regions of United States. However, it was Chase who executed the idea and Danielson aided her during the progress. Car sharing was ideal for urban locations as there were many potential users, parking was expensive and the need to drive was limited. Moreover, even research indicated that amongst urban dwellers, college students were the most receptive to the proposition1. Both the entrepreneurs believed that there was strong demand for this niche product in the US. The founders believed they would meet the demand for short-term, on demand private car access in the market2. Also, the concept was also environmentally friendly as for every car shared, it would eliminate the need for 7.5 cars in the marketplace. Moreover, after conducting research, Chase found out that the usage of car sharing organizations was growing at 30% annually, and to their benefit, the US market was large and nearly untouched. Zipcar was formed in January 2000 and ownership was divided amongst both the entrepreneurs. Chase was involved full time and Danielson contributed by dealing with the environmental issues. They decided to dilute ownership accordingly once the necessary funds were raised. In the initial stages, they funded operations from their own pockets and managed to acquire a $50,000 convertible loan from a friend. Their main goal was to build the technology platform with the loan money theyd acquired. In order for the day to day operations to run
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smoothly, a sound online reservation system was essential. So not only did they build a website, they hired a MIT engineer to develop software which would be installed in each of their Zipcars. This software would admit only the confirmed driver to the car and would also capture usage data (for billing purposes) when the car was returned. Once the software was built, they patented the reservation system. A major contribution to Zipcars success can be handed down to the lack of competition in the region. The US market had two real competitors, one of them based in Portland and another one at Seattle. There was no car sharing service based in the north-east side of US, so Zipcar would be one of its kind in the region. Their aim was to first launch the business in a single market. When the business model would be proven and was smoothly running, then they would expand operations to at least 14 more cities in the US. Also, the target market customers were educated and tech savvy people, so making reservations online would be convenient and easily accessible. Moreover, users would have the benefit of having the car service at their disposal by making reservations on the web. The system software would be automated and it would enable users to access their usage rate and billings. Also, the potential market size was massive and with the growth rate being at 30%, the investment in cars was viewed upon as long term. In addition, the pricing component was another vital factor to Zipcars success. Some components in the pricing structure were the security deposit, initaiton fee, annual fee, monthly fee, per mile fee and hourly or daily rates. Chase had altered the pricing model, which would be discussed in detail further on. She dropped the annual subscription fee considerably (customers found that too high), while she raised the hourly rates to compensate for the drop. On the other

hand, she put a $44 per day maximum daily rate to give incentive to daily renters3. In the initial stages of operations, she leased cars to get the business going but the long term model was to purchase them on a permanent basis. Another area where Zipcar utilized its funds appropriately was the marketing and promotions department. The company relied on low budget tactics and they were successful in maintaining their marketing costs. Promotions were done in the form of media coverage, word of mouth and grass roots guerilla marketing. For the latter part, Chase wanted the company logo to be urban-hip and have a touch of green so it would convey as environmentally friendly4. This logo would be displayed on company brochures, on the back and sides of Zipcars, website, stationery and other forms of promotional materials. Therefore, their marketing strategy was spot on and played a big role to their growth. As the company was growing, Chase managed to raise more capital with several investors. Many investors told her to hire a professional who could bring expertise and credibility to their management team. So Chase hired a man as the company president and they hoped would take their company to the next level. However, this move turned out to be disastrous as the unnecessary costs started to rise and they ended the relationship with him soon in July 2000. Both the founders have brought the company a long way in the few months they have been in business. They both have good professional and management backgrounds and their experience has assisted them during the process. Also, their passion, belief and dedication in their concept are evident as they have invested their own funds and are also taking salary cuts. Another remarkable quality which they inherit is their ability to stretch the dollar. In the startup

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stages, raising capital was difficult but they manage to fund the expenses with whatever they could raise. Moreover, their venture is a unique service concept which meets customer needs. They entered the market at the right time as the market was coming up and cost of owning a car was high. Also, the patenting of the reservation system, tracking of vehicles and billing has created a high value added potential. The demand for the service and need for cars have been increasing on a monthly basis. However, the variable costs have been on the higher side. Chase recognizes the Boston market as an ideal opportunity for growth and she wants to raise an additional $1.3 million to prove the business model and meet demand better. She believes that if she could prove the companys worth in Boston, she would easily manage to raise additional funds for her expansion plans. Therefore, the company has made significant progress and with some time, the service would be extended to other cities.

2)What is the business model, and how has it changed between December 1999 and May 2000? Zipcars business model has been efficient and the usage of raised capital has been optimal. The company allows its customers to reserve their choice of car and their favored location online. The technological platform has been one of the strong points of the company and has given them a competitive advantage. The integration of the online reservation system along with the patented wireless technology equipped in all Zipcars has made sure that operations run smoothly. Zipcars business model was different from the other car rental agencies. The conventional car rental agencies charge very high prices and the renting process becomes very inconvenient. Also, since Zipcar utilized sustainable technologies in its operations, the need for human interaction was almost eliminated. This worked advantageous in Zipcars favor as it led

to labor cost savings, the need for paperwork was eliminated, and as the process was automated, the margin of error was also less. Moreover, users are expected to handle simple maintenance themselves, refuel the car and submit the receipts for reimbursement, keep the car clean at all times, take responsibility for any traffic or parking violation and return the car to its original location before the reservation time expired. The billing process is easily accessible as its conducted online and customers can check all the rental records on the website. Chase brought about a change in the business model. Firstly, she made some assumptions about the business. She assumed that the renewal rate would be 95%, the utilization rate of vehicles would be 40%, and the average member would make 4 trips per month at an average of 4 hours and 22 miles per trip. Initially in December 1999, Chase planned to charge $25 non-refundable application fee, $300 refundable security deposit, $300 as the subscription fee and $1.5 per hour with $0.4 per mile. There was also a fine of $20 for late return. However, negative responses from customers regarding the subscription fee made her drop to $75. To compensate for the drop in annual fee, she increased the hourly rate to $5.5 per hour. Other cost changes were as follows; Cost Changes Lease Cost Equipment Cost Parking Attrition Rate December 1999 $4000 $400 $0 5% May 2000 $4400 $500 $600 15% Change $400 $100 $600 10%

Under plan 1, the total expected revenue after the end of five years was $4.1 million. Under plan 2, the total expected revenue after the end of five years was $6.3 million. This means the business model for plan 2 brought about an increase of 53%.

Under plan 1, the total net income before tax for the five years was $1.33 million. Under plan 2, the total net income before tax for the five years was $3.25 million. There was an increase of 144% in net income after the changes were incorporated. Therefore, the changes brought about by Chase indicate a profitable return.