Zipcar: Refining the Business Model

Elevator Pitch
Objective

. . . . . . . tell me more.

The Logic of Analyzing New Venture Opportunities

Source: Mullins, J.W. (2003). The New Business Road Test. Prentice Hall: London

Market domain
Is the market large enough? What is the growth rate and the upside potential?

Industry domain

Potential Profitability of opportunity

Macro-level

Market attractiveness

Industry attractiveness

Does the opportunity fit the teams business mission, personal aspirations, and risk propensity?

Mission, aspirations, Ability to execute propensity for risk Team domain Connectedness up, down, and across value chain Micro-level

Venture strategy

Target segment benefits and attractiveness

Sustainable advantage

What industry forces have the strongest impact on profitability? How are industry forces likely to change in the future? Does the team have what it takes, in a human sense in experience and industry know-how to deliver superior performance for this particular opportunity?

To which target market Is the ventures value proposition particularly compelling? Is the target market large enough to support the business model? Does the target market provide an Option to grow into other markets?

Is the team well connected up, down and across the value chain so it will be quick to notice any opportunity or need to change its approach if conditions warrant?

What entrepreneurial or firmlevel capabilities create a sustainable competitive advantage relative to rivals or potential rivals?

Market Attractiveness
Size Growth rate
Past Future

Trends
Economic, demographic, socio-cultural, technological, regulatory, natural

Industry Attractiveness
What industry? Ease of entry? Supplier power? Buyer power? Substitute products? Rivalry among existing firms?

Segment Benefits / Attractiveness

Customer pain? Incentive to buy? Who are the customers? What do we know about them? Benefits above other solutions? Will they buy? Will the segment grow? Other related segments? Can we serve them?

Sustainable Advantage
Proprietary elements? Superior processes, capabilities, resources? Economically viable business model? Customer acquisition? Costs? Speed? Customer retention?

Evaluating Performance (Per Car)

Monthly Figures May Plan / Sept Actual On per car basis

Total Revenue Revenue/Car Number of Cars Contribution/Car Lease Access Equip. Insurance Parking Maintenance Fuel

Cost/Car

Evaluating Performance (Per Car)

Monthly Figures May Plan / Sept Actual On per car basis

Total Revenue - $27,104 / $14,645 Revenue/Car $2,259 / $1,003 Number of Cars 12 / 14.6 Contribution/Car $1,536 / $225 Cost/Car $723 / $778

Lease Access Equip. Insurance Parking Maintenance Fuel

$367 / $400 $42 / $42 $142 / $142 $50 / $63 $33 / $33 $90 / $99 $723 / $778

Evaluating Performance (Per Member)

Monthly May Plan / Sept Actual Revenue/ Member Monthly Fee -

Monthly Usage

Per Hour Fees Per Mile Fees

Contribution/ Member

Monthly Interest

Security Interest

Cost/Car Cost/ Member Members/Car

Evaluating Performance (Per Member)

Monthly May Plan / Sept Actual Revenue/ Member $130 / $94 Monthly Fee - $6.25 / $6.25

Monthly Usage $ $123 / $ 87

Per Hour Fees $88 / $73 Per Mile Fees $35.2 / 13 Security $300 / $300 Interest .33 / .37

Contribution/ Member $91 / $27

Monthly Interest $1 / $1.1

Cost/ Member $39 / $67

Cost/Car $723 / $778 Members/Car 18.33 / 11.62

Diagnosing the Problem

Hourly vs. Daily (September)
Exhibit 8b

Hourly $9,327/1,351 Daily $5,318/1,872

= =

$6.90/hour $2.80/hour

Revenue from hourly use / hours used

Revenue from daily use / hours used (not hours billed)

Epilogue
Robin was concerned when her analysis showed low revenue figures, driven primarily by the daily use of vehicles. Beginning in December, Zipcar increased the max daily rate from $45 to $55, increased the lowest hourly rate and changed from two-tier to four tier pricing. Still in business (http://www.zipcar.com/index)
36 US cities and London

Appears that they did not get any venture capital funding until July 2005 ($10 million) ( http://www.zipcar.com/press/releases/press-28) Raised $25 million in 2006 ( http://www.redherring.com/Home/19957) http://gigaom.com/cleantech/zipcar-prices-ipo-at-14-to-16-per

Takeaways
Keep business model fluid in early stages Understand factors that provide sustainable competitive advantage
Network externalities* Reputation and buyer uncertainty* Buyer switching costs* Legal restrictions (e.g., patents)

Odd financing strategy? Not really.

* First mover advantages

Reminders
Read Writing a Business Plan: The Basics