Zipcar: Refining the Business Model

Elevator Pitch
Objective


. . . . . . . tell me more.
Macro-level
Market domain Industry domain
Micro-level
Sustainable
advantage
Market
attractiveness
Target segment benefits
and attractiveness
Industry
attractiveness
Mission, aspirations,
propensity for
risk
Ability to execute
Connectedness up,
down, and across value chain
Team
domain
What industry forces have the
strongest impact on profitability?

How are industry forces likely
to change in the future?
What entrepreneurial or firm-
level capabilities create a
sustainable competitive advantage
relative to rivals or potential rivals?
Is the market large enough?

What is the growth rate and
the upside potential?
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?
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?
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?
Does the opportunity fit the teams
business mission, personal
aspirations, and risk propensity?
Venture
strategy
Potential
Profitability
of opportunity
The Logic of Analyzing New Venture Opportunities
Source: Mullins, J.W. (2003). The New Business Road Test. Prentice Hall: London
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?
Contribution/Car
Revenue/Car
Cost/Car
Total Revenue -
Number of Cars
Lease
Access Equip.
Insurance
Parking
Maintenance
Fuel

Monthly Figures
May Plan / Sept Actual
Evaluating Performance (Per Car)
On per car basis
Contribution/Car
$1,536 / $225
Revenue/Car
$2,259 / $1,003
Cost/Car
$723 / $778
Total Revenue - $27,104 / $14,645
Number of Cars 12 / 14.6
Lease $367 / $400
Access Equip. $42 / $42
Insurance $142 / $142
Parking $50 / $63
Maintenance $33 / $33
Fuel $90 / $99
$723 / $778
Monthly Figures
May Plan / Sept Actual
Evaluating Performance (Per Car)
On per car basis
Contribution/
Member
Revenue/
Member
Cost/
Member
Cost/Car
Members/Car
Monthly Fee -
Monthly Usage
Per Hour Fees
Per Mile Fees
Monthly Interest

Security
Interest
Monthly
May Plan / Sept Actual
Evaluating Performance (Per Member)
Contribution/
Member
$91 / $27
Revenue/
Member
$130 / $94
Cost/
Member
$39 / $67
Cost/Car
$723 / $778
Members/Car
18.33 / 11.62
Monthly Fee - $6.25 / $6.25
Monthly Usage $
$123 / $ 87
Per Hour Fees $88 / $73
Per Mile Fees $35.2 / 13
Monthly Interest
$1 / $1.1

Security $300 / $300
Interest .33 / .37
Monthly
May Plan / Sept Actual
Evaluating Performance (Per Member)
Hourly vs. Daily (September)
Exhibit 8b
Hourly $9,327/1,351 = $6.90/hour

Revenue from hourly use / hours used
Daily $5,318/1,872 = $2.80/hour

Revenue from daily use / hours used (not hours billed)
Diagnosing the Problem
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-share/

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