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 benefitsand attractiveness

Industryattractiveness

Mission, aspirations, propensity for

risk

Ability to execute

Connectedness up,down, and across value chain

Teamdomain

What industry forces have thestrongest 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 venture’s value propositionparticularly compelling?

Is the target market large enough tosupport 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 experienceand industry know-how – to deliversuperior 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 team’sbusiness mission, personalaspirations, and risk propensity? Venture

strategy

Potential Profitability

of opportunity

The Logic of Analyzing New Venture OpportunitiesSource: 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 FiguresMay 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 / $400Access Equip. $42 / $42Insurance $142 / $142Parking $50 / $63Maintenance $33 / $33Fuel $90 / $99

$723 / $778

Monthly FiguresMay 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

MonthlyMay Plan / Sept Actual

Evaluating Performance (Per Member)

Contribution/Member$91 / $27

Revenue/Member$130 / $94

Cost/Member$39 / $67

Cost/Car$723 / $778

Members/Car18.33 / 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

MonthlyMay Plan / Sept Actual

Evaluating Performance (Per Member)

Hourly vs. Daily (September)Exhibit 8b

Hourly $9,327/1,351 = $6.90/hourRevenue from hourly use / hours used

Daily $5,318/1,872 = $2.80/hourRevenue 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”