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 Industry domain

Is the market large enough? Potential
Profitability
What is the growth rate and of opportunity
the upside potential?

Market Industry
attractiveness attractiveness
Macro-level

Does the opportunity fit the team’s

Mission, aspirations, Ability to execute
business mission, personal
aspirations, and risk propensity? propensity for Venture
risk
Team strategy
domain
Connectedness up,
down, and across value chain

Micro-level What industry forces have the

Target segment benefits Sustainable strongest impact on profitability?
and attractiveness advantage
How are industry forces likely
to change in the future?

Does the team have what it takes,

To which target market Is the
venture’s 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?
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
What entrepreneurial or firm-
and across the value chain so it will
level capabilities create a
be quick to notice any opportunity or
sustainable competitive advantage
need to change its approach if
relative to rivals or potential rivals?
conditions warrant?
 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 On per car basis
May Plan / Sept Actual

Total Revenue -
Revenue/Car

Number of Cars –

Contribution/Car
Lease
Access Equip.
Insurance
Cost/Car Parking
Maintenance
Fuel
 Evaluating Performance (Per Car)
Monthly Figures On per car basis
May Plan / Sept Actual

Total Revenue - $27,104 / $14,645

Revenue/Car
$2,259 / $1,003
Number of Cars – 12 / 14.6

Contribution/Car
$1,536 / $225 Lease $367 / $400
Access Equip. $42 / $42
Insurance $142 / $142
Cost/Car
Parking $50 / $63
$723 / $778
Maintenance $33 / $33
Fuel $90 / $99
$723 / $778
 Evaluating Performance (Per Member)
Monthly Monthly Fee -
May Plan / Sept Actual

Revenue/ Per Hour Fees

Monthly Usage
Member
Per Mile Fees

Monthly Interest Security

Contribution/
Member Interest

Cost/Car
Cost/
Member
Members/Car
 Evaluating Performance (Per Member)
Monthly Monthly Fee - $6.25 / $6.25
May Plan / Sept Actual

Revenue/ Per Hour Fees $88 / $73

Monthly Usage $
Member
$123 / $ 87
$130 / $94 Per Mile Fees $35.2 / 13

Monthly Interest Security $300 / $300

Contribution/ $1 / $1.1
Member Interest .33 / .37
$91 / $27

Cost/Car
Cost/ $723 / $778
Member
$39 / $67 Members/Car
18.33 / 11.62
 Diagnosing the Problem

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)
 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”