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

Potential
Profitability
of opportunity

Is the market large enough?

What is the growth rate and
the upside potential?

Macro-level

Does the opportunity fit the teams

business mission, personal
aspirations, and risk propensity?

Market
attractiveness

Industry
attractiveness

Mission, aspirations,
Ability to execute
propensity for
risk
Team
domain

Venture
strategy

Connectedness up,
down, and across value chain
Micro-level

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

Cost/Car

Lease
Access Equip.
Insurance
Parking
Maintenance
Fuel

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

Monthly Interest

Contribution/
Member

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

Monthly Interest
$1 / $1.1

Contribution/
Member
$91 / $27

Per Hour Fees $88 / $73

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

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

$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-16per-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