Zipcar: Refining the Business Model

1
Zipcar Refining the Business Model

• Professor Doug Cerf
• Donald Bren Graduate School of
• Environmental Science and Management
• Corporate Environmental Management (ESM 281)
• Winter 2009

2
Objectives

• Learn how a business model evolves.
• Learn how to evaluate a business model.
• Fishbone analysis-very important tool that helps
  understand the key driver(s) of revenues and
  costs in the business model
• Evaluate
• First version of the financial model for the
  business
• A version that was the basis for funding that was
  prepared after significant additional research

3
Zipcar advertisement

• http//www.youtube.com/watch?vUux8uSRDFK0

4
The continuum

• Alternative or public transportation
• Car sharing
• Car rental
• Car ownership

5
The concept

• Convenience
• Ease of use
• Freedom to travel
• Hassle free ownership
• For urbanites
• Cost savings
• Environmentally friendly

6

• Car ownership is mostly a fixed cost
• Per mile cost is high for people that do not use
  their car very much
• Cars sit 85 of the time
• Are people aware of the cost of car ownership?
• Just because car sharing is less expensive than
  car ownership, does this mean the decision to use
  car sharing will be made in the moment (do people
  have a marginal cost mentality)?

7
Elevator pitch

• Elevator pitch framework
• What market are you in?
• What urgent problem are you solving?
• What is the size of the opportunity?
• Why will you win (differentiation, barriers to
  entry, unfair advantage)?
• Where is the validation (customers, investors,
  etc.)?
• Source http//www.mtxia.com/css/Downloads/Documen
  tation/vctemplate/vctemplate5.shtml
• Management team including experience
• Investor exit strategy
• YouTube video on an elevator pitch
• http//www.youtube.com/watch?vTq0tan49rmc

8

• Student volunteer(s) to do a two minute elevator
  pitch

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Qualitative evaluationZipcar venture

• POCD Analysis
• People, Opportunity, Context, Deal
• See Exhibit TN-1

10
The financial plan

• Exhibit 3 (December 1999)
• Total expected income before tax over first 5
  years (1.332 million)
• Which assumptions do you question?
• Missing items
• Exhibit 5 (May 2000)
• Total expected income before tax over first 5
  years (3.25 million)

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The business model

• Several different ways to look at the business
  model
• Per car economics (TN-2)
• Per subscriber economics (TN-3)
• Per city economics

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Fishbone analysis-Identify key drivers (metrics)

• A technique to understand and evaluate
  effectiveness of a business model
• tool that helps understand the key driver(s) of
  revenues and costs in the business model

13
Fishbone Analysis

• May 2000 business plan compared to September
  actual data
• Monthly data
• TN-5 (? means the data is not available in the
  case)
• Note differences in
• members/car (18 plan/11.6 actual)
• Uses/month ( 4 plan/1.98 actual)
• /mile (.40 plan/.14 actual)
• miles/use (22 plan/48.8 actual)
• hours/use (4 plan/ 9.62 actual)

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Questions

• Evaluate this potential venture and the progress
  that Chase has made.
• What is the business model, and how has it
  changed between December 1999 and May 2000? What
  do the data from actual operations in September
  say about how the business model is playing out
  in practice? Does this data give you comfort or
  concern?
• What actions should Chase take as a result of the
  September operating results?
• What is the strongest argument Chase could make
  to a potential investor about the attractiveness
  of the venture? What, specifically, should her
  elevator pitch be at the Springboard forum?

15
Zipcar conclusions

• Modify pricing or provide incentives to get more
  revenue from users that keep the car for the full
  day
• Increase the number of trips per customer
• Focus on core market (hourly user)
• Focus on a few key metrics based on fishbone
  analysis

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Business Model Conclusion

• A business model is different than a financial
  projection
• Without a fishbone, can you really understand the
  business model?
• A true understanding of the business model
  requires identifying two or three drivers of
  performance (deep indicators) around which
  strategy, policies, and practices can be designed
  (or adjusted)
• You cant manage everything hence, deep
  indicators are critical
• Thats why sophisticated investors love
  entrepreneurs who understand their business model
  (i.e., their fishbones)
• A great business model is necessary, but not
  sufficient (vs. size of opportunity, upside
  potential, sustainability, scalability,
  execution).

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Epilogue

• Share My Ride (March 2009)
• http//www.nytimes.com/2009/03/08/magazine/08Zipca
  r-t.html?_r1themcthutm_sourceOdeNewsletters
  utm_campaignbee5d9d0d3-daily-rssutm_mediumemai
  l
• Hertz Tosses Some Car Keys Into the Ring,
  Battling Zipcar (December 2008)
• http//www.nytimes.com/2008/12/17/business/17hertz
  .html?ftay