zipcar: refining the business model
DESCRIPTION
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. Potential Profitability of opportunity. Market domain. - PowerPoint PPT PresentationTRANSCRIPT
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”