Zipcar: Refining the Business

Model
Professor Doug Cerf
Donald Bren Graduate School of
Environmental Science and Management
Corporate Environmental Management (ESM 281)
Winter 2009
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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) oI revenues and costs in
the business model
Evaluate
First version oI the Iinancial model Ior the business
A version that was the basis Ior Iunding that was
prepared aIter signiIicant additional research
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ipcar advertisement
http://www.youtube.com/watch?vUux8uS
RDFK0
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%he continuum
Alternative or public transportation
Car sharing
Car rental
Car ownership
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%he concept
Convenience
Ease oI use
Freedom to travel
Hassle Iree 'ownership
For urbanites
Cost savings
Environmentally Iriendly
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Car ownership is mostly a Iixed cost
Per mile cost is high Ior people that do not use their car
very much
Cars sit 85 oI the time
Are people aware oI the cost oI 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)?
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Elevator pitch
Elevator pitch Iramework
What market are you in?
What urgent problem are you solving?
What is the size oI the opportunity?
Why will you win (diIIerentiation, barriers to entry, unIair
advantage)?
Where is the validation (customers, investors, etc.)?
Source:
http://www.mtxia.com/css/Downloads/Documentation/vctemplate/vctemplate5.shtml
Management team including experience
Investor exit strategy
You%ube video on an elevator pitch
http://www.youtube.com/watch?v%60tan49rmc
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Student volunteer(s) to do a two minute
elevator pitch
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"ualitative evaluation:
ipcar venture
POCD Analysis
People, Opportunity, Context, Deal
See Exhibit %-1
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%he Iinancial plan
Exhibit 3 (December 1999)
%otal expected income beIore tax over Iirst 5
years (1.332 million)
Which assumptions do you 6uestion?
Missing items
Exhibit 5 (May 2000)
%otal expected income beIore tax over Iirst 5
years (3.25 million)
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%he business model
Several diIIerent ways to look at the
business model:
Per car economics (%-2)
Per subscriber economics (%-3)
Per city economics
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Fishbone analysis-IdentiIy key
drivers (metrics)
A techni6ue to understand and evaluate
eIIectiveness oI a business model
tool that helps understand the key driver(s)
oI revenues and costs in the business model
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Fishbone Analysis
May 2000 business plan compared to September actual
data
Monthly data
%-5 ('? means the data is not available in the case)
ote diIIerences 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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"uestions
1. Evaluate this potential venture and the progress that
Chase has made.
2. What is the business model, and how has it changed
between December 1999 and May 2000? What do the
data Irom actual operations in September say about how
the business model is playing out in practice? Does this
data give you comIort or concern?
3. What actions should Chase take as a result oI the
September operating results?
4. What is the strongest argument Chase could make to a
potential investor about the attractiveness oI the venture?
What, speciIically, should her elevator pitch be at the
Springboard Iorum?
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ipcar conclusions
ModiIy pricing or provide incentives to get
more revenue Irom users that keep the car
Ior the Iull day
Increase the number oI trips per customer
Focus on core market (hourly user)
Focus on a Iew key metrics based on
Iishbone analysis
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usiness Model Conclusion
A business model is diIIerent than a Iinancial projection
Without a Iishbone, can you really understand the business
model?
A true understanding oI the business model re6uires
identiIying two or three drivers oI perIormance (deep
indicators) around which strategy, policies, and practices
can be designed (or adjusted)
You can`t manage everything: hence, deep indicators are
critical
%hat`s why sophisticated investors love entrepreneurs who
understand their business model (i.e., their Iishbones)
A great business model is necessary, but not suIIicient (vs.
size oI opportunity, upside potential, sustainability,
scalability, execution).
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Epilogue
Share My Ride (March 2009)
http://www.nytimes.com/2009/03/08/magazine/08ipcar-
t.html?r1&th&emcth&utmsourceOdeewsletters&
utmcampaignbee5d9d0d3-daily-
rss&utmmediumemail
Hertz %osses Some Car Keys Into the Ring, attling
ipcar (December 2008)
http://www.nytimes.com/2008/12/17/business/17hertz.html
?Itay