+1(978)310-4246 credencewriters@gmail.com
  

The case study is about zipcar and my part is only related to the first question which is:

Evaluate this venture and the progress that chase has made

And we can summarize the answer in 2-3 slides or in one page

9-803-096
REV: MAY 9, 2005
MYRA HART
MICHAEL J. ROBERTS
JULIA D. STEVENS
Zipcar: Refining the Business Model
It was October 14, 2000, and Robin Chase was leaving yet another meeting with potential
providers of capital for her fledgling venture, Zipcar. Chase was CEO and cofounder of the
company, which she and Antje Danielson had started some 10 months before. The idea behind
Zipcar—a sophisticated form of car sharing—was simple, yet potentially revolutionary. Chase and
Danielson had conducted some initial research during late 1999, and by the end of that year, the two
had developed a business plan. They had incorporated in January 2000 and raised their first $50,000
from one angel investor.
By June of 2000, the two entrepreneurs had leased 12 cars and were ready to open for business in
Boston. By October, the fledgling company had 19 vehicles, nearly 250 members, and the founders
had raised—and spent—an additional $325,000 to fund the early stages of operations. Yet, even with
this demonstration of viability, Chase and Danielson had not succeeded in raising the equity capital
they needed to really grow Zipcar.
Beginning in early 2000, Chase had made a series of presentations to potential investors in which
she sought $1 million in capital to prove the business model in Boston and, eventually, to set the
stage for expanding the business to other U.S. cities. Potential investors seemed intrigued and
enthusiastic about the Zipcar idea. While Chase hoped to close on this first round of financing in the
fall of 2000, she continued to look for funding alternatives because the money was not yet in the bank.
At the end of October 2000, she and Danielson would have the opportunity to make their pitch at
Springboard 2000 New England, a venture forum for women-led enterprises. Chase commented: “I
am anxious to raise this funding and focus my energies on really trying to grow Zipcar. I want to put
our best foot forward with the VCs who will be at Springboard. I need to review our presentation
and make sure we’re making the strongest argument we can on why this business deserves funding.”
Background
In September 1999, Chase’s friend, Danielson, returned from a trip to Germany with an idea for a
new start-up. While in Berlin, Danielson had been impressed with a car-sharing concept that seemed
to be catching on across Europe. Under this new concept, car-sharing companies provided short________________________________________________________________________________________________________________
Professor of Management Practice Myra Hart, Senior Lecturer Michael J. Roberts, and Research Associate Julia D. Stevens prepared this case.
This case draws upon portions of an earlier case, “Zipcar,” HBS No. 802-085 (Boston: Harvard Business School Publishing, 2002), written by
Professor Myra Hart and Research Associate Wendy Carter. HBS cases are developed solely as the basis for class discussion. Cases are not
intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
Copyright © 2003 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.
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Zipcar: Refining the Business Model
term, on-demand use of private cars conveniently located and easily accessible to service subscribers.
She believed that such a business could be equally successful in urban areas in the United States.
Danielson, a Ph.D. geochemist who supervised undergraduate energy policy research at Harvard,
saw both the environmental and convenience implications of the service. She turned to Chase, who
had an MBA from MIT and substantial business experience, to partner with her in the start-up.
Chase agreed that car sharing provided an exciting opportunity, and she was confident that they
could build the technology infrastructure to make it work. She committed to the project and began
developing the business plan. When she met with Glenn Urban, the former dean and a mentor from
MIT’s Sloan School of Management, in December 1999, he not only encouraged her to go ahead but
also urged her to move quickly. He noted, “This idea is much bigger than you are imagining. You
have to do this at twice the speed and think twice as big.”
The Founders
Chase majored in English, French, and philosophy at Wellesley College. While a student, she also
held several positions at the college newspaper and was president of the philosophy club. After
graduating cum laude in 1980, she joined the Boston-based health care consulting firm John Snow
Inc.
In 1986, she received her MBA in applied economics and finance from MIT’s Sloan School of
Management. She then joined a private school as director of finance and operations. Over the next
13 years, Chase continued her professional career, taking some time off after the birth of each of her
three children and structuring her work schedule to accommodate her desire to raise a family. Chase
returned to work for John Snow during some of this time, ultimately serving as interim director of the
international division. In 1995, Chase left to become managing editor of the 110-year old scientific
journal Public Health Reports. Throughout that time, she often thought about the possibility of starting
her own business.
In 1998, Chase and her husband came to the conclusion that the pressure of maintaining two highpowered careers and caring for three children under age 10 was increasingly difficult to manage. She
retired from her position at Public Health Reports to spend more time with the children. During the
next 12 months, Chase devoted herself to organizing her household and becoming more involved
with her children’s school activities. As a result, she made many new friends—most of them the
parents of her children’s playmates. Danielson was among these.
Danielson worked for the University Committee on the Environment at Harvard University,
directing interdisciplinary research on energy consumption and greenhouse gases. Prior to receiving
her Ph.D. from the Freie Universitat Berlin, she had held several jobs, including two years in car sales
and three years as a research assistant at the Hahn-Meitner Institute working with semiconductors.
When she completed her Ph.D., she went to Rand Afrikaans University in Johannesburg, then on to
Harvard in 1991 on a NATO research fellowship. Danielson’s husband was finishing his Ph.D. at
MIT, and their five-year-old son was enrolled in the same kindergarten that Chase’s daughter
attended.
Chase did not hesitate when Danielson proposed the venture. She had wanted to become an
entrepreneur for years. The opportunity was exciting, and she and her husband believed that the
time was right to take on such a venture, given that they had made enormous strides in getting their
family life working well over the past year and all three of their children were now school age. In the
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fall of 1999, she committed to the venture full time. Danielson, on the other hand, continued working
at Harvard, spending evenings and weekends on the new venture.
The two founders divided the tasks along the lines of their respective areas of expertise. During
the fall of 1999, Chase refined the concept, researched the market, wrote the business plan, and built
the assumptions necessary to create a budget. She created the list of critical business and financing
contacts. As she began to build the organization in the spring of 2000, she designed and wrote the
Web site and, with the help of contract engineers, started work on the online reservation system.
Danielson’s car experience and her connections with Ford, one of the major funders of her
research group at Harvard, made her the natural choice to focus on building car industry
relationships. She also took responsibility for specifying the necessary in-car technology and
negotiating the first car purchases. In addition, Danielson worked on any environmental issues
related to the business and served as editor for the documents that Chase created.
Pursuing the Idea
The business of organized car sharing originated in Switzerland in 1987 when two separate
cooperatives (subsequently merged in 1997) were founded. Within a year, similar operations came
into existence independently in Germany, Austria, and the Netherlands. The cooperatives were
created to provide both convenience and cost savings to the users.
Organized car sharing was the coordinated use of vehicles by various subscribers in succession
and independently of one another. The concept was not unlike condominium time sharing, except
that the “real estate” had wheels and the prescribed usage time was not fixed. Additionally, any
member could reserve any vehicle in the network. Typically, members of the service paid a large upfront deposit, an annual fee, and a per usage fee that was determined by time and mileage.
Members could reserve car time regularly or ad hoc. Though most subscribers used a car for a few
hours, it was possible to reserve longer blocks of time. Members made reservations for the closest
available car. Because cars were not housed at a central location but were parked in designated
spaces in neighborhoods convenient to the users, the subscriber rarely had more than a five-minute
walk to a parking location.
Car sharing was best suited to urban locations where there was a dense base of potential users,
parking was expensive, and the need to drive was limited. Research indicated that, among urban
dwellers, college-educated individuals were the most receptive to the proposition.
Chase believed that there was a strong demand for this “niche” product in the United States. It
could provide a new, low-cost, convenient alternative to owning an automobile for drivers who
logged less than 6,000 miles per year (see Exhibit 1 for car ownership economics). She observed, “For
those who don’t own a car, taxis can fill the need for short trips. Rental cars are available for daily or
weekly usage, but the hassle factor keeps people from using them as often as they might like. So
there is a big hole in the market: short-term, on-demand private car access.”
Sizing the Market
Chase’s early market research indicated that penetration in Western Europe was relatively small
(0.01% of all drivers) but growing rapidly. In 1999, approximately 200 car-sharing organizations
operated in 450 cities in Switzerland, Germany, Austria, the Netherlands, Denmark, Sweden,
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Norway, the United Kingdom, France, and Italy.1 Although car-sharing organizations had invested
very little in marketing, usage was growing at 30% annually. In 1999, there were more than 130,000
members2 in what was estimated to be a $200 million industry.3
Volkswagen, one supplier of the shared vehicles, projected that 2.45 million shared vehicles would
be in use throughout Europe by the year 2007 and that they would serve approximately 0.04% of the
general population.4
Chase’s research indicated that the U.S. market was large and virtually untouched. In 1999, 66
million Americans lived in the top 20 metropolitan areas, and 20 million Americans used public
transportation to get to work.5 (See Exhibit 2 for data.)
Competition
In 1999, the two largest car-sharing organizations in Europe were Swiss Mobility CarSharing, with
1,400 cars, and Drive Stadtauto (formerly StattAuto Berlin), with approximately 300 cars. Swiss
Mobility CarSharing, the product of a 1997 merger of two independent cooperatives, operated in 700
locations and had more than 30,000 members. It had concentrated its expansion efforts on building
its network in Switzerland. Drive Stadtauto was launched in 1988 and operated in 110 locations with
approximately 7,500 members.6
Chase’s research turned up three potential competitors already operating in North America.
There was a start-up operation in Canada, CommunAuto, which was launched in Quebec City in
1994 and in Montreal in 1995. Like Chase, the founder had developed the business after studying 15
different car-sharing organizations operating in Europe. U.S. competition consisted of two West
Coast companies: Portland-based Car-Sharing Inc., founded in 1998, and Seattle-based Flexcar,
launched in January 2000. Though both were for-profit companies, they focused on the
environmental impact of car sharing rather than on its convenience and cost effectiveness.
Chase also anticipated that traditional car rental agencies, such as Hertz or Avis, might enter the
market if they saw it as a substantial new business opportunity. Chase believed that they generated
an average of $10,000 to $12,000 per vehicle per year in revenue. Car manufacturers were also
potential competitors. Volkswagen had already conducted its own studies of the market potential. It
could participate as a supplier or could consider entering the market directly.
Developing the Business Plan
By late 1999, Chase’s research had convinced her that the car-sharing idea was viable, especially in
the relatively uncontested North American marketplace. Chase completed the first draft of a
1 Daniel Sperling, Susan Shaheen, Conrad Wagner, “CarSharing and Mobility Services, An Updated Overview,” CalStart,
February 2000.
2 Ibid.
3 Rachel Geise, “Wheel’s When You Want ‘Em,” The Toronto Globe and Mail, February 2001.
4 “At The Wheel, Volkswagen Pioneers Car Sharing Programs,” Fastlane, October 1997.
5 1990 U.S. Census data.
6 Sperling, et al.
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Zipcar: Refining the Business Model
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business plan for a U.S.-based car-sharing venture in December 1999. The service she envisioned
would deliver convenience, ease of use, freedom to travel, and hassle-free “ownership” for urbanites.
The cars would provide a solution for people who did not need a car to get to work but wanted the
convenience of a private vehicle to run occasional errands, go to appointments, visit friends, or get
out of the city for a few days.
Though the primary emphasis was on convenience and cost savings, the concept could also be
marketed as environmentally friendly. According to European studies Chase uncovered, every car
shared would eliminate the need for approximately 7.5 individually owned cars in the marketplace.
Chase’s plan anticipated that most paid subscribers would log on to the company Web site to
reserve specific cars in specific locations, but she understood the need to provide telephone support
as well. Reservations would be taken up to two months in advance but could also be made without
notice—subject to availability. One of the challenges that Chase faced was developing technology
that would admit only the confirmed driver to the car and that would also capture usage data (to
serve as the basis for billing) when the car was returned.
Pricing was a critical component of business development. To develop a price structure, Chase
looked at variables and variations found in existing models elsewhere in the world. She described
her conclusions:
It was clear that there are several components to an overall price structure: security deposit,
initiation fee, annual fee, monthly fee, per mile fee, and hourly or daily rates. When I looked at
how most car-sharing organizations in Europe managed their pricing, they had significant upfront initiation fees—$300, $400, even $500. I later learned that this was because many of these
organizations are cooperatives, and they needed that money to go out and buy cars.
My thinking on pricing was that I needed to cover my COGS [cost of goods sold] and then
cover overhead at some target volume and utilization level. And, I had talked to enough
people to know that many of our target users—people who don’t own cars—compare our
prices to the price of renting a car—say $45 per day. So, I needed to stay under that umbrella.
Chase spent almost two months modeling different pricing structures and cost assumptions. Her
first business plan made the following assumptions: potential users would be required to become
members and pay a $25 nonrefundable application fee, a $300 fully refundable security deposit, and a
$300 annual subscription fee. Additionally, members would be charged for driving time at $1.50 per
hour and $0.40 per mile. (See Exhibit 3 for a summary of financials from this original plan.)
Members had to be at least 21 years old, have a valid driver’s license, and have no major traffic
violations (see Exhibit 4 for Zipcar driver requirements).
The users were expected to handle simple maintenance themselves. For example, drivers were
asked to refuel and submit receipts for reimbursement whenever the gas level reached one-quarter
full. They were also required to keep the car clean and to take responsibility for any traffic or parking
tickets incurred. The car had to be returned to its original location before the reservation time
expired. There was a $20 fine for late return. Chase assumed a renewal rate for members of 95%,
which translated into a 5% attrition rate each year.
Chase’s research had indicated that mature European companies had found that 50% utilization of
each vehicle (i.e., 360 hours per month) was the most that could be achieved if customer satisfaction
was to be maintained. Because of uncertainty regarding actual usage patterns, Chase had planned to
initially target a maximum of 40% utilization. Chase assumed the average member would take four
trips per month at an average of four hours and 22 miles per trip. (See Exhibit 3 for this initial
financial model.)
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Zipcar: Refining the Business Model
Chase planned to launch the business in a single market. Once the basic operations were running
smoothly and the business model was proven, she believed that there were at least 14 cities in the
United States that would be excellent long-term growth targets. Boston was a logical choice for
launching the concept because it met all the key criteria for developing a robust user base. Like most
European cities, Boston had insufficient and expensive off-street parking but a good public
transportation system. Chase believed that Boston lent itself well to a network of cars positioned
close to transit stations. Furthermore, Boston had a large population of college-educated and Webconnected individuals.
Chase believed that a well-designed wireless technology platform would be crucial to Zipcar’s
ability to deliver good service to its members. She and Danielson planned to use a large portion of
their capital to fund the development of this technology platform.
Financing the Venture
When Chase completed the plan in late 1999, she tested its viability with a group of trusted
advisors, then began the fund-raising process. Chase had been advised to seek the “smartest” money
first and use family and friends only as a last resort. Her list of prospects included professionals,
classmates, friends, and family members. In December 1999, Chase contacted Dan Holland, a venture
partner at One Liberty Ventures whom she had met socially several years earlier. He took her call
and, when she explained the concept to him over the phone, he agreed to meet with her. Holland
was intrigued by the idea, and he asked several hard questions that Chase had not yet addressed.
She did not walk away from the meeting with any money, but she felt his coaching had been
invaluable: “He asked me a lot of questions about the business model: what utilization rate was
required to cover COGS? How many cars would require an increase in staff?”
Zipcar was incorporated in January 2000. Chase and Danielson split the equity ownership of the
business equally, understanding that their respective 50% ownership stakes would be diluted by
subsequent financings.
Chase was devoting her full attention to funding the business. Besides forgoing salary, she and
Danielson funded initial expenses out of their own resources. Chase succeeded in obtaining a $50,000
“convertible loan” from a former Sloan classmate who had founded and sold her own company. It
was agreed that the loan would convert to equity when a valuation had been established by a Series
A funding round. The principal amount would accrete at 1% per month and would convert into
equity at the price per share established in the contemplated Series A financing.
Building the Technology Platform
With this money, Chase and Danielson were able to begin building the technology platform.
Chase envisioned a system that enabled the user to make a reservation online, arrive at the parked
car, access it easily, and drive off. Because members were charged a usage fee based on the hours
used and the mileage driven, she also wanted the system to capture information about when the car
was returned and the number of miles the member had driven and send this information back to a
central location for billing. The solution to these requirements was wireless transmission of data
between the car and the server in order to authorize users and to log in odometer readings, mileage,
and time stamps. Finding the right engineer for the job was not easy. After several false starts,
Danielson found a promising young MIT engineer, Paul Covell, who wrote the software for a
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proximity card reader. A card reader was installed inside the windshield of each Zipcar. Members
would be issued unique proximity cards known as Zipcards.
Chase explained how the technology would work, once implemented:
Members make their reservations online. The server wirelessly sends the reservation to the
black box in the car, telling the car when and for whom to unlock the door. When the member
presents the right card at the right car at the right time, the car unlocks, enables the starter, and
starts a billing record noting time and odometer reading. The member always uses the card to
lock and unlock the doors. The billing data is sent wirelessly back to the server, and it is billed
in real time. We have a patent filed on this technology.
Continuing the Search for Funding
As the technology platform was being developed, Chase and Danielson continued to seek more
funding for actually starting the business based on the projections they had made in their December
1999 business plan.
Chase’s first formal presentation came in late February 2000, when she was invited to present the
plan to an angel investor group called the Investor’s Circle. She worked tirelessly to put together
Zipcar’s first presentation pack. She was the final presenter of the four teams selected that day, and
when she finished, she thought there would be a deal. She recalled, “We were the pick of the bunch.
However, no money was forthcoming. Throughout the period from January through August, I kept
thinking that money was just around the corner, constantly, just around the corner.”
While the $50,000 loan had provided much-needed capital, Chase recalled that she “was often
behind and occasionally quite desperate.” The founders continued to invest and stretched payables
as long as possible. They also found ways to enlist other people who worked or advised without
charge, including Chase’s husband, who spent many hours working on the technology side.
While she was raising money, Chase was also building the infrastructure necessary to launch the
operation. She negotiated and signed contracts for Zipcar parking with large institutions and began
to bring on the management team.
Naming the Business
Chase and Danielson were convinced that it was important to choose the right name for their
business. They wanted something that would communicate the concept and its value clearly and
simply. They were also interested in developing a simple tag line that was catchy and informative. It
was very important to them that whatever name they selected have the associated domain name
available. They wanted the name to convey friendliness, convenience, ease of use, affordability, and
social value. They particularly wanted to appeal to users who considered themselves smart, forward
thinking, and environmentally responsible.
Starting Zipcar
By late May, Chase had decided to change Zipcar’s pricing model. Discussions had revealed that
some potential customers found the $300 annual fee too high a hurdle, so Chase decided to lower the
membership fee to $75 per year and implement a tiered pricing structure, raising the hourly charge
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from $1.50 per hour to between $4.50 and $7.00 per hour, depending on the parking costs associated
with the area. Chase had also decided to establish a $44 per day “maximum daily rate” as a means of
appealing to daily renters, while staying within the price umbrella established by traditional rental
car companies. Taking these different pricing plans into account, Chase assumed the company
would earn an average of $5.50 per hour per customer. Other changes to the financial model (see
Exhibit 5 for this new financial model) that had transpired as Chase got closer to actually starting the
business included:
•
Parking: It had not been as easy to secure free parking as had been originally hoped; Chase
now assumed it would cost an average of $600 per car per year for parking.
•
Attrition: Based on more analysis of trends in the turnover of Boston residents, Chase
increased the assumed attrition rate to 15% per year.
•
Lease cost: increased to $4,400 per vehicle per year.
•
Access equipment: increased to $500 per vehicle per year.
In early June, with $68 left of the original $50,000 loan, Chase needed to order the first 12 cars. She
told a new prospective investor of this need, and he agreed to a loan of $25,000 that, like the original
loan, would eventually convert to equity. Chase was able to lease the cars and meet Zipcar’s launch
schedule. On June 22, 2000, Zipcar put its first three cars on the street, with the remainder to be
deployed over the coming months. Now, the challenge was to attract members.
Marketing
Zipcar’s marketing plan relied on several low-budget tactics. Chase and Danielson expected that
approximately 30% to 40% of their marketing impact would be driven by word of mouth, another
25% by free media coverage generated through public relations, and the rest through their own grassroots guerilla marketing efforts.
Chase chose what she called an “urban hip” look for Zipcar. She consulted a designer to create
the logo, specifying that it should convey simplicity, cleanliness, a professional (but not corporate)
look with a hint of “green.” The logo they selected incorporated a “Z” tracked through a green field
(see Exhibit 6 for Zipcar logo). The logo was used on the Web site, stationery, promotional materials,
and the cars themselves. Chase deliberately omitted the logo from the driver’s side door so members
would not think of themselves as mobile advertisements every time they used the car. However, she
did place the logo on the passenger door and the trunk of each car. Bumper stickers featuring the
Zipcar logo were designed for placement on other cars; one, for example, read “My Other Car is a
Zipcar.”
Chase was consistent in her efforts to present the same image in all her marketing materials. She
rejected traditional 8 ½-inch x 11-inch trifold collateral pieces, instead choosing to develop simple but
humorous postcard advertisements for seven cents each. Zipcar distributed these postcards, which
Chase believed would stand out from the crowd. Though other members of the team pressured
Chase to print a brochure that would describe the service in detail, she recalled: “I kept pushing back.
I said that the goal was to direct potential customers to the Zipcar Web site. If they couldn’t handle
the Web, they wouldn’t be our type of members.” This strategy also kept costs down; while the
postcards remained the same, new features and new pictures could be incorporated into the Web site.
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Plexiglas mailboxes filled with the postcards were installed at each Zipcar parking location. Both
Chase and Danielson began speaking to community groups, where they also distributed the cards.
They handed them out at subway stops and placed advertisements in local papers.
The first Zipcar was a green Volkswagen Beetle, chosen to convey the “urban hip” green image the
company desired. Chase felt it was clearly distinguished from traditional rental cars and would serve
as a moving billboard. The first fleet of 12 cars consisted of six of the green Beetles, as well as six
white vehicles: four Volkswagen Golfs and two Volkswagen Passat station wagons. Chase planned
to add Volkswagen Jettas in December 2000 and Honda Civics in April 2001.
Chase believed that the Web site would be the primary interface for information and the point of
purchase for the majority of subscribers. She was willing to invest the time and money necessary to
get the Web site right. She wrote the text, organized it into categories, and developed a logical flow.
In June 2000, Zipcar got its first major press coverage. Chase commented, “It all happened very
fast and furiously. An AP reporter had seen one of our cars (it was the first beta car) and wanted to
do a story on the company. The story went national exactly at the time of the formal launch of the
company. Zipcar attracted extensive press coverage both nationally and internationally.” (See
Exhibit 7 for Associated Press article.)
Continuing the Search for Financing and Building the Management Team
Between January and September 2000, Chase had used the same convertible loan terms with
several different investors, raising an incremental $300,000 and bringing the total raised to $375,000.
Neither Chase nor Danielson had taken any salary. The major expenditures had been related to the
development of the technology platform for member services and car access. For most of those early
months, the personnel expenses were limited to a few consultants at $15 and $20 per hour and
software developers at $90 to $150 per hour. “Everything else was ‘nickeled and dimed,’” Chase
recalled.
While Chase raised money, she listened to what people were saying about the team. Chase had
never run a successful start-up before but quickly learned that “a solid team is a number one
requirement if you want to get capital.” Investors seemed to be anxious about Chase and Danielson’s
qualifications, particularly their lack of car expertise and their perceived inexperience at running
complex operations.
On the advice of a former professor, Chase began to look for someone who could bring that
expertise and credibility to the team. Following up on a strong referral from a prospective board
member, Chase and her advisors interviewed a man whose experience and age they hoped would
bring more industry credibility. He was named president, Chase became CEO, and Danielson was
named vice president of environmental affairs and strategy.
The new president would draw no salary until the financing came through, then he would receive
a bonus roughly equivalent to back pay. The honeymoon period was brief. Chase recalled the many
problems:
Our mistake: hiring a big-company guy for a start-up. He spent a lot of money in lunches
and parking, created huge lists and detailed tasks and procedures that were 25% out of date by
the time they hit my desk and 50% out of date by the following day. He was used to working
at a much later-stage company where the goal was to put procedures in place and follow them
strictly.
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Zipcar: Refining the Business Model
Chase decided to act swiftly. She called on all of her advisors and legal counsel then took the
necessary steps to sever the relationship in July 2000. She noted, “Letting him go was absolutely one
of the hardest things I have ever had to do in my life. But he was truly the wrong guy for the job, and
we had to cut our losses as quickly as possible.”
The relationship between Chase and Danielson was also continuing to evolve. Chase was now
CEO and Danielson remained vice president of environmental affairs and strategy. Chase was full
time, while Danielson had not yet committed to the business full time. Indeed, she worked part time
at Zipcar while continuing to hold her full-time job at Harvard and take care of her son after school.
Danielson was due to give birth to her second child in late November, and Chase wondered how
likely it was that Danielson would be able to commit full time to Zipcar soon.
Progress
By mid-October of 2000, Zipcar had spent the approximately $375,000 that Chase had raised from
angel investors, family, and friends. Chase had further developed Zipcar’s technology platform, filed
a patent on the technology, deployed vehicles at parking locations throughout the city, and enlisted
nearly 250 members. Demand for the service had led Chase to increase the number of vehicles, from
the planned dozen to 19 by month’s end (see Exhibit 8a for Zipcar membership acquisition data).
This was several more cars than Chase believed she truly needed to service the existing level of
membership, but she believed it was important to get cars widely distributed to the target locations.
When Zipcar was launched in June, the complete technology platform had not been ready, but
Chase and Danielson had decided to launch anyway, deploying a more primitive solution. Chase
said, “We didn’t have the wireless access ready, and we decided to deploy a system that allowed any
Zipcard to open any Zipcar, and the keys were then left in the glove compartment.” Records were
kept on paper driving logs by the members, and Chase and her colleagues visited each vehicle once a
month to retrieve and record this data for billing purposes.
Chase recalled the difficulty of deciding exactly when to open the doors for business:
We never felt we were quite ready to open. The technology wasn’t perfect; we didn’t have
all the parking deals negotiated. And, we certainly did not have the funding we wanted.
People said, “So, put it off a month, no one will care.” I just kept thinking about all the people
I had talked to and told we were going to open in May, and I knew that investors would
perceive us differently once we were in business and had revenue. So, I just kept pushing to
get off the ground as soon as we had the bare minimum in place.
Growth Prospects and the Continued Search for Funding
While the $375,000 had allowed Chase to start the business, she believed that it would take an
additional $1.3 million or so to really prove the Boston market’s viability. This funding would be
used to finish development of the technology, prove the business model, and better understand
demand.
Moreover, she believed that Boston not only provided an ideal location to prove the business
model but also offered an attractive opportunity for growth. As she further analyzed the Boston
market, she determined that there were approximately 15,000 people who fit the Zipcar user profile.
She believed it might be possible to reach at least 10,000 of them by year five. Finally, Chase believed
that Zipcar’s success in Boston could be replicated in at least 14 other cities nationwide.
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Zipcar: Refining the Business Model
803-096
Assuming Zipcar would be able to raise $1.3 million quickly, Chase believed she would be back
on the street in six to nine months raising expansion funds. She knew she could create strong
network effects by increasing usage within a single market, but Chase was anxious to begin claiming
other major markets on the East Coast and possibly in the Midwest.
In the few days following the end of September, Chase worked hard to collect the month’s
operating and financial data. She was eager to better understand the operating and financial
parameters of the business as well as customers’ actual usage patterns. (See Exhibit 8b for details of
September usage and revenue.)
Chase was also beginning to get a handle on operating and overhead costs. She explained:
At the variable cost level, lease costs were actually coming in a bit higher than anticipated—
$4,800 per vehicle per year. As we got bigger, the car companies thought we were a bigger
risk. They look at one person leasing one car, and they can manage that risk pretty well. But,
when we started leasing 10 or a dozen cars, all of a sudden we are a big credit risk, and they
needed to price the lease at a premium. Parking was coming in more expensive also—about
$750 per car per year. And, our fuel bills are running about 10% higher than expected. The
other expenses are coming in about where expected, on a per-car basis.
Overhead is more difficult to think about. We invested about $200,000 in what I would call
pure start up-costs—the technology, legally incorporating, naming the business. And, I would
estimate that our overhead is now running about $44,000 per month. As I analyze that figure, I
am allocating $30,000 per month of that figure to corporate overhead, meaning activities that
we would be funding whether we were in one or many cities: legal, Web site design, overall
design, and development of technology and marketing materials. And, $14,000 per month is
the Boston-specific overhead.
On the marketing side, we have succeeded in keeping pretty close to budget, spending
between $1,000 and $1,500 per month, or about $7,300 so far. People have been amazed that
we have kept marketing this low. The key has been incredible, free publicity; advertising
generated by the cars; brochures, which we put wherever we park a car; and just great word of
mouth. Basically, we had no money, so this forced us to be incredibly disciplined. I knew we
had to prove the business model, and showing we could acquire customers at a reasonable cost
was a very important part of that.
Meanwhile, the Springboard 2000 New England venture forum was approaching quickly. By the
end of October, Chase needed to have developed as effective a presentation to the Springboard
conference as possible.
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803-096
Zipcar: Refining the Business Model
Exhibit 1
Economics of Individual Car Ownership
Monthly Expenditures
Monthly Costs
Vehicle depreciation/Lease
Insurance
Parking
Gas
Maintenance
$270
99
125
45
36
Total
$575
Source: Casewriter analysis based upon company data.
Exhibit 2
Population of Top 20 U.S. Markets
City
1 Los Angeles–Long Beach
2 New York
3 Chicago
4 Philadelphia
5 Detroit
6 Washington, D.C.
7 Miami–Ft. Lauderdale
8 Boston
9 Minneapolis–St. Paul
10 St. Louis
11 Baltimore
12 Anaheim–Santa Ana
13 Pittsburgh
14 Seattle
15 Cleveland
16 Newark
17 San Francisco
18 San Jose
19 Milwaukee
20 Bergen–Passaic Counties, N.J.
TOTAL
Source:
Population
(millions)
Households
(millions)
Density
per sq. mile
8.9
8.5
6.0
4.9
4.4
3.9
3.2
2.9
2.5
2.5
2.4
2.4
2.0
2.0
1.8
1.8
1.6
1.5
1.4
1.3
3.42
3.27
2.31
1.88
1.69
1.50
1.23
1.12
0.96
0.96
0.92
0.92
0.77
0.77
0.69
0.69
0.62
0.58
0.54
0.50
2,183
7,447
3,221
1,380
981
989
1,012
1,631
487
458
913
3,052
604
468
1,211
1,495
1,579
1,159
996
3,049
65.9
25.35
U.S. Census, , accessed
December 9, 2002.
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Zipcar: Refining the Business Model
Exhibit 3
803-096
Original Financial Plan for Boston, December 1999
Assumption
(per unit)
YEAR 1
YEAR 2
YEAR 3
YEAR 4
YEAR 5
Revenues
Trips/member/month
miles/trip
hours/trip
Beginning Members
Attrition
Ending Members
New Members
Avg # of Members
4
22
4
0
0
440
440
220
440
22
856
438
648
11,000
66,000
92,928
63,360
66,000
2,640
235,928
10,950
194,400
273,715
186,624
194,400
7,776
673,465
2,370
7,935
1,875
264,600 313,200 356,400
372,557 440,986 501,811
254,016 300,672 342,144
264,600 313,200 356,400
10,584
12,528
14,256
904,127 1,075,321 1,216,486
0
24
12
48,000
4,800
12,960
20,400
4,800
0
90,960
24
48
36
144,000
14,400
38,880
61,200
14,400
0
272,880
48
50
49
196,000
19,600
52,920
83,300
19,600
0
371,420
50
66
58
232,000
23,200
62,640
98,600
23,200
0
439,640
66
66
66
264,000
26,400
71,280
112,200
26,400
0
500,280
800
2,895
100,000
20,000
0
1,000
1,200
125,895
800
3,160
100,000
20,000
0
1,000
1,800
126,760
800
12,000
100,000
20,000
5,000
1,000
1,800
140,600
800
6,000
100,000
20,000
5,000
1,000
1,800
134,600
800
7,000
100,000
20,000
5,000
1,000
2,500
136,300
5,280
24,000
4,800
0
1000
1,200
10,000
8,800
55,080
15,552
24,000
24,780
0
1000
1,800
12,000
8,760
87,892
21,168
24,000
24,780
5,000
1000
1,800
12,000
1,896
91,644
25,056
24,000
24,780
5,000
1000
1,800
12,000
6,348
99,984
28,512
24,000
24,780
5,000
1000
2,500
12,000
1,500
99,292
Total Overhead Costs
180,975
214,652
232,244
234,584
235,592
Net Income Before Tax
-36,007
185,933
300,463
401,097
480,614
Application fee (per new member)
Annual fees (per avg member)
Per mile charge
Per hour charge
Security Deposits (avg. balance)
Interest income (on avg. sec. dep. balance)
Total Revenue
Costs
Variable Costs / Car
Beginning Cars
Ending Cars
Avg # of Cars
Lease Cost (car/year)
Access equip. (car/year)
Fuel (car/year)
Insurance (car/year)
Maintenance (car/year)
Parking (car/year)
Total Variable Costs
Fixed costs – Corp. level
Corporate insurance
Reservation system
Administration – Corp.
Benefits
Office Space
Office equip. & supplies
Phone
Total Corp. Overhead
Fixed costs – Boston Office
Billing (member/year)
Administration – local
Benefits
Office space
Office equip. & supply
Telephone and Datalines
Marketing
Background checks (per new member)
Total Boston Overhead
Source:
0.05
25
300
0.4
1.5
300
4%
4,000
400
1,080
1,700
400
0
20%
24
20%
20
856
42.8
908
94.8
882
908
45.4
1180
317.4
1,044
1180
59
1196
75
1,188
Company.
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803-096
Zipcar: Refining the Business Model
Exhibit 4
Zipcar Driver Requirements
1.
No more than two incidents (moving violations plus accidents) in the past three years and no
more than one in the past 18 months.
2.
No major moving violations:
•
•
•
•
•
•
Source:
Excessive speed (20+ MPH over speed limit)
Operating to endanger, reckless driving, etc.
Driving under the influence of alcohol or drugs
Leaving the scene of an accident involving property damage
Operating a motor vehicle with a suspended or revoked license
School bus stopping-flag violations (or similar) in the past three years
Company.
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Zipcar: Refining the Business Model
Exhibit 5
803-096
Revised Financial Plan for Boston, May 2000
Assumption
(per unit)
YEAR 1
YEAR 2
YEAR 3
YEAR 4
YEAR 5
Revenues
Trips/member/month
miles/trip
hours/trip
Beginning Members
Attrition
Ending Members
New Members
Avg # of Members
Application fee (per new member)
Annual fees (per avg member)
Per mile charge
Per hour charge
Security Deposits (avg. balance)
Interest income (on avg. sec. dep. balance)
Total Revenue
Costs
Variable Costs / Car
Beginning Cars
Ending Cars
Avg # of Cars
Lease Cost (car/year)
Access equip. (car/year)
Fuel (car/year)
Insurance (car/year)
Maintenance (car/year)
Parking (car/year)
Total Variable Costs
4
22
4
0.15
25
75
0.4
5.5
300
4%
0
0
440
440
220
440
66
856
482
648
856
128.4
908
180.4
882
908
136.2
1180
408.2
1,044
1180
177
1196
193
1,188
11,000
12,050
4,510
10,205
4,825
16,500
48,600
66,150
78,300
89,100
92,928 273,715 372,557 440,986 501,811
232,320 684,288 931,392 1,102,464 1,254,528
66,000 194,400 264,600 313,200 356,400
2,640
7,776
10,584
12,528
14,256
355,388 1,026,429 1,385,193 1,644,483 1,864,520
0
24
12
52,800
6,000
12,960
20,400
4,800
7,200
104,160
24
48
36
158,400
18,000
38,880
61,200
14,400
21,600
312,480
48
50
49
215,600
24,500
52,920
83,300
19,600
29,400
425,320
50
66
58
255,200
29,000
62,640
98,600
23,200
34,800
503,440
66
66
66
290,400
33,000
71,280
112,200
26,400
39,600
572,880
800
2,895
100,000
20,000
0
1,000
1,200
125,895
800
3,160
100,000
20,000
0
1,000
1,800
126,760
800
12,000
100,000
20,000
5,000
1,000
1,800
140,600
800
6,000
100,000
20,000
5,000
1,000
1,800
134,600
800
7,000
100,000
20,000
5,000
1,000
2,500
136,300
5,280
24,000
4,800
0
1000
1,200
10,000
8,800
55,080
15,552
24,000
24,780
0
1000
1,800
12,000
9,640
88,772
21,168
24,000
24,780
5,000
1000
1,800
12,000
3,608
93,356
25,056
24,000
24,780
5,000
1000
1,800
12,000
8,164
101,800
28,512
24,000
24,780
5,000
1000
2,500
12,000
3,860
101,652
Total Overhead Costs
180,975
215,532
233,956
236,400
237,952
Net Income Before Tax
70,253
498,417
725,917
904,643 1,053,688
Fixed costs – Corp. level
Corporate insurance
Reservation system
Administration – Corp.
Benefits
Office Space
Office equip. & supplies
Phone
Total Corp. Overhead
Fixed costs – Boston Office
Billing (member/year)
Administration – local
Benefits
Office space
Office equip. & supply
Telephone and Datalines
Marketing
Background checks (per new member)
Total Boston Overhead
Source:
4,400
500
1,080
1,700
400
600
20%
24
20%
20
Company.
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803-096
Exhibit 6
Zipcar: Refining the Business Model
Zipcar Logo
Source: Company.
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Zipcar: Refining the Business Model
Exhibit 7
803-096
Associated Press Article
Car Sharing on Rise
By Heidi B. Perlman—The Associated Press
Sunday, June 25, 2000
BOSTON — It took only a month for the traffic jams, insurance costs and parking woes of
Cambridge to convince Katherine Watkins to sell her car when she moved from Kentucky.
But after two years riding the bus and taking cabs, she finally broke down and got a car again.
Sort of.
Watkins is a new member of Zipcar, a service that allows her to share a car with more than a
dozen other people for $4.50 an hour.
”My cat was sick and I had to bring her to the vet, and it was just too much to do in a cab,” she
said. ”I finally decided I really do need a car, just not all the time.”
Zipcar, based in the Boston suburb of Cambridge, caters to drivers such as Watkins, who like the
convenience of having a car but don’t like what it costs to maintain one in the city.
”Some people don’t need a car about 85 percent of the time,” said co-founder Robin Chase. “But
they have to buy a whole car just to fill that tiny need. Those are the people we want to come to us.”
Zipcar, which opened this spring, is the first car-sharing service in Massachusetts. Here’s how it
works:
The company owns and insures all the cars. Members get cards or keys to get into the cars, which
are parked at a designated spot. Reservations can be made online or over the phone, and the only
rule is to get the car back on time. If the car is already booked, members either have to take an
alternate car, or wait until the car they usually drive is available. Members can fill the gas tank with a
company credit card.
Zipcar charges a $20 late fee, and drivers who are consistently late lose their membership.
The annual membership is $75 a year, plus a $300 deposit. Each use costs $4.50 an hour and 40
cents a mile. Fees at other companies range from less than $2 an hour to up to $9.
That can get pricey for people who drive long distances, or take the car for an overnight trip,
Chase said. But for people who just need to go to the grocery store, a doctor’s appointment or visit a
friend out of town, car sharing may be cheaper than renting a car.
At Budget Rent-A-Car, which pledges ”low daily and weekly rates,” a rental car in Boston costs
about $45 a day. Other companies charge between $40 and $50 a day, plus additional charges for
mileage and insurance.
The idea of car sharing was spawned in Switzerland in 1987, when Mobility CarSharing put its
first car on the road in the traffic-congested city of Lucerne. The company now has 1,300 cars at 800
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803-096
Zipcar: Refining the Business Model
locations around Switzerland, and serves more than 33,000 customers, according to the company’s
Web site.
The Swiss company’s success was duplicated in big cities in Austria, France, Sweden and
Germany, and the idea spread overseas to Canada in 1995.
The first American car-sharing company opened in Portland, Ore., in 1998. Others are in Seattle,
San Francisco and Washington, D.C.
”People come to us who don’t need to drive to work every day,” said Maren Souders,
spokeswoman for Carsharing Portland Inc. ”They all work from home or ride their bikes, but every
now and then need a car to get somewhere fast.”
Right now the company has just one lime green Volkswagen Beetle, which is parked in a garage in
Cambridge. A second Bug will soon be available in Boston’s posh Beacon Hill neighborhood.
”You might get in each time and find the preset radio stations have been changed,” he said. ”But
otherwise, people will find it’s just like having your own car.”
Chase said she is optimistic her company will see the same kind of success in Boston and
Cambridge as other car-sharing companies have around the country.
In Seattle, for example, Flexcar opened in January with just four cars. It now has 12 cars and 350
members, said spokesman Ref Lindmark.
”I hear people talking all the time about how they couldn’t get somewhere by subway, or how
long they spent on the bus, or that parking was awful in the city,” she said. ”I think this fills a need
that hasn’t been met in Boston yet.”
Watkins agreed.
”It’s a relief not to have a car anymore,” she said. ”But it’s also a relief to know if we need one, it’s
there.”
Source:
Copyright © 2000 The Associated Press. All rights reserved. The information contained in
the AP News report may not be published, broadcast, rewritten or redistributed without the
prior written authority of The Associated Press.
18
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Zipcar: Refining the Business Model
Exhibit 8a
Zipcar Membership Data, 2000
Beta
June
July
August
September
Source:
803-096
New
Members
Attrition
Ending
Members
14
20
49
64
101
0
0
3
3
3
14
34
80
141
239
Company.
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803-096
Zipcar: Refining the Business Model
Exhibit 8b
September Operating Data
Note: Zipcar offered a daily rate of $44 for 24 hours, which included 125 free miles.
In the table below, these uses, as well as the hours and miles associated with them,
are broken out and described as “daily” uses. The other uses – and their miles,
hours and revenues – are described as “hourly” uses.
Overhead Expenses
Boston
Corporate
14,000.00
30,000.00
Applications & Membership
Beginning members
Applications
Applications Approved
New members
Attrition
Ending Members
a
Total “member days”
Application Fees
Annual Member Fees received
b
Annual Member Fees “booked”
141.00
112.00
105.00
101.00
3.00
239.00
5,088.00
2,800.00
7,575.00
1,512.00
Deposits
Deposits received in September
Total deposit balance month end
Average deposit balance
Interest earned on total deposits
42,300.00
71,700.00
42,090.00
155.00
Usage
a
Available “car days”
Total trips taken (uses)
hourly uses
daily uses
Total miles driven
miles driven – hourly uses
miles driven – daily uses
Total hours used
hours used – hourly uses
hours used – daily uses
c
Trips – night & wekend %
c
Hours of use – night and weekend %
439.00
335.00
218.00
117.00
16,339.00
5,341.00
10,998.00
3,223.00
1,351.00
1,872.00
60.00%
53.00%
Revenues
Total miles billed
miles billed – hourly uses
miles billed – daily uses
Total hours billed
hours billed – hourly uses
hours billed – daily uses
Total mileage revenue
mileage revenue – hourly uses
mileage revenue – daily uses
Total hourly revenue
hourly revenue – hourly uses
hourly revenue – daily uses
Total usage revenue
revenue from daily uses
revenue from hourly uses
5,765.00
5,341.00
424.00
2,287.00
1,351.00
936.00
2,276.00
2,106.40
169.60
12,368.50
7,220.50
5,148.00
14,644.50
5,317.60
9,326.90
Source:
Company.
aMember days = the total number of members on any given day for each of the 30 days of the month, e.g., a member for a full
month generates 30 member days. Similarly, a car day is one day of one car being in service.
bWhile Zipcar members paid a $75 annual membership fee upon joining, only 1/12 of that fee was “booked” to revenue each
month.
cNight and weekend = 6 p.m. to 8 a.m. and all day Saturday and Sunday.
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