Date: Wednesday, September 14, 2005
To: GSBM Ventures
From: Angela Copeland, Pepperdine MBA Consultant
Re: Strategic Direction for Zipcar
Memo
Zipcar faces many important strategic decisions ahead as they begin to open and expand
their business. Clearly Zipcar faces a problem that most startups encounter: they need to
continue to refine their business model. Their original business plan was crafted using
assumptions and comparisons to a European market that should be revised using the
hands on experience that they have now gained. The future of Zipcar will only be
securely buckled in when the model being used in operations reflects the environment
being encountered on the street.
Multiple factors should be evaluated when determining the best business model and
strategy to use for Zipcar. These options will be reviewed below and should be weighed
carefully before a conclusion is determined. To do this effectively, the business’ history,
potential issues, and lessons learned should be reviewed first.
Copeland Analysis 1: Zipcar
History of Zipcar
The idea for Zipcar began in 1999 when Antje Danielson approached Robin Chase with
her new idea for a start up – car sharing. Danielson had observed the concept of car
sharing on a vacation in Germany, which she noted was a trend throughout Europe.
Chase agreed to partner with Danielson and they began to develop their business plan and
to seek funding for it.
Lessons Learned:

One issue that Chase and Danielson faced from potential investors was the fact
that neither of them had much real world experience in the automotive industry or
with running a “complex operation.” They learned that the core team, in addition
to the potential investors’ perception of that team, is key to getting support and in
turn, funding for a new venture.
Financing the Plan
Eight months after first developing the idea for Zipcar, Chase began to rethink her
business model. Through additional research, she learned that she would not be able to
obtain free parking. She also learned that customers would not be willing to pay a high
annual fee, but would be willing to pay more per hour. Last, she found that her vehicle
costs would be higher than originally anticipated. Although Zipcar received multiple
loans in the beginning, they struggled to find an additional $1.3 M in financing.
Lessons Learned:

While Zipcar offered a service that was previously almost non-existent in the
U.S., the lack of focus on customer feedback prevented them from fully
2
Copeland Analysis 1: Zipcar
understanding the public perception and therefore, the customer value of such a
service.

Multiple revenue streams are an important part of setting up a start up. They help
to distribute risk more evenly, thus creating a more stable operation.
Zipcar Technology
In order to fully implement Zipcar’s vision and goals, its founders developed new
technologies, which they intended to patent. Although this advanced system would have
allowed the Zipcar model to integrate more seamlessly, the founders started the business
without the initial technology in place.
Lessons Learned:

Technology that is not delivered on time does not help to accomplish the
company’s goals. The patent pending technology is what allows Zipcar to operate
in a customer-centric way, while keeping costs low.

Although there is a desire to begin a new venture as quickly as possible, there are
also many rewards for the company that does their homework. Customers would
have had an overall more positive first impression of Zipcar if they had waited to
launch until their technology was more solidly in place.
Cost Drivers
In order to create a convenient and easy to use service, Chase included gas, parking,
insurance, and the car lease in Zipcar’s rental fee. These costs are mainly all variable and
3
Copeland Analysis 1: Zipcar
all considered Zipcar’s cost drivers. As Chase developed the business model, she often
had to adjust overall costs as she understood more about the cost drivers.
Lessons learned:

Cost drivers are an important part of the overall business model. It is very
important that cost drivers are fully understood and that options are explored to
help keep them as low as possible.
The Founder Effect
When a new venture is set in motion, the founding members have high expectations;
however these often come with compromises. For example, the two founders of Zipcar
declined to take a salary in its early years, but if these compromises are not made, the
company would suffer. Although Danielson did come up with a strong business idea, she
was not always prepared to make sacrifices in her work or personal life.
Lessons Learned:

In order to be successful navigators of a new business, each founder must agree to
set the business as a top priority. As commitments within the business grow, new
responsibilities may need to be defined. If not all parties can agree to meet their
portion of the responsibilities, a renegotiation process must take place, so that
everyone is in agreement and the best interest of the company are kept in mind.
4
Copeland Analysis 1: Zipcar
Current Venture Status
Working virtually by herself, Chase has made large strides to push the business forward.
She has almost single handedly developed a business model, secured funding, and taken
care of daily operations. With this in mind, Chase’s experience alone is not enough to
bring this business to its full potential. To continue to expand the business, Chase should
consider the following analysis.
Operations and the Business Model
The September actual operating data paints a detailed picture of the validity of the
business model. Overall, the September operations have exceeded expectations, but there
are multiple factors to consider that are described below. In addition, Figure 1 has been
used to project Year 1’s operating data based on September’s actual operating data.

There has been less attrition than originally projected. The original attrition
estimate described in May was 15%, but September’s actual data showed this
number to be less than 3%.

The original estimate of the total number of members in Year 1 was 440. The
new estimate (based on September data) shows that the actual number of
members could have the potential to exceed 2,500. This would result in a
membership rate of 650% of what was originally anticipated.

The total number of trips that each member is taking per month is approximately
1/3 of that originally estimated. However, each individual trip is much longer in
both time and miles. The number of miles per trip was estimated at 22, but the
5
Copeland Analysis 1: Zipcar
actual number of miles per trip was approximately 49. The total number of hours
per trip was estimated at 4, but the actual number of hours was 9.6.
It is clear that although the business model did not fully anticipate every outcome that
occurred, the venture was still very successful. All results exceeded the expectations
originally set fourth in the initial estimates.
6
Copeland Analysis 1: Zipcar
Overhead Expenses
Boston
Corporate
14,000.00
30,000.00
Year 1 (Based on Sept.)
168,000.00
360,000.00
141.00
112.00
105.00
101.00
3.00
239.00
5,088.00
2,800.00
7,575.00
1,512.00
1,692.00
1,344.00
1,260.00
1,212.00
36.00
2,868.00
61,056.00
33,600.00
90,900.00
18,144.00
Deposits
Received in Sept
Total at month end
Ave deposit balance
Interest earned on total deposits
42,300.00
71,700.00
42,090.00
155.00
507,600.00
860,400.00
505,080.00
1,860.00
Usage
Available "car days"
Trips taken (uses)
hourly
daily
Total Miles Driven
hourly
daily
Total Hours Used
hourly
daily
Trips - nights & weekend %
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%
5,268.00
4,020.00
2,616.00
1,404.00
196,068.00
64,092.00
131,976.00
38,676.00
16,212.00
22,464.00
720.00%
636.00%
Revenues
Total miles billed
hourly
daily
Total hours billed
hourly
daily
Total mileage revenue
hourly
daily
Total hourly revenue
daily
hourly
Total usage revenue
daily
hourly
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
69,180.00
64,092.00
5,088.00
27,444.00
16,212.00
11,232.00
27,312.00
25,276.80
2,035.20
148,422.00
86,646.00
61,776.00
175,734.00
63,811.20
111,922.80
Applications & Membership
Beginning Memberships
Applications
Applications Approved
New members
Attrition
Ending Members
Total "Member Days"
Application Fees
Annual Member fees received
annual member fees booked
Sept.
Figure 1: Projected year 1 operating data based on actual September operating data
7
Copeland Analysis 1: Zipcar
Suggested Actions
As a result of the September operating results described above, Chase has many
important factors to consider in order to drive Zipcar into first place. Each must be
carefully weighed, to understand which will most fully support the goals and the future of
Zipcar.
Critical success factors for Zipcar include:

Acquisition and retention of knowledgeable leadership and staff

Implementation of the developed Zipcar technology

Ability to appeal to a financially savvy and environmentally conscious customer
Options that Zipcar should consider in order to achieve these success factors include:

Advisory Board: Create an increased knowledge base through the creation and
development of an advisory board.

Pricing Structure: Increase revenue by changing the pricing structure to reflect a
customer that uses the cars less often, but for longer periods of time. Included
would be an increase in the daily rental rate. In addition, the number of free miles
should be reduced. As shown in Figure 2, a $44 price ceiling with 125 included
free miles creates little incentive for the customer to use the car for only small
increments of time – it is much cheaper for the customer (per hour) to borrow the
car for 24 hours.
8
Copeland Analysis 1: Zipcar
Per Hour # Hours Per Mile # Miles
Price
5.5
1
0.4
125
55.5
5.5
2
0.4
125
61
5.5
4
0.4
125
72
5.5
6
0.4
125
83
5.5
8
0.4
125
94
5.5
10
0.4
125
105
5.5
12
0.4
125
116
5.5
14
0.4
125
127
5.5
16
0.4
125
138
5.5
18
0.4
125
149
5.5
20
0.4
125
160
5.5
22
0.4
125
171
5.5
24
0.4
125
182
Figure 2: This figure displays the theoretical price to use a Zipcar if there were no price ceiling,
assuming a rate of $5.50 per hour and $.40 per mile for 125 miles (the number of free miles included
with a 24 hour rental)

Technology: Maximize the business by deploying Zipcar’s patent pending
technology in its cars. This will increase communication and customer
satisfaction. It will also keep the cost of operating Zipcar low.

Revenue Sources: Minimize risk to Zipcar by continuing to pursue multiple
revenue streams. In addition, focus on increasing this revenue quickly, to enable
Zipcar to grow at a more rapid pace than originally anticipated. This revenue is
especially needed to implement the technology described above.

Cost Drivers: Understand Zipcar’s costs through the exploration of cost drivers
such as gas, insurance, and parking. Then, research ways to reduce these cost
drivers.

Partnerships: Lower Zipcar’s cost drivers and increase their member base by
utilizing partnerships. One example includes a partnership with specific parking
companies in order to lower the overall cost of parking. Another partnership
9
Copeland Analysis 1: Zipcar
example is to market toward universities, environmentally friendly groups, and
young professional groups in order to increase overall membership and
awareness.

Customer Feedback: Utilize customer feedback to not only retain customers,
but to continue to develop a strong brand and a strong business.
Of all of these opportunities, the most important one for Zipcar to focus its energy on is
the development of technology. In order to continue to grow the business at the rapid
rate reflected in September, the technology piece must be implemented in the cars ASAP.
In contrast, if Zipcar continues to use the hand written honors system that they launched
with in September, they will have a higher rate of customer dissatisfaction, a decrease in
company communications, and therefore an overall lower level of success.
Key Opportunity
Chase’s one key opportunity to ensure that Zipcar is a successful venture is to replace
her co-founder. The company not only needs someone who is committed to the
organization and will provide leadership and guidance, but also someone with more
practical experience. Because Danielson developed the original idea for Zipcar, Chase
should compensate her by buying out Danielson’s shares in the company. In her place,
Chase should hire an experienced professional whose strengths complement those of
Chase. For example, ideally she should consider an individual with superior leadership
skills who has prior experience in automobile leasing and start ups. In order to attract
someone of this caliber, Chase will need to offer them revenue sharing as part of their
10
Copeland Analysis 1: Zipcar
overall compensation. In addition, Chase should be up front about her concerns such as
keeping costs low and not wasting money on high priced items or meals. This will help
Chase to not only avoid mistakes of the past, but to accelerate her to the finish line.
11