The following excerpt is from the book Breakthrough Entrepreneurship, now available in paperback.
"This is the elevator pitch that I have given probably close to a thousand times," Robin Chase told an interviewer who asked her to describe Zipcar's business:
"Zipcar parks cars throughout dense metropolitan areas and university towns. You make a reservation online or by telephone for a very specific car in a specific location, and that reservation is sent wirelessly to the car. You hold your membership card on a spot in the windshield, and that unlocks the door, enables the ignition, and opens the billing record. People drive roundtrip and park back in that same reserved parking space. The billing record is closed, and you are all done."
That sounds pretty sensible now that it exists. But what steps did Chase take to go from a casual conversation about an interesting idea to building a real company? She had a few mentors and peers that she could turn to, which certainly helped--a classmate who had started a company, for example, and a professional investor she'd met at a social function. Beyond that, she was starting from scratch. How did she make it happen?
It worked because Chase was methodical, because she followed the good structural advice of people who'd succeeded before her, and because she intuitively understood the forces of creative destruction. We've found after researching hundreds of these stories that the practical steps logically self-organize into seven components. (In fact, if another pair of co-authors had come up with them, they might have been called the Seven Habits of Highly Effective Entrepreneurs.)
1. Find and fill an important unmet customer need.
2. Plan for profitability.
3. Strive for sustainability.
4. Establish credibility.
5. Gather necessary resources.
6. Lead and manage effectively.
7. Maintain balance and learn to enjoy the ride.
In this excerpt, we'll cover the first step using Zipcar as a case study.
Find and fill an important unmet customer need
If you find yourself lost at any point as you're planning, launching, or running a venture, the solution is always to let the customer be your compass. From the very start with Zipcar, Chase focused on figuring out who her customers were and how her idea for a company could help satisfy their needs--even needs they didn't recognize they had.
"There really was a light bulb that went on in my head when my partner said, 'What do you think of this idea?'" Chase told us. "I, personally, as a user, would want to do it."
That last sentence is important. Chase recognized that she was probably her ideal customer--an urban, cost-conscious consumer who didn't like the hassles of car ownership but who wanted the freedom to travel by automobile when she needed to. That gave her an instinctive sense of what similar customers' real needs might be. She talked about providing customers an easier way to access a car and also giving them freedom--things she craved herself.
Moreover, we can easily identify at least three strategies that Chase used in coming up with the idea for Zipcar that we find over and over in other extraordinary entrepreneur case studies. For example, you might observe that Chase:
- Adapted a successful ideafrom another market to one she understood: in this case, from Germany to the United States.
- Cross-pollinated between two or more ideas: car sharing, the Internet, and mobile technology, which turned out to be integral to the company's development.
- Identified a niche marketthat wasn't being served: city dwellers who wanted to save money, cared about the environment, only needed to drive sporadically because they had access to public transportation, or didn't particularly like driving or owning cars.
Customer needs don't have to be overt or practical. Maybe some customers want to seem environmentally conscious just as intently as they want to be environmentally conscious. Chase's company might offer the experience of being a Zipcar member as much as the practical benefits of joining.
Bottom line, Chase didn't need to dream up the entire concept of a car-sharing service. She could look at what was working in Europe, consider how the American market might be similar or different, and think as well about how recently developed technology could improve the business over what was being done elsewhere.
Want to learn more about the proven framework for building brilliant new ventures? Check out the book.
Unformatted text preview: Case Analysis: Zipcar Zipcar l . . -‘ Introduction: Zipcar is a car sharing company that was founded in 1999 by Robin Chase and Antje Danielson. Chase graduated with an MBA from MIT, while Danielson received her Ph.D. from Harvard University. The two them worked together to establish a company that would provide short-term, on- demand use of private cars in urban areas. Zipcar was first introduced in Boston and has now reached to 52 cities throughout the United States and parts of Europe. \___j ’ q M +1 Ma % a . Industry Analysis: Barriers to entry: In the car sharing industry, the threat of entry is fairly low. There are a few important entry barriers that prove to be difﬁcult for new companies to start up in the industry. Those companies that have already been established have an advantage because these industries have local relationships which enable them to operate at lower costs and more competitively. With local relationships, the pre-established organizations have access to better lot locations. This makes it harder for later entrants to compete. For new entries into this industry, there is a long period before proﬁt is seen. The main problem is capital, but economies of scale and local relationships can prove to make new entrants struggle Case Analysis: Zipcar in the business. These companies do not have the recognition or the power to be as appealing to the w expand to car—sharing. 4) F“! by moi” Supplier Power: Suppliers in this industry have relatively low amounts of power. Because of the wide range of car manufacturers, car sharing companies have the ability to shop around and ﬁnd a supplier that best ﬁts their needs. The same applies for the insurance companies that car sharing companies must deal with. Places in cities that are ideal for this have very limited space, which allows the people who own potential parking areas to hold some power over the industry. There is a mild threat of forward integration. Car companies already have a large amount of the capital need to start a car sharing company which gives them an option to forward integrate. Overall, suppliers hold low power over the car sharing industry. / Buyer Power: In the car sharing industry, the main buyers consist of people who need a car for occasional errands, appointments, or for short trips. There are many alternatives such as trains, buses, subway, carpooling, taxis, etc that the buyers, or members, could choose. Because buyers have many options and are not reliant on this industry, they have substantial power in the relationship. The industry has to create noticeable advantages to draw buyers away from established forms of transportation. When it comes to the speciﬁc industry of car- sharing, buyer power decreases as there are only a small handful of companies to work through. Overall the buyers have a reasonable amount of power. / Case Analysis: Zigcar Substitutes: The level of substitutes is quite high in the car sharing industry. People have many options when it comes to forms of transportation. Apart from car sharing one may choose to use public transportation, especially in urban locations. Other alternatives include renting out a car or even buying your own personal vehicle. For those environmentally ﬁiendly people, walking or biking is other possible alternatives. / Industry Overview/ Industry Rivalry: The car sharing industry is a relatively young industry which shows a lot of room for potential growth. The concept of car sharing started in Europe in the late 1980s. Around the time of the start of Zipcar, the industry only penetrated .01 % of all drivers. However, even without signiﬁcant advertising, the industry was growing at an annual rate of 30% in the late 905. Predictions were made by Volkswagen which suggested car sharing revenues to reach almost $50 billion by 2007. The market that this industry would be sold to is a very large one. Millions of people live in urban areas where the concept of car sharing could be highly beneﬁcial to them. In 1999, 20 Million Americans relied on public transportation to get to work according to chase, and that number has most likely only grown. Because of how young the industry is and how large their market of buyers is, rivalry is relatively low. Companies involved have the ability to grow without facing problems with ﬁrst. Also parking in urban areas is limited and there are only so many cars that can exist until conﬂict emerges. Furthermore, the threat of car rental companies seeing the industry’s success and deciding to enter the market with little entry barriers, posses a potential spike in competition in the future. / Case Analysis: Zipcar While writing the Zipcar business plan, Chase focused on the principals of “convenience, ease of use, freedom to travel, and hassle-ﬂee ownership for urbanites.” Other big factors that contributed to the strategy were the drive to offer a cost efﬁcient service and provide an “environmentally-friendly” way to travel. Zipcar’s name is a clear reﬂection of their strategy. While choosing their name, they aimed for something that conveyed their purpose. Convenience is an important policy for Zipcar. It is implemented by offering a 24 hour, seven days a week availability to any Zipcar members. Location is also offered conveniently based on the expense of parking, density of potential users, and a limited need to drive. Ideally, there is only a 5-10 minute walk to the nearest Zipcar location. Zipcar can also be found on some college campuses today. This is an important strategy for Zipcar because many college students don’t bring a car to college, or aren’t allowed to bring a car to college. This opens up a huge market that Zipcar has targeted. The technology that Zipcar uses also provides a source of convenience. A main compartment of the technology was created by an MIT student, Paul Covell. A member can easily reserve a car by using the website. In order to access the car the person needs a zipcard and it unlocks the car at your reserved time and place. This shows that the Zipcar service is worry-free and user-friendly. This removes much of the customer responsibilities and makes using Zipcar easier and more convenient. With this convenience, the ability to travel whenever an individual wants is much more opportune. At any time, a member can use the car. Individuals are not tied down by bus schedules but also do not have to experience the hassles of owning a car. Case Analysis: Zipcar Zipcar also serves as an environmentally-friendly option because sharing cars cuts down on pollution emissions. It was found that every shared car eliminates [email protected]'ivid12:lly ’- J_ W owned cars. Some cars offered by Zipcar are eco-friendly and appeal to the green population. The ﬁrst car offered was a green Beetle to further convey the green image. Zipcar will also clean up cities by not only reducing pollution, but also by clearing the streets of parked cars. Congestion is an issue that Zipcar can severely help solve. Zipcar claims that a goal of theirs is to change the thought of “congestion” to “allergies”. This means that parking problems will not occur as frequently and can be more controlled. Chase wants everything aspect of Zipcar to be considered “urban hip”. This includes the logo, website, stationery, advertisements, and the cars themselves. The green Beetle also conveyed this “urban hip” approach. Today, Zipcar offers all types of cars, but advertise with q S: . F0 0 cars such as Minis and BMWs. They also provide an electric ﬂeet of cars in San Francisco. To Ky!“ ‘ c, 1 further build on the urban strategy, Chase only provides cars in cities. Cities are the only area b, that ﬁt the requirements for a successful car sharing business because of the crowded streets and lack of parking. Chase also felt that it is important that the management team embrace the urban living style. This was displayed when Chase had to ﬁre the company president, who was a “suburban dweller”. By having this different living style, Chase felt that it didn’t allow him to share the same values as the company, and this hindered the productivity of the company. This strategy of having management comprised entirely of people who hold the same values as her makes sense, since they are serving a customer base completely of city people. Case Analysis: Zipcar Finance: Zipcar has an interesting ﬁnancial situation. Chase and Danielson have been forced to invest a lot of their own money to keep the business running and both have been operating without salary along with other employees of the company. Raising ﬁnances is one the most important aspects in developing Zipcar. The main way to increase proﬁt for the company is to increase the amount of cars on the road and to do so, signiﬁcant ﬁnances are required. Cars do not create immediate proﬁt and can take signiﬁcant time before they are operating above the red. It was smart of Chase to lease cars as appose to buy to cut down on start up cost. When the company expands, purchasing vehicles may provide an option to increasing proﬁt. Expanding to other cities also raises a need for ﬁnancing. In order for the company to reach its full potential, expanding is inevitable. In order to do so, Chase estimated a start up cost of $400,000. This is where acquiring large investors is crucial. As this company matures, they will develop ways to improve their efﬁciency and allow each car to retain a larger proﬁt. As this occurs, their incomes and net proﬁts will hopefully raise at a rapid rate. Would you invest in this company? If so, would you rather lend money or buy equity? Why? We believe that Zipcar is a good company to invest in. The young industry that Zipcar is entering is one that shows great potential for creating proﬁt. With 20 million Americans relying on public transportation in 1999, the market of buyers is large enough for Zipcar’s growth to continue without leveling off. The fact that Zipcar is the one of ﬁrst companies to tap the US market and Case Analysis: Zigcar economy suggests that many more people will look to alternatives to ordinary forms of transportation. Car sharing saw a large increase in memberships as a result of the recent increase in gas prices. As of late people have been looking for ways to save money anWaﬁng has potential to ﬁll that need for a lot of people, which is why it may be a good company to invest in. In terms of lending versus buying equity, we would suggest buying equity. Because we feel that Zipcar is tapping into a booming industry, buying equity will proved investors the best opportunity to capitalize on their success. By buying equity, the investor’s share will increase if the company does well as predicted. If the US market takes off like the European market, increasing at 30% a year, an investor who bought equity would see considerable proﬁt. Also by buying equity, investors gain a part of ownership in the company and can still have some control over how their money is spent. Of course this is a more risky route, because it is a relatively young company it cannot be guaranteed that something goes wrong and it goes bankrupt. If this were to occur, buying equity would result in a loss of investments. What speciﬁc things should she do over the next 6 months to ensure favorable ﬁnancing? Where does she need to focus her attention? In the next 6 months, it is crucial for Chase to make signiﬁcant steps towards the development of her company. She must begin with developing her main branch in Boston. It is 4/ important for her to establish a solid management team as well. Chase also needs to focus on improving the structure of her company. In addition, it will be beneﬁcial to expand to other cities that have not been introduced to this new industry. With the funds of $1 .3 million dollars from investors, Chase needs to establish her company as a signiﬁcant organization within the industry in Boston. Those who invested in Zipcar expect to see this business emerge as a leader. Chase needs to make major improvements in the way her W 5 4... can" 9/ ‘ company is run. When she ﬁred the new president, investors became weary of Chase’s capability of directing the company. One investor, who originally wanted to put forth $200,000, only invested $50,000. Chase needs to establish a core management group within the next six months. This group must prove that they are able to lead Zipcar in the right direction. Chase must also develop the structure of her company. With the $1.3 million she should look to invest in Research and Development in order to build upon the company’s foundation. Through R & D, the company must improve upon today’s technology, and ﬁnd the most efﬁcient and fail-safe way to operate the car sharing system. This technology must be tested to work without any ﬂaws. In the long run, investing in this now will save her a lot of money, and improve how her customers view the company. Another important aspect of her company is advertisement. Chase needs to continue to use the media to get the company name out there. This is free advertisement but it also works best because almost everyone is in tune with some form of media. Whether it is television, newspaper, intemet, Chase has so many options to take advantage of free advertisement. She also must invest in advertising that uses other W transportation areas as a “spokesperson”. By placing advertisements at bus stops, train stations, and gas stations, Chase is demonstrating an alternative to these forms of transportation. Finally, Chase must look to provide a variety of cars. There must be a much larger variety of cars in order to appeal to a larger market of customers. Chase promised to her investors that there would be rapid growth within her company. It is already evident that Chase must make improvements to the main branch in Boston. However, Chase must also prove that Zipcar is capable of expanding to other cities. By the end of the 6 months, Chase must start proposing to her investors a plan to start developing branches in other cities. Car sharing is a new industry. It is important for Chase to begin establishing Zipcar in 1d, 6 (IF/7w Case Analysis: Zigcar other cities before other companies take over the market. It is beneﬁcial for this company to be the ﬁrst industry in different cities because then they can establish local relationships and in become the dominant company in those cities. Chase needs to develop a research team in order to ﬁgure out which cities are best for the industry. With these proposals, Chase must inﬂuence the investors to provide more funds for this expansion. Chase has important steps to take in order to make Zipcar a successful organization. She must establish a respected company in Boston, develop the structure of her company, and begin expanding to other cities. Without these major steps taken, it will be difﬁcult for Zipcar to survive. Also, Chase may lose interest from her investors. ‘FWWQW‘ng' V3427 6.4.4/twmwwaw/ O ...
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