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Can it be produced in sufficient quantities/bulk?
Can you afford to make the product?
Will you need to create the product on your own?
ENTREPRENEUR’S WORKSHEET
Feasibility Analysis
Complete this worksheet after conducting your initial research to identify which areas of your business are the strongest and which are likely to present major challenges. Rate each of the following areas on a scale of 1–10 — with 1 being “not at all” to 10 being “completely.” The higher your scores in each area, the less risk you will likely face. Those areas with very low scores will probably make it more difficult for your business to be developed and, ultimately, successful. You will need to spend more time on those areas as you develop your complete business plan.
challenge
Innovate in a mature and overcrowded market
solution
Introduce a new business model
REAL-WORLD CASE
Entering a Mature Industry: How Zipcar Created a New Business Model
When Henry Ford invented the Model T in 1906, he launched more than merely the automobile industry. Within a decade after the first Model T took to the road, the rental car industry began. More than 100 years later, a few large corporations own the handful of leading rental car brands. Mature industries such as this are notoriously difficult for new competitors to penetrate. But Zipcar did—by introducing a new business model.
In 1999, Robin Chase sat in a café in Cambridge, Massachusetts, with her friend Antje Danielson. Danielson had just returned from Berlin where she saw the success of a new concept in rental cars—“car-sharing.” It was the height of the dot-com boom, and Chase, a serial entrepreneur and 42-year-old mother of three, was eager to start her own company. Not long after that conversation in the café, Chase would launch her own car-sharing company—Zipcar.
The idea was simple in concept: Allow people to use cars only when they needed them, just for the amount of time they needed, if only for an hour or a few hours. They’d be spared the expense of owning and maintaining an automobile. Millions of Americans need a car, but the economics of owning one simply aren’t there for them, especially in urban areas where they can use public transportation. Many more people do invest in automobiles, but grossly underuse these expensive assets. And too many cars choke U.S. roadways, causing traffic jams, creating delays, and accelerating global climate change.
Of course, people could always turn to a traditional rental car service, but those require rentals of a minimum of a day, and the cost and inconvenience to rent a car simply to pick up groceries, visit a big-box store to buy things in bulk, or drive to a party in the suburbs doesn’t make much sense.
Car-sharing is a concept born of the Internet Age. Although the concept of sharing ownership of an expensive resource like an automobile has been around for decades, the logistics of scheduling, figuring out charge rates, tracking locations, and making cars conveniently available to people scattered over a large geographic area meant that executing the concept wasn’t feasible. Robin Chase immediately saw that the convergence of technology, economics, urban culture, environmental concerns, and young people increasingly accustomed to sharing over the Internet would open up a tremendous business opportunity. The time was right.
Starting in Cambridge, the company bought a small fleet of cars and offered to rent them by the hour to city residents. To be eligible, people had to first join Zipcar by paying an annual membership fee, have their driving record checked, and then obtain a personalized electronic “Zipcard.” They could reserve cars by the hour, 24/7, 365 days a year. They were directed to the Zipcar parked closest to their neighborhood, and would use their Zipcard to unlock the door and start the engine. Zipcar paid for the car, the insurance, the maintenance, the gas, and the parking.
First and foremost, what made Zipcar viable was a new business model—in essence, a “subscription” to share cars. Customers are not merely “renters,” they are “members.” The second factor was cost. While Zipcar’s daily rates compare to rental car agencies’ prices, members can rent by the hour and pay far less than a daily rate. But, from Zipcar’s point of view, renting a car for 15 single hours at $8 an hour nets them far more than renting that same car for a day at $80.
The third factor was convenience. Zipcar purchases parking rights in multiple locations throughout urban areas, with the goal of putting a Zipcar within a 10-minute walk of any member. Finally, technology. Each Zipcar windshield is equipped with an RFID transmitter, which sends the signal to members’ Zipcards, allowing them to unlock the car. An automated system tracks the time the member has the car and the mileage they accumulate. Some cars have GPS systems installed. Zipcar doesn’t track customer locations, but in the rare instance when a car goes missing, the GPS can locate it.
While the core idea was to rent cars out by the hour, that model also creates positive environmental results. Fewer people in the cities Zipcar serves now need to own individual cars, and the ones who rent from the company use the cars more sensibly than do private car owners, the company believes. With drivers paying an hourly rate to rent their Zipcars, they think twice before making those impulse trips. “Instead of driving 12,000 miles a year, which is what the average city dweller does, [Zipcar drivers] drive 500 miles a year,” explained Chase in a Ted Talk. “If I’m going to go buy some ice cream, do I really want to spend eight dollars to go buy the ice cream? Or maybe I’ll do without.”1
Zipcar has a fanatically loyal customer base. It spends very little on marketing, as most new business comes from word of mouth. Chase noticed early on that the car-sharing model fostered a genuine sense of community. Zipcar members who lived in nearby neighborhoods grew to recognize each other. Some cities even have local Zipcar gatherings where people who “share” the neighborhood Zipcar fleet socialize.
Zipcar has grown rapidly, becoming the leading car-sharing service in the United States. On June 1, 2010, Zipcar made its initial public offering (IPO), for $75 million. Since then, many other competitors of Zipcar have emerged, including very popular ride-sharing services like Uber or Lyft. And not only have the legacy car rental agencies launched their own car-sharing services, one of them—Avis—acquired Zipcar in 2013 for approximately $500 million. ■
1. www.ted.com/talks/robin_chase_on_zipcar_and_her_next_big_idea
questions
1. Robin Chase first targeted college students and urban dwellers for Zipcar; how do you think this contributed to her success?
2. Shared ownership is an increasingly popular business model; what other products and services do you think would suit this business model?
3. How do you think Zipcar can compete effectively, now that ride-sharing companies and large rental car companies have entered the field?
4. What other companies have introduced new business models?
EXERCISE: critical thinking