The founders of Zipcar wanted to exploit what they called as the big hole in the market: short-term, on-demand private car access. The founders were also encouraged by the fact that the U.S. market was large and virtually untouched when it comes to a car-sharing scheme. But there were actually three competitors in North America. There was one competitor in Canada and two in the West Coast. However, Chase was convinced that his company continues to enjoy a competitive advantage over its American counterparts because the main goal of the company is to provide a convenient means of transportation for its customers at a cost-effective price.
Chase and her business partner decided to improve on the competitive advantage of the company by focusing on three aspects of the business: 1) convenience; 2) cost-effectiveness; and 3) environmental impact. Chase asserted that for every Zipcar vehicle made available to customers, this could eliminate the need for at least 7 individually owned cars. In other words there is no need to buy a car if there is a convenient and cost-effective way to use a vehicle on demand and on a short-term basis.
The business had great potential because of the promise of a convenient and affordable means of transportation to at least 15,000 people that needed transportation and yet cannot afford to rent cars from traditional car rental companies. But there were three major factors that adversely affected company’s capability to attract investor money. It has to be pointed out that Zipcar will need at least $1.3 million to acquire or lease a set of vehicles and at the same time to develop the software that is needed to manage a complex business model. The tree factors that negatively affected their capability to generate investor money are: Chase and Danielson’s lack of experience; the novelty of the business idea; and the absence of a management information system that is critical to the success of the operation.
Zipcar needs a huge sum of money to start the business. The capital requirement of more than a million dollars is one of the primary reasons why Zipcar struggles to take-off from the ground. However, this particular business model requires the immediate infusion of large sums of money because the company needs to acquire vehicles. As a consequence Chase and Zipcar had to survive on investor money that needs to be converted to equity the moment the company is profitable.
The convertible loan terms that Chase used to generate much needed capital is beneficial only in the short term. But the end result of such types of loans will be to dilute Chase and Danielson’s future equity in the company that they built. But they have no choice because they needed much needed capital to initiate the start-up of the business. As a result Zipcar was able to raise as much as $300,000 in convertible loans. Chase knew that she needed more money to keep the company afloat. Thus, she decided to hire an experienced manager in the hopes of improving the image of the company. If there is an experienced member of the staff, then, investors will know that there is someone whom they can trust. But the plan did not work because Chase had to let go of the newly hired manager.
Zipcar needed a fresh infusion of capital from investors. But Chase and Danielson needed to figure out a way to generate funds without resorting to loans that are convertible to equity. If the trend continues, then, they will be forced to relinquish control of the company that they built because majority of the shares already belonged to those who provided the convertible loans. Chase and Danielson must continue to build the company because it has a bright future. There is great potential especially with regards to the capability of the company to challenged well-established car rental companies. The innovative solution to the need for a short-term and on-demand vehicle use means that there is a cheaper and less complicated way to acquire the same service offered by car rental companies.