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How Fast Can This Thing Go, Anyway?

Zipcar was a classic founder-run company--long on passion, short on cash. Until a new CEO came aboard, gave the business a seven-step tune-up, and put the pedal to the metal.
CLIMB ON IN: Most companies won't rent to the under-21 set. Zipcar's approach? No problem.

Michael Edwards

"The key question was how big this could be. Was it a one-hit wonder? Or was this something that could really go large scale?" –Scott Griffith, CEO


Left to right: Ian Nyi; Tobia Ciottone; Tyson Williams

STREET SCENE: Zipcar spreads the word at a Halloween parade in New York City; a gay-pride parade in Chicago; a concert in Toronto

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It was a slushy February morning in 2003, and Scott Griffith was on his way to his new job as CEO of Zipcar. But first, he had an early errand to run. He drove up Coolidge Hill, in Cambridge, Massachusetts, and parked outside the appointed address, a brick Georgian house. Inside, Peter Aldrich, a member of Zipcar's board of directors, was waiting. With Aldrich's standard-poodle puppy, Yogi, tumbling around his legs, Griffith signed the terms letter for his new post, gratefully received a good-luck bottle of 1966 Calon-Ségur Bordeaux from Aldrich, and headed out. Then Aldrich, standing at the door, shouted some last-minute advice. Go forth, he told Griffith, and turn this political movement into a company.

Griffith nodded and smiled, then sank into the Prius he had rented from Zipcar. "It kept ringing in my head: 'Turn a political movement into a company," he says. "I started thinking, Did my due diligence miss something?" Zipcar was a hip, three-year-old riff on a car-rental company. Its vehicles were kept in parking lots and at gas stations. Customers--who became Zipcar members by paying an annual fee--could rent by the hour or the day and make all the arrangements online, without having to deal with rental counters and agency personnel. It had been founded, in 1999, by two women who strongly believed in car-sharing as a way to help protect the environment, and its employees tended to be true believers as well.

When Zipcar's board first contacted Griffith two months earlier, at the beginning of 2003, he was uncertain. "The key question I worried about was how big this could be," he says. "Was it a small niche, a one-hit wonder in Cambridge, Mass.? Or was this something that could really go large scale?" As he pored over demographic data on car-ownership rates in major cities, his interest began to grow.

The Zipcar that had taken shape so far was a classic founder-run venture--long on passion but chronically short of cash. The company's CEO and co-founder, Robin Chase, had gotten a lot of the basics perfect. She had come up with the name Zipcar and the memorable tag line "Wheels when you want them." She had assembled fleets in Boston, New York, and Washington, D.C., and made renting a simple online process. The cars--mostly Beetles, Jettas, Mini Coopers, and Priuses--were cooler than the usual rental fare, and each one had a name, like Jetta Judy and Beetle Buster. By winter 2002, the company had 6,000 renters--some of them so enthusiastic that they actually washed their cars before returning them.

But Zipcar was losing money. Making matters worse, Chase had recently informed the board that an expected $7 million in financing had fallen through at the last minute. Even after she came up with some last-minute financing, the board, composed of four outside investors (and Chase), suggested that the CEO take her leave. "There were a lot of questions that had not been resolved," says Jill Preotle, a board member. "While we all think Robin did a fabulous job starting the company, the sense at the board level was that we needed a different type of manager for the next stage."

That manager, the board decided, was Griffith. He had stepped in at two other start-ups. One was successful--Information America, a database company he sold for $25 million in 1999. And one had failed--Digital Goods, a software company that petered out in 2001. With an M.B.A. from the University of Chicago, a number of years as an executive at Boeing (NYSE:BA) and Hughes Aircraft, and his own consulting practice, Griffith believed firmly in numbers and ratios and performance metrics. Zipcar's board found this appealing.

Griffith's approach to Zipcar was systematic and highly aggressive--an approach that has generated its share of critics. The serious, mission-driven, and somewhat countercultural Zipcar created by Chase is gone. Only one employee who worked with the founder remains; everyone else quit or was fired. Many ex-employees say Griffith is overly demanding and that Chase deserves more credit for Zipcar's success.

Still, it's hard to argue with results. Over the past five years, Griffith has transformed Zipcar from promising start-up into a real force. Revenue has soared from $2 million to $100 million. In November, the company acquired its largest rival, Flexcar. Zipcar has about 200 employees, it has raised $35 million in venture capital, and it has a growing international presence. How did he do it? Here is Griffith's game plan--a seven-point strategy for turning a great idea into a thriving company.

1 Break It Down to Build It Up

Griffith's first goal was to break down Zipcar's problems into small bits. He immediately halted an expansion of the service and worked instead on getting things right in Boston, Washington, and New York. "We had to prove the business model at the city level," he says. "The company hadn't really thought through what it would take to get to profitability." He ran financial models that indicated each city would need 150 to 200 cars, and each car 40 members, for the company to make money. Just getting these three cities on track would require from 18,000 to 24,000 members.

Griffith began by assembling focus groups made up of people who knew of Zipcar but hadn't signed up. Consumers, he found, either perceived the service as inconvenient--the nearest car might be several blocks away--or were concerned that they couldn't depend on a nearby car being available when they needed one. Griffith realized the company had to change the way it placed cars around town. He divided each city into zones--neighborhoods, more or less--filling one zone at a time with about a dozen cars and marketing heavily in the zone before moving to the next one. He created what he calls "pods" of Zipcars--clusters within a parking garage or lot, so if one nearby car was reserved, another one would be available. He also assigned each zone a fleet crew, bicycle-riding guys who pedal out to handle minor problems.

This was a big change for Zipcar. In the past, the company had simply nabbed parking spots wherever it could. If a renter didn't return a car at the appointed time and someone else had a reservation, someone at the company would try to figure out where the next-closest available car was or would even drive another car over. It wasn't so much that this system wasn't working but that the process couldn't support many more new members. "We shifted all of our thinking," Griffith says.

The Boston overhaul, for example, began by dividing Zipcar into 12 zones. "Each individual neighborhood has its own flavor," says Dan Curtin, who has run the Boston operation since 2004. Curtin put different types of vehicles into the different zones. Cambridge got Priuses--the residents there tend to be activist and left-leaning--while tony Beacon Hill got Volvos and BMWs. The zone strategy also helped Curtin figure out each neighborhood's use pattern: Harvard Square users, mostly students on a budget, tend to use Zipcars for quick errands, while Back Bay users might rent one for a weekend to drive to Cape Cod.

Griffith rethought the company's approach in New York as well. Before he arrived, Zipcar had about 35 cars scattered around Manhattan and Brooklyn. Griffith pulled most of them into one neighborhood, Manhattan's Chelsea, where the population is dense and youthful--the kind of people who often need a car for a few hours. The New York team covered this small area with marketing, rather than getting lost in the chaos of approaching the city as a whole. "Within a couple of months, application rates were way up, and they were all coming from that one area," Griffith says. This hyperlocal marketing also emphasized that, unlike other rental cars, Zipcars were in your neighborhood. "We were like the coffee shop or the dry cleaner," Griffith says. Breaking down the system let Griffith first fix and then replicate what he was doing in individual neighborhoods.

2 Before You Get Big, Get Tech

Before Zipcar could handle more customers, Griffith knew, it had to have technology that could scale up without much human interaction. On the consumer end, Griffith decided he could live with the system created by Chase, her co-founder, Antje Danielson, and Roy Russell, Chase's husband and Zipcar's chief engineer. Griffith was especially struck by how easy they had made things for renters. To join Zipcar, you pay an annual membership fee of $50. After checking your DMV record, the company sends you a credit-card-size Zipcard that's radio-frequency identification, or RFID, enabled. When it's time to reserve a car, you simply go to Zipcar.com, enter the date, time, and duration of the rental, and Zipcar delivers a list of cars arranged by distance from you. For most cities, you can get at least a few cars nearby at any given time, for around $10 an hour or about $70 a day. Select the car and the system alerts the vehicle that you and your RFID card will be showing up. Go to the car, wave your Zipcard in front of a reader on the window, and the car unlocks and the engine is enabled; the keys are inside. Insurance and gas (a prepaid gas card stays in the car) are included.

But Griffith was less satisfied with the company's back-end systems. He asked Russell to create a system that could generate better data on things like car usage rates. Meanwhile, Russell continued pushing his team. He had upgraded the in-car computers so they could send readings back to Zipcar wirelessly and worked on a new alert system. Now, when a check-engine or dead-battery light goes on in a car, that light triggers a "ticket" system that alerts the appropriate fleet manager via e-mail. When drivers go over the 180-mile daily limit, they are billed automatically. Cleaning crews also have access to the reservations system so they can see when cars are idle and go clean them. (Russell left the company in 2006.)

Griffith's approach to technology is based on the Kaizen technique. It's a Japanese quality-control process that asks employees involved in a task--usually manufacturing-related--to map out exactly how the task is performed, then suggest more efficient ways in which to do it. Zipcar's former CFO, Shaun Starbuck, was a big fan of the system. It's largely used in factories, but Griffith and Starbuck wanted to see if it could cut the fat off of some of Zipcar's operations. "There was a very cool opportunity here to apply the technique to a service business," Griffith says. Employees throughout the company were asked to look at the way they did things and break the process into as many small steps as possible--and then cut out the unnecessary ones. Kaizen is now used all over the company; it even keeps a full-time Kaizen instructor on the payroll. By simplifying processes from the start and replacing people with automated technology, Griffith could add customers without too much fuss.

3 Brand With Attitude. And BMWs

Griffith's mandate from the board had been to overhaul the company he inherited. But one thing that didn't need major work was Zipcar's fun, youthful image. "Robin got a lot of the branding stuff right from the beginning," says Nancy Rosenzweig, Zipcar's vice president of marketing from 2002 to 2004. "She created a hip urban edge that appealed to people who were smart and knew there was another way to think." In addition to touting the do-gooder aspect of Zipcar, Chase also created a frisky and cool identity for the company. She painted the green Zipcar logo on car doors, asked customers to suggest new names as the company added cars to its fleet, and threw plenty of parties. "Making customers feel like they have input and a stake in the game really makes them want you to succeed," Chase says. "It didn't matter if 25 people showed up to a potluck dinner. It's the 4,000 people who think, How cool--I belong to a company that has potluck dinners."

Griffith continued the casual, intimate contact with customers. The company still sends chatty e-mails about what it's up to. Last winter, it organized a movie night at a Chicago theater. The evening's theme was "Drive In, Don't Drive Out," and Chicagoans were asked to leave their old cars at the event to be donated to charity. Ten did so; when Zipcar repeated the event in Washington, 35 donated.

But Griffith was hardly shy about making other changes. Noting that the average age of Zipcar members was rising, he expanded the fleet with high-end BMWs and specific-use cars like four-wheel-drives for ski trips and pickup trucks for weekend home improvers. He opted not to display the Zipcar logo prominently on the most expensive cars, figuring that customers were using them for dates or business meetings, to impress, and wouldn't want to advertise the fact that it was an hourly rental. He also changed the rate structure. Under Chase, Zipcar charged renters by the mile and by the hour. Griffith thought the per-mile piece stressed drivers. "Every mile driven had some cost associated with it, and I felt like people, as the odometer clicked by, felt like they were in a taxicab," he says. Now Zipcars can be driven up to 180 miles a day without extra charges.

One place in which Griffith may have guessed wrong was green marketing. He was, and remains, eager to distance himself from his predecessor, often describing Chase's iteration of the company as unstructured and more concerned with changing the world than with making money. Chase chafes at that characterization. True, her original partner, Danielson, was a carbon-emissions researcher who viewed car-sharing as a way to reduce carbon emissions. But Chase insists that she was as committed to growth and profitability as she was to Zipcar's green agenda.

When Griffith arrived, he backed away from most mentions of the company's environmental benefits. "I didn't see that people were making buying decisions around green," he says. He considered abandoning the color green for Zipcar, a move his marketing chief talked him out of. Now he has no problem touting Zipcar as green. A page in each in-car guide reads "We ♥ Earth," and Zipcar's website has a page touting the company's commitment to the environment, asking people to "Imagine a world with a million fewer cars on the road." "I don't think people are going to use Zipcar because it's green, but it is an important part of the brand," Griffith says.

4 Hand Over Power. Watch Ideas Fly

The other thing Griffith inherited from Chase was her people. And that posed a problem for the new CEO. Under Chase's leadership, Zipcar was a pitch-in, we're-all-in-this-together start-up--engineers would shovel out Zipcars that were blanketed in snow, and the VP of marketing would take customer-service calls. When Griffith took over, he held a couple of fist-pumping meetings about the power of structure and metrics. His employees were less than enthusiastic.

The big breakthrough came when he put city managers in charge of their own profit and loss, and encouraged them to approach their cities as they saw fit. "We've been trying to create little entrepreneurs in each of the cities," he says. Each office assembled street teams, kids just out of college who serve as part-time marketers, cruising in their Zipcars and honking and stacking cards at local delis and retailers. (Store owners get free Zipcar memberships in return.)

Soon, managers began to come up with cool promotional ideas. "Now's where that P&L started to work for us, because they became competitive with each other," Griffith says. In Harvard Square, the Boston team stuffed bags of frozen Ikea meatballs inside a Mini Cooper and asked passersby to guess how many were inside, a task that titillated Harvard's math majors. In San Francisco, which launched in August 2005, the team bought an old SUV, painted it puce, parked it at the foot of Market Street, and offered passersby the chance to swing a sledgehammer at it. In Chicago, which opened in September 2006, employees drove Zipcars onto a flatbed semi and drove around town with a bullhorn. By the end of Griffith's first year, there weren't tons more members--the number had risen to about 10,000. But the cars had higher usage rates. The splashy events also helped lower customer-acquisition costs from about $150 per member to less than $50 today. About two years ago, Griffith began offering city managers cash bonuses for hitting targets for revenue, profitability, car usage, membership, and customer satisfaction. When managers are responsible for their results and empowered to make their own decisions, Griffith found, their results tend to be a lot more interesting.

5 Sell Where Your Competition Won't

Once he had revved up Zipcar's approach to marketing, Griffith stopped to consider the market. At most car-rental companies, it's standard policy not to rent to people under 21 and to charge extra--at Avis and Hertz, it's about $25 a day--to renters under 25. (Insurance companies require higher premiums for those in this riskier age group.)

Chase had begun targeting younger drivers, offering memberships for students at Harvard and MIT in exchange for on-campus Zipcar parking and marketing help from the schools. Griffith took the strategy a step further. Before Chase left the company, she had begun talks with her alma mater, Wellesley, to see if the school would pay insurance premiums for its under-21 drivers. Wellesley finally agreed in the fall of 2004, after Griffith had taken over. The Wellesley drivers had good records, and Griffith took that data to Zipcar's insurance company, Liberty Mutual, which agreed to a policy with lower-than-usual premiums. That let Griffith try the program at three more schools. With solid results from that, Griffith struck a deal with Liberty and extended the under-21 program to 35 schools. The university program will expand to 140 campuses by the fall, and it's a moneymaker for Zipcar. The schools let Zipcar market on campus and provide less expensive parking spots, and some have their own fleet-management crews that clean and maintain the cars, which can offset the higher costs of insuring young drivers. What's more, renters become Zipcar fans at a young age. "We're taking a page from the Apple (NASDAQ:AAPL) playbook, really creating awareness early on," Griffith says. About two-thirds of Zipcar's members are under 35.

Courting young customers was easy--it's a market other car-rental companies don't want. But Zipcar also has its eye on the industry's core market--businesses. Zipcars are used heavily at night and on weekends, and many are idle during the day. For Zipcar to make money on a vehicle, Griffith calculated, it needs to be in use more than 40 percent of the time. He's trying to attract corporations to meet that goal. The company retooled its technology for businesses--now, cars can be booked by a travel manager for individual employees, for example, or billed to specific departments. Zipcar created new marketing materials, too, changing the fun and cheeky vibe of the consumer campaigns to language that is more sober and bottom-line-oriented.

Griffith believes Zipcar for Business can be bigger than the university market. After all, if you're a carless city dweller, why not rent a car near your office for a couple of hours when you need to travel to a client meeting, rather than taking a cab to the Hertz counter and renting one for the entire day? Or, says Daniel Shifrin, who heads Zipcar's business group: "When you fly in to San Francisco, to get a car, you get a shuttle, wait on line an hour and a half--it's a very frustrating experience. With Zipcar, you can hop on the BART, go downtown, and then when you need a car just pick one up a block away from your hotel." Griffith hopes the division will eventually account for as much as 40 percent of revenue.

6 First, Prove It. Then, Fund It

Griffith knew from the outset that if Zipcar was to take off, it would need millions in venture capital. But instead of pitching investors right away, he waited. For two years, he held off from seeking any venture capital, instead fueling Zipcar with $4 million in angel funding. "I felt like we just weren't ready for prime time, and we had to prove the model," he says. Tom Stemberg, the founder of Staples (NASDAQ:SPLS) and an early investor in Zipcar, advised Griffith to follow a tried-and-true retail model: Get the box right first, then build more boxes. It was only in 2005, after Boston, Washington, and New York had become profitable, that he began meeting with venture capitalists. Benchmark Capital ponied up $10 million in July 2005.

That money meant Zipcar could expand, adding more U.S. cities and its first international location, Toronto. Griffith had long seen Zipcar as a global brand, but he was determined to move slowly. Toronto was a perfect test case--close enough to be manageable but with a different currency, telecommunications network, and customer base. Succeeding in Canada would prove that Zipcar could be a truly international company--making it more valuable in the eyes of investors. The approach proved smart. In November 2006, when Zipcar raised $25 million from Globespan Capital Partners, Greylock Partners, and Benchmark, the company's valuation had increased more than four times compared with the year-earlier round. The company has since launched in Vancouver and London.

7 Know When to Say No. And When to Say Yes

In spring 2005, Steve Case, the co-founder of AOL, was about to announce the launch of a new venture, a holding company called Revolution, which would acquire early- and midstage companies and have a heavy hand in management. One sector of the company, Revolution Living, was examining prospects in the consumer space, specifically businesses that promoted environmental values and healthful living. Case lived in Washington, where Zipcar and its Seattle-based competitor, Flexcar, both had offices, and after seeing car-sharing in action, Case decided it would be a good fit for Revolution. He called Griffith to discuss acquiring Zipcar. Griffith was flattered but reluctant. He and the board thought the timing for a sale wasn't right. The company was about to close the financing round from Benchmark. It wasn't clear how Case would fit into the deal.

Case instead bought 55 percent of Flexcar, in August 2005; a year later, he upped his stake to 85 percent. Though the two companies went head to head in only two markets, they had been fierce competitors, each one claiming superior cars, technology, and service. Still, Zipcar had met on several occasions with Flexcar execs to discuss merging. Each time, Zipcar insisted on being the acquirer, and each time, Flexcar refused. But by spring 2006, when Zipcar was definitively the larger company and Flexcar had a new owner, Griffith decided to check in again. He sent Case a friendly e-mail. Case responded, saying perhaps it was time to talk about Zipcar and Flexcar again.

In November, Zipcar announced it was acquiring Flexcar; in a vote of confidence for Griffith, Case took his payment in the form of shares in the merged company. (Revolution is now Zipcar's single largest shareholder, though it has a minority stake.) Flexcar's CEO, Mark Norman, moved to Cambridge and took the role of COO. He began the process of switching the Flexcar fleet and customers to the Zipcar brand and system.

The point of the merger, Griffith says, was to get to scale. While some of Zipcar's cities are profitable, the company as a whole is not. It won't be until the company gets bigger. The success of the Zipcar for Business effort, in particular, depends on having enough cars to serve corporate customers. Scale will also help Zipcar negotiate better rates on parking and maintenance. The company also wants to begin buying, rather than leasing, cars, which will save it at least $2.5 million a year. The merger gives Zipcar a presence in 15 cities, with 180,000 members and 5,500 cars. Griffith is eyeing an IPO within a couple of years and believes revenue can hit $1 billion.

Promising such a massive increase in revenue puts Griffith in much the same spot he found himself in five years ago, when Zipcar was pulling in a mere $2 million. But now, as always, Griffith is nothing less than systematic. The first challenge, he says, will be to shift his focus from setting strategy and obsessing over the numbers to managing his executives, working more closely with the board, and developing Zipcar's culture. "My role has changed from $2 million to $100 million," he says, "and it will change again as we go toward $1 billion." The fundamentals, he says, are in place, and Zipcar has nothing but potential. "It feels," he says, "like we're skimming the surface."

Stephanie Clifford is Inc.'s senior writer.

IMAGE: Michael Edwards
Last updated: Mar 1, 2008




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