Car2Go: Driving into the B2B Market A business plan proposed by: Donna Maher, Avi Kletzel & Romy Ribitzky Sofaer iMBA, Spring 2012 Tel Aviv University, Recanati School of Business Table of Contents Chapter 1: Executive Summary………………………………….3 Chapter 2: Opportunity, Market need & Size..…………………..5 Chapter 3: Vision and Core Concept …………………….……...7 Chapter 4: Value Proposition & Business Model …………….....8 Chapter 5: Context- Industry & Timing ………………………....9 Chapter 6: Strategy & Competitive Advantage………………....11 Chapter 7: Operational Plan …………………………………...13 Chapter 8: Sales & Marketing Plan …………………………….15 Chapter 9: Financial Plan (with assumptions) ………………….18 Chapter 10: Organization………………………………………..20 Chapter 11: Team & Management………………………………21 Chapter 12: Required Resources………………………………...22 Chapter 13: Legal & Shareholders………………..……………..24 Chapter 14: Evaluation of Uncertainty & Risks ………………..26 Chapter 15: Potential Exit, ROI & Key Learnings ……………..29 Chapter 16: Corporate Social Responsibility …………………..33 Chapter 17: Conclusions, Recommendations and Summary ......35 Chapter 18: Appendixes ……...………………………………..36 2 Chapter 1: Executive Summary Car2Go, originally founded by Jonathan (Yoni) Gadish and 3 of his friends, is a company experiencing growing pains. An entrepreneurial firm that won great buzz when it launched in 2008, the company is struggling to maintain market share, reach profitability, increase revenues and grow its customer base. While Car2Go initially had the first-mover advantage in bringing the concept of car-sharing to Israel from Europe and the United States, where it was a cutting edge concept in social responsibility, rental car companies, leasing companies and even car manufacturers are realizing the financial benefits of this concept and are jumping into the market. Rather than sit idly by and let others take a piece of its business, Car2Go realizes the need to change and adapt to the encroaching threat. To that end, we’ve analyzed the feasibility of expanding the Car2Go model into the business market, extending the company’s value proposition of offering convenient, sleek vehicles on demand and by the hour, to some of Israel’s quality, hip, and luxury firms. Identifying barriers to entry, key cost and revenue drivers, we believe that Car2Go is looking at an opportunity to grow its business, but risks abound. From acquisition costs—vehicles, human resources and clients—to marketing and promotional costs to general industry and economic condition risks, we’ve laid the groundwork for the considerations the Car2Go team must answer before jumping into developing a new market segment. Calculating the costs against the proposals currently on the table, we see that Car2Go is able to finance the pilot program without having to raise additional capital--be it via seeking more venture capital/private equity funding, issuing debt or having to plan an initial public offering. This finding is encouraging as the capital structure of the company can stay intact. Taking all the factors into account, we do believe that building upon its impressive board of tried and proven entrepreneurs and industry professionals along with embarking upon a targeted and conservative pilot program that allows Car2Go an opportunity to test the market at the lowest possible cost and risk to the company. Our initial analysis finds that while there is interest in the 3 market for Car2Go’s services, the company still has a long way to go in terms of educating HR professionals and operational directors on its product offering, its technological savvy and why it truly is a choice that makes financial sense among so many others. 4 Chapter 2: Opportunity, Market need & size Car2Go subscribers choose car sharing as an alternative to owning a car, as it eliminates costs related to financing, insurance, taxation and registration—or as a secondary solution in the transportation infrastructure. The marginal cost per kilometer of car sharing is significantly lower, at 30% less, than the high fixed costs involved in owning a car. Car2Go customers can save up to 15,000–20,000 NIS a year by choosing car-sharing options. This is a substantial saving especially since the average car owner only uses his/her vehicle for only an hour per day. Car renting at Car2Go is done by the hour, which proves a great incentive for users to drive as little as possible, decreasing the amount of cars on the road and eliminating pollution. Additionally, Car2Go customers avoid the struggle of searching for parking spaces as C2G has designated parking slots designated to the car sharing users. Currently, Car2Go is the only major car sharing company in Israel but car sharing has proven successful in other parts of the world. For example, Zipcar, a large international car sharing company based in the USA, has successfully penetrated the market with its innovative solution. Zipcar has been so well received that it went public in April of 2011. In terms of market size, we first looked at the 3.5 million drivers that are registered in Israel by 20091 according to government officials. From those, 1,876,000 own a private vehicle. 75% of the number of drivers are in Car2Go’s target market of 25-54 year olds, bringing our estimate of the total available market potential to 2,625,000 drivers. We considered current owners as being potentially interested in a second car for marginal use, so they could still become customers of Car2Go.2 Non car owners can certainly use Car2Go as an alternative to car owning. According to market research carried out on behalf of Car2Go, the Israeli market could reach 70,000-105,000 members, although the company's business plan is based on 26,000 members during the first five years3. 1 http://www.nrg.co.il/online/16/ART2/125/172.html 2 http://www.ynet.co.il/articles/0,7340,L-3911336,00.html 3 http://www.jpost.com/LandedPages/PrintArticle.aspx?id=137775 5 These figures show the alarming need for Car2Go to expand its business model. The company cannot possibly survive on attracting 5%-10% share of the 472,500 customers in the available market that we calculated (which is a better-case scenario than Gadish expects). While Gadish projects a 30% growth rate4, we project a 20% growth rate considering the new entries and the price wars within the industry. A typical 300 shekel day rental has gone down to 58 shekel as per the offers of new entrant “Quickie”, from Avis5. 4 http://www.jpost.com/LandedPages/PrintArticle.aspx?id=137775 5 http://www.haaretz.com/business/taking-us-for-a-ride-1.418985 6 Chapter 3: Vision and Core Concept Car2Go Israel is a car-sharing company that offers subscription packages to individuals or families living in the center of Israel who can appreciate the advantages of not owning their own car. Car2Go subscribers choose car sharing as an alternative to owning a car, as it eliminates costs related to financing, insurance, and registration—or as a secondary solution in the transportation infrastructure. The marginal cost per kilometer of car sharing is significantly lower, at 30% less6, than the high fixed costs involved in owning a car. Decreasing the amount of cars on the road eliminates pollution and is a great way to add value to all stakeholders where Car2Go operates. The company would have you imagine having the convenience of accessing a car whenever you need it, right around the corner, yet instead of paying for maintenance and gas, you only pay per ride. Use it for a few hours, or for the whole day. With Car2Go, you only get charged for the time you’re using the car, saving your business—and your employees—meaningful cash. Let’s not forget that when you pay per ride, you’re more conscious of why you’re making the trip in the first place--which makes more people stop to consider the environment. With Car2Go, every one of the cars serves up to 30 people, which means that we take 15 cars off the road. That leads to less pollution, less traffic, and more parking spaces. The context of this company came about metropolitan realities (in the case of Zipcar, in the city of Boston, MA, USA) that enlarged the pain of concentrated populations in small areas, constantly challenging for parking space. Citizens were obviously affected by the continuously increasing gas prices and the multiple taxation that goes into car ownership. If that wasn’t enough, the constant maintenance costs only strengthen the customer’s pain for drivers in the Boston area. The opportunity that Zipcar has identified involves a niche market that is more conscious about their trips. Zipcar identified marginal use for their cars as a way to share the multiple costs that it carries. This model was successfully recreated in the Tel Aviv area and that is how Car2Go’s concept came to be. 6 Green Facts, Car2Go http://www.car2go.co.il/index.php?option=com_content&view=article&id=50&Itemid=56&lang=he 7 Chapter 4: Value Proposition & Business Model Value Proposition: Offer a convenient, cost-effective alternative to taxis, public transportation and car ownership for consumer and business purposes. Since car-sharing is currently not taxed, Car2Go saves business and their employees approximately 40% in taxable expenditures on benefits. Companies that can use Car2Go during the overnight hours can save 50% off the published prices. Business model: Car2Go is a subscription-based business that charges an initial membership fee followed by an annual fee and a per-use fee. As part of its corporate plan Car2Go can offer a three- pronged solution: ● A branded, specialized fleet, complete with ops manager, for the exclusive use of the business in question. This fleet can range from 1 vehicle to multiple cars, depending on the needs of the business ● A non-branded, non-specialized fleet.