How They Started (7 page)

Americans love their cars.
So when two women friends started a business offering by-the-hour car rentals as an alternative to car ownership, skeptics thought the concept would never shift out of “Park.” Twelve years later, Zipcar is the world’s largest car sharing service, with over 650,000 members using more than 9,000 cars. When the company went public in 2011, it was valued at $1 billion.

The road to the top of this niche market was a bumpy one, however. First, the pair had to sell investors on a business model that was untried in the US. Then, they had to sell those venture investors—who rarely invest in women-owned businesses—on the idea that two women with no previous start-up experience should run it.

Environmental issues were always a passion for German native Antje Danielson, but her first few jobs didn’t reflect that. She worked for a couple of years in car sales and repairs, then for three years as a research assistant on a semiconductor project at Hahn-Meitner Institute in Berlin. She returned to school and earned her PhD in geology at Freie Universität Berlin. Afterward, she came to Boston to teach at Harvard on a NATO fellowship, while her husband finished up his PhD at MIT.

At Wellesley College, Robin Chase triple-majored in English, French, and philosophy while holding down several positions on the college newspaper and serving as president of the philosophy club. One of her first jobs after graduation was for Boston-based healthcare consultancy John Snow Inc. In 1986, she earned her MBA in applied economics and finance from MIT’s Sloan School of Management. She then became the finance and operations director at a school that provides international environmental programs to high school and college students.

For 13 years after getting her MBA, Robin alternated work with time off as her three children were born. At one point she returned to JSI, while in another stint she was managing editor of the government scientific journal
Public Health Reports
.
At the end of one of her stay-at-home stints, Robin decided she wanted to return to work as an entrepreneur, with greater autonomy and flexibility, rather than work for someone else.

As a new stay-at-home mom in Cambridge, Robin got more involved in her children’s activities. She made new friends, including Antje, whose son was in the same kindergarten class as Robin’s daughter. The two kept running into each other on the playground, Antje recalls.

Antje was leading a research project on how to reduce carbon emissions from cars, which produce roughly one-third of global carbon emissions. For a Harvard energy-research project, she looked into how other countries reduced car trips.

She soon discovered car sharing. The concept began in Switzerland in 1987 with two small cooperatives, which rented out cars by the hour to members. Car sharing quickly spread to Germany, Austria, the Netherlands, France, Italy, Norway and the UK. In 1999, approximately 200 car sharing organizations operated in 450 cities, Antje’s research showed. Together, the companies had an estimated $200 million in sales. Notably, the car sharing sector was growing 30 percent annually. Antje learned that every car sharing vehicle eliminated the need for about 7.5 individually owned cars.

At that time, there were only two small car sharing services in the US, both on the West Coast: Car-Sharing Inc. in Portland and Flexcar in Seattle. Sensing a business opportunity, Antje says, “I ran a few simple, back-of-the-envelope calculations and came out saying this could work out financially.”

On a family visit back to Berlin in late spring 1999, Antje did a little field research on car sharing companies there. Where did the companies park the cars? How did they secure the keys?

Antje learned that every car sharing vehicle eliminated the need for about 7.5 individually owned cars.

Though excited by car sharing, Antje felt uncertain about launching the business herself. Her background was environmental science, not business. Antje’s husband suggested she approach Robin, and the two met at a local café, where Antje explained her idea.

“She said, ‘Here’s what I saw in Berlin—what do you think?’” Robin recalls. “Really, the light bulb went on over my head. This is what the Internet is made for: sharing a resource easily with people.”

In fall 1999, Robin began work on a business plan for a proposed startup to offer a car sharing service in Cambridge. Meanwhile, Antje investigated the technology they would need and tapped contacts from her car sales days. Their research showed car sharing was projected to grow to a $50 billion market by 2007.

“Really, the light bulb went on over my head. This is what the Internet is made for: sharing a resource easily with people.”

Flexcar had applied for federal funding, which meant their application—complete with budget figures—was a public document. Antje studied it, but disliked the government-subsidy model Flexcar used, which kept hourly rental rates too low at $3.50 per hour. While setting fees higher, the plan kept the average rental below the typical $45-a-day rate charged by traditional car rental companies.

By December, Robin and Antje were ready for some feedback. Robin approached her former mentor, Sloan School of Management dean Glenn Urban. Antje and Robin went to Urban’s office for a meeting.

The pair expected Urban to poke holes in their model, or to say Americans wouldn’t take to car sharing. Instead, he told the women their idea was too big for Cambridge. Car sharing had huge US potential.

Robin recalls, “He said, ‘Your business plan is way too slow. You’ve got to scale it up by a factor of three.’ We were really shaken by it.”

Apparently, the car sharing business wouldn’t fulfill Robin’s dream of launching a small startup she could fit around family responsibilities. For several days she “moped and mulled” around the house, wondering what to do.

The answer came from her 12-year-old daughter, who noticed Mom’s quiet mood and cornered her in the kitchen one night. Robin explained how successful the company could be, and how car sharing might positively impact the planet, but that it would likely mean round-the-clock work hours for a while. Her daughter knew the family donated some of what it made to children’s causes.

“And she said, ‘Are you kidding? You could make more money and save so many children’s lives if this succeeded. You should absolutely do it,’” Robin recounts.

Finding the right name for the business involved considering dozens of potential names. But the website URLs for many early favorites were already taken.

Eventually the list narrowed to five, three of which were notable: Wheelshare, U.S. Carshare and Zipcar. Robin wrote the names on 3x5 cards and started taking consumer polls. Wherever she was—in coffee shops, in the bank line, at her children’s swim meets—she would get out her cards. Then, saying nothing about the planned business idea, she’d ask people what thoughts each name evoked.

She learned fast. Wheelshare made people think of “wheelchair.” U.S. Carshare tested poorly, too: some 40 percent of consumers disliked the word “sharing.” Also, that URL was taken, with the site owner willing to sell only if he could receive a 10 percent stake in the company.

Zipcar tested best. Robin also tested another small pack of 3x5 cards with five slogans. The winning tagline was: “Wheels when you want them.”

It was time to build the reservation and car security technology and to lease the initial cars, which meant time to raise money. Robin began talking up Zipcar to alumni, businesses, environmental groups, and her local networks. In February, she had one Sloan classmate and her husband over for dinner, hoping for a little advice.

Instead, the woman turned to her husband and said, “What do you think, honey? Should we invest $50,000 in Robin’s company?” They became Zipcar’s first funders. The funding was structured as a loan convertible to Zipcar equity once the company’s valuation was established in its first venture capital fundraising round.

In all, Zipcar would raise $75,000 pre-launch, a figure Robin looks back on as laughably low. Technology costs were substantial and quickly consumed almost the entire amount. Their first engineer had to be persuaded to work for equity. As quick as money came in, it disappeared. As launch time neared, Robin found the company with just $68 in the bank.

There was an unpleasant surprise when it came to negotiating the car leases. After financing the first car with Robin’s home as collateral, the car leasing companies wanted a $7,000-per-car deposit for each additional vehicle, as this was a business startup that could fail. Worse, American insurers were uninterested in covering the start-up’s vehicles. Robin was beginning to doubt the company could launch on time when she had a breakthrough.

Their first engineer had to be persuaded to work for equity. As quick as money came in, it disappeared. As launch time neared, Robin found the company with just $68 in the bank.

“I was at a cocktail party in Boston for the opening of Salesforce.com and ran into an angel investor I had been talking to,” Robin recalls. “He said, ‘How’re things going?’ and I said, ‘I really need $25,000, and I need it by tomorrow.’”

By 10 a.m., the angel sent Robin a check for $25,000. She was now able to lease the three additional cars Zipcar needed for its launch.

Antje and Robin knew technology would be key for a US car sharing company. The European companies stashed keys in small lockboxes near the cars and gave members the combinations. Members called a phone line to make car reservations, and filled out handwritten mileage logs when they used a car for a trip. American drivers would expect a more streamlined solution.

They envisioned using wireless technology—then in its infancy with respect to consumer applications to connect the cars to a computer system. Members would reserve cars online, with the system electronically transmitting the reservation information to the member’s chosen car. Each member would receive an electronic card they could hold over a proximity card-reader inside the vehicles to gain keyless entry. The system would track how long a member drove the car and the miles driven, transmitting that information back to the billing department.

Building this technology would be costly and difficult.

“Zipcar turned out to be consumer good number two—after cellphones—that figured out what to do with wireless,” Robin says. “We had to build everything from scratch.”

Antje’s difficult task was to figure out the technology, even though she wasn’t an electrical engineer. She researched what was available, working with new hire Paul Covell, an undergrad MIT engineer. Together, they concluded that RFID (radio frequency identification) technology was Zipcar’s best bet. To this day, the company uses RFID, a technology that came into widespread use with retailers.

Early in the process, Robin and Antje discussed the delicate issue of who would be CEO. They decided that Robin, with her formal business education and deeper networks for fundraising, would be best suited to the role.

The seed money was quickly exhausted, and Robin began raising more money. At pitch meeting after pitch meeting, she heard the same thing: the company needed to “professionalize” its management. (Translation: Hire an experienced businessman to run the company.) The dot-com boom had just busted, and investors were wary. Zipcar was an unproven concept in the US, and the women didn’t have start-up experience.

Desperate for more funding, the women hired a former hotel industry executive CEO, Keefer Welch, to serve as Zipcar’s president. Welch solved the insurance puzzle, locating one US insurer willing to offer Zipcar a policy.

Despite this success, Robin describes Welch as “a wrong-phase hire.” Welch’s experience was running much larger operations, with pre-established performance goals. He had no start-up experience, and the women found many of his ideas unproductive. After a few months, they severed the relationship.

At pitch meeting after pitch meeting, she heard the same thing: the company needed to “professionalize” its management. (Translation: hire a man to run the company.)

Meanwhile, Robin was talking to investors anywhere she could find them. Late one afternoon, she took a phone call from a prospective new Zipcar member. It soon became clear to the caller that he was talking to the company CEO.

“Are you looking for money?” he asked. When Robin answered “Yes,” the caller got Robin a meeting with MIT-based angel investor group Hub Angels.

Robin usually did these presentations rather than Antje, which at this point helped downplay the fact that Antje was pregnant. After the meeting, members of Hub Angels Investment Group planned an office tour. The group arrived a few minutes early, and before Robin had arrived, so Antje, now eight months pregnant, started chatting to them in the reception area. When Robin arrived a minute or two later, Antje introduced her as “my partner.”

Robin saw a look go around the room. The investors thought that she and Antje were lesbian partners and that they were having a baby together! Quickly, Robin spelled out that the pair were
business
partners. Hub Angels went on to provide $500,000 in funding, part of the company’s $1.3 million Series A funding round which closed in November 2000.

Though their technology was far from perfected, Robin and Antje knew they needed experience with customers and real revenue in order to move forward. So in mid-June 2000 they launched, despite a bank balance that was near zero.

For the first six months, the online reservation system couldn’t communicate with the cars. Members—known as Zipsters—had to fill out mileage logs by hand. Most members never knew, but any member could wave their Zipcard at any vehicle and drive away. Occasionally, a member would accidentally take the wrong car, and Robin would get a call from another member who had found an empty parking space at their reserved time.