My goal with this blog

I write about relevant changes in the way that people use the web and how startups are built to provide services and products for this ever changing wonderful thing we still know as "the web." As a former entrepreneur turned early-stage investor, my greatest hope is for this to be useful to other folks that are like me in the hopes that they can avoid some of the mistakes I've made.

From:
Antonio Rodriguez

Changing the world is not always profitable

tech
by Antonio on

There is zero doubt that ZipCar was at the leading edge of fractional ownership in the way it defined the model for consuming automobiles by shifting the burden of owning and maintaining the asset from the end user to a service provider while getting rid of the relative inflexibility of traditional car rental. Started in 2000, the company was also way ahead of anyone but Apple in terms of delivering delightful customer experiences. Anyone who has ever used its iPhone app to unlock a car has definitely felt like they were experiencing a little piece of the future, and conversely, anyone who’s thought of ZipCar as just another rental car company has just never tried it. Finally, as a local Boston company, I can attest first hand to the mission-oriented terrific attitude of all of the great folks that made what was a really logistically complex machine “just work.”

Having said that, there is a cautionary tale in this Wall Street Journal hatchet job on the company’s exit for every entrepreneur that has fallen back on “business model innovation” line as the special sauce behind why they were going to take over the world. The piece does a nice job covering the fact that the company’s asset intensive model failed to deliver much in the way of profits (or perhaps more importantly as Jeff Bezos would insist, free cash flow). Additionally though Crunchbase tells us the company raised only $60 million in venture money, it had a fairly dilutive merger with Steve Case’s Flex Car early on so the effective capital raise may be closer to double that before the $174M it raised when it went public. Put another way, despite having built something loved by their users that was truly unique, the company may have gone through as much of $300M of cash to generate what will ultimately be $500M in terminal value.

For sure there are some business models that end up being the envy of the rest of the world and don’t require the massive technological advantage that Google’s cash machine did— but other than liquid marketplaces where the network effects quickly lock out competitors and maintain margins astronomically high (eBay being the greatest example ever), I am hard pressed to come up with them.

For the rest of us, it turns out that building a non-tech, asset intensive business without apparent barriers from larger incumbent competitors with better structural advantages and meh core businesses will often get you paid like an asset intensive, non-tech business with larger incumbent competitors with better structural advantages and meh core businesses— even after you’ve irrefutably changed the world for the better.