G-Whiz Car Share Business - Essay Example

Review of Business Plan Brief Summary of Proposed Business Plan: G-Whiz car share is a business proposed to be started by Emma Kate Rose and Philip Sharp, to offer car share services to commuters in Brisbane. The Company was established on February 1, 2007 and is seeking equity investors who can invest up to $100,000, in return for 20% equity and financial returns of 30% per annum, starting in the third year, when the break even point is expected to be reached. The new venture proposes to acquire a set of leased cars and offer them from strategic vantage points or car pods, from which customers will be able to access the cars easily. The car sharing venture will be commenced from one central nub, the South Bank area in Brisbane, from which it will be extended to other such nubs. The venture targets those customers who are environmentally conscious and proposes to work with two primary market segments – corporate customers who are likely to be frequent and heavy users of car share vehicles during week days and private customers who may use the cars less frequently and for shorter periods and be targeted for evening and weekend use, to achieve optimum utilization of the cars. It proposes to make customers aware of its services through its own website and also through a variety of advertisements and flyers. Additionally, it will also align with the Brisbane City Council in ensuring that complementary websites are linked to its own website to generate leads from environmentally conscious customers. The Plan makes some provisions for potential risks. For one, it allows for the uncertainty in customer use and preference for car sharing by proposing to first lease the cars and prevent an initially huge capital outlay. Secondly, it proposes to deal with technological requirements of coordination of car usage and mileage, etc in its database by securing such services from a provider. Thirdly, it makes bold use of an innovative approach in offering customers a fuel free and insurance use of the cars. This venture appears to be solidly grounded and could be profitable to investors, notably due to the innovative strength of the car sharing concept in Brisbane. However, there are certain limitations and risks that are identified in the analysis below, which must be taken into account before this venture can sustain the competitive advantage it will gain from its novelty. Analysis: Is G-Whiz a venture that is merely gold plated in that it offers an initial competitive advantage through car leasing – or is it a solid gold venture where sustained profits are likely to accrue? Porter’s 5 forces Model visualizes an industry as being influenced by five forces: (a) Buyer Power (b) Supplier Power (c) Barriers to Entry (d) Threat of Substitutes and (e) Rivalry. Applying these forces to G-Whiz, the potential costumer base appears to be varied enough since G-Whiz proposes to start leasing its car pods from the South bank precinct where a wide base of potential corporate and private customers may be tapped, eliminating risks accruing from undue Buyer Power. The phased approach in building more customer nubs and car pods as the business improves is sound from a financial standpoint, in reducing the risks that may arise due to uncertainties in customer usage of the service. However, suppliers may pose a problem for G-Whiz – especially suppliers of technology services needed to maintain effective networking on availability and usage status of cars. It must be noted that the proposed management team of the venture plan lacks the inclusion of a member experienced in technological services, which would have added credibility to the business plan, since this is the one area where the team is weak and needs to seek and rely upon the services of an appropriate technology services provider. From the resource based view of sustainable competitive advantage that has been put forward by Barney (1991), organizational and intellectual human resources are inadequately supplied in the management team comprised of Rose and Sharp, because there is a vital lack in the technology area, thereby leading them to depend on external suppliers. This may also potentially lead to the better mousetrap position as outlined by Robert Drew, where there may be a temptation to invest in so called better technology that costs more to produce, since technological provision must be made in leased updating in the central website. With the lack of specific knowledge that Rose and Sharp possess in this area, decisions made by the venture may not be cost effective, or invoke the best solution to dealing with technological needs. The strategic plan of G-Whiz therefore fails to include strategies to reduce risk of supplier monopoly or power by inviting a technological expert, or owner of a technological Company to join the management team. Although the plan invites investors experienced in technology, this has not been made a requirement. In the absence of such a member on the current team, the requirement is vital. Otherwise customizing technology to suit the electronic requirements in the shared cars and maintenance of accurate records in the database is likely to be a thorny issue, where supplier power may interfere with the competitive advantage gained by the venture through the novelty of its approach. There do not appear to be any barriers to the entry of G-Whiz into the car share business, since car rentals are premised on payment of fuel costs. In this area, G-Whiz offers an advantage that may facilitate its entry into the market since it is allowing customer the facility of pre paid fuel costs. The threat of substitutes is also not very relevant here, since the closest substitute for car sharing may be car rentals, which are different from the car sharing concept. But the question of rivalry or competitor activity is likely to affect G-Whiz profits in the future, especially if the car sharing concept becomes popular in Brisbane and competitor car share companies enter the market. Such competitors may steal away the advantage G-Whiz has in appealing to environmentally conscious customers by offering electric cars or ecologically friendly cars, such as Toyota’s Prius in which there is 32% less of carbon dioxide emissions. (www.guardian.co.uk) Such competitor rivalry can push down G-Whiz’s profits in the future and G-Whiz must pre-empt this potential competitor strategy, by including environmentally friendly usage of fuel in its vehicles. By offering cars that run on electricity, or a mixture of electricity and petrol, such as the Prius car, G-Whiz may be able to attract customers who are intent on achieving environment friendly means of travel. This will also make customers of G-Whiz services less inclined to switch over to any other competitor company in the future. The strategic advantage offered by the fact that G-Whiz will be first car share Company to begin operations in Brisbane and the unique nature of the service is itself a feature that stands in support of this investment opportunity. The facility of car share exploits an existing opportunity available in the business environment in Brisbane to capitalize on customer concerns with environmental issues. In today’s global marketplace, creativity and innovation have assumed a great deal of importance and it is important for a Company to have a fresh and novel strategy if it is to succeed in the market place, as identified by Porter (1996: 68). According to Porter (1996:64), “Competitive strategy is about being different.” Porter also states that “Strategy is the creation of a unique and valuable position, involving a different set of activities……different from rivals.” (Porter 1996: 68). This is often achieved through a process known as value innovation. This was the case with Bert Claeys, the Belgian company that operated movie theatres. In order to combat the declining rates in movie going, the Company set out to provide a unique viewing experience for the movie goer with screens measuring 7 m by 5 metres and 35 mm projector equipment (Chan Kim and Mauborgne, 2000). It did not try to use the traditional strategies of maximizing market share, but sought to address customer needs. G-Whiz car share appears to be trying to attain the same strategic objectives of providing value innovation to its customers. By embarking on the bold plan to introduce pricing for the use of car share services on a per use basis, without the payment of insurance or fuel costs, the entrepreneurial Company is offering unique advantages to its consumers that supersedes those offered by other means of transport, including own car ownership. Moreover, G-Whiz has arranged different pricing plans for frequent users and sporadic users, offers further cost benefits in pricing to frequent car users. This appears to be a factor that will attract corporate users who are likely to use cars on a more frequent basis. As compared to rental cars, the pre-paid fuel option offers a significant advantage to customers. In all these ways, G-Whiz appears to be demonstrating a value based innovation approach, in thinking about what customers seek and offering facilities beyond traditional industry offerings. Some of the advantages inherent in being the first mover in a business opportunity are (a) technological leadership (b) pre-emption of assets and (c) buyer switching costs. However, there are also disadvantages associated with being the first mover, notably market uncertainty and shifts, as well as incumbent inertia and free rider effects. This is also the case with G-Whiz, although there is an advantage to be gained by being the first in the market since they will be to secure a strong hold in the market and learn to operate within it. One significant disadvantage that must be considered is whether or not it will remain an economically viable situation for G-Whiz to offer its consumers fuel free car sharing. With rising energy costs, coupled with the risk of not enough consumers coming forward, a financially unviable situation may be created and the returns on investment may not be as high as expected and the question of whether the entrepreneurial effort will actually achieve a break even status by the third year does arise. What are the alternative plans G-Whiz has in store to provide for such a situation? Moreover, G-Whiz has to contend with the car owner’s reluctance to dispose of his/her car and making alternative arrangements for sale of the cars may or not be a workable proposition in practice. Thorny aspects that could arise include the question of whether the car owner gets an acceptable price for sale of the car from the dealers selected by G-Whiz. However, the Company appears to have anticipated the risks in terms of market uncertainty, that there may not be an adequate number of customers coming forward to car share. Their strategy to refrain from purchasing their cars and instead leasing them, protects against incumbent interia and getting locked up into huge financial commitments on car purchases and thereby being saddled with a huge capital expenditure. Hence their move to take the cars on lease initially is a wise move and anticipates and provides for potential losses. This also allows the Company the facility of asset leverage, so that it can manage its assets and direct them into the area of enhancing technological capabilities. This could also however, prove to be a disadvantage, since in acquisition of leased cars there is the need to invest heavily in introducing appropriate technology for revamping of leased cars to enable an efficient distribution and reservation network to be in place. Applying resource based risks to this venture also means that there is a possibility that the unique concept of car sharing offered by G-Whiz will not continue to remain rare, since others can easily gain access to a fleet of cars to begin their own car share pool. In fact, existing car rental services can transform their operations into car sharing ventures and benefit from the knowledge they may already have in the car leasing business, Such competitors will also have access to better technological tools that have already been developed in their cars and may therefore pose a significant threat to G-Whiz’s future profits. Use of advertising to make customers aware of the service is one good aspect of the plan. In particular tying up with public bodies like the Brisbane City Council and Brisbane Marketing and providing links to G-Whiz’s website from complementary websites, is likely to ensure that the Company receives the due amount of awareness about its program. G-Whiz could also consider offering advertising space on its cars, which could generate more revenue for the Company. This business plan also shows that enough research has been done so that market segmentation has been established and potential customer base and financial requirements have been estimated. Moreover, the development of the plan also appears to offer a realistic time framework for achievement of necessary objectives before the Company’s operational time frame of April 2007. Conclusions and Recommendations: Investors are likely to invest in a new venture if it offers (a) a new technology or idea – in the case of G-Whiz, the concept of car sharing is a pioneering one in Brisbane (b) a sufficiently rewarding market for the idea – this market would appear to exist if G-Whiz is able to sufficiently promote its concept, which it is endeavoring to do, although it may be difficult to convince car owners to sell their cars. The financial know how of Philip Sharp coupled with the marketing and customer service skills of Emma may prove to be a winning combination in identifying potential customers and building a network of customers and suppliers, while also adhering to cost controls. On this basis therefore, it is concluded that despite the limitations that have been identified above, the innovative power of this new venture offers a sterling opportunity for investors, especially since car sharing and carpooling are likely to become more popular with decline in energy sources and increase in environmental pollution. It is however recommended that the management team be expanded to include technological experts. The inclusion of a third member on the management team will also forestall any power conflicts between Sharp and Rose, through provision of the facility of a majority vote. G-Whiz could also consider cooperating with car manufacturers such as Toyota who want to make specific models like Prius popular. By entering into a lease agreement for only environmentally friendly cars – such as electric cars or hydrogen powered cars, the Company may also attract customers from the high income categories. It will also provide environmentally conscious customers a strong incentive to dispose of their existing cars, thereby helping the Company to reach out to the widest possible customer base. It may also help to address the problems identified with costs, by providing higher profits. Moreover, the Company will save costs by eschewing the need for acquisition of CO2 licenses, since electric or hydrogen powered cars will be CO2 neutral. G-Whiz can also approach the Government of Queensland for subventions, since they will use only environmentally friendly cars, which could produce further cost savings for the Company. Therefore, it is recommended that G-Whiz reconsider its strategy to lease environmentally friendly cars to address the cost factor in its venture and establish itself firmly in the market. References: * Barney, J, 1991. “Firm resources and sustained competitive advantage.” Journal of Management, 17(1): 99-120 * Chan Kim, W and Mauborgne, Renee, 2000. “Value innovation: The strategic logic of high growth.” Harvard Business Review, at pp 103 * Porter, M.E. (1996), What is Strategy? Harvard Business Review, Nov-Dec.: 61-78. * http://www.guardian.co.uk/prius/environment/0,,1122256,00.html Read More