How her honesty spun Zipcar back around

In 2000, Robin Chase founded Zipcar in Cambridge, Mass. The car-sharing service was an instant hit; within three months, the firm had 400 members.

Chase was about to secure $1.3 million in new funding to grow the business when she crunched the numbers and realized her business model was seriously flawed. She had miscalculated the rental rate that members pay to use the company’s cars, and as a result Zipcar wasn’t charging enough to stay in business.

Her initial reaction was fear and dismay. She shut the door and cried, thinking, “I’m selling a lie.” Examining the numbers a few hours later, she decided to try to save the company by raising prices.

Some Zipcar staffers worried that raising rental rates would infuriate the 400 people who had signed up. But Chase knew it was her best option, so she emailed every Zipcar customer and confessed her error, and announced a 25% price increase.

“I remember I pushed the Send button on the email that evening,” she says. “I walked into work the next morning with such dread.”

To her delight, 19 of the 21 replies that morning were positive. They agreed to the higher price while praising Zipcar’s service.

Chase called the two others who were angry, apologizing and explaining that Zipcar could not survive without a price hike. Neither customer quit.

Chase’s gambit paid off. In January 2013, Avis agreed to buy Zipcar for $491 million.

— Adapted from “When you mess up, come clean,” Inc.

image: urbanomnibus.net