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1 INTRODUCTION

The concern with urban mobility – a crucial factor in the modern world – is present in César's business perspective. After the first months of his startup's founding, he still questioned: How to take advantage of the prominent tourist market in Brazil, making it grow to generate a substantial impact on urban mobility in the country?

After several validation and tests of the business model, based on the rental of bicycles for tourists, in hotels in Rio de Janeiro, César and his partners obtained relevant clients for their market. Because of this, they begin to think of strategies for expanding the business, exploring the same mobility opportunity in other landmark cities in the country.

César and his partner Roberto, at the meeting table of a coworking space, dialogue:

Man, we are delivering a new concept of sustainability and value to hotels in Rio de Janeiro, and revenue is increasing – says César.

It is true, yesterday I visited that last five-star hotel, which was our goal for the semester. It will close, we will conclude this negotiation, and we are still in March – adds Roberto.

We already know how the business model works, the implementation, and the needs of each new customer. We have to expand! - proposes Cesar.

I agree. I had the same feeling and experience when I joined Compra Coletiva. I can start looking for people and train them to be our salespeople in other cities – says Roberto.

Yes, with sales representatives. But is it the best model for us? Do we have the cost of bikes to open a new customer? Cesar asked.

Well, we have to put it on paper and see – answered Roberto.

Maybe Luís can give an overview of the franchise model. How different is it to scale a startup that is not fully digital? – pointed out Cesar.

Would they be franchises? Or the expansion of the sales model by sales representatives? This dilemma contains pros and cons, but that will decide the company's future idealized by César, which, unlike the well-known software startups, has some critical points related to physical assets.

2 FROM PROBLEM TO OPPORTUNITY

César was previously a nightclub owner, which motivated him to seek experiences outside the country after selling the club. Returning to Brazil, he participated in expanding a large national startup case known as "Compra Coletiva" (Collective Buying), where he would meet his future partner, Roberto.

Once again, César experienced entrepreneurship, this time in the furniture and technology sector, with e-commerce called MBEC, synonymous with success. After a growth cycle, with the sale of his company, he decided to look for new business opportunities.

After a traffic accident, César's car had to be repaired for several days in a workshop, and he decided to use a bicycle to transport him to work. A bicycle lane had just opened a short time ago on the waterfront avenue of his city.

César observed that, besides him, several people went to and from their jobs using the bicycle as a means of transport. Then, the first point of attention emerged: "Is this a good business opportunity?". It was Caesar's enterprising gaze catching his attention once more.

Based on his entrepreneurial experiences, César sought some information about urban mobility and noticed that, throughout the country, initiatives, and implementation of cycle paths – called "cycle lanes" came up in some locations. Thus, he came across a company called Bike Rio, also known as "asciclas do Itaú," which rented bicycles for tourists in Rio de Janeiro. César knew that tourism constituted a large market segment and that, soon, that city would host one of the most significant sporting events in the world, the 2016 Olympics.

Curious, César decided to go to the "wonderful city" to explore the Bike Rio service. When he arrived, he faced the first problem: his hotel was far from the bike rental point. It was necessary to take a taxi to go there. In addition, when arriving there, there was only one sign informing the user to use their smartphone to download an application, create a registration (with several mandatory fields to be filled in), and enter credit card data for payment. The curious point is that there was only one field, destined for the Social Security number; and "what would it be like for tourists from other countries"?' thought Cesar.

In addition, the condition of the bicycles was questionable, with chances of defects during use, which also caught the entrepreneur's attention. "What a horrible experience! This can be improved! I think there is an opportunity here," – pondered César, facing questions about aspects that, if improved, would help that business become promising.

2.1 To build a great business, experience is key

The experience with his previous ventures undoubtedly awakened in César the wisdom to seek partners to construct his startup. The opportunity was in sight, and now he needed "sailors" to help him find the treasure! Two former partners, Roberto, and Luis were then sought out. Both had extensive entrepreneurial experience, knew César's profile, and had behavior and skills that complemented the startup team.

Roberto, the oldest and most experienced of the three, was a crucial player in the expansion of one of the central collective purchasing platforms in the country. He was responsible for managing the commercial team in the southern and central- western states, with dozens of coordinators, regional offices, and 90 sales representatives in 35 cities, César being one of them.

Luís was a franchised entrepreneur of two large Brazilian companies, one of them Havaianas. In addition, he had much knowledge about the financial and administrative areas due to his previous professional experiences.

First, Cesar called Roberto:

Dude, you know me, I'm the entrepreneur who executes, so I'll cut to the chase: I found an exciting opportunity, and if we get it right, we can take advantage of the Olympics to grow very fast and create the basis for an enormous expansion.

"I trust you, and I know you'll tell a good story about how you got there… You do the talk, don't you? Hahaha – laughed Roberto – But come on, tell me!

Yeah, I know. Anyway, these days, my car had a problem- and César told the whole story, the analysis, and his vision - Besides, the Olympics are coming. If we get the business to run now, we can take advantage of all the growth and the opportunity to test the business model and make cash to expand in the following markets!

Very cool! And how do I get into it? – asked Robert.

I want you to be my business partner; I know you as a salesperson and manager. We started complementing each other, and we would only need one person for the finance area, but I have a friend, who I've known for a while, and can handle this part of the business– added César.

Okay, what about the three of us, meeting at the weekend to talk? I don't know if it is a coincidence, but I'm going to visit my mother with Pati and Duda - commented Roberto

Deal, I will talk to him! I'm sure you will because he is a super entrepreneur!

César called Luís – an acquaintance from the time who lived abroad – and told him about the business opportunity, and he agreed to meet with the two of them. They decided to be part of the team and business partners by presenting the idea and vision. They then began their work, conducting market research for information that would help them make decisions regarding the creation of the startup.

Reflecting on the first problem reported by César concerning one of his future competitors, the partners observed the behavior of tourists in Rio de Janeiro. Bicycles should remain available to hotel guests without traveling to the rental point. In addition, the guest registration information would already be ready in the hotel's system, eliminating the need to fill in a new registration. At this point, we need to know: "will the hotels accept the Use Bike project?".

2.2 Business model validation

The partners began to assess the possibilities: "Will we be able to convince hotels to have bicycles available for their guests? How could we offer bike rental, in a format that benefits both sides, making the business viable?"

Given this, the entrepreneurs decided to contact a large hotel in Rio de Janeiro to verify the acceptance of the idea. Many possibilities needed to be validated to find the best way to generate revenue in this up-and-coming market. The conversation was fantastic, and they got a potential client at the end of that meeting.

The partners thought of a friend, a hotel owner, also belonging to the Brazilian Association of the Hotel Industry (ABIH), who could pass on his feedback on the project. The feedback from this contact was positive, as he considered the Use Bike project very promising, motivating the entrepreneurs even more. At the time, we gathered new information: (a) ABIH has around 4,000 associated hotels, and, according to the Brazilian Ministry of Tourism, this sector has already generated BRL 492 billion in 2014. (b) diversity of hotels and their categories, starting with the number of rooms, which varies from 80 to 400, for example.

For Use Bike, the ideal form of revenue should provide for the division between the hotel and the company. It is worth noting that, for hotels, this idea adds the opportunity to offer guests a new service. They would subsidize the expenses, involving the cost of each bicycle (around R$1,800.00), in addition to the advertisements related to sustainability and the environment, for providing an alternative and "clean" mean of transportation.

The startup, therefore, hoped that the hotels would agree to make some resources available for this investment since, indirectly, it would be another way of attracting customers due to the offer of new and unique services, which would be synonymous with profits.

The partners searched for their achievements with the gathered information and the business model hypotheses created. We had planned everything. The hotel would pass on the information about the guests and would provide an employee to give them the necessary directions and Use Bike would supply the bikes. And so, they signed the contracts for the first pilot project.

The goals were coming true. However, concerns about how to sell more remained. The visits to the hotels were a success: 30 of them agreed to be part of the project, equivalent to the conversion of 97% of customers.

After the signed contracts, the partners began to explore all possibilities to achieve the goals set. In this sense, the initial strategy was consolidating the service in the Rio de Janeiro market. Subsequently, they would consider actions to replicate the business model in other cities. As it is a pilot project, no expansion agreements were made with investors, only assumptions to be validated in the case of commercial representation or franchises.

We intend to have 30 hotels with Use Bike bicycles available for guests. To this end, and to obtain more financial resources, in addition to having the support of angel investors, the entrepreneurs saw the opportunity to enter a startup acceleration program - Newton Evolution, which offered financial resources and consulting services with great entrepreneurs.

The approval of this startup acceleration program contributed significantly to the continuity of the business. The funds received were destined for the right destination: the acquisition of bicycles from the first customers signed in the pilot and coverage of some initial implementation costs. Thus, with the arrival of investments and knowledge, the partners, with the planning ready, left for Rio de Janeiro!

2.3 Execution challenges

After selecting 30 hotels, the challenges associated with implementing the Use Bike pilot project emerged, as each establishment had a different administrative reality, which also required other procedures. Therefore, the time to complete the negotiation became a great challenge, considering that the arrival of the Olympics would be the ideal moment to execute the project. Even with the support of ABRH, signing some contracts took 30 to 45 days.

Once the contract stage was concluded, the partners dedicated themselves to the practice, which involved training employees and running the project. A quality team, accompanied by one of the partners, would be sent to each hotel to train and promote practices among those responsible for the areas relevant to this new mobility tool available to guests. In addition, Use Bike has known to hotels a system for employees to inform the guest's room and the pick-up and return times of the bicycle.

Based on the experiences of implementing the pilot project in Rio de Janeiro, after six months, we met expectations. Still, it was possible to capture important information and lessons learned to understand some variables resulting from the different realities observed.

Based on the business model proposed by Use Bike, in which bicycle rental is related to the temporal aspect, that is, the hourly use of each bicycle by the guest registered in the system, the pros and cons can be evaluated. One must find the ideal metrics to have a sustainable business. For example: for every 40 rooms in a hotel, a bicycle is available, and as long as 0.32 hours are used per day, there will be no losses. Based on these indicators, values from R$ 15.00 to R$ 25.00 per hour were reached. Contrary to the rule, some hotels had more rooms, generating an average use of bikes above two hours (instead of 0.32).

Another challenge, which deserves attention when considering bicycle maintenance, as it is a dominant factor for not causing damage, is to define how partnerships will be concerning the business model's sustainability. At first, the focus was on Rio de Janeiro, where it all started, including maintenance; however, the expansion of business across the country was part of the project, which aimed to use the bike linked to hotels. Therefore, two questions stand out: Which paths to take? Moreover, how to do it?

2.4 The expansion challenge: how to scale?

After the completion of the project in Rio de Janeiro, considering the difficulties and lessons learned, to expand the business, there is a need for more financial resources and the partners to find ways to obtain them. In the business world, which includes startups, when one wants to grow and conquer other business spaces. We must reflect on the business model and action plan.

How to scale the Use Bike business model? The discussion between the partners represented the dilemma that the startup was going through. In the symbolic meeting room of the coworking, where meetings were always held, César talks to his partners, analyzing the figures for the month's closing:

If we don't find the scale model, we will lose market share; now, it's time to expand," said César.

Yes, we have to test a model with one point of attention: the costs of acquiring bicycles, which, in our beginning, was with a down payment, using investors' resources and in installments. I went to the bank to see credit possibilities, and because we are a startup, it will not be possible. We don't have a history for guarantees - said Luís.

Seriously? – questioned César – and how do you want us to growto be able to offer guarantees?

It's part of the business. We still have a lot to evolve – Roberto replied, mentioning the startup business environment at the time – When we were starting at Compra Coletiva, it was also like this.

How did they decide back then, Roberto? Asked Cesar.

It was entirely digital, so they had to go to potential customers and negotiate group discounts. In this case, they opted for sales representatives who earned a fixed salary and commission per customer. But it's different because it didn't have the initial cost of bicycles, and we wanted to control the expansion fully – pondered Roberto.

Yeah, our whole issue is the initial cost of bicycles. When I bought the Havaianas franchise, I had to pay a franchisee fee and fulfill all the franchise requirements. They even visited the store before the opening – said Luís, remembering his entrepreneurial experience.

Maybe that franchise fee can pay for the bikes! – celebrated César – The rest is simple; we only have a manual so the franchisee can train hotel employees.

There is more to it. – Roberto positioned himself. – It will be different for hotels to negotiate with a franchisee and not directly with us. In addition, we need to have a very well- structured franchise model, even to be attractive to the entrepreneur. Ultimately, we will always have costs for periodic inspection, training, brand management, and so on. Perhaps the business representation model gives us more control.

But how do we get the resources? If a commercial representative manages to close with a hotel? We will not have the cash to buy bicycles if they start to have several agreements – said Luís.

Maybe we should go back to the possibility of the hotel paying for the bicycle—our initial idea. We ended up changing to be able to negotiate quickly with the first customers – recalled César. – Investors will no longer contribute resources, and we cannot have more dilution, as this could compromise other rounds when the expansion model is defined and ready to be replicated.

"It could be a possibility," Roberto said. – We could even test it with a current customer of a chain who has a hotel in another city.

Good idea. However, I still think that the franchise would give us a lower initial cost of expansion about the payments of the representatives - pointed out Luís.

Well… You have already worn both hats: the management of commercial representatives and franchise, something we have to get out of there because we cannot stop that! - said, Cesar.

They were different companies, weren't they? - said, Robert. – But we have to put it on paper, plan, and test. This initial acquisition cost can make it unfeasible. I do not know if a franchisee will afford that.

At first, the partners chose to check the plans based on two ways to expand: hire sales representatives to sell to hotels in exchange for a commission; and create franchises as a way to grow, implementing the project's ideas through the franchisee that is, he would become responsible for the execution, in different regions, according to the initial project.

Questions about the climbing route do not stop there, as it is necessary to consider forms of remuneration, cash flow for the purchase of bicycles, and commissions for sales made. In franchising, it is also required to assess management capabilities. How to create a franchise model? How to maintain the quality of the service offered by the Use Bike brand?

Another critical issue is the "payment" item, about who should pay for the investment, considering already established details (one bicycle for every 40 rooms per hotel), with the number of bikes corresponding to the number of rooms in each hotel. The company itself, the hotel, or the franchisee? What other viable expansion possibilities for Use Bike?

Significant challenges arose for entrepreneurs; however, the objective was clear – Use Bike needed to grow and quickly explore the market throughout Brazil.

3 CLOSING THE CASE DISCUSSION

After a few months of difficulty, mainly due to the problems caused by the collapse of one of the leading bike paths in Rio de Janeiro, close to the startup's main customers (hotels), there was a significant drop in revenue, except the months of the Olympics, and some contract terminations.

Even with César's persistence in maintaining the business alone – his partners looked for other jobs to meet their financial demands – the difficulties continued. Faced with the risk of using bike lanes, guests and hotels gave up on Use Bike. Without new contracts, the possibility of implementing the service, conditions to keep customers, and the contribution of new resources by investors, César decided to close the startup's operations in 2018.

At the end of this case study, it is expected that the student will be able to reflect on the difficulties in creating, maintaining, and expanding a business, especially if innovation is involved. Current successful models can also be analyzed, such as the McDonald's franchise, for example. What were the challenges at the beginning of the expansion?

Supplementary materials

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