Case Study: Rent the Runway
Minder Chen
Professor of MIS
California State University Channel Islands
Minder.chen@csuci.edu
Todd Heisler/The New York Times
© Minder Chen, 2015
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Videos about Rent the Runway
• **Rent the Runway: An inside look at the tech startup's success
https://www.youtube.com/watch?v=cyvfsi3MX-M
• The Business of Rentable Fashion | Jennifer Hyman
https://www.youtube.com/watch?v=8ZLYWDxDvQI
• ***The Supply & Demand of Rent the Runway | Jennifer Hyman
https://www.youtube.com/watch?v=JYFWpJvq6DU (testing business ideas)
• Working with Venture Capitalists as a Fashion Company | Jennifer Hyman
https://www.youtube.com/watch?v=AlL32GUOqmI
• Open Q&A about Rent the Runway | Jennifer Hyman
https://www.youtube.com/watch?v=xjmSDeK4_x4
• Rent the Runway at The Cosmopolitan Las Vegas
https://www.youtube.com/watch?v=6rAYqPXWfgE
Rent the Runway Announces New Business
https://www.youtube.com/watch?v=hc0RdVK-qK0
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References
• Nathan Furr and Jeff Dyer, The Innovator’s Method: Beginning
the Lean Startup into Your Organization, Harvard Business
Review Press, 2014. (read this introduction (Rent the
Runway case is an great example illustrating Lean Startup
principles) and Chapter 1 at
http://innovatorsdna.com/wp-content/uploads/2014/09/Innovators-Method-Sample.pdf
• “Chapter 12: Rent the Runway: Entrepreneurs Expanding
an Industry by Blending Tech with Fashion” in Information
Systems: A Manager's Guide to Harnessing Technology, v.
4.0
• S. Bertoni, “How Mixing Data And Fashion Can Make Rent The
Runway Tech's Next Billion Dollar Star,” Forbes, Sept. 8, 2014.
• S. Bertoni, “The Secret Mojo Behind Rent The Runway's Rental
Machine,” Forbes, August, 26, 2014.
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Competitors
bluefly.com, outnet.com, bagborroworsteal.com,
ideeli.com,
WearTodayGoneTomorrow.com has been doing this for
almost a year! WTGT loans nationally at 5 – 10% retail
values, has had amazing reviews from Teen Vogue,
People, InStyle, The Today Show and many more. Items
arrive in 2 – 3 days, and they carry over 125 of the top
designers including 3.1 Phillip Lim, Herve Leger,
Matthew Williamson and more. They’re amazing!
A Netflix Model for Haute Couture
http://www.nytimes.com/2009/11/09/technology/09runway.html
© Minder Chen, 2015
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Observation: Friction / Inspiration
• In 2008, Jenn Hyman, a second- year MBA student
at Harvard Business School noticed her sister
struggling to decide what to wear to an upcoming
wedding. “Becky desperately wanted to buy a
$1,500 Marchesa dress and she felt compelled to
buy a new dress— because she knew photos
would soon appear on Facebook and she didn’t
want to be seen twice in the same outfit.”
• As she watched her sister wrestle with the cost of
the dress ($2,000) (i.e., the pain point/friction),
her sister’s emotion was a clue to an important
job-to-be done for young women: helping them
feel special and confident.
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Related Experiences and Hypothesis
• Hyman realized that other fashion-oriented young
women might have a similar challenge, an
observation backed up by her years spent building
a wedding event business at Starwood hotels and
working in marketing and sales at Wedding.com
• Hyman’s insight led her to hypothesize a
potential solution: instead of purchasing designer
dresses, women might prefer the option of renting
designer dresses online for special occasions.
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Pop Quiz
Imagine she came to you. What would you advise?
•It has been done by someone already.
•Write a business plan first.
•Have you done the SWOT analysis?
•Figure out a way to test your hypothesis.
•Finish your MBA program first.
•That is a great idea and I will invest in it.
•Nobody is willing to wear rented a high fashion dress.
Business Plan would identify the customer need,
describe the product or service, estimate the size of the
market, and estimate the revenues and profits based on
projections of pricing, costs, and unit volume growth.
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Pitchable sentence
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Value Proposition Canvas
Value Map
•
•
Customer Profile
http://www.businessmodelgeneration.com/downloads/value_proposition_canvas.pdf
http://www.franciscopalao.com/english/value-proposition-canvas-get-to-know-yourcustomers-and-improve-your-value-proposition/
© Minder
Chen, 2015
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Demand Side and Supply Side
• Demand Side
• Supply Side
• What are the risks for them?
• How can you mitigate the risks for them?
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Taobao.com
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No Business Plan but a Business
• “We had an idea, we thought that it was fun, we
decided to start working on it,” says Hyman. “We
never had a business plan.
• We pretended that we had a business from the
very beginning, as opposed to planning and
strategizing as to whether it would work.”
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First Experiment
Hyman recruited classmate Jenny Fleiss to help her test their
proposed solution. Hyman and Fleiss set up an experiment to
answer two key questions:
1. Will middle- to upper-class young women rent a designer
dress if it is available at one-tenth the retail price?
2. Will women who rent dresses return them in good
condition?
Then Hyman and Fleiss borrowed or bought 130 dresses from
designers like Diane von Furstenberg, Calvin Klein, and Halston
(according to the sizes of the two founders, just in case…) and set
up an experiment to rent dresses to Harvard undergrads. They
advertised around campus, rented a location, and invited young
women. Of the 140 women who came in to view the dresses, 35
percent ended up renting one, and 51 of 53 mailed them back in
good condition (the other two had stains that were easily
removed).
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Second Experiment
But would women rent dresses
they could not try on?
To answer that question, Hyman and Fleiss set up another
experiment, this time on the Yale campus, allowing women
to see the dresses before renting but not allowing
them to try them on.
In the second trial they had more dress options, because
the first pilot revealed that many women didn’t rent
because they couldn’t find an option they liked. The Yale
pilot showed two things:
1.women would rent dresses when they couldn’t try them
on, and
2.the percentage of women who rented increased to more
than 55 percent because they had more options.
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Third Experiment
Now Hyman and Fleiss were ready to test the big idea:
Would women rent dresses they could not physically
see?
•The entrepreneurs took photos of each dress and ran a
test in New York, where one thousand women in the
target audience were given the option to rent a dress
from PDF photos.
•The final experiment showed that roughly 5 percent of
women looking for special occasion dresses were willing
to try the service — enough to demonstrate the
viability of renting high fashion over the web.
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Validation and Outside Funding
• The testing validated their hunch. “Women would put
on a sparkly gold dress, twirl around in the mirror, say
‘Don’t I look hot?’ and strut their stuff in front of all of
her friends,” says Fleiss.
• “For us that was real proof that there is a lot of
tangibility to this concept, there’s a huge stickiness
factor, an emotional connection. We decided to
build the concept of Rent the Runway around that
feeling that fantastic fashion gets to women.”
https://www.youtube.com/watch?v=8ZLYWDxDvQI
http://www.harbus.org/2012/rent-the-runway/
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Use Experiments to Test
• Interest and Relevance
• Priorities and Preferences
• Willingness to Pay
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MVP and Product/Market Fit
• Minimum Viable Product, or MVP, a bare-bones
offering that allows the team to collect customer
feedback and to validate concepts and assumptions
that underlie the business idea.
• Product/Market Fit—the idea that they were crafting
a solution the market wants, one that customers are
willing to pay for, and one that’ll scale into a large,
profitable business.
• 50% of clothing in your closet got worn for 3 times or
less.
• The average American woman buys 64 pieces of
clothing a year, and half of those items will be worn
only once.
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Why Designers Should Never Go to a Meeting Without a Prototype
Link
a project with Sesame Workshop to develop Elmo’s Monster Maker—an iPhone
app that leads young children through the process of designing their own
monster friend. They had an idea for a new dance feature in which kids could
guide Elmo through different dance moves in sync with a simple music track.
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Channel Hypothesis: Renting via Designer’s Websites
• So Hyman and Fleiss gathered data on whether designers
would go for their idea and whether they could use
designers’ websites as their rental channel.
• Less than two weeks after conceiving the idea, the two
women cold-called Diane von Furstenberg, an influential
fashion designer and president of the Council of Fashion
Designers of America.
• The initial idea Hyman proposed to von Furstenberg was
to set up a rental option on the websites of existing
designers. Hyman’s start- up would take care of
fulfillment— taking the order, shipping the dress, and
dry-cleaning the returns.
• Von Furstenberg was intrigued by the idea and helped
Hyman and Fleiss set up meetings with more than twenty
designers.
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Pivot to the Netflix Model
• The initial response from most designers was extremely
negative. “We were going to designers asking to buy their
inventory so we could rent it at the same time it’s available
at Saks Fifth Avenue and Niemen Marcus for 10 percent of
the retail price,” said Hyman.
• “In the first meetings their response was basically, ‘over my
dead body.’” Designers were worried about
cannibalization. Renting dresses instead of selling
them seemed like a bad idea.
• Hyman and Fleiss realized that to make their idea work,
they would need to have their own website and
inventory. So the idea of Rent the Runway— using the
Netflix model to rent a wide variety of high- fashion
dresses from multiple designers— was born.
© Minder Chen, 2015
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Vital Partners: Fashion Designers
• Rent the Runway needed to buy from designers in
bulk, and at a discount, in order for the model to
work.
• Designers needed to be convinced it was worth
taking a risk on two women with an unprofitable
fledgling business and little direct domain
experience.
• Some designers were initially concerned that rental
would dilute their brand. Many also feared that
rental would cannibalize retail sales.
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Designer Reactions
• Rather than cannibalizing sales, Rent the Runway
is now seen by many designers as a vital partner:
an experiential marketing channel that introduces
high-end designer brands to new customers.
Rent the Runway clients are about a decade
younger, on average, than the typical department
store patron.
• 98 percent of Rent the Runway customers rent
brands they’ve never bought before.
• Some designers are now even testing new looks
on Rent the Runway, while others are developing
exclusive lines for the site.
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Link
with videos
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http://youtu.be/iBptKACWNao Website demo
Push vs. Pull
Start from an invention, innovation, or
(technological) resource for which you
develop a value proposition that
addresses a customer job, pain, and
gain. In simple terms, this is a solution
in search of a problem.
Technology
Push
Market
Pull
Start from a manifest
customer job, pain, or
gain for which you
design a value
proposition. In simple
terms, this is a problem
in search of a solution.
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Obtain Capital without a Business Plan
• Now that Hyman and Fleiss had resolved concerns
about whether there would be demand for their
product— and what their initial solution might look
like— they were ready to launch. But the change
in business model meant they needed capital to
purchase inventory.
• The typical advice when you’re going for capital is
to make sure you have a top-notch business plan
and get capital as cheaply as possible. They didn’t
do it.
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Learning by Doing
• Hyman replied, “We’re anti-business plan
people. We think that so many people just sit
around all day and strategize but they don’t act.”
• Fleiss concurred, saying, “We had a bias for
action, not business planning.” In fact, one reason
Hyman and Fleiss chose Bain Capital, even though
it wasn’t necessarily the cheapest capital, was the
attitude of partner Scott Friend. “He shared our
commitment to learning by doing,” said Fleiss.
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Beta Version
• With a small team in place, the typical advice would be to
carefully develop a flawless website and service with broad
appeal, adding features that might attract a wider set of
customers. They didn’t do it.
• Rent the Runway quickly launched a beta version of its
service for 5,000 invited members on November 2, 2009.
• RTR started with 800 dresses from 30 designers— a
relatively small inventory. “We followed the minimum
viable product approach,” said Fleiss. “At the outset we
just wanted to provide the capability to rent dresses. Nothing
fancy.”
• But with the help of a New York Times article titled “A Netflix
Model for Haute Couture,” initial demand for the small
inventory proved almost overwhelming.
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Building a Team
• With capital in hand, the two women were ready to
build the team. The typical advice is to hire experts
to head each functional area, perhaps
• Someone who can leverage significant corporate
experience to take the team to the next level. They
didn’t do it.
• Use a fluid approach to allocating responsibilities
and hire managers who can wear different hats
without worrying about their titles.
• They make heavy use of unpaid internships to
test whether employees have the same hungry
jack-of-all-trades attitude.
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Team
• What Hyman and her cofounder, Jennifer Fleiss,
have built is the furthest thing from cute.
• Buzzing around Hyman’s cubbyhole-chic office in
an old printing building in lower Manhattan are 280
employees with a strange blend of talents: data
scientists, fashion stylists, app developers,
apparel merchandisers. It’s as if MIT and FIT
(The Fashion Institute of Technology) threw a
mixer.
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Netflix for Designer Dresses
• “Netflix for designer dresses” is the elevator
pitch that everyone uses to describe Rent the
Runway, the New York City startup that launched
in November with Series A funding from Bostonbased Bain Capital Ventures.
• The company buys dresses from top fashion
designers, then lets customers reserve them online
for a four- or eight-day rental period. When the time
comes, Rent the Runway ships out the dresses
(in two sizes, just in case) along with a handy
pre-paid return shipping package. They even
handle the dry cleaning.
http://www.xconomy.com/boston/2010/01/08/subscription-model-turns-rent-the-runway-into-a-real-dressflix/
© Minder Chen, 2015
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Driving Forces
• There were serious problems in the fashion industry:
Younger fashion fans were rabid for well-known
designers but rarely could afford them. Designers
wanted to reach the elusive younger demographic,
too. They may be cash-strapped now but they also
represent potentially lucrative lifelong customers.
• Social media "kills“ outfits: Social media was putting
even more pressure on women to "wear something
new" that hadn’t already appeared in their Facebook
and Instagram photos, making the problem of a full
closet with nothing to wear even more acute.
Source: Chapter 12: Rent the Runway: Entrepreneurs Expanding an Industry by Blending Tech with Fashion
© Minder Chen, 2015
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Information Systems: A Manager's Guide to Harnessing Technology, v. 4.0
Key Takeaways
• The idea from Rent the Runway came from observing how an existing
market was underserving a family member and other young women.
• Many uncertainties existed, and co-founders Hyman and Fleiss
addressed these by launching a series of experiments to test
product/market fit. They did many of these experiments with minimum
viable products: running popup rental shops on college campuses,
sharing PDFs with potential customers to see how women would
respond to the prospect of renting without seeing and trying on a
garment.
• Many supplier uncertainties existed, as well, but the firm worked
closely with suppliers and demonstrated that they could actually grow
the market and create a channel for reaching customers with a
potential for high customer lifetime value.
• The co-founders have discovered that the model appeals not just to
young, cash-strapped women, but to all women who seek
convenience and value and who are interested in more broadly
sampling high-end fashion.
Source: Chapter 12: Rent the Runway: Entrepreneurs Expanding an Industry by Blending Tech with Fashion
© Minder Chen, 2015
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Information Systems: A Manager's Guide to Harnessing Technology, v. 4.0
How It Works
• Customers browse the Rent the Runway site, select a dress (or
other clothing accessory), and schedule a delivery date for a
four-day loan (8-day rentals are available for an added fee).
• Rentals are often only 10% of a dress’s retail price. That’s like
getting high-end designer garments at a fast-fashion price.
• Stylists are available for phone calls, emails and online chat.
• Rent the Runway will send two sizes, to make sure that you
receive a dress that fits. Customers who are on the fence about
a choice can choose a second style as a backup, for an
additional fee.
• Items will arrive in a branded garment bag for shipping both
ways.
https://www.youtube.com/watch?v=Rj5CT1scV3w
Source: Chapter 12: Rent the Runway: Entrepreneurs Expanding an Industry by Blending Tech with Fashion
© Minder Chen, 2015
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Information Systems: A Manager's Guide to Harnessing Technology, v. 4.0
Shared Economy
• Hyman and Fleiss’ idea emerged at the right
moment.
• Millennials are leading a migration away from
ownership to subscribing and sharing: Spotify
invades our speakers, Netflix our TVs, Uber our
curbs, Airbnb our entire homes.
• In an age where Uber, Airbnb, and Spotify change
how we think about owning automobiles, homes,
and music, Rent the Runway is going right after
your closet.
• Rent the Runway wants to stream your wardrobe.
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Challenges
• This is a massive e-commerce company where 100 percent of
the inventory is returned, needs to be inspected, cleaned,
pressed, possibly mended, then packaged up for good-as-new
send-out to the next precisely scheduled customer order.
• The firm “empowers women to feel confident and beautiful for
the most memorable moments of their lives.” It is “fashion
company with a technology soul.”
• Juliet de Baubigny, a partner at venture firm Kleiner Perkins,
said: “We didn’t back [Rent the Runway] as a fashion start up.
It’s the sharing economy meets the Facebook–Instagram
generation.”
• 80% of customers post photo on Facebook or Instantgram
• 97% of new customers are from Word of Mouth (WOM).
Source: Chapter 12: Rent the Runway: Entrepreneurs Expanding an Industry by Blending Tech with Fashion
Information Systems: A Manager's Guide to Harnessing Technology, v. 4.0
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Startup Metrics
• Average customer income is around $100,000. For these
savvy, affluent consumers that value experiences ahead of
ownership, Rent the Runway is the smartest, most convenient
way to shop.
• High customer lifetime value (CLV, CLTV, or LTV) :
Someone who has a good first experience at a prom rental will
move on to college events, graduate to weddings and
engagement parties, use the firm for holiday parties or society
events, she may rent a bridal dress, and use the site for highend maternity fashions when baby is on the way. CLV is often
stated as the net present value (NPV) of future profits from the
customer relationship.
• churn rate
• customer acquisition costs.
• Customer Acquisition Costs < CLV in NPV (future customer profits)
Source: Chapter 12: Rent the Runway: Entrepreneurs Expanding an Industry by Blending Tech with Fashion
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Information Systems: A Manager's Guide to Harnessing Technology, v. 4.0
Subscription Model and Inventory Management
• Renting dresses by subscription could help with that
problem by making demand more predictable,
Fleiss says.
• Beta users of the subscription program have tended to
reserve all of their dresses for the month or the
quarter right away—which gives the startup time to
think ahead. “The further out people are renting the
dresses, the more we can plan inventory,” Fleiss says.
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Data Analysis: What Data Will You Collect?
“We’re very confident that we can get [the conversion
rate] up higher; it’s entirely because of inventory
being the constraining problem, as we see it,” Fleiss
says. “We’re servicing those 2,000 customers with
only 1,000 dresses. But the good news is that now,
as we are purchasing for February, March, April, and
the spring season, we have so much data about
what’s renting, what sizes customers want, which
designers fit best, and which things are wearing
out fastest that we’re actually taking a lot less
risk when we buy inventory. So in the long run, this
conservative buy was really smart business, because
we didn’t waste money on things we weren’t sure of.”
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Business Model and Value Proposition
• The New York Times calls the firm “Netflix for
Fashion.” 5 million plus members call it a fairy
godmother that makes “Cinderella moments”
happen.
• The firm has now moved far beyond the initial
target of young consumers, delivering selection,
convenience, value, and quality in a way that
millions of women see as the best option for
dressing to dazzle.
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Rental and Subscription Model
• But Rent the Runway members have to rent each dress
separately at prices ranging from $50 to $200.
• Starting Jan. 8, 2010, Rent the Runway is offering its
own subscription-based pricing option: for $350,
members can now rent as many dresses as they can
wear in the course of a single month (with a limit of
four dresses out at once). For $900, they’ll get
unlimited rentals through January, February, and
March.
– Jennifer Fleiss, Rent the Runway’s co-founder and
president, says customers were demanding a more
economical way to rent lots of dresses in succession. “We’re
seeing a lot of our really loyal customers renting a few times
in one month, so they’re spending a lot of money,” Fleiss
says. “We’re trying to find a way to enable that in a more
cost-effective way.”
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Subscription-based pricing option
• “This is our first bold step to really try to change
user behavior,” says Fleiss. “Our belief is that you
should rent anything that’s not a basic. For your
basic black dress, you should absolutely buy that.
• But for anything that’s seasonal or just once or
twice, you should rent—the job interview, the date
next week, the meet-the-parents dinner, the special
night out. There is no occasion too small to have
fun and pick out a special dress.”
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Subscription-based pricing option
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Netflix Model
• Rent the Runway Unlimited really is the fashion equivalent
of the old Netflix DVD-by-mail service. It’s a flexible,
subscription-based ownership model for accessories
and clothing.
• “Closet in the Cloud“: For $99 a month, women create a
queue of requested items. Customers choose the items
they want first and can keep them as long as they’d like.
Send an item back and choose the next item you want.
• The firm started with handbags, leather jackets, and
jewelry (less risky categories since there are no sizing
issues), but has now also moved into everyday fashion
(daytime dresses, skirts, tops, outerwear).
• Love an item you’ve been sent? You can also buy it from
Rent the Runway.
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Mobile
• Shortly after Rent the Runway launched its first mobile
app, mobile spiked to over 40 percent of firm traffic,
and continues to rise.
• Update Issue: For mobile apps, users may have to
download a new version of the app, problems take
longer to fix, and updates take longer to distribute for
wide use.
• Many experimental features and A/B tests are more
easily conducted on the Web.
• Social: The mobile device isn’t just the store—it’s a
world-connected camera to capture and share looks
and fuel up a hyper-viral word of mouth machine
leveraging the firm’s biggest fans as its most
persuasive marketers.
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Social Effects
• Rent the Runway sees a 75 percent higher conversion rate from
friend referrals than from other marketing methods.
• The value of referrals in encouraging trial and purchase as
social proof—positive influence created when someone finds
out that others are doing something.
• Launched photo reviews on the Rent the Runway website
• Customers arriving at the site via the earned media of a fashion
blog have a 200 percent higher conversion rate than customers
arriving via the paid media of search engine ads.
• As a result, most of the firm’s online growth is organic. Rent
the Runway does very little paid advertising.
• Social also helps fuel business demand. Internet “creates
pressure for women. Now you can’t repeat outfits because
your friends have seen that outfit on social media. As ridiculous
as that sounds, that is what drives our business.”
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Physical Store: Why?
•
•
•
•
•
Pure play vs. Physical Store
Commodity Products vs. Experience Goods
Amazon vs. Apple Stores; Amazon vs. Zappos
RTR Physical Stores at New York City, Las Vegas, DC, Chicago
The firm charges for booked appointments ($25 for single-event
styling, $40 for longer, multiple-event appointments), but also
allows walk-ins, as available. If a customer tries on ten dresses and likes
several, this is data that can be used for later targeting and customer-focused
follow-up, personalizing online shopping and e-mail marketing with styles
she’s most likely interested in. Stores also act as a way to offer a fit
guarantee, and can function as mini-distribution centers with same-day rental
of certain styles, plus dress pickup, and drop off.
• Since an estimated 30 percent of purchases at retailers like
Zara and H&M are for a last-minute need, Rent the Runway
can compete to capture sales from fast fashion.
• One goal: allow clients to go on vacation without packing a
suitcase.
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Data Collection and Analysis
• Rent the Runway can collect data from mobile and
Web use, from interaction in its own websites and
mobile offerings, and from social media.
• Operations also offer a wealth of insight that can
help Rent the Runway cut costs and better serve its
customers.
• Data informs all sorts of aspects of the
business, including dress, designer, and material
durability; designer and style popularity; shipment
priorities; shipping pricing decisions; warehouse
worker scheduling; product and service
refinement; pricing; and more.
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Inventory and Operations
• The more times a dress is rented, the more revenue the firm
generates, and despite the firm’s exacting standards for
maintaining product quality, dresses can be turned about 30
times during their rental life.
• Much of the post-rental inventory is eventually sold via semiannual inventory-clearing sales.
• A significant part of the firm’s technology use and data
analytics ends up focused on an operations and logistics
model that is, at its core, people moving product—a one-of-akind orchestration of luxury good selection, cleaning, repair,
packaging, shipping, return, and inspection (by spotters)
that’s executed over and over again.
• The firm’s primary warehouse in New Jersey; it’s the largest
single dry cleaning operation in the United States
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Expansion
• And now that it’s launched subscriptions, the
company plans to expand in other ways, she says.
Starting in April, Rent the Runway will offer
designer accessories such as bracelets and
necklaces.
• In May, it will introduce bridal rentals—aimed not
at brides (a big market unto itself) but at
bridesmaids, who will be able to get package deals.
And by the fall, the company hopes to offer
maternity clothing.
• “The more we talk to customers, the more we see
there is all this enthusiasm for all these different
verticals,” says Fleiss.
http://www.xconomy.com/boston/2010/01/08/subscription-model-turns-rent-the-runway-into-a-real-dressflix/3/
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Expansion
• The ultimate opportunity for Rent the Runway “is to
build the Amazon of rental.”
• In addition to wedding dresses, maternity dresses,
and plus-size fashions, the company’s offerings
now include jewelry, handbags, scarves, and even
rentals of "ugly sweaters" for holiday parties. And
Rent the Runway will suggest undergarments,
makeup, and hair accessories to further enhance
your look (all available for purchase).
© Minder Chen, 2015
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Future
• Mobile, social, big data, tech-orchestrated operations,
and collaborative consumption all come together in a
market-growing set of services that create value for
both customers and designers.
• 2014 the firm rented $809 million in retail value of
dresses and accessories and shipped more orders
than in the previous five years combined.
• Some speculate that Rent the Runway is on their way
to so-called unicorn status, the tech industry’s name
for those extraordinary startups valued at $1 billion
or more.
• Rent the Runway has the potential to grow a series of
assets that will repell rivals, among them: brand,
scale, deep industry partnerships, data, and more.
© Minder Chen, 2015
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While most luxury retailers have liberal unlmited return policies, Bloomingdale's is
drawing the line on more expensive items to crack down on so-called "wardrobing,"
the practice of wearing a garment once then returning it.
The New York City-based company has placed conspicuous plastic tags on dresses
retailing for $150 and more, preventing customers from returning an item if the tags
have been removed. And the tags are in strategic places on the garments, making it
impossible to wear them without letting the world know what you are up to.
http://www1.bloomingdales.com/fashion-index/renttherunway.jsp
© Minder Chen, 2015
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Raising Funds
• The company raised its first outside funding from Bain
Capital Ventures in 2009 (raise a seed round from Bain
of $1.5 million), based on the strength of their early
market tests, including real-world trials at Harvard and Yale
during spring formal season.
• Scott Friend (HBS ‘95) led the seed investment from Bain.
Friend says, “Unlike a lot of entrepreneurs, Jenn and
Jenny immediately started doing stuff. They had
assembled 100 dresses and started running trunk shows to
validate things about the value proposition.” He adds: “I
was blown away by their ambitious and yet very analytical
approach.”
• Raise a $15 million first round of funding led by Highland
Capital in 2009.
***Raised 120M total
http://www.harbus.org/2012/rent-the-runway/
© Minder Chen, 2015
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Validating Idea without Funding
• Bain, for its part, is bullish on the designer-rental concept, and
on “the Jennifers” in particular. Both Fleiss and Hyman are 2009
Harvard Business School graduates, and Bain partner Scott
Friend told me in November that he was impressed by the
advance research they’d done even before leaving campus.
• “What was super compelling to me was the effort they made,
without any funding, to validate the idea for themselves,” says
Friend. “Without any help from anyone they found their way into
the offices of Diane von Furstenberg and signed her up as an
adviser. They ran several pilot dress rental programs with
sororities, to validate that women would rent these things
and how big of an issue sizing and fit and damage were. All
of those questions that would have been the obvious ones to
ask, they had asked and had found clever ways to get
answers. They’d been scrappy and creative—and all of this
while they were still in school, going to class and passing
exams.”
© Minder Chen, 2015
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Business Model Canvas
© Minder Chen, 2015
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© Minder Chen, 2015
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Business Model Canvas
Key
partners
Key
activities
Value
proposition
Costumer
relationships
Costumer
segments
Text
Key
resources
Cost
structure
© Minder Chen, 2015
Channels
Revenue
streams
www.businessmodelgeneration.com
Text
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Backup Slides
© Minder Chen, 2015
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Venture Round
• http://en.wikipedia.org/wiki/Venture_round
http://themiddlemarketcfo.com/tag/venture-capital-2/
© Minder Chen, 2015
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Venture Capital Investment
http://xitconsulting.net/us/
http://xitconsulting.net/wp-content/uploads/2014/07/venturecapital.gif
© Minder Chen, 2015
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http://www.slideshare.net/dmc500hats/changes-in-venture-capital-startups
© Minder Chen, 2015
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Changes in Tech Startups
• LESS Capital required to build product, get to market
–
–
Dramatically reduced $$$ on servers, software, bandwidth
Crowdfunding, KickStarter, Angel List, Funders Club, etc
–
Cheap access to online platforms for 100M+ consumers, smallbiz, etc
• MORE Customers via ONLINE platforms (100M+ users)
–
–
–
–
–
–
Search (Google)
Social (Facebook, Twitter)
Mobile (Apple, Android)
Local (Yelp, Groupon, Living Social)
Media (YouTube, Pinterest, Instagram, Tumblr)
Comm (Email, IM/Chat, Voice, SMS, etc)
• LOTS of little bets: Accelerators, Angels, Angel List, Small Exits
–
–
Y Combinator, TechStars, 500 Startups
Funding + Co-working + Mentoring -> Design, Data, Distribution
–
“Fast, Cheap Fail”, network effects, quantitative + iterative investments
© Minder Chen, 2015
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Before & After 2 Dot-Com Crashes
Daft Punk Startup: Simpler, Faster, Cheaper, Smarter
Before 2000
•Sun Servers
•Oracle DB
•Exodus Hosting
•12-24mo dev cycle
•6-18mo sales cycle
•<100M people online
•$1-2M seed round
•$3-5M Series A
•Sand Hill Road crawl
•Big, Fat, Dinosaur Startup
After 2008
• AWS, Google, PayPal, FB, TW
• Cloud + Open Source SW
• Lean Startup / Startup Wknd
• 3-90d dev cycle
• SaaS / online sales
• >3B people online
• <$100K incub + <$1M seed
• $1-3M Series A
• Angel List global visibility
• Lean, Little, Cockroach Startup
http://www.slideshare.net/dmc500hats/changes-in-venture-capital-startups
© Minder Chen, 2015
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Progress
By February 12, 2012
•Rent the Runway now has 2 million members and
features dresses by over 150 designers on its
website, including prominent designers Diane von
Furstenberg, Zac Posen, Helmut Lang, Kate Spade
and Hervé Léger.
•The company, which lets members rent dresses
by top-name designers at a fraction of the
purchase price, has captured the imagination of its
customers and the public, with articles about the
company appearing in publications ranging
from New York Times and Forbes to Glamour
and Teen Vogue.
http://www.harbus.org/2012/rent-the-runway/
© Minder Chen, 2015
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Operational Model
• Rent the Runway offers members the ability to
rent dresses and accessories for 4- or 8-day
periods at up to 90% off the retail cost, with
dress rentals starting at $40. Seasonal or
monthly passes that allow unlimited rentals are
also available.
• Hyman is quick to point out the benefits of the
rent-by-mail model, including customers
getting a chance to try before they buy. She
says: “Over 90% of our renters report they have
purchased something from the brand they
rented, post-rental.”
http://www.harbus.org/2012/rent-the-runway/
© Minder Chen, 2015
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“Making a Global Closet for Special Occasions”
• The uniqueness and sensibility of the business
model is what attracted Kleiner Perkins partner
Aileen Lee, who ended up leading Rent the
Runway’s Series B round, raising $15 million in
2011, and bringing the total funding raised to
over $30 million.
• Lee reached out to Hyman and Fleiss in the fall
of 2010, and ended up investing in the spring of
2011. “They had recruited an impressive team
and built a member base of almost a million
people, much of it based on word-of-mouth,
which was pretty impressive.”
http://www.harbus.org/2012/rent-the-runway/
© Minder Chen, 2015
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More Funding
• On the same day, Rent the Runway—the Netflix-like site,
which allows customers to rent clothes and accessories
online—said it had received $20 million in new funds, in part
from Advance Publications, parent company of Conde’ Nast.
• As for Rent the Runway, the three-year-old
company previously raised $31 million. Those initial
investors— Bain Capital Ventures, Highland Capital Partners,
and Kleiner Perkins Caufield & Byers—are also part of the latest
round of financing, while Conde’ Nast President Bob Sauerberg
will join Rent the Runway’s board as part of this deal.
• The site allows customers to rent designer clothes, shoes, and
other accessories for four days at a time, at rates that typically
equal 10 percent of the retail price. Rent the Runway says it has
over 3 million members.
Dec. 3, 2012 http://www.xconomy.com/new-york/2012/12/03/fashion-sitesnomorerack-rent-the-runway-raise-funds/
© Minder Chen, 2015
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“Everyone Deserves a Cinderella Experience” - Growth Strategy
• Fleiss “There’s so many ways we can expand and grow
this business,” she says. “When we think about which
product categories we should extend into or which
demographics we should go after, or even which
countries we should consider, it’s all about kind of
balancing that in a strategic and thoughtful way.”
• Indeed, Hyman and Fleiss have come a long way in a
short time. They have become internet celebrities,
appearing on TV numerous times, including CNN and
Access Hollywood, and being profiled in articles on a
semi-regular basis. The site continues to grow, adding
30 new designers in the past six months, including
Reem Acra and Anna Sui, and 100,000 new members
monthly.
http://www.harbus.org/2012/rent-the-runway/
© Minder Chen, 2015
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The 4 Storycards of 1-Page Lean Strategy
http://www.slideshare.net/RodKing/lean-startup-storyboarding-successfully-facilitate-lean-improvement-and-innovation-projects
© Minder Chen, 2015
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© Minder Chen, 2015
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Lean Strategy
© Minder Chen, 2015
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© Minder Chen, 2015
(link)
https://rodkuhnking.wordpress.com/
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Lean Startup Cycle
© Minder Chen, 2015
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Lean Startup
© Minder Chen, 2015
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Lean Strategy in One Page
CUSTOMER
……………………………………..
Phase/Round/Experiment:
……………………………………….
Lessons Learned; Insights:
……………………………………….
PROBLEM
Decision (Persevere/Pivot; Abandon):
…………………………………….………………….
(Constraint)
Causal
Hypothesis
(Pain)
JOB TO GET DONE
Solution
Hypothesis
(Delight)
Learn
FOUR LEAN STRATEGY
QUESTIONS
1.JOB-TO-GET-DONE:
What is the job-to-getdone or main task of
customer?
2.CUSTOMER: Who is a
typical customer?
3.PROBLEM: What are
problems or pains
experienced by the
customer as (s)he does the
job?
4.SOLUTION: What are
solutions (tools/
strategy/products/services)
offered to the customer to
solve the problems?
SOLUTION
Build
(Ideal Lean System)
Measure
(Success Criteria)
O.T.H.E.R. Loop (5 Habits)
O: Observe Different
T: Think Different
H: Hypothesize Different
E: Experiment Different
R: Reflect Different
http://www.slideshare.net/RodKing/1page-lean-strategy-for
of the
Startup Snowman
Lean
© Minder Chen,Register
2015 at www.visionaryd.com to participate in testing and validating the interactive version
Rent
theLean
Runway
- 77
Startup Coach. Dr. Rod King. rodkuhnhking@gmail.com & http://businessmodels.ning.com & http://twitter.com/RodKuhnKing
OTHER
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© Minder Chen, 2015
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3 Stages of Fit
A scalable, profitable,
and sustainable
business model
Customers
positively react
to your product
and it gets
traction in the
market.
Business Model Fit
(In the Bank)
Product-Market Fit
(In the Market)
Identify relevant
customer jobs, pains,
and gains you believe
you can address with
your value proposition.
© Minder Chen, 2015
Problem-Solution Fit
(On Paper)
Rent the Runway - 80
Pretotyping, verb: Testing the initial appeal and actual usage of a potential new product by
simulating its core experience with the smallest possible investment of time and money.
© Minder Chen, 2015
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AAARRR
Based on Dave McClure’s “Pirate Metrics
(AARRR)”, the new acronym of “AAARRR” in the
“Measure” Phase stands for:
• A: Attraction
• A: Acquisition
• A: Activation
• R: Revenue
• R: Retention
• R: Referral
© Minder Chen, 2015
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Poster
© Minder Chen, 2015
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© Minder Chen, 2015
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Facebook
© Minder Chen, 2015
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Uber
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© Minder Chen, 2015
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© Minder Chen, 2015
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© Minder Chen, 2015
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Business DNA Clock
© Minder Chen, 2015
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Extending the Product Life Cycle
•
•
•
•
•
Advertising
Price reduction
Adding value
Explore new markets
New packaging
http://www.tutor2u.net/business/reference/product-life-cycle
© Minder Chen, 2015
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• The New Entrepreneurship Leader
• Babson College
© Minder Chen, 2015
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