For those second-year HBS MBA students wondering if they have time to successfully launch their own companies before graduation, the success of 2009 MBA grads Jenny Fleiss and Jennifer Hyman with their company, Rent the Runway, proves it is not too late.
Section I Friends Jump at an Idea
Founded in 2009 while the two Section I friends were midway through their second year, the idea for the “luxury fashion for a night” business first occurred to Hyman after watching her younger sister struggle with the decision about buying an expensive dress for a wedding. The two thought that the Internet rent-by-mail model, so successful for Netflix with movies and Gamefly with videogames, could be applied to women’s high-end fashion as well. But with graduation around the corner, they weren’t certain, so they quickly rolled up their sleeves.
“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.”
Their fire-ready-aim approach worked. 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.
Testing Leads to an “Aha” Moment
The company raised its first outside funding from Bain Capital Ventures in 2009, based on the strength of their early market tests, including real-world trials at Harvard and Yale during spring formal season. “One big ‘aha’ moment for us was with the trials,” says Fleiss. “We purchased dresses at retail and went to Harvard undergrad and then Yale undergrad to see, ‘will women rent dresses?’ by bringing them there and testing different designers.”
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.”
Bain Capital’s Term Sheet Comes Two Weeks Before Graduation
This strong customer validation helped Hyman and Fleiss raise a seed round from Bain of $1.5 million, and then raise a $15 million first round of funding led by Highland Capital in 2009. Noted Boston venture capitalist Dan Nova (HBS ‘91) led the investment from Highland, and Scott Friend (HBS ‘95) led the seed investment from Bain, with the first term sheet coming from him just prior to the founders’ graduation in May 2009. 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.”
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.”
The company’s model, described by The Wall Street Journal as “luxury on lease,” has won over designers that are quite selective about their brand distribution, which Friend points out is a meaningful barrier-to-entry for Rent the Runway. The president of designer Lela Rose, Karen Scheck, reinforces this by saying the service is an ideal way to “reach a larger audience and age demographic that you wouldn’t normally because of the price…without jeopardizing the brand.”
“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. An HBS MBA graduate from the Class of ‘97, Lee says, “The idea of making a global closet available to women for their special occasions, where you could try designers that you’ve never tried before or maybe that you couldn’t afford is really, really clever.” She adds, “The business really gives you creativity with styles and more fun with what you wear.”
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.”
In addition to adding three HBS venture capitalists, Friend, Nova and Lee, to their investor network and board, the founders point to their early networking with HBS teachers and other venture capitalists as key success factors. “Some of the people that are our top advisors and counselors were introductions from venture capitalists who we didn’t even accept money from,” says Fleiss. “We respected them and listened to their advice, and we got some of the best ideas from venture capitalists who we didn’t work with.”
Tapping the HBS Professor Network for Key Input
Hyman also emphasizes the value of the HBS professor network, saying, “I think people at HBS don’t use the professor network as much as they should. We met with over fifty professors when we were at HBS, many of whom were not people we ever took classes with. But we would go in, ask their advice and get their feedback.”
Hyman and Fleiss single out the contributions of HBS teachers Frances Frei, Stephen Kaufman, Ananth Raman, Das Narayandas and Tom Eisenmann as being particularly helpful to them as they were launching Rent the Runway. “You have some of the best brains in the world sitting with you on that campus who think about businesses all day long,” adds Hyman.
As for future challenges, Fleiss and her husband just welcomed their first child, a baby girl born this past New Year’s Eve. In addition to this exciting personal challenge, she is also focused on the growth challenges of Rent the Runway: “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.”
“Everyone Deserves a Cinderella Experience”
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.