The Race to $1 Billion—How Rent the Runway Became a Unicorn

When co-founders Jennifer Hyman and Jennifer Fleiss launched Rent the Runway in 2009, they had an idea to solve a distinctive problem for a targeted audience. Young professional women in their twenties attended multiple social events—like weddings and formal parties—annually. Each event required a new dress. Hyman observed that this demographic purchased closetfuls of designer dresses—each on average $1500 per design—they could not comfortably afford, especially for an item that would be worn only once. Social media exacerbated the problem—women didn’t want to be captured on Facebook and Instagram wearing the same dress to multiple events. Because no viable alternative existed, they continued to purchase dresses. Hyman and Fleiss investigated the problem and designed a solution—Rent the Runway. Their startup offered an online platform that allowed women to rent designer dresses for a fraction of the cost of purchasing one. The idea resonated with their initial target demographic. Within a decade, they had expanded their business model and diversified and broadened their audience. The two effectively disrupted the retail fashion space and grew their startup into a unicorn. In a discussion with MBS students in the HBS course, Founder’s Journey, led by professor Shikhar Ghosh, the co-founders share the lessons they learned. Hear their tips on validating your idea, customer research, creating MVPs, and the importance of being passionate about your mission.

An unedited transcript and additional resources follow the video.

Quick Takeaways on Scaling

  • Understand market timing. It’s essential to understand market conditions before launching your business.
  • Test early and often. Fleiss and Hyman tested their minimum viable product (MVP) on college students before they decided to move forward.
  • Unit economics matter. The key to building a scalable business in healthy unit economics from the beginning.

How Rent the Runway Became a Unicorn & Reflections on Scaling


Jennifer Fleiss: One thing we didn’t get to cover was the macroeconomic environment. So before we dug in and say, let’s MVP, test this. It’s going to be fun. Even in that lunch conversation was a realization that a lot of things were changing, both for customers and designers. So for customers, it was the age of social media had started to explode. Facebook had existed for a few years, but suddenly it was like if you wore a dress one night, it was like a bad night on social media. We heard Facebook kills outfits. So you couldn’t repeat your dress. And also you started to be in front of thousands of eyes everyday you wore something. So that was huge. People started feeling they were creating their own brand and their own image on social media.

And then from the designer perspective, you had retailers slashing prices and it was a recessionary time. So they were looking for ways to retain brand equity and fight versus fast fashion as well.

Jennifer Hyman: The basic thesis was that department stores were going to die because their customers were aging. And you had entrance into the market like Amazon and Zara and H&M, which were grabbing away younger customers. So really the thesis initially was if you could deliver a product to a customer at the Zara price point, but give her the real thing, give her the high quality thing, then can you have a business on that proposition of giving the designer product at the really cheap price point? And to designers initially, they understood that their accounts with department stores were actually flat to going down over time. As much as they didn’t want to change their business, they needed to listen and potentially have new customers like Rent the Runway, help them acquire customers.

Jennifer Fleiss: This idea, part of it was luck as always as the case with entrepreneurship, but timing plays a big role. And I think every entrepreneurial journey. So once we said, “Okay. We think this is the moment in time for Rent the Runway.” Then we dig, we dig in and we started MVP testing. Some of the reason we did that was also to see if we enjoyed working on this concept and to really prove to ourselves because we had other jobs we had lined up that were exciting to us. We didn’t want to quit our other jobs and actually go and work on this full time.

Jennifer Hyman: And the only thing that’s going to sustain you in a company over time is fun, is mission, is something you feel like you’re doing something in the world beyond just making money. So from the very beginning of the company at that first customer trial we did at Harvard, we saw these two girls have a reaction to trying on a dress, where their whole body language changed. Where she threw back her shoulders and she felt gorgeous. And she turned to her friend with this feeling of self-confidence.

Jennifer Hyman: We’re like, our company can do that. It could be more than just a business that’s about saving money. It could be about a business that makes women feel confident every single time they go initially to a party or wedding now or businesses, every day when you go to work. So that mission-driven nature of, should you spend your own time on this? I’m nine into this company right now. I’m more energized by the company today than I was nine years ago. But it’s because of the mission. And the mission only continues to get bigger.

Jennifer Fleiss: And I think seeing that light bulb moment of this woman who had that emotional connection would have only been possible with these eyes wide open to observing a customer. So you may go into an MVP test and say, Oh, I want to learn about-

Jennifer Hyman: Conversion rate

Jennifer Fleiss: … conversion, or like how to price a dress or whatever, but the real unlock comes in what a customer says or what they do.

Jennifer Hyman: Yeah. The qualitative data is so important because it’s then that we realized like, what is the real value that we’re bringing to women? And does this concept have legs? I love this word, Smart-Lazy. One of the core values of Rent the Runway is scrappiness is a virtue. So basically Smart-Lazy is how we hire people. And we think about always like, what is the quickest route to get to some data point? So to us, how many times can you turn a dress before it gets destroyed?

Jennifer Hyman: What we actually did is we realized very early on that the chemicals and dry cleaning were the actual things that destroyed a dress, it wasn’t customer use. One of the reasons we went to Harvard first was not only was it easy, but we thought a college sorority girl would probably ruin the dress, with greater probability than a thirty-year-old. So let’s go to the person that’s most likely to get drunk and throw it on the floor at the end of the night and see what happens.

Jennifer Hyman: So what we ended up doing is after that first trial, we would take certain dresses and just dry clean them 30 times in a row and see, how does it look on each subsequent dry clean? Does it still look brand new? Because we wanted, every time you rent, we don’t want you to know how many times, if it’s the first time the dress has been worn, like I’ve rented the runway today. I don’t think anyone would be able … I rent the runway everyday, but I don’t think anyone would know how many times this dress was worn before today. I certainly don’t know. We want every single piece to look like it’s brand new.

Jennifer Hyman: So that quality is really important because the business actually, how we make money is an asset utilization business. Forget about the fact that it’s fashion, we’re taking an article of clothing, which in other retailers’ businesses is a liability, and we’ve now proven that you can rent this out dozens of times and make, currently we make eight times the gross profit on every unit of inventory than Amazon does.

Jennifer Hyman: So we have unbelievable economics and just fast-forwarding to today, our cap, so I don’t know where this hundred dollar number came from, but our cap today eight+ years into the business is less than $10. We hardly spend money on acquiring customers because of what we saw at this first trial. We saw that women felt smart and beautiful when they rented the runway and they wanted to tell everyone they knew. That it wasn’t something that they actually wanted to hide, they wanted to show off the idea that they not only felt great about themselves, but that they felt great for a very cheap price and emphasizing how smart the concept was, has helped the virality of the business offline.

Jennifer Fleiss: We also had to invest in the brand. So we enforced that. So we wanted people to shop from the rooftops. So they rented and post on social media. We also wanted the brand to feel comfortable in trusting us with their inventory and their brand name. So making sure that we had a beautiful website, that we had beautiful garment bags to deliver our dresses in, all those details, we realized were instead of paying to acquire a customer, we were like, let’s funnel that into building an amazing brand.

Jennifer Fleiss: I think the Smart-Lazy, it’s also like smart, efficient. You only have so much time, and time is money. Money is time. Once you raise venture capital, you have a little runway of usually 18 months to make the most progress you can before you need to raise your next round of funding. And the valuation is determined, therefore your dilution is determined by the progress that you make. It was not a choice of like, do we launch, do we wait? We need to hit holiday season because those are going to be the biggest numbers we can ever post this entire year.

Jennifer Hyman: I mean, now just fast forward, we’re eight years into the business. We have 1200 employees that rent the runway. We’ve built a billion dollar company. It’s profitable. And we’re actually in a quite different business than what we launched eight years ago. So we still have the ability to rent for events like Holidazzle and job interviews and whatever you have coming up. But our business today is a subscription to fashion, where you pay a monthly fee and get four things at a time and have your wardrobe on rotation. We call it your closet in the cloud.

Jennifer Hyman: And today women are renting from us on average, 150 days of the year. So they’re using this as a real replacement for shopping. Now, how we got here is just continuous iteration and continuous learning over time. No one could have anticipated when we were sitting in your shoes that Rent the Runway eventually would convince women to rent with us 150 days of the year. We actually had to do something, build it, get going, normalize the behavior, make it cool, prove to women that she can not only rent for a wedding, but she could rent for work and iterate as we go.

Jennifer Fleiss:
And this belief like MVP testing, isn’t just for the beginning of your business, it never ends. So you need to create a pipeline of contact with your customers. Jen and I were initially answering the customer service lines. We still have the customer service team as a part of, like your training, when any new employee starts, they spent it on the phone with customers. We go to the retail stores and the retail stores are our channel to observe customer behavior.

Jennifer Fleiss: And the subscription model partially came out of just focus groups and talking to customers and them sharing that like, well, why weren’t they renting for just an everyday occasional, maybe it’s something about price. And then you iterate and you do pricing tasks and gradually moving that very key lever that you guys identified of the number of times someone wears a dress each year.

Jennifer Hyman: One of the things that form big companies is there’s a focus on not wanting to disrupt yourself. Whereas at a startup, it’s all about like, okay, let’s disrupt ourselves. Let’s destroy certain aspects. Let’s cannibalize aspects of our own business, so we could build something bigger. So that we can continuously test and learn and be curious and figure out like, where are we going to bring this concept of a closet in the cloud?

Jennifer Hyman: Over the years we’ve had over 80 different copycats of Rent the Runway. And basically all of them have gone out of business because what none of those copycats understood is that what we were really building was an asset utilization business. Therefore, what we were building was a technology and logistics company. Most of our corporate employees are engineers, data scientists, they work in logistics, they’re figuring out how we could actually turn something more efficiently, more effectively over time. How do we personalize what you see as a customer so it’s the most efficient experience and you get something that you love.

Jennifer Hyman: We actually didn’t even know at the beginning of the business that we were building a tech company. We probably wouldn’t have started Rent the Runway had we known that we were building a tech company because we had no experience in tech or logistics. So being naive at the very beginning of the company, I think has served us extremely well because it just allowed us to jump into the deep end of the pool and figure it out over time.

Jennifer Fleiss: Yeah. We never thought of it as a choice of can we launch this website in a month or not, once the tech partner initially failed? It was kind of like we had to find a way to do this. And I think that was really empowering. I think likewise would we have emailed Diane von Furstenberg had we been from the fashion industry and known how intimidating she was or what like a long shot that was? Possibly not. So coming from the perspective of a consumer, but with this fresh perspective of these industries that we didn’t have backgrounds in, I think was incredibly valuable.

Jennifer Hyman: And just enjoying the ride. We cold called Diane von Furstenberg a few hours after I told Jenny the idea. We were into meet her the next day at five o’clock. It was a bizarre meeting. She hated the idea. She said it was going to fail. She said it was going to cannibalize her business, but two hours later, because we kept on asking her questions about herself because the trick to all of life is just get someone to talk about themselves. People love self-promotion.

Jennifer Hyman: So we asked her questions about herself. By the end of this first meeting, she was laying on a couch, eating grapes in front of us. And like, how did this business not even turned into anything? We would have had the best story of all time. But Diane von Furstenberg was seducing us, laying on the bed eating grapes. It was amazing. Every single component of building a company, when I first told Jenny the idea, her reaction was this sounds fun. That is the only thing that you guys should be thinking about in your career journey. What internship should you take? Should you work on a startup? Where do you work? If it is fun, you will be successful at it. It will turn into something fantastic. That is just so undervalued. I undervalued it until I really put myself in the least fun environment ever for me, which was McKinsey. And then I realized, Oh my God, I just need to do something else and do something fun with my life.

Jennifer Fleiss: That goes back to, you guys have been very privileged seats and we are wishing we were back here every day. We leveraged every resource we possibly could at HBS. The first was obviously we met one another. So finding your co-founder in the setting of a classroom where you-

Jennifer Hyman: On the sit in the classroom.

Jennifer Fleiss: Yeah. So we were in your seats, we heard each other’s responses to different cases. We knew that we had backgrounds that were complimentary. We got along. So that was huge. Leveraging our classmates as people that we bugged about. Like what do you think of this idea or people that we’ve pitched to because some of you are VCs or in private equity.

Jennifer Hyman: We had all of our Bain Capital classmates and other people that had worked in private equity, attack our fundraising pitch. And it was really helpful.

Jennifer Fleiss: It was great. And then professors. We met with over 50 professors, many of them were not our professors, but we were like, they have a background that could be useful and interesting. Alumni network. That’s how we got in touch with major people in the retail industry who became our advisors. So leverage every aspect of being here.

Jennifer Hyman: Yeah. I think that the last thing that I would say is that nothing when you’re doing it is as technical as it sounds now when you’re evaluating the case. When we were going through these popups at Harvard and Yale and then putting it into a PDF, honestly, we were just trying to figure out like, is there an idea here? Will women wear clothes that other women had worn before without feeling it’s totally disgusting? And if we could overcome that barrier, we knew we would have something.

Jennifer Hyman:
So we were trying to find just like, is there demand or have we concocted this problem that needs to be solved in our own head? Sometimes you get so into the analysis before you actually figure out, is there a real demand? That you could be in paralysis for your whole life. If we just had to go straight to women, put dresses in front of them and see like, will someone pay money for this dress that has already been worn. And this bias towards action that we’ve had from the very beginning of the company that we still have today in the company, that was the thing that investors invested in.

Jennifer Hyman: They didn’t know whether this idea of renting dresses would work. They didn’t know we’d build a closet in the cloud. Our first investor from Bain Capital basically said, “I’m investing in you guys because you’re both hustlers. I know that if I give you money, you’re going to turn it into something.”

Jennifer Fleiss: And so the MVP test, that was probably the biggest gift of the MVP test. We invited him like, come to our test because also he was a man in his fifties and we’re like, he will not relate to the reason that women actually need thousands of dresses, which is that emotional connection. And because women are crazy, but like, so what, we need to put them in the room and have him see that real energy and passion that women feel.

Jennifer Hyman: And just that it’s all about being assertive and aggressive about what you want in your life. Nothing happens by luck. The idea that we were on the front page of the New York times, we made that happen. We found a person who had an @nytimes email address in our 40,000 person list and found her and gave her a story and posed in tight dresses on ladders at a dry cleaner, so we could end up on the front page of the New York Times. Everything was calculated in terms of how do we push this one connection that we have into the maximum payback that it could potentially have for us and what you guys have right now at business school is time, lots and lots of time. You may think you’re busy, but you’re not. You’re not busy. You could spend all of that time that you have in actually going after something that you’re super passionate about.

Shikhar Ghosh

Posted by Shikhar Ghosh

Shikhar Ghosh is a serial entrepreneur, angel investor, and Professor of Management Practice at HBS. Named one of the "Best Entrepreneurs in the US," by Businessweek, Ghosh has led some most innovative tech-based companies in the US and advised hundreds of entrepreneurs.