All TDM Insights
Scaling Up: Closet in the Cloud with Jenn Hyman, Co-founder and CEO of Rent the Runway
Podcasts
10 Aug 2022
Screenshot 2022 10 28 142421

Jenn and the Rent the Runway team were the first all female CEO, CFO, and COO team to ring the bell at the Nasdaq.

Jenn Hyman joins us to discuss the scaling story of Rent the Runway.

 

Listen:

 

Transcript:

 

Ed (02:31): Jenn, welcome to Scaling Up. It’s an absolute treat to have you on this podcast. I think a great place to start, as always for many of our guests when we have the opportunity to talk to founder CEOs is with the founding story. The thing that really comes to mind about your founding story and is illuminated for me is the speed and the hustle that was attached to it. So, we might try and move through it pretty quickly because we have so much to get through today, but maybe we can pick it up with your sister dropping off a post-it note before you go to business school.

Jenn (03:07): Oh sure, yeah, that’s the way beginning. So, my sister put a post-it note on my pillow before I left for business school with the name Jenny Carter on it, which is my co-founders maiden name. And she said, you know, I think that you should meet this woman. I think you’re really going to like her. I’ve heard from a few people that she’d be someone you’d connect with, and I basically said to my sister, There’s a class at Harvard Business School of 900 people. So, I’m like, you know what? If I meet her, I meet her, but it’s not going to be my top priority to seek out this girl. On the Post-it note, it ends up that Jenny was in the same section as me and we really became fast friends. And then you know, in my second year of business school I was home for Thanksgiving break in New York City.

I was with my sister, and she had just purchased a very expensive designer dress for her first wedding that she was attending as like a young woman in her twenties. And this designer dress put her into credit card debt, and I was standing in front of her closet, which was filled with dresses she had only worn once. I was yelling at her to return this dress that had put her into credit card debt and wear something she already owned, and she said she couldn’t because her closet was dead to her and everything in her closet had been photographed and put up on social media and she needed something new. And to me this was really the light bulb that my sister did not care at all about owning the dress. She cared about the experience of walking into a room and feeling beautiful and feeling self-confident.

And she also had a closet that was filled with things that were dead because those items were things that she felt like she couldn’t wear again. She felt like they weren’t in style anymore, she felt like they didn’t fit her anymore. And I actually felt like her experience was more of the common experience that so much of our closets are actually dead. You know, there are 50% of the closet is worn three times or less because we wear it once or twice and then we never wear it again. So, I really thought about, well what if we could rent close? And I came back to HBS that Monday had lunch with Jenny, shared this idea and she responded, this sounds fun, let’s start working on it. And Jenny and I are both people that are action oriented, so we’re not people that sit around and write some sort of strategy presentation.

We were like, if we were going to figure out whether this idea made sense, which was the objective actually. So, the objective initially was like, let’s figure out if this idea could be something. And we had to figure that out on, on two sides of the idea. We had two sets of customers, A like will women run dresses and B is will designers want to work with us? And so, we immediately kind of dove into both of those areas and ran a series of, I would say like MVP oriented tests to figure out whether we had a value proposition for customers and we had a value proposition for brands.

Ed (06:34): It’s a great setup for the next part of the podcast. I’ll just want to call out the bias to action here and the speed from ideation to actually getting your butt into gear and doing something about this. I think it’s probably worth walking through your business model evolution right from you know, 2009 to the present day through the lens of a two-sided network. It’s, it’s the first opportunity I’ve probably had to bring to life what is a wonderful and classic case study in building, scaling, and leveraging the power of a two-sided network that can be incredibly powerful business models and I’m sure listeners will get a sense of that as we walk through this.

Jenn (07:15): So, we really always had this notion that we were building a two-sided discovery platform. On one hand we were introducing customers to new brands that they would hopefully love. We would give women the freedom to try whatever brands they wanted and have access to this unlimited closet. So that was what the kind of consumer value proposition of Rent and Clothes is. Like if you don’t have to buy clothes and commit to it forever, you have the freedom of discovery, you have the freedom of trial. At the same time as customers are trying these new products and these new brands, brands get access to an entirely new customer base who’s actually having an experience in their product for the very first time and they’re getting unique data about those customers that are helping them change their business and acquire their business. So, the more customers we have, the more she wants to engage with us, the more she feels comfortable trying new things, the more new customers those brands are able to acquire, the more data they get that helps them improve their overall business.

Ed (08:16): Absolutely. And I think this will emerge pretty clearly but can we hone in to start with maybe on the supply side of the network and supply for you means inventory on an individual level that’s dresses, but on a more collective level it’s trying to aggregate designers. How can we think about you scaling this side of the network from having what is needed to be a minimum supply to attract customers in the first place right through to the present day?

Jenn (08:46): Yeah, so to start out with like to the present day, we are renting every category of apparel that exists and all accessories and all handbags. So, women are renting the runway just as frequently for casual occasions where they’re wearing jeans in a top to a ball gown and all the things in between. We started off with a set of designers who were very skeptical about what we were doing. I was saying to designers, we’re going to come in, we’re going to help provide these experiences with your brands to new customers. They’re going to fall in love with you, they’re going to become your future customers. But those brands were like, , that sounds strange because what it sounds like is you’re reducing my price by 90% and you’re going to cannibalize my sales. And so there were very few brands at the very beginning that wanted to try this and we needed enough brands and enough selection to actually prove out that there was a consumer value proposition because no one’s going to come to a site that doesn’t have a selection of you know, at least hundreds of options at the very beginning and you’re going to get a false read on whether or not you have a good business.

So, we spent a lot of time at the beginning truly understanding that the number one source of fear that these designers had was cannibalization of their core customer. We learned that the core customer of those businesses were women in their fifties and older. So, we were very intentional that if we could build a business from the beginning that was targeting a woman in her twenties or a woman in her thirties at least the brand would know that we were not cannibalizing the core customer and we were bringing in new customers to that brand. So, we had to be very specific about who we were going after. And that also framed, well what inventory do we have to go after? Because we’re like, okay, if the target customer is this 27-year-old woman who probably lives and works in a city, she’s single, she’s dating, she’s attending wedding, she’s going to holiday parties, how does she want to dress?

And therefore, what set of designers should we be going out to kind of build that initial designer matrix that we had by nature of kind of signing on the first 28 brands that we had. And we were only renting from them cocktail dresses and gowns at that point. So, we were taking a category of inventory from them that typically had been low margin or negative margin. So not only were we saying we’re bringing you a new customer, but we were saying we’re taking a piece of your business that doesn’t even make money for you and maybe now because of us like you can start having a higher margin across this part of your business. And so, over the first few months with those first 28 brands that we signed on, we were able to actually prove that the customer was in fact much younger, that she was in fact having great experiences in these products and she was falling in love with these brands and the brands were like, oh wait, this actually could be good for me.

And then we were able to figure out, okay well how do we further that value proposition? How do we prove to the brands that this is something that is really good for them? So, we did two things. One is we launched photo reviews on our site so that our own customers could provide visual feedback, could actually provide a photograph of themselves wearing the dress after they had rented with feedback on the fit, the quality of the merchandise where they wore it. So, at the simplest level designers could see, oh wait this, you know, 27-year-old who just posted a photo of herself like that’s a new customer. Like I’m really excited about that new customer wearing my brand on a bigger level. We were getting data from customers that we were able to give back to brands that was actually helping them change the way they manufactured clothing in the first place.

They were able to uncover some opportunities that they had with fit opportunities they had with how they merchandise their assortment that they could use to make their businesses bigger and better. So, we evolved initially by nature of showing them we have new customers for them, we have data for them that’s going to help them grow their businesses. And then we were able to kind of move our portfolio of brands we worked with from 28 brands to hundreds of brands. And then at a certain point we became such a big sales partner of these brands where we were actually spending a good amount of money with them and we said, you know what? Like we need to continue to innovate how we work together, and we can’t continue to buy all this product from you wholesale. We want to be partners with you, we want you to enable us to continue to select the inventory, but we’ll receive that inventory for very little upfront or for nothing upfront and then we’ll revenue share on it over time.

So that’s our consignment business which we call Share by RTR, or the deepest level of integration is we have all of this rich data on what women want to wear. We go to our designer partners, and we say design entirely new collections for us utilizing this data and rent the runway’s going to manufacture them and the reason why you want to do this brand X is because you are going to own the intellectual property around this new collection that you design. You can sell it through all of your other channels and make money off of it and you’re going to learn something new that you can use to innovate your own line over time. So that’s what we call our exclusive design collections, which have enabled us to cut out the markup between manufacturing cost and wholesale cost and dramatically lower the cost of inventory acquisition. So that’s really been this 12-year path on the brand side of the business and over that time the 800 plus designer relationships we have, we have a hundred percent retention of those brand relationships. So, every brand who has started working with us has continued to work with us and has continued to innovate and evolve how they work with us over time. And I think that that’s really proof positive that they are actually deriving real value from this relationship that is complimentary to the other components of their business.

Ed (15:14): So much to unpack here, I think just through this lens of really growing the supply side, the callouts are as you touched on having this minimum supply and as it expands over time that the customer demand grows, and that demand side of the network grows, and this classic network effect takes place. And this is where we see the power of the network, the ability to aggregate users and customers really sucks in supply naturally and dramatically lowers the cost of your business. And then the additional layer is also classic two-sided network in terms of utilizing data at scale. But we’ll come to that in a second. That was a wonderful walkthrough, thanks Jenn. Maybe if we turn our attention to the demand side of the network or as many of us would think of the customer facing side to your business and this is where the power in the network is really being able to not just attract but retain demand and customers and the evolution of your business here is really interesting from what would be a vanilla sort of platform network, the more dresses, the more consumers attracted to really thinking about adding platform utility as you touched on with exclusives, , with designers and the like.

So maybe we can walk through this again, how you’ve thought about really scaling the demand side to the platform and also if you could give some color to the massive complexity in logistics and technology that has just made your customer experience what it is.

Jenn (16:46): Yeah, so at the simplest level, you make more money from customers when they use your product more. And we started off with a product that was about renting dresses for special occasions and that product was great in that it was really simple for people to understand. They got it, they understood why they would need to rent a dress for a special occasion because you have had a situation in your life where you’ve bought a dress that you’ve only worn once or twice and so it really made sense. But on one hand, like the vision that we originally had for the business was to create this unlimited closet, this closet in the cloud that really replaced the 50% of the closet that we viewed as being inefficient. It was inefficient because people were buying things that they were wearing three times or less. In order for us to scale up her engagement with our platform, we had to move out of the realm of just solely special occasions.

We had to hit, you know, more use cases for her because there’s only so many cocktail parties and events that require gowns that you actually have in your life. So, the first thing we did is still with our reserve product, which is the a la carte rental business. We, you know, casualized the inventory. So, we started carrying inventory that you could wear out on a date inventory that you could wear out for a night out a party. You know, if you were taking a trip to Vegas you can come to rent the runway and rent and that did up the number of possible occasions, but we still realized that that point that we were kind of missing the meat and potatoes of how she was spending her time and the meat and potatoes of how she was spending her time is she was spending her time at work, she was going to work five days a week, she would spend money on the clothing that she would wear into the office because she would often want to dress professionally.

And we heard from our customers that this was actually one of the most important components of self-presentation in their lives. That they were really spending a big part of their clothing budget on Workwear. And when we really understood that they wanted to rent the runway for work, that’s when we evolved the product and not just evolved, we added the option for women to not only rent a la carte but also have the option to subscribe to rent the runway and pay a monthly fee to receive items on rotation. And that subscription continues to evolve as we continue to learn more about the customer, we continue to see okay, like now the customer’s comfortable renting from us for work and for nighttime occasions now she wants to rent for more casual daytime occasions where she’s not at work now she wants to rent for her maternity, now she wants to rent for her vacations. And so, we continue to be smart about increasing the assortment so that we can increase her engagement and we now have a business model where the more engagement she has, the more money we make from the customer and the higher her engagement, the higher margin that revenue is as well.

Ed (20:00): Again, a classic example of layering in overtime as you have greater scale, greater platform utility as you called out, be it subscription or exclusives, can you talk to the complexity in the back end to your business because maintaining customer experience is paramount, but it’s very easy for a customer just to see beautiful dresses arrive at their door and them putting them in the post box. But behind that is an incredible logistics network that you have basically built bespoke. Can you give some color to how hard it’s been to scale both the logistics and the technology to the business?

Jenn (20:40): So, I think that the hardest piece of scaling or building the logistics and the technology was realizing we had to do it. This was not our desire or intention to build this vertically integrated end to end logistics experience. But we realized early on that like you actually wouldn’t be able to deliver the customer experience unless you owned it end to end. We wanted to buy technology off the shelf, there was none for us to buy at the time that could offer rental, that could offer the subscription to fashion and certainly none that could run our WMS systems and our warehouses because most WMS products at the time were focused on outbound logistics like the pick pack ship operation. And our operation really focuses on inbound logistics, receiving the inventory back from customers, processing it, restoring it, then of course we have outbound, but you know, we have all this other stuff as well.

So, we had to decide, you know what, in order for us to build this company, we have to build a logistics and technology company. We need to have incredible leaders in those areas, we need to build talent in those areas. And I think that once we made the decision early on that this had to be a core competency of the business, I would say that it has not necessarily been any more difficult to scale this area of the business as it has been to scale the brand relationships, or it has been to scale the demand. It’s just been like incrementally learning and doing more and more over time. So now we’re in a place where we receive back millions of units that have been worn from customers all over the United States. We’re able to receive them back and through a very automated kind of operation, ingest them, clean them in many different ways to actually maximize the lifetime turns of those units over time, restore them to kind of like new condition and then ship them out often with a zero-day turnaround time to new customers. It certainly was not an overnight process to do that, and we’ve continued to kind of iterate both the software, the processes and you know, the way that we operate in our warehouse’s kind of quarter over quarter.

Ed (23:18): Hopefully listeners by now are getting the sense of why two-sided networks are such powerful business models and like all great networks. The last piece of the puzzle and is incredibly powerful at scale is around the monetization opportunity as it relates to data. And you think of the great networks that many are familiar with Facebook or Google, how powerful this has been for the monetization opportunity of those businesses. Can you give some colour, and you did touch on it, the power that this data gives rent the runway on both the garments and the designer or supply side but also the consumer side.

Jenn (23:54): Yeah, so I think first you have to think about like, well what’s differentiated about Rent the Runway’s data versus other folks in the fashion industry. So, there’s really two pieces of key differentiation. One is that the customer uses Rent the Runway more like a utility versus a traditional fashion business. So, if you’re a great regular fashion company, your customer might come to you three or four times a year. Our customer is using Rent the Runway 80 times per year. So, we just have a lot more data, we have a lot more real time data. We know what’s going on in her life because she’s coming to the app in order to use this 80 times per year. She’s coming to our app three, four times a week. So, we’re interacting with her a lot more. So, the frequency and the quantity of data is just way higher.

The second key point of differentiation is if you are a fashion retailer, for the most part you sell a product to a customer and that’s when your data ends. Once that product is in your customer’s closet at home, you have no idea how she uses it, how often she uses it, how it fits her, what quality it stays in over time. Whereas that’s our entire business. We are in the business of receiving the clothing back from the customer and were able to ask her things like, did you actually wear this? How many times did you wear it? How did it fit you? Where did you wear it? What quality was it in? And that’s kind of a set of data that brands, and retailers haven’t had access to before because that’s not their business model. So, we’ve really focused on utilizing that unique set of data that we have to improve kind of the two most important financial metrics of the business, which is our customer lifetime value and our inventory ROI.

So, we use that data to put the right product in front of the right customers. We use that data to figure out on the customer side what inventory should we procure in the first place? What inventory did we give her access to earlier on so that she’s more loyal? We use that data on the inventory ROI side to understand how do we actually care for and restore this unit so we could turn it dozens of times and actually monetize it over three plus years. And then this bonus bonus of the data is we’re able to deliver that data to brand partners and again, it’s data that they don’t normally have access to, and that data enables them to improve their overall business. The other like very unique thing for brand partners is often if you’re like a, a partner of a brand, let’s say you are a department store and you work with that brand and you give them data, your data is about the brand’s relationship with your customer base, with your stores, with your website.

And it’s not necessarily going to be applicable to how that brand should work with their other wholesale accounts. Whereas the data we’re giving back to the brands on the way that clothing fits their customers on the way that things are manufactured, like it helps their business overall. If they make a change in how they manufacture their clothing, they’re not just making that change for Rent the Runway, they’re making that change for themselves, for their own D2C business and for all of their other accounts. So, it’s like rent the runway’s, data lifts all boats as opposed to just being isolated to the one account.

Ed (27:19): Feel very lucky to be walked through a real time two-sided network case study. So, thank you Jenn for being so colorful and descriptive in in doing that. I think the next topic I’d love to talk about is the impact of covid on your business. And I don’t necessarily love diving into this now that we’re, you know, two and a half years through a pandemic, but I think specifically for your business, the call out I think, and where I’d love to go with this is how deeply covid affected you and your business and all of a sudden, the ability to emerge stronger the other side. I think there are some real lessons to, to gain here. So maybe just some color as to the impact of covid, how you thought about that impact and how you’ve come out the other side and why?

Jenn (28:07): I mean the impact of covid was incredibly difficult because we lost a huge portion of our demand because the real reason why someone would have a subscription to Rent the Runway or a used rent the runway A la carte is because they’re leaving their home. They’re going to a party, they’re going on to the office, they’re going on a date, they have to go somewhere in order to really have value in utility off of our product. So, there was like us living in reality that we weren’t really going to be able to manufacture demand. Now there were kind of engines of growth that were working during covid, so we were able to really accelerate and build up our resale business and that’s continued to be a strength that we have coming out of covid that we now have multiple engines of growth for the business, but like the core of what the business is wasn’t really able to operate on all cylinders during covid.

So once we really made the cuts that we needed to and secured the financial runway that we thought was appropriate for the pandemic, we kind of shifted the focus of the company into okay, like we know things suck right now, but who do we want to be when we come out of this and how can we prepare the company both strategically and financially for the post covid world and what opportunities does the post covid world present that the pre covid world potentially didn’t present? And so, we were able to I think use the time during covid really to make the business better and I’m proud of our company’s ability to take an extremely challenging situation and use it to strengthen the business.

Ed (29:54): Jenn, it it’s not very often that I get to talk to a founder of a decade plus from startup to scale up to public company CEO. Maybe just quickly we can touch on your own personal growth as a leader and how you’ve thought about scaling your own leadership over this time.

Jenn (30:14): Well, I think part of scaling your own leadership is actually just doing it just kind of jumping into the deep end of the pool. And I think you really figure out number one, like a can you scale, and some leaders can’t. But I think that there’s a second question of do you want to scale? Because your job when you’re managing a series B company that’s making 30 million a year, your job is very different than what your job is when your business is a public company or when your business is a growth company. And so, I think a lot of founders and CEOs need to ask themselves like, why am I doing this? And you know, am I in this because I want to see this particular idea from zero to completion or do I like a particular stage? Do my leadership abilities lend themselves more to a particular stage of the business?

I have found it really exciting to continue to grow and evolve my job and grow and evolve my leadership abilities as the company has changed. I actually like the fact that my job today is very different than what it was. So, I, I think that one of the transitions and leadership that every great leader goes through is really learning to first build a team of all-around athlete, individual contributors that evolves into managing a bunch of individual contributors, then managing a bunch of leaders who manage individual contributors, then managing leaders who manage leaders. And I think then the evolution is sometimes finding leaders around you who can take on enormous swaths of the business so that you can continue to do the things that you’re really strong at. So, it’s not just about scaling up as the people increase within an organization, but it’s thinking through does this job still allow me to spend 80 plus percent of my time doing the things that I am uniquely great at? And if there are people within the organization who are uniquely great at skills in which I’m just like, you know, a B at, they should be doing those things. And so, it’s really about like building that complimentary team that I think has been one of my favorite pieces of the leadership evolution over time.

Ed (32:56): Maybe just one final question. I’ve heard you talk to when you’ve thought about scaling your own leadership, how important feedback has been both giving and receiving that I, I’m really keen to understand that as a leader, how you’ve thought about operationalizing a feedback culture into Rent the Runway because it’s such a crucial part for every scaling journey.

Jenn (33:20): Well, I think that it’s actually pretty simple. It’s that like people only give feedback to others, especially to people who are more senior to them when that feedback is listened to, and it evokes change. So of course, as a company gets bigger, your employees are going to be more and more fearful about giving you feedback because you’re now like the big boss. But if you could actually show that when someone does have an opinion, when someone does give you feedback that you actually act on it, it creates an environment and a culture where people over time feel more and more comfortable giving you that feedback. And so that’s been one element of it, of like seeking it out, asking for it, and then acting on it, which I think is really important. The second aspect is like making sure that the feedback comes from a diverse set of sources so that you’re really learning about how you can not only improve, but how you can accentuate your strengths from people who report directly to you.

People who don’t report directly to you, who might be way more junior in an organization from your investors, from board members, from other mentors, you know, from people who might be in a sales meeting with you. Like how could I have done that better? You never know where that really resonant feedback is going to come from and it’s not always going to come from the obvious of sources. The other thing that’s really important about feedback is I am very much of the belief set that too much of feedback revolves around how do you tell someone the things that are needing to improve about them. Like too much of feedback is constructive and somehow, we’ve made the word constructive positive, but it’s like I don’t necessarily believe that constructive feedback is ever that great because most people are good at what they’re good at and they’re not good at what they’re not good at.

And I think that the feedback that is really important is telling someone what they’re really good at and how they could, could become great at those things. So, you’re giving them feedback about things that they already have confidence in, they already feel good about those areas. You’re saying don’t focus on all this other stuff because you and I know you’re not that great at those other things and let’s focus on how you could become excellent at the things that you already have a propensity for. You’re already good at these things. So much of our time is wasted on trying to get people to improve the stuff that they shouldn’t be focusing on at all. So, I think that feedback needs to really be about bringing people from good to great in the areas where they are uniquely good. And the very best thing that you can do for someone, and this is my leadership style, is help them realize what they are uniquely great at and help them dream bigger for their entire career as a result of that. And help them understand, you know what, you might have thought that you needed to go in this direction, but in reality, you could be a COO and here’s how you could do it and here’s the pathway to get there. Because I see these qualities in you. And I think sometimes people don’t even see the very best parts of themselves and you can be a mirror for them revealing to them what is already true about them. And that’s really, I think, the most beautiful leadership relationship that you can cultivate.

 

Read The full Article
Previous
Scaling Up: In a League of their Own with Mike Serbinis, CEO and Co-founder of League
Next
Scaling Up: Australia’s Greatest Unknown Technologist with Hugh Williams
TDM is currently not open to new clients
Processing...
Thank you! Your subscription has been confirmed. You'll hear from us soon.
ErrorHere