Rent the Runway - A case study

Introduction to the Case Study

The "Rent the Runway" case builds upon the concepts introduced in the Meesho case study, which covered the venture development journey from problem-solution fit to product-market fit and business model optimization. This module specifically delves into the practical aspects of:

• Hypothesis Testing: How entrepreneurs formulate and validate their assumptions.
• MVP Development: The process of creating and testing various types of MVPs.
• Data Capture and Learning: Methods for collecting and interpreting data from MVP tests.
• Iterative Movement: How ventures progress incrementally based on validated learning.

Students are advised to thoroughly review the case, including all provided numbers, appendices, and exhibits, and consider guiding questions to facilitate discussion and analysis.

The Problem Rent the Runway Aims to Solve

The co-founders of Rent the Runway, Jenn Hyman and Jenny Fleiss, identified several key problems in 2009 in the United States:

• Customer-Side Problems:

  • Affordability of High-End Apparel: Many young women desire to wear high-end, designer apparel but cannot afford to purchase them.
  • Social Pressure to Wear New Outfits: There is significant social pressure, especially with the rise of social media, for women to wear different outfits to every social event, avoiding repetition.
  • Desire for Variety and Experimentation: Women want to explore new, trendier, and bolder outfits without the financial commitment of buying them.

• Designer-Side Opportunities (though not the core initial problem for Rent the Runway):

  • Designers primarily target demographics with high purchasing power, missing the younger aspirational market. A rental model could offer a new way for designers to acquire customers and expand their reach to a younger audience.

The core problem that Rent the Runway initially set out to solve was for young women (approximately 18-35 years old) who aspire to wear designer clothes but find them prohibitively expensive.

Rent the Runway's Initial Solution

The founders' solution to this problem was straightforward: create a rental model for designer clothes. Recognizing that designers did not typically offer rental options, they saw an opportunity to bridge this gap. Their initial approach was to create a "white label solution" where Rent the Runway would manage the backend and rental infrastructure for designers, essentially running a rental business for the designers using the designers' existing inventory.

Underlying Assumptions ("Leap of Faith Assumptions")

When developing a rental business for designer clothes, the founders made several critical assumptions, which they termed "leap of faith assumptions." These assumptions needed to be validated as there was no existing market research for such a novel concept in 2009.

• Demand-Side Assumptions (Customer-focused):

  • There is sufficient demand for renting high-end clothes.
  • Women will adopt renting clothes as a common behavior.
  • Women will be willing to rent clothes online without trying them on beforehand.
  • Renting pre-owned dresses will gain social acceptance.
  • Customers will return clothes on time and in good condition.

• Supply-Side Assumptions (Designer-focused):

  • Designers will view renting their dresses favorably and be willing to participate in a rental model.
  • A rental business will not dilute their brands but rather expand their customer reach.

These assumptions formed the basis for their venture journey, which aimed to transform these unvalidated beliefs into validated learning through systematic experimentation.

Initial Steps and Hypothesis Testing

The first major step taken by the founders was to test their "white label solution" idea. They held meetings and calls with designers, including Diane von Furstenberg. The initial response to this approach was largely lukewarm, indicating a lack of significant traction for the idea of designers owning the inventory while Rent the Runway managed the rental service.

This early feedback was crucial for the founders to learn and iterate, moving beyond their initial assumptions to refine their business model. The process of venture building for Rent the Runway involved systematically testing these hypotheses and learning from the outcomes to make informed decisions about their next steps.