As an MBA student, Jennifer Hyman had a deceptively simple idea that she successfully built into a powerful logistics and technology company – proving the power of web-based sharing models before Airbnb, Uber, and others came on the scene. TCV Founding General Partner and Rent the Runway board member Rick Kimball recently had a chance to talk with her about the journey from her original vision to the launch of Rent the Runway and making the “closet in the cloud” a reality for women across the U.S. Topics covered include:

• Establishing a new category that helped create the sharing economy
• Convincing her board to fund an extension of the original concept
• Why your closet might soon reside in the cloud

Rick Kimball: Jennifer, most people know Rent the Runway, but can you share with us how the company came about?

Jennifer Hyman: My sister was getting ready to attend a wedding. She wanted to wear something new and aspirational. So she went out and purchased an extravagant dress that she knew she would likely wear only once and put her into credit card debt. This was a light-bulb moment for me.

I thought about separating wearing from ownership. My sister wanted the experience of wearing something different and aspirational – and that had nothing to do with actually owning the garment. Once you separate wearing from owning, there is a huge opportunity to totally disrupt the way we think about getting dressed.

Rick Kimball: What were your first steps in realizing your idea?

Jennifer Hyman: The first step was realizing that an initial idea isn’t a business. In our case, the idea needed to be iterated both for its customer value proposition as well as its supplier value proposition. We spent the next six months doing a series of iterative minimum viable product tests to assess whether we were on to a good idea or whether it was appealing only to us. When we launched, we had 100,000 people sign up for Rent the Runway in the first week of our business. So demand was not going to be the challenge.

Rick Kimball: What were the challenges?

Jennifer Hyman: Our business model requires our customers to return every single item we ship out. No one in retail does that. Plenty of companies have some reverse logistics capability for product returns, but we were doing reverse logistics as our entire business model, for expensive luxury products. There was no technology you could buy when we launched. We had to hire a hundred engineers and build everything ourselves. We also had to become the world’s biggest dry cleaner, and we had to become a data science company to gather, analyze, and leverage the mountains of data we were gathering on every transaction. Sometimes I joke that if I had known we were going to have to do all this just to rent clothing, I would never have launched the company.

Rick Kimball: It seems that your timing was great, considering some of the social and economic trends that began around that time.

Jennifer Hyman: It was late 2008, with social media really taking off. Women started posting piles of photos of themselves on the internet. They needed more variety in their wardrobe, as they did not want to be seen in the same outfit twice. This drove a huge emergence of fast fashion and off-price retail as a category. People were buying clothes in places other than traditional department stores. And the world has continued to change so quickly around us as we’ve built Rent the Runway. All the tailwinds are moving in the right direction.

Rick Kimball: Right. As you grew the team and your company, what was your focus in terms of creating a culture for the company?

Jennifer Hyman: Total, passionate focus on the customer backed by data. What does she need? What does she want? What is she telling us with her choices? Our original value proposition was that she wants to look fabulous at a black-tie event, without breaking the bank for a dress she might not wear again for a long time. Customers embraced that concept and pretty soon many of our customers were renting from us three or four times a year. We were relentless about gathering data on every rental, so we required customers to give us some information about wearing the dress: did it fit, did she love wearing it, and so on. That drove our inventory strategy. Ultimately listening to the customer led to our subscription service, called Unlimited.

Rick Kimball: The TCV team loves Unlimited. What drove the concept of Unlimited, which, today represents a large part of your business.

Jennifer Hyman: We were hearing from customers that renting the runway is great for big events on the weekend, but what about the other five days a week? Can you rent me clothes I can wear at work?

This wasn’t a surprise to us. I had the vision of a “closet in the cloud” from the very beginning. But first we had to make renting a mainstream experience. For perspective, keep in mind that late 2008 was before Uber, Airbnb, and WeWork, and before Spotify came to the United States. The big successful sharing models we have now were still in the future. So we had to normalize the behavior of renting first. But it was already obvious to me that working women needed a new way to get dressed. More women are entering the corporate workforce today, and more women are staying in the workforce after having kids. Women are out in public as working women and entrepreneurs. Now consider that the traditional expectation is that women at work wear a different outfit every day. Beyond that expectation, women want to feel like their best self at work. It matters to their confidence and self-presentation to be well dressed and put together. With Rent the Runway, they can feel like the best version of themselves everyday which is empowering.

Rick Kimball: But dressing this way can be hugely expensive?

Jennifer Hyman: Exactly. In the typical corporate environment, women need a huge number of individual items in order to have a different, great-looking outfit every day. We can make her life not only a lot easier – she can do a lot less shopping – but also more affordable and effective. In fact, our Unlimited customers on average dress with us 150 days a year. That’s 60% of their business year. And we think we could get to an average of 200 days a year.

Rick Kimball: Does Unlimited offer casual clothes as well?

Jennifer Hyman: “Casual” is a big category that we like and have a great inventory for. Many companies have a dress policy known as “corporate casual,” so something you wear to work might also be appropriate for a brunch with friends on the weekend. We also offer clothes and accessories for off-work activities, such as patterned ski parkas and the right beach bag for your summer outfits.

Rick Kimball: How did you get Unlimited off the ground?

Jennifer Hyman: Surprisingly enough, one challenge was convincing my board of directors to raise and spend the money. We didn’t know if women would rent that many days a year, and people doubted that we could build a product to satisfy that demand. You have to remember that back then, massive subscription businesses were rare even for huge franchise companies. It took Netflix and Dropbox years to build a $100 million subscription business, and they were established brands with tens of millions of users. My argument was that with the data science capabilities we already had, we could manage a big increase in inventory without a big increase in risk. Also, the board members had seen some things come true that I had predicted way back when we were asking for our initial funding, such as the decline of department stores. So they, including TCV, trusted my vision and agreed to a beta test for twelve months, which was a success. We launched Unlimited in March of 2016 and it’s growing more than 150% a year.

Rick Kimball: A lot of people talk about big data and how to gain insights to drive better customer experiences. What are the key aspects of your data science strategy?

Jennifer Hyman: From day one we set up a rigorous data-centric culture in which the analytics team gathered suitcases full of data about our customers and our inventory. We also made sure that the data was transparent and usable to everyone in the organization. But it’s not just about numbers on a spreadsheet. We marry the quantitative data to qualitative data. If a customer says she didn’t wear something, we ask why. If she says she liked it but didn’t love it, we ask why. This is how we can constantly evolve our inventory toward higher customer satisfaction. Not only that, we can tell our brand partners what women think of their designs and their manufacturing. Before Rent the Runway, designers got this kind of feedback in little bits, anecdotally. We give them a steady stream of data, which they can use with their other partners. Everybody wins.

Rick Kimball: Describe your customers in more detail – it sounds like women only.

Jennifer Hyman: Men can wear the same three pairs of trousers and the same ten shirts all year and no one knows or cares. That’s why we are sticking with women for now. Our community includes 8.5 million of them, ranging from their teens up through their 60s. When we launched the business, Millennial customers were using us to rent the runway for a special event. Now our brand offering is 200X what it was at first, meaning we launched with clothes from 27 designers and now we have over 500 designers represented on the site. That means we cover a lot of different style types and can offer what you want no matter what your style is, or your age.

Rick Kimball: Is the customer age range the same for the special event dresses and the Unlimited service?

Jennifer Hyman: It is. The typical customer for upscale designer dresses is around 60 years old. So we’re introducing much younger customers to the fashion designers, which just delights both of them. It’s also giving the designers opportunities to create new work with more confidence and insight, because we bring them a large built-in customer base that includes feedback on how successful a garment is and could be. If you’re a young designer with aspirations, Rent the Runway has created a pathway to test your ideas and build your business that never existed before.

Rick Kimball: Do customers buy garments from those designers?

Jennifer Hyman: They do, but what Rent the Runway has really done is enable them to shop differently. Instead of buying a lot of separates, they rely on us for those. They invest in essentials, like a great-fitting pair of black pants that enables them to create millions of outfits. We are introducing our customer to brands she might not have been shopping before – without having to make expensive purchases.

Rick Kimball: You recently began opening brick-and-mortar stores. How does this fit into your strategic of building a comprehensive web-based reverse logistics platform?

Jennifer Hyman: Once we got to scale with a subscription service, we knew we had to achieve greater proximity to the customer. One dry cleaning facility in the middle of the country was not enough. A few warehouses of inventory were not enough. At the same time as we achieved numerical scale, we were scaling up qualitatively: women were trusting us as an essential utility and relying on us to get them dressed for work a majority of the time. So we opened retail stores where women can meet a stylist and try on different brands and pieces of clothing. This really enriches the data profile we have for them, and that makes it much easier for them to rent successfully for all their future occasions.

Rick Kimball: How have customers responded? How have you rounded out your team to deliver the best experiences online and in stores?

Jennifer Hyman: Customers have started to treat the stores as their physical closet. They can take any inventory they want off the shelf and walk out without swiping a credit card.

My vision for our business is that we are continuously disrupting ourselves, and our culture is built for that. We are in a primarily tech and logistics business, yet we are 70% female and 70% non-white. Our engineering team is 50% female. The leadership at Rent the Runway is 80% female. So we are defying the typical startup stereotypes. Come work at Rent the Runway to see the exception to the rule in action!

Rick Kimball: Such rapid growth involves a lot of learning on the job. Did you learn from what other companies were doing?

Jennifer Hyman: I wish that I had had more exposure to other companies in Silicon Valley. I’ve always been inspired by Netflix, but I didn’t know how Netflix was structured or how I could learn from them. I was sitting in New York as a 29-year-old woman with no experience in the tech industry, with no real connections to it and I had to figure this out by myself with my co-founder and our team.

Rick Kimball: This is something other female founders speak about. What’s your take?

Jennifer Hyman: There are some clear reasons why only 2% of venture capital dollars go to female founders. One huge disadvantage is that promising women are not mentored and lifted up early in their careers by others in the tech industry like men are. What you really need in the beginning of a company is tactical help, but if you are a woman, it is not always easy to meet the kind of people who can give you that. When you launch a company, you need someone who can pick up the phone and raise money. Someone who can refer you to talent. Someone who tells you how to set up your first HR system or write your first marketing plan. Those are the skills and help and tactical advice that female founders need. It’s not like we don’t have enough mentors. It’s that they are not mentoring enough women.

Rick Kimball: Speaking of investors and support, how did you get involved with TCV?

Jennifer Hyman: I got involved with TCV through the team, building a relationship with Rent the Runway over many years, and developing trust. And then simultaneously I was building a relationship with Barry McCarthy, the current CFO of Spotify and the former CFO of Netflix. I had a relationship with Barry and when I saw that he was also an advisor to TCV, I thought of it as the marriage of the financial support that we were going to receive as well as operational expertise and guidance.

Rick Kimball: How do you see Rent the Runway fitting into today’s economy and also the competitive landscape?

Jennifer Hyman: Well, I think that we are really the only ones who are trying to get you to buy less stuff. If you think about Amazon, Stitch Fix, Nordstrom, or Poshmark, a lot of what they’re doing is getting you to buy things in creative ways. But it is still buying and accumulating. It is a different value proposition to get you to not own and thus not buy things.

Rick Kimball: Looking out a few years, what excites you about the future of Rent the Runway?

Jennifer Hyman: I think I had a really big, bold vision at the beginning of Rent the Runway, but it’s not even comparable to how big and bold the vision is today. I am enthusiastic about the fact that this is only the beginning of transforming the modern woman’s relationship with her closet. We have to get dressed every single day, all over the world. We are focused on scaling our subscription service, making it even easier to access the “closet in the cloud” each and every day. There’s no reason why having this subscription to fashion shouldn’t become the dominant way that we experience clothing in the future.

Rick Kimball: Thanks, Jennifer, and we wish you and the team continued success.

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TCV is an investor in Rent the Runway and Rick Kimball serves on the board of directors of the company.

The views and opinions expressed in the transcript above are those of the speakers and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). This transcript is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified above, if any, are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this document, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/