Saturday, November 1, 2014

Jennifer Fleiss (Rent the Runway) and Scott Friend (Bain Capital Ventures)

Scott Friend, Bain Capital Ventures:
  • HBS alum, ProfitLogic founder
  • Investment focus: Transformation of retail industry
  • Early investor in RTR

Jennifer Fleiss, Rent the Runway:
  • HBS alum, Rent the Runway co-founder

Founding Rent the Runway
  • Jenny and Jenn had the idea while @ HBS; Now >300 employees, 250+ brands
The consumer dilemma: “A closet full of clothes, but nothing to wear”
  • Other factors at the time: Social pressure with new social media trends + Fast fashion
  • Started with trunk shows at Harvard and Yale sororities to prove the model worked and women had demand for it
  • Designers had limited control over the pricing @ retailer, but their brand value is at stake
Early discovery: “Women have a transformative emotional connection with fashion”
Getting Funding
  • Needed to invest early in a large number of dresses to test the model well; the RTR brand needed to feel aspirational, high-end
  • Initial introduction to Scott @ Bain Capital Ventures
    • What made them different: Highly professional, structured, thoughtful about what they were going to build and why
    • What made the timing and execution different: There were tons of entrepreneurs founding ecomm businesses in 2009,but Jenny and Jennifer already had a proof of concept in their MVP
    • What made Scott different for Jenny and Jennifer: Former entrepreneur who understood the challenges of running a business

Executing the Model: Jennifer's Perspective
  • Priority: Get the site up in order to test the revenue model (HAD to be up by Holiday 2009, which was the peak of the season)
The first challenge: “How, as two non-technical people, can we get a website launched within 2 months? It was the first, most difficult component”
    • To accomplish that, unsuccessfully searched for a CTO, then outsourced
    • Started with an outsourced option, “which was our only choice at that point” -- the first one was a scam, and the second was ultimately successful
The second challenge: “The other piece was getting designed brands signed on… which is not a given when you're asking them to risk their brand equity.”
Executing the Model: Scott's Perspective
Our thought was: let’s do as little as we can do on the technology side and just spend our time proving that the revenue model works. By 2009 New Years, we had 100% of our inventory sold out, and... we’d done our first-year revenue plan within 1 month"
  • It felt and looked like a fashion company at the time, which made finding a technical CTO challenging because it didn’t look like the analytics and operations company that they were seeking -- even though it is now
  • “Technology didn’t exist to run our reverse logistics process, which meant we would need to spend a lot of time and money buying something and customizing it, or building it ourselves.” (but tough to replicate)
The good news: “A big part of the bet was the assumption that if it worked, it would be really hard to replicate, both operationally and in terms of designer brands”
  • Skepticism of the brands was challenging: “It tests how thick your skin is. You’ll get doors in your face, hear 'No' all the time”
  • “We listened to what was good for the designer, what customers wanted, and we evolved the story as a result. We knew we just needed to get women renting dresses.”

The Future of Rent the Runway
Our guiding light is always listening to customers. No matter what we’ve done… it’s always stemmed from what customer want.”
  • Now a major focus is on the variables you can use to drive the average order price and conversion rates

  • Scott's thoughts on their success: 
    • “Jenn and Jenny were really thoughtful about the best things to do on the back end of the business at all times.
    • “Almost every dress goes out the door on Thursday and comes back on Tuesday. From Tuesday to Thursday, somehow those dresses have to be evaluated, processed, cleaned, fixed, picked again, packed, and shipped. We are the largest dry cleaner in the world”
    • “The other piece they were brilliant about was recognizing that we would have more data about customers than any retailer in the world. We’d know their size, style preferences, even their event calendar. But collecting that data and doing something with it was challenging -- How many fashion companies do you know that had one of their first hires as a Data Scientist?” 
    • "Great entrepreneurs can get great hires and just get people to do stuff for them. The number of people who have offered advice or guidance over the years is a credit to Jenn and Jenny spending time on that." 
    • They a great wealth of resources available at HBS; they got introductions to people outside the network, and also met with 80+ professors


Question: What is the exit strategy? 
  • It's always been about growing the business and keeping up with demand, but "things have finally settled; there aren't as many fire drills and the company is doing really well. We have time to think about where to head from here"
  • "All the options for exit will remain open as long as we continue to build and grow"
  • Scott: Sharing economy is becoming more the norm -- it's the tip of the iceberg in a way that it's proving to women that this is a good way to test luxury; 500K customers today is still <1% of the target market
  • Scott: The name, the story, and the founders are incredibly compelling -- you can see then standing up in front of public markets and have that story resonate. 
  • Scott: Profit per dress is very attractive and more so as you grow; this could be a standalone public company. 
Question: Scott, what have you invested in that has failed and why? 
  • Even in cases where the business didn't work, the team was so attractive that they still got hired and acquired (Example: celebrity support for an app that was a "next-generation mobile Yelp") --  Just the nature of early stage venture investing 
"I have no idea why this particular company wasn't Instagram. The team was great, and Yahoo bought the company because they loved the team." 
Question: How will the "Internet of things" (e.g., iBeacon tech) impact the retail industry?
  • Being an online first company gives you an immediate advantage because you have so much data on your customer -- Beacon is just one tech that allows you to further personalize your relationship with customers 

"Our shopping experiences are going to become way more uber-like over time -- retail is in a position to provide a similarly frictionless experience
Question: When will RTR pursue international expansion?
"There will always be shiny new things you could work on, and international is one of them at this point for us; having an investor, board, and team that keep you focused is helpful" 
  • The other thing that makes international less attractive in the short term is how challenging the business itself is -- it would take years to get it right, and so many companies that have started replicas of RTR internationally have had trouble being successful

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