TEM: RTR

Consider a timeline of decisions and actions undertaken by Rent the Runway’s co-founders. Pay
particular attention to:
- How they structured the founding team and the extended management team,
- How they pursued discussions with designers,
- How they conducted multiple trunk shows
- Their decision to launch the service in December.

Do you agree with the decision to pursue each action? Which actions were important in validating
business model hypotheses and refining the concept? Can you suggest different actions that the
cofounders should have taken? 


How they structured the founding team and the extended management team
● Strong adviser team - page 6
● Should have had a CTO or VP of Engineering sooner - no way of telling if developers did a good
job or what they need to add to the engineering team
● Jack of all trades is OK at early stage but probably not when you’re scaling

How they pursued discussions with designers

● Took meetings serendipitously - never turn a meeting down. Good things will happen
Initially discussion was around cannibalizing the retail channel
● Shifted pitch to position RTR as a customer acquisition channel that exposes younger women to
expensive designer brands and gives them an aspirational experience. 15 designers signed up.
○ Never start a conversation with someone telling them you’re going to cannibalize their
business
○ Jim Gold’s suggestion to give department stores exclusive selling window - 98% rented
brands they never owned and 90% report high purchase intent for the brand - confirming
their hypothesis that this could be a customer acquisition channel.

How they conducted multiple trunk shows

● Tested at Harvard and Yale - 34% at Harvard and 75% at Yale - interestingly when you can’t try,
the conversion numbers are actually higher.

Their decision to launch the service in December

● They weren’t ready but it’s not as bad as it could have been
○ Had to train customer service quickly
○ Had to write a simple system to generate pick tickers and labers
○ Inventory wasn’t big enough yet

Other key actions

● Firing designed with horrible web design
● Pulling the plug on website development that was lagging behind - check references
● Beta-launch: Good to test first and allowed them to build up a customer function based on initial
customers’ experiences
● Maintaining waiting list
● Sending dresses in 2 sizes and offering reduced price for an additional dress
● Have to time customer service calls
Based on your analysis from the exercise, which variable is the most important driver of
profitability? How does it impact the business model? What additional tests would you
recommend to validate your hypothesis?

Based on the Unit Economics analysis, the most important driver of profitability is revenue per rental (i.e.
price). Increasing price by 10% (to $99) results in a 20% increase in contribution margin (to ~$50).
"Average rentals per dress" is also very important since the more a dress is rented out, the lower the
depreciation cost per dress - and the higher the contribution margin.

Churn and "rentals/customer/year" is also crucial to LTV, since lower churn and higher
"rentals/customer/year" result in higher LTV. As for CAC, conversion is very important. Increasing
conversion by 10% results in a 10% decrease in CAC.

This impacts the business model because RTR has to figure out how to (1) add additional services to
justify price increases and (2) create customer stickiness so that a customer stays longer and rents a
dress more frequently. The business model needs to shift to a full-fledged one-stop shop for all of a
woman's dressing needs.

I would:

● Check my virality coefficient through my referral codes program.

● Do A/B testing to see how I can increase conversion on my website
● Make small price increases and test demand elasticity

As the case ends in January 2010, the cofounders are considering whether to: (1) stick with their
original plan to pursue operational improvements in 2010 before raising more capital in early
2011; or (2) accelerate fundraising in order to expand inventory and product range, enabling RTR
to serve a broader set of customer segments and usage occasions. What would you do about this
decision?

Raise:
● Runway of only 15 months
● The worst time to raise money is when you need money
● They want to show profitability - but VCs don’t really care about profitability
● They are only delaying fundraising because they’re worried about valuation