 Do you agree with the decision to pursue these actions?

Some of the decisions are debatable. I believe they should have expanded sooner rather than
later. Although one of their worries about not growing was that they needed to find a break-
even before expanding, this should not be an issue if they develop at the estimated rate. For
example, adding accessories to their product line would have been a fantastic idea since it
would allow RTR to sell more and make a more significant profit, independent of the accessory
margins.
 Which actions were important in validating the business model hypotheses and refining
the concept?
RTR founders never had a business plan but a business from the beginning. They were opposed
to planning and strategizing whether it would work. Many uncertainties existed, and co-
founders addressed these by launching a series of experiments with minimum viable products
to test product/market fit. The testing validated their hunch; there is much tangibility to their
concept, an emotional connection. The decision to build the idea of Rent the Runway around
that feeling that fantastic fashion gets to women. But designers were worried about
cannibalization. Renting dresses instead of selling them seemed like a bad idea. To make it
work, it needs to have its website and inventory. The thought of using the Netflix model to rent
fashion dresses from multiple designers was born. But that change in the business model
required more capital to purchase inventory. The specific advice when you're going for capital is
to make sure you have a top-notch business plan and get capital as cheaply as possible. They
didn't do it. They are anti-business plan people but have a bias for action. They chose Bain
Capital, even though it wasn't necessarily the cheapest capital, because of the attitude of
partner Scott Friend, sharing the learning by committing.

 Can you suggest different actions that the cofounders should have taken?
First, they should have stuck with their original plan to focus on operational improvements
during 2010: - Lot to be done in core business (still uncertainties in the business model:
need to improve on many inefficiencies) - Ample funds to cover budgeted inventory Co-
founders don't have a clear plan for how to spend the money neither clear distinction on
 who would handle what. New features would require considerable effort in every function -
they are not planning for this correctly. Furthermore, they have not indeed achieved proof
of concept: - Struggles with inventory shortages - need to use the original funds to cover
inventory additions - Use funds to hire much-needed technology personnel; it was a mistake
not having a technology team from the outset in the website business. Fleiss and Hyman
had acted as product managers for the website but had non-technical backgrounds. -
Redesign website to increase conversion rates from visitor to renter - Analyze rental
patterns and reservation data to optimize dress - Buy decisions and increase inventory
turns. Make warehouse operations more efficient and reduce picking and packing costs and
error rates. Finally, with so much to be done with RTR and no clear plans for what additional
capital would be used, it does not make sense for the team to focus on other things. They
should make changes to make their website as efficient as possible, achieve profitability,
and then look to raise more funds and expand product offerings. We need first to have a
reliable, successful service that pleases customers.

 Stick with their original plan to pursue operational improvements in 2010 before raising
more capital in early 2011; or
 Accelerate fundraising to expand inventory and product range; to serve a broader set of
customer segments and usage occasions.

The cofounders’ original plan to pursue operational improvements was based upon their
assumption and unexpected demand from the market. They had not anticipated such a
massive turnout of customers. Hence, plan A would not work for them in the future because
they needed to expand their inventory and upgrade their website, increasing their customer
base. In my opinion, they should go with plan B, even though it might put a heavy demand on
the small management team, which is still struggling to get the operations under control. The
chance to accelerate their funding in 2010 was crucial to their revenue potential.
 References
Eisenmann, Thomas R., and Laura Winig. "Rent the Runway." Harvard Business School Case
812-077, November 2011. (Revised December 2012.)