The Exchanges

Q There's so many things for me to unpack here. There's like a kid in a sweet shop, but there's like 30% versus 55%. Does, like, what does that look like though? Post, bluntly, I mean, there's a lot of logistics to the business. It is not an easy business to run. Does that not make the margin profile very, very different post all this?

A No, so that's the amazing thing about the runway, that our gross margins, which include the cost of all of our inventory and all of our fulfillment, and by the way, our fulfillment has all the two-way shipping, all the dry cleaning, all the restoration of the goods, all the reverse logistics, etc., our gross margins are 44% in QFOR. Stack that up against the gross margins of other apparel retailers, and we have a 15 to 20 point gross margin advantage versus those companies, which, and those companies, many of them, are profitable today. So there's no reason why you shouldn't believe that Rent the Runway will be profitable, and in fact, should be more profitable than those companies, because we already have a 15 to 20 point gross margin advantage. The thing that has kept us From being profitable and, and put us into the camp where we were losing a lot of money was the expense of our SG&A.

AI assessment note: “No, so that's the amazing thing about the runway, that our gross margins”

Q So I'm gonna make an excuse for you, um, but it's like, could you have got to the revenue scale as fast as you did without having the expenses in terms of whatever the expenses were that you had to then cut back on? Like, were they necessary to achieve the scale?

A So our expenses actually were necessary at building out the competitive moats of the business. It was really expensive for us. This is a capex heavy business. We have to have distribution facilities. We have pioneered just-in-time reverse logistics of Clothing and accessories, meaning all these clothes are sent back to us from women who have worn them. We have to ingest them, single skew. We have to, uh, inspect them. We have to clean them. We have to repair them. We have to restore them. We have to then ship them out, quality control them. We have to then ship them out to new customers, often with a zero or one day turnaround time. None of that technology existed off the shelf, and none of those processes existed off the shelf. So we had to develop All of, you know, the, the infrastructure to be able to do this. At the time, you know, that we launched Rent the Runway, there was WMS systems that we could buy, but WMS systems, which is a warehouse management system, were for pick, pack, and ship operations. It was just for outbound logistics, which is only about, like, 15% of what happens in our facility. So we had to build the whole thing from scratch. So I would say that there were You know, significant investments that we had to make into the technology, which has become a mode of ours, into the operational, uh, you know, prowess of the business, which is a massive mode of th…

AI assessment note: “So our expenses actually were necessary at building out the competitive moats of the business.”

Q Great, Gem. What questions do you ask then? I'm learning from you. I should take notes, and I might actually hire better.

A See, not actually that I have a set of brilliant questions. I just will spend however long it takes in an interview with someone getting to know them as a person. I'll say, tell me about yourself, and they might start at their first job, and I was like, no, I don't, let's start at where you were born. Where are you from? Tell me about your family. Do you have siblings? Tell me about your parents. I want to know who made them and what made them who they are. And you're getting a sense of, is this person the sort of person that is going to put, you know, the company before themselves? Is this person going to be a missionary? Is this person, um, entrepreneurial? Does this person have great values? And that shows up in how they talk about their life experiences.

AI assessment note: “Where are you born? Where are you from? Tell me about your family.”

Q Yeah, I'm sorry. I'm, I'm, I'm not diverse in hard questions today, but I'm loving this. What does the street not get then? Like, I hear everything you say. It all makes total sense. What does the street not get then?

A Yeah, ok, so the first thing is that the street in general right now isn't looking at all paying any attention to companies that are unprofitable. And until recently, Rent the Runway is a company that has burned a lot of cash and we've been unprofitable. So number one, like, I don't think anyone's really looking at us today. Then once you kind of deal with that issue, I think there's two major questions about Rent the Runway. Number one is, is this a market? Like, is there TAM? And number two is, can this business make money? And we've made significant progress on both of those in a very short period of time. I mean, the fact that on, you know, can we make money? The fact that we've improved the gross margin from 30% at the end of Q-Four 21 to 44% at the end of Q-Four 22, that's significant over a very short period of time. Is there a TAM? Well, we've shown that, um, you know, we've had some significant growth coming out of 22 with these investments we're making in customer experience, but what's really exciting to us is, as opposed to this being, this clause in the cloud being a market that I invented in my head, uh, 14 years ago, um, now there's actual competitors to rent the runway, and some of those competitors release their information And they also have similar amounts of subscribers, which really proves, like, women are ready to do this. Like, this is a something that is…

AI assessment note: “the street in general right now isn't looking at all paying any attention to companies”

Q Do brands, sorry, I'm really just going off a piece here, but fuck it, I'm loving it. Um, do brands like you? Like, if you think about it, the big brands are like, well, the circular economy is not good for us. Like, we like purchases, we like as many purchases as possible. Surely the relationship there is frictitious, no?

A Yeah, so, brands used to be very confused by me, slash, hate, well, the runway, because First, at first glance, you think, why on earth would anyone buy clothes if they had the option to rent or to subscribe? Fast forward now, 15 years, who's my customer base? I have a customer base, number one, have my average subscriber spends about 2000 dollars with me per year. So this is a luxury customer that I have. This puts me on par with, you know, LVMH or with Top luxury beauty companies for how much people spend per year. Number two, my customer is between 25 and 45 years old. So I have a wealthy young customer who is not currently the customer of these designer brands. I'm introducing these designer brands to my customer often for the first time. In fact, 98% of my customers say That they're renting brands on Rent the Runway that they have never owned before. So this is my first experience wearing Ula Johnson or my first experience wearing Proenza Schooler. And then I am able as the customer to determine whether I want to purchase that product. So brands at this point see me as one of their most powerful marketing engines because they've now have 15 years of data where they assess where do their top customers come from. And most of their top customers they see Found out about the brand and started using the brand via Rent the Runway. Now then ask yourself, well, why is that? Why ha…

AI assessment note: “brands at this point see me as one of their most powerful marketing engines”

Q So I'm gonna make an excuse for you, um, but it's like, could you have got to the revenue scale as fast as you did without having the expenses in terms of whatever the expenses were that you had to then cut back on? Like, were they necessary to achieve the scale?

A So our expenses actually were necessary at building out the competitive moats of the business. It was really expensive for us. This is a capex heavy business. We have to have distribution facilities. We have pioneered just-in-time reverse logistics of Clothing and accessories, meaning all these clothes are sent back to us from women who have worn them. We have to ingest them, single skew. We have to, uh, inspect them. We have to clean them. We have to repair them. We have to restore them. We have to then ship them out, quality control them. We have to then ship them out to new customers, often with a zero or one day turnaround time. None of that technology existed off the shelf, and none of those processes existed off the shelf. So we had to develop All of, you know, the, the infrastructure to be able to do this. At the time, you know, that we launched Rent the Runway, there was WMS systems that we could buy, but WMS systems, which is a warehouse management system, were for pick, pack, and ship operations. It was just for outbound logistics, which is only about, like, 15% of what happens in our facility. So we had to build the whole thing from scratch. So I would say that there were You know, significant investments that we had to make into the technology, which has become a mode of ours, into the operational, uh, you know, prowess of the business, which is a massive mode of th…

AI assessment note: “our expenses actually were necessary at building out the competitive moats of the business.”

Q Can I ask, that's on the supply side. On the demand side, you said something fascinating, which is paid marketing and growth hacking ruined a generation of startups. I was so intrigued by this statement. What paid marketing and growth hacking ruin a generation of startups, Jen?

A This is like a new thing I've been thinking about a lot recently, because obviously we're in this very Hard and very bizarre time where a lot of startups are going bankrupt. A lot of companies are having trouble. And I was thinking about my own trajectory as a business. I've always thinking about lessons learned. What could I do better? What, you know, what do I wish I would have done a few years ago? And when we were growing up, so we first raised money in 2009, and that was really the beginning of an explosion in venture capital funding throughout the U.S. So I think that some of like the highest years of venture capital funding were like 2011, 2012, 2013. At this exact time, there was, we were running parallel with the massive success of companies like Facebook, Google and companies like Expedia and Bookings.com. And so when you raised money from a VC in 2009 or in 2011, the first thing they would say to you is, you need a growth team. You need to start doing growth hacking. And why did they say that? Because there was a culture and with the big personality attached to it, Chamath, at Facebook, That had built this unbelievable growth machine, and it worked for Facebook. And what was growth hacking? Growth hacking was like looking at your PDP and saying, okay, I want to change this button on the PDP from blue to green, and that's going to increase the conversion rate on this …

AI assessment note: “Facebook, that might have actually worked... but for startups that were very small”

Q I, I spoke to Jenny, um, before, and she said, how did you meet Beyonce and get her on the homepage of the site? Was something I had to ask. And I was like, yeah, it is.

A Yeah. So we, in one of our, in our first office, there was a designer who Worked next to us named Brian Reyes, and Brian's boyfriend became, Brian and his boyfriend became good friends of ours because I was working long hours and then I would go over to Brian's design studio after work and have drinks and just hang out with him and Jim. And we just, for, you know, the two years that we worked there became very close. And I never really asked Jim much about his career because we were just having fun together and I was Talking to him, you know, in a personal way. And then a few years later, I got a phone call from Jim, because Jim and Brian had broken up, and, and I was like, Jim, oh my god, I miss you so much. How are you? What's been going on? And he was like, Jed, I'm back to my old gig. And I was like, oh, like, what's your old gig? He's like, we never talked about this? I was like, no. He's like, I'm Beyonce's manager. And I was like, what?

AI assessment note: “He's like, I'm Beyonce's manager. And I was like, what?”

Q discuss, kind of, the company, and actually, you know, revert to schedule in some way, but you said, I wish I had run my business as a private company, now that I'm a public company CEO. And I actually saw this, and I was like, ooh, that's a great one. Um, what did you mean by this, and why do you wish you ran your company as a private company?

A Oh, so I wish that I had taken, I think that what I said is I wish I had taken the way that I run the company today as a public company is how I wish I had run it more as a private company. That's what I said. And I'll tell you why. As a private company, the name of the game in terms of how you raise capital and how therefore you grow is by proving that you are different. By proving and saying, I'm this special snowflake. I'm gonna disrupt the way that women wear clothes. Everything about Rent the Runway is different. We're not a fashion company. We are a technology, logistics, data company that happens to be in the fashion business. How you run a public company is by looking at all of the ways that you're the same as everyone else in your industry, and by nature of looking at the ways that you're the same, it's very clear to see and distinguish what are the aspects of your business model and your P&L that actually give you a competitive advantage, and what are the aspects where you're falling behind. And so, as a public company, because I was evaluated against a lot of other apparel companies, really for the first time, I had never been compared to apparel companies before I went public. And then I went public, and everyone suddenly, like, you're in the apparel business. You're an apparel business. And I started looking at the P&Ls of all of these other apparel companies, and …

AI assessment note: “I'll tell you why. As a private company, the name of the game”

Q There's so many things for me to unpack here. There's like a kid in a sweet shop, but there's like 30% versus 55%. Does, like, what does that look like though? Post, bluntly, I mean, there's a lot of logistics to the business. It is not an easy business to run. Does that not make the margin profile very, very different post all this?

A No, so that's the amazing thing about the runway, that our gross margins, which include the cost of all of our inventory and all of our fulfillment, and by the way, our fulfillment has all the two-way shipping, all the dry cleaning, all the restoration of the goods, all the reverse logistics, etc., our gross margins are 44% in QFOR. Stack that up against the gross margins of other apparel retailers, and we have a 15 to 20 point gross margin advantage versus those companies, which, and those companies, many of them, are profitable today. So there's no reason why you shouldn't believe that Rent the Runway will be profitable, and in fact, should be more profitable than those companies, because we already have a 15 to 20 point gross margin advantage. The thing that has kept us From being profitable and, and put us into the camp where we were losing a lot of money was the expense of our SG&A.

AI assessment note: “our gross margins are 44% in QFOR. Stack that up against the gross margins”

Q Yeah, I'm sorry. I'm, I'm, I'm not diverse in hard questions today, but I'm loving this. What does the street not get then? Like, I hear everything you say. It all makes total sense. What does the street not get then?

A Yeah, ok, so the first thing is that the street in general right now isn't looking at all paying any attention to companies that are unprofitable. And until recently, Rent the Runway is a company that has burned a lot of cash and we've been unprofitable. So number one, like, I don't think anyone's really looking at us today. Then once you kind of deal with that issue, I think there's two major questions about Rent the Runway. Number one is, is this a market? Like, is there TAM? And number two is, can this business make money? And we've made significant progress on both of those in a very short period of time. I mean, the fact that on, you know, can we make money? The fact that we've improved the gross margin from 30% at the end of Q-Four 21 to 44% at the end of Q-Four 22, that's significant over a very short period of time. Is there a TAM? Well, we've shown that, um, you know, we've had some significant growth coming out of 22 with these investments we're making in customer experience, but what's really exciting to us is, as opposed to this being, this clause in the cloud being a market that I invented in my head, uh, 14 years ago, um, now there's actual competitors to rent the runway, and some of those competitors release their information And they also have similar amounts of subscribers, which really proves, like, women are ready to do this. Like, this is a something that is…

AI assessment note: “the street in general right now isn't looking at all paying any attention to companies”

Q Do brands, sorry, I'm really just going off a piece here, but fuck it, I'm loving it. Um, do brands like you? Like, if you think about it, the big brands are like, well, the circular economy is not good for us. Like, we like purchases, we like as many purchases as possible. Surely the relationship there is frictitious, no?

A Yeah, so, brands used to be very confused by me, slash, hate, well, the runway, because First, at first glance, you think, why on earth would anyone buy clothes if they had the option to rent or to subscribe? Fast forward now, 15 years, who's my customer base? I have a customer base, number one, have my average subscriber spends about 2000 dollars with me per year. So this is a luxury customer that I have. This puts me on par with, you know, LVMH or with Top luxury beauty companies for how much people spend per year. Number two, my customer is between 25 and 45 years old. So I have a wealthy young customer who is not currently the customer of these designer brands. I'm introducing these designer brands to my customer often for the first time. In fact, 98% of my customers say That they're renting brands on Rent the Runway that they have never owned before. So this is my first experience wearing Ula Johnson or my first experience wearing Proenza Schooler. And then I am able as the customer to determine whether I want to purchase that product. So brands at this point see me as one of their most powerful marketing engines because they've now have 15 years of data where they assess where do their top customers come from. And most of their top customers they see Found out about the brand and started using the brand via Rent the Runway. Now then ask yourself, well, why is that? Why ha…

AI assessment note: “brands at this point see me as one of their most powerful marketing engines”

Q They will work on things like simplifying a home screen or, uh, removing, uh, annoying features or elements which cause churn. And so when you say like, do people stay, do they retain? That is in certain. This is why growth is difficult because the definition is kind of blurred. Like, to some people that's just product teams, and to some people that's growth. Do you see what I mean?

A That there's always, um, within a product team, there is always an element in any business of simplification. Let's make this site easier to use. Let's take this, like, archaic screen away and reduce this, reduce this, the friction around the product funnel. Yeah, that, that's a part of the health of a product organization, but growth hacking is something that's fundamentally different. That is literally, you are hacking the difference between, you know, changing your FOD color from this to that, like, moving this line from here to there. You're, you're, you're running hundreds of experiments at one time that may show up mathematically in the metrics, but to the customer, like, Does it really freaking matter? Like, does that change their fundamental relationship with Rent the Runway, that you move the button from here to there? Like, the only thing that's going to get customers to stay with Rent the Runway longer is if they wear more clothes for me, they get more utility out of those clothes, they feel awesome every single day wearing them, and the experience of receiving those clothes becomes easier and easier over time.

AI assessment note: “growth hacking is something that's fundamentally different. That is literally, you are hacking”

Q million in revenue. He was like, we get to a billion, we'll be a three billion company. It's not, it's not a venture-backable business, Harry, when you look at the scale. And I, I'm saying that as the founder of ButcherBox. And it just made me really pause and think. And he said, like, consumer subscription isn't. Do you think that's fair, actually? Or do you think it's missing something?

A Well, I think that Lumping all subscription businesses together is as wonky as when I used to say that we shouldn't be thought of as an apparel company, right? So when you look at, when you think about what gives Rent the Runway the right, and what will, what gives us the right to become a profitable company? The thing that gives us the right to become a profitable company Is that we have this 44% gross margin that we've proven can only go up, that we have this competitive advantage in our product cost. We actually have built a highly efficient, um, fulfillment operation as evidenced by the fact that our fulfillment expense, which has two-way shipping, which has restoration of garments, which has cleaning, which has repair, still is only 30% of revenue, which leads us to that 44% gross margin. And what then gives us the right to become profitable over time? It's that in addition to that, we've built a machine of a customer experience and a brand that is extremely viral that we have, that we get to spend less than 10% of our revenue on marketing, and we actually have room in there to actually build a quite profitable business. A lot of subscription companies Have, actually are, a lot of subscription companies are software businesses, right? They're software as a service, and those subscription companies may actually be spending 70% of their revenue on their sales organization, o…

AI assessment note: “Lumping all subscription businesses together is as wonky”

Q Jen, can I ask, did people get it? Like, when you first had the idea, were people like, ah, that's a great idea, Jen. This is good. Or were people like, no, I don't see that.

A I think that the demographic we were going after really did get it. I mean, women in their twenties and thirties, who were the primary segment we were targeting at the beginning of Rent the Runway, understood that they were going out and buying dresses to be bridesmaids and to go to holiday parties and to celebrate events that they were wearing once or twice and then throwing away. I think that the rest of the universe, it took a little bit longer. But one of the things that I, you know, shared with investors and really shared as well with even designers, who I had to convince that this was a good idea, is that the concept of Rent the Runway is not a new idea. Renting clothes existed in another form already, and it was the majority of the fashion industry. Fast fashion is clothing rental. Whenever you go into H&M or Zara and you buy a top that you, is cheap, that you know that you're gonna wear once or twice and then push the back of your closet, that is renting the runway. You're renting something, you're using something for a short period of time where it has utility in your life, and then you don't need it anymore. And what we were really doing with Rent the Runway is really Taking fast fashion, making it way more financially sustainable, giving you the real aspirational brands, making it environmentally sustainable, and doing it in a personalized, tech-forward way.

AI assessment note: “I think that the demographic we were going after really did get it.”

Q discuss, kind of, the company, and actually, you know, revert to schedule in some way, but you said, I wish I had run my business as a private company, now that I'm a public company CEO. And I actually saw this, and I was like, ooh, that's a great one. Um, what did you mean by this, and why do you wish you ran your company as a private company?

A Oh, so I wish that I had taken, I think that what I said is I wish I had taken the way that I run the company today as a public company is how I wish I had run it more as a private company. That's what I said. And I'll tell you why. As a private company, the name of the game in terms of how you raise capital and how therefore you grow is by proving that you are different. By proving and saying, I'm this special snowflake. I'm gonna disrupt the way that women wear clothes. Everything about Rent the Runway is different. We're not a fashion company. We are a technology, logistics, data company that happens to be in the fashion business. How you run a public company is by looking at all of the ways that you're the same as everyone else in your industry, and by nature of looking at the ways that you're the same, it's very clear to see and distinguish what are the aspects of your business model and your P&L that actually give you a competitive advantage, and what are the aspects where you're falling behind. And so, as a public company, because I was evaluated against a lot of other apparel companies, really for the first time, I had never been compared to apparel companies before I went public. And then I went public, and everyone suddenly, like, you're in the apparel business. You're an apparel business. And I started looking at the P&Ls of all of these other apparel companies, and …

AI assessment note: “I wish I had taken the way that I run the company today as a public company”

Q an owner of my businesses, but the truth is, Jen, none of them do. None of them. Only I act like an owner, and that may be unhealthy in many respects, but like, how do you hire this ownership mentality? Because honestly, I don't see it today in 99%, and maybe I'm terrible at hiring, but what do you do to get those people, and how does one do it?

A I, so I feel the opposite of you. I think that the team here is, you know, 99 plus percent missionary, and that's actually been the greatest privilege of my experience leading Rent the Runway, that over the past 14 years I've worked with people that really consider themselves to be founders of Rent the Runway. Founders of a new chapter of our company, Um, founders of a new business line. How do you interview for that? I actually think it's one of the easiest things to see. Um, you know, one of the, one of the things I say to someone when they come to rent the runway is, hey, I'm giving you this job today. The only promise that I'm going to make to you is that you're going to be doing something totally different six months from now. And that I had no assurance of what that is. If you're not comfortable with this idea of consistent and constant change, this is not going to be the right environment for you. I want people who thrive in times of change, who love that, who love the idea of, you know, taking chaotic situations and making those chaotic situations periods of innovation. So finding that kind of resilience, founders really fundamentally are just unbelievably resilient people. So what I'm interviewing for when I'm interviewing for a founder mentality is I'm interviewing for resilience. And that shows up in asking people about their lives. I think that people, when they int…

AI assessment note: “what I'm interviewing for when I'm interviewing for a founder mentality is I'm interviewing for resilience.”

Q Can I ask, what was the most, like, as you said there, you started at a 27 year old, respectfully, not as like a, you know, zero entrepreneur and incredible business leader that you are today. What one or two moments really changed your mindset on how you lead companies?

A Let's see, I mean, I think that COVID was a transformative moment for me as a leader, where you really realize that even 10 or 12 years into a business, whatever it was at that time, you still have to lead a team of missionaries and not mercenaries. And the people that are going to stay with you through COVID, when you, when we lost an enormous amount of revenue overnight, are people that Fundamentally are working here for more than just their job, are working here for more than just the interest of an interesting problem. They're working here because they believe in the mission of what we're doing to change an industry, which is about empowering women to feel their best every single day. So, really understanding the power of that missionary mentality, the power, the power of having hired a team of people Who ascribe to this core value of everyone's a founder of Rent the Runway. So we've always had that value up on the wall. We look for people that, even when the company gets big, still can kind of act small and act scrappy at various points in time. And that's never been more important than we, when we were in COVID and when we had to figure out how to reinvent the company.

AI assessment note: “COVID was a transformative moment for me as a leader”

Q They will work on things like simplifying a home screen or, uh, removing, uh, annoying features or elements which cause churn. And so when you say like, do people stay, do they retain? That is in certain. This is why growth is difficult because the definition is kind of blurred. Like, to some people that's just product teams, and to some people that's growth. Do you see what I mean?

A That there's always, um, within a product team, there is always an element in any business of simplification. Let's make this site easier to use. Let's take this, like, archaic screen away and reduce this, reduce this, the friction around the product funnel. Yeah, that, that's a part of the health of a product organization, but growth hacking is something that's fundamentally different. That is literally, you are hacking the difference between, you know, changing your FOD color from this to that, like, moving this line from here to there. You're, you're, you're running hundreds of experiments at one time that may show up mathematically in the metrics, but to the customer, like, Does it really freaking matter? Like, does that change their fundamental relationship with Rent the Runway, that you move the button from here to there? Like, the only thing that's going to get customers to stay with Rent the Runway longer is if they wear more clothes for me, they get more utility out of those clothes, they feel awesome every single day wearing them, and the experience of receiving those clothes becomes easier and easier over time.

AI assessment note: “growth hacking is something that's fundamentally different.”

Q Great, Gem. What questions do you ask then? I'm learning from you. I should take notes, and I might actually hire better.

A See, not actually that I have a set of brilliant questions. I just will spend however long it takes in an interview with someone getting to know them as a person. I'll say, tell me about yourself, and they might start at their first job, and I was like, no, I don't, let's start at where you were born. Where are you from? Tell me about your family. Do you have siblings? Tell me about your parents. I want to know who made them and what made them who they are. And you're getting a sense of, is this person the sort of person that is going to put, you know, the company before themselves? Is this person going to be a missionary? Is this person, um, entrepreneurial? Does this person have great values? And that shows up in how they talk about their life experiences.

AI assessment note: “Where are you from? Tell me about your family. Do you have siblings?”

Q Can I ask, what was the most, like, as you said there, you started at a 27 year old, respectfully, not as like a, you know, zero entrepreneur and incredible business leader that you are today. What one or two moments really changed your mindset on how you lead companies?

A Let's see, I mean, I think that COVID was a transformative moment for me as a leader, where you really realize that even 10 or 12 years into a business, whatever it was at that time, you still have to lead a team of missionaries and not mercenaries. And the people that are going to stay with you through COVID, when you, when we lost an enormous amount of revenue overnight, are people that Fundamentally are working here for more than just their job, are working here for more than just the interest of an interesting problem. They're working here because they believe in the mission of what we're doing to change an industry, which is about empowering women to feel their best every single day. So, really understanding the power of that missionary mentality, the power, the power of having hired a team of people Who ascribe to this core value of everyone's a founder of Rent the Runway. So we've always had that value up on the wall. We look for people that, even when the company gets big, still can kind of act small and act scrappy at various points in time. And that's never been more important than we, when we were in COVID and when we had to figure out how to reinvent the company.

AI assessment note: “COVID was a transformative moment for me as a leader”

Q an owner of my businesses, but the truth is, Jen, none of them do. None of them. Only I act like an owner, and that may be unhealthy in many respects, but like, how do you hire this ownership mentality? Because honestly, I don't see it today in 99%, and maybe I'm terrible at hiring, but what do you do to get those people, and how does one do it?

A I, so I feel the opposite of you. I think that the team here is, you know, 99 plus percent missionary, and that's actually been the greatest privilege of my experience leading Rent the Runway, that over the past 14 years I've worked with people that really consider themselves to be founders of Rent the Runway. Founders of a new chapter of our company, Um, founders of a new business line. How do you interview for that? I actually think it's one of the easiest things to see. Um, you know, one of the, one of the things I say to someone when they come to rent the runway is, hey, I'm giving you this job today. The only promise that I'm going to make to you is that you're going to be doing something totally different six months from now. And that I had no assurance of what that is. If you're not comfortable with this idea of consistent and constant change, this is not going to be the right environment for you. I want people who thrive in times of change, who love that, who love the idea of, you know, taking chaotic situations and making those chaotic situations periods of innovation. So finding that kind of resilience, founders really fundamentally are just unbelievably resilient people. So what I'm interviewing for when I'm interviewing for a founder mentality is I'm interviewing for resilience. And that shows up in asking people about their lives. I think that people, when they int…

AI assessment note: “what I'm interviewing for when I'm interviewing for a founder mentality is I'm interviewing for resilience”

Q Can I ask you, when you think about hiring mistakes, you learn a lot over time. Have you made any hiring mistakes? And how did that shape how you think about it?

A Of course. Of course. I mean, I've been doing this for 14 or 15 years. Like, I've made a ton of hiring mistakes. As much as you can interview someone beforehand, and I do spend a lot of time in getting to know people, and my hit rate has gone up significantly over time, inevitably, until you start really spending time with someone, like, You're never really going to know if it's the right fit or not. So I think that giving yourself some grace on both ends of the equation, both as the boss and the person who has just come to that company, that sometimes it's just not the right cultural fit. Sometimes it's just not the right relationship, not going to work, and that's okay. And that doesn't mean that they're not great at their job. It doesn't mean that You're, you know, not running a great company. It just means that sometimes there's a mismatch and just being open about that earlier on in someone's tenure at the company is so much easier than waiting for, you know, 12 to 24 months in when they're already kind of set into the vibe and the culture of the company. So just like those early conversations when you start and, and early, uh, you know, things when you start to notice, like, I'm not sure that this is really working. Like, have that two, three months in, not two years in.

AI assessment note: “Of course. I mean, I've been doing this for 14 or 15 years.”

Q Can I ask, that's on the supply side. On the demand side, you said something fascinating, which is paid marketing and growth hacking ruined a generation of startups. I was so intrigued by this statement. What paid marketing and growth hacking ruin a generation of startups, Jen?

A This is like a new thing I've been thinking about a lot recently, because obviously we're in this very Hard and very bizarre time where a lot of startups are going bankrupt. A lot of companies are having trouble. And I was thinking about my own trajectory as a business. I've always thinking about lessons learned. What could I do better? What, you know, what do I wish I would have done a few years ago? And when we were growing up, so we first raised money in 2009, and that was really the beginning of an explosion in venture capital funding throughout the U.S. So I think that some of like the highest years of venture capital funding were like 2011, 2012, 2013. At this exact time, there was, we were running parallel with the massive success of companies like Facebook, Google and companies like Expedia and Bookings.com. And so when you raised money from a VC in 2009 or in 2011, the first thing they would say to you is, you need a growth team. You need to start doing growth hacking. And why did they say that? Because there was a culture and with the big personality attached to it, Chamath, at Facebook, That had built this unbelievable growth machine, and it worked for Facebook. And what was growth hacking? Growth hacking was like looking at your PDP and saying, okay, I want to change this button on the PDP from blue to green, and that's going to increase the conversion rate on this …

AI assessment note: “for startups that were very small, changing the button”

Q I, I spoke to Jenny, um, before, and she said, how did you meet Beyonce and get her on the homepage of the site? Was something I had to ask. And I was like, yeah, it is.

A Yeah. So we, in one of our, in our first office, there was a designer who Worked next to us named Brian Reyes, and Brian's boyfriend became, Brian and his boyfriend became good friends of ours because I was working long hours and then I would go over to Brian's design studio after work and have drinks and just hang out with him and Jim. And we just, for, you know, the two years that we worked there became very close. And I never really asked Jim much about his career because we were just having fun together and I was Talking to him, you know, in a personal way. And then a few years later, I got a phone call from Jim, because Jim and Brian had broken up, and, and I was like, Jim, oh my god, I miss you so much. How are you? What's been going on? And he was like, Jed, I'm back to my old gig. And I was like, oh, like, what's your old gig? He's like, we never talked about this? I was like, no. He's like, I'm Beyonce's manager. And I was like, what?

AI assessment note: “He's like, I'm Beyonce's manager. And I was like, what?”

Q Can I ask you, when you think about hiring mistakes, you learn a lot over time. Have you made any hiring mistakes? And how did that shape how you think about it?

A Of course. Of course. I mean, I've been doing this for 14 or 15 years. Like, I've made a ton of hiring mistakes. As much as you can interview someone beforehand, and I do spend a lot of time in getting to know people, and my hit rate has gone up significantly over time, inevitably, until you start really spending time with someone, like, You're never really going to know if it's the right fit or not. So I think that giving yourself some grace on both ends of the equation, both as the boss and the person who has just come to that company, that sometimes it's just not the right cultural fit. Sometimes it's just not the right relationship, not going to work, and that's okay. And that doesn't mean that they're not great at their job. It doesn't mean that You're, you know, not running a great company. It just means that sometimes there's a mismatch and just being open about that earlier on in someone's tenure at the company is so much easier than waiting for, you know, 12 to 24 months in when they're already kind of set into the vibe and the culture of the company. So just like those early conversations when you start and, and early, uh, you know, things when you start to notice, like, I'm not sure that this is really working. Like, have that two, three months in, not two years in.

AI assessment note: “I've made a ton of hiring mistakes.”

Q million in revenue. He was like, we get to a billion, we'll be a three billion company. It's not, it's not a venture-backable business, Harry, when you look at the scale. And I, I'm saying that as the founder of ButcherBox. And it just made me really pause and think. And he said, like, consumer subscription isn't. Do you think that's fair, actually? Or do you think it's missing something?

A Well, I think that Lumping all subscription businesses together is as wonky as when I used to say that we shouldn't be thought of as an apparel company, right? So when you look at, when you think about what gives Rent the Runway the right, and what will, what gives us the right to become a profitable company? The thing that gives us the right to become a profitable company Is that we have this 44% gross margin that we've proven can only go up, that we have this competitive advantage in our product cost. We actually have built a highly efficient, um, fulfillment operation as evidenced by the fact that our fulfillment expense, which has two-way shipping, which has restoration of garments, which has cleaning, which has repair, still is only 30% of revenue, which leads us to that 44% gross margin. And what then gives us the right to become profitable over time? It's that in addition to that, we've built a machine of a customer experience and a brand that is extremely viral that we have, that we get to spend less than 10% of our revenue on marketing, and we actually have room in there to actually build a quite profitable business. A lot of subscription companies Have, actually are, a lot of subscription companies are software businesses, right? They're software as a service, and those subscription companies may actually be spending 70% of their revenue on their sales organization, o…

AI assessment note: “Lumping all subscription businesses together is as wonky as”

Q Okay, so, 14 years since launching, 15 years since the idea. You, you've learned so much since then. What do you know now today, Jen, that you wish you'd known when you started 14 years ago?

A That's a really hard question, because I knew nothing when I started 14 years ago. I was 27 years old, um, and I had to really figure out, I think, the main themes of How do you go from having a great idea to becoming a great leader, inspiring others, building a team, and, you know, figuring out what are the investments that this company is going to make over time to create sustainable competitive advantages? I think an idea is a dime a dozen, and, you know, the success of a company is really based on execution. Execution is based on where you Choose to spend your human capital resources, and really directing your human capital towards things that are going to create sustainable competitive advantage in the market is really one of the most important lessons to me of entrepreneurship.

AI assessment note: “directing your human capital towards things that are going to create sustainable competitive advantage”

Q terms of profitability, in terms of next quarter's earnings, it doesn't allow really bluntly for long-term innovation, research, thinking around how I'm a classic VC, forgive me for this example, how AI impacts, you know, future consumer shopping habits, uh, collaboration of shopping, whatever that is. Do you feel there is a misalignment between what the, what the street expects tomorrow, and what you want to invest in over time?

A I think that over time you get the investors you deserve. And I'm here, as evidenced by the 15 years that I've already spent creating this market, building this company, I'm here for the long haul. I'm here to create a sustainable business that is around many, many decades to come. I believe that 50% plus of the closet in the future doesn't have to be filled with items that we own forever. And so, How we think about building this company is for the long term. Now, that has not shown up at all in our stock price to this point because we have not been able to amass those long term investors because the long term investors are looking for profitable companies. And by the way, it's not that we are trying to get to profitability because that's what the market favors. We're trying to get to profitability because I want to build a sustainable company that is around For, you know, 50 years from now. So, we're focused on the right things here, and we've actually never been more excited about how big this market is, how much momentum there is in the market. I mean, just little things that we're seeing in terms of the diversity of the customer base, the diversity of who signs up for subscription. Like, she's more geographically diverse than she's ever been before. She's, uh, you know, coming in with more age diversity than she's ever had before. This just, Is now something that feels like…

AI assessment note: “Now, that has not shown up at all in our stock price to this point”

Q I'm sorry, Jen. I love that. I was also sitting there going, oh shit, I really need to update my knowledge of brands. Um, but it sounded great. Is there ever a stage where brands are like, ooh, they're not converting? Like, cause there is a time where they expect the conversions to hit and the marketing.

A Yeah, so we, we have a hundred percent retention of all the brands who have ever worked with us. And this is in an industry where typically if you're a fashion brand, you change somewhere between 10 and 20% of your distribution partners annually. The fact that every single brand that has ever started working with Rent the Runway has decided they want to continue working with Rent the Runway is really a testament to the power of our platform in the industry, to how good of a partner we are, and the fact that we're a business that's focused on, yes, delivering this Transformative customer experience, but we also are trying to, um, grow these designer businesses. Designers have been really, really hurt over the last few decades because of fast fashion, right? Fast fashion has come in and copied their designs, put it out into the universe, into the global marketplace much quicker than the designers at much cheaper price points, and that's where all the money has moved. Over 80% of what's purchased in this nearly three trillion dollar global market is fast fashion now. So fast fashion is really everything from a Shein to, you know, an H&M or a Zara, but it's also, like, all of the kind of cheaper items that you might buy on an Amazon fashion or in a Walmart. Like, all of that is just What the designers are competing against.

AI assessment note: “we have a hundred percent retention of all the brands who have ever worked with us”