- In early 2009, Jen Hyman and Jenny Fleiss
co-founded Rent the Runway,
a rental service for young women's high-end dresses.
Their premise?
On certain occasions like a prom,
a wedding or a graduation,
women would love to wear designer dresses,
but they often don't have the money to buy them.
Even if they could buy one,
it would just hang the closet much of the time.
What if they created a mail order rental service,
similar to what Netflix had down with DVDs?
While the basic ideas seemed promising,
the pair knew they must find answers to dozens of questions
before they could be somewhat confident of success.
For instance, how large is the market for such a service?
What kinds of dresses?
What rental price?
Also, what about operations and logistics?
Should they add other individuals to their two person team?
If so, who?
When should they seek external funding?
And many others.
Questions like these represent sources of uncertainty,
not just for every startup,
but also for every innovative idea
within an existing organization.
Finding valid answers in a timely
and a cost-effective manner is critical.
Maybe the idea sounds promising, but in reality it's not.
Or maybe the idea has legs,
but the business model needs to be tweaked
for it to be viable operationally and financially.
In both cases, the faster you can zero in
on the right answers, the better.
So how do you do that?
There are basically two ways.
One is to conduct tons of market research,
prepare a well thought through business plan,
and then launch.
The other approach is to conduct lots
of focused experiments at a rapid pace
and let feedback from the ground teach you.
Steve Blank, a Silicon Valley advisor to young ventures,
coined the term Lean Startup
to refer to the second approach.
The term "lean" is rooted in the idea
that learning through experimentation
is the more effective way
to minimize wasting time, effort, and resources.
So, back to our example.
The co-founders of Rent the Runway
were masterful at learning through experiment.
They borrowed or purchased 130 dresses
and sent out invites to 140 undergraduate students,
in two sororities, a dance team, and direct contacts.
The goal was to see if there is a social effect,
if women are more likely to rent gowns
when their sorority sisters
or dance club friends also do so,
versus if they show up as individuals.
34% of the women rented dresses,
which was an encouraging sign.
Then they conducted another experiment
at a different university.
They adjusted the assortment of dresses
based on learnings from the first trial.
Importantly, women could now view the dresses,
but not try them on,
closer to the reality of an online rental service.
In this trial, 75% of women rented,
clear feedback that for designer apparel,
the assortment mix was far more important
than being able to try on the dresses.
They conducted many other experiments
on all aspects of the business model,
including pricing, operations, and logistics,
always making sure to incorporate the learnings
from one experiment into the next one,
keeping each experiment focused, almost scientific,
with clear feedback and moving at a fast pace.
Not surprisingly, when the website
went live in November 2009,
much of the uncertainty had been resolved,
and they could be far more confident of success.
Over 80% of new ventures
and a similar percent of new product launches fail,
but learning through a rapid fire series of experiments
can go a long way towards reducing the risks of failure,
all offering early feedback
if the idea is fundamentally doomed.