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What's Sparking the Mass Exodus at Rent the Runway?

In the last 10 months, Rent the Runway has lost its chief operating officer, chief financial officer, chief marketing officer, chief creative officer, chief technology officer, chief people officer, and head of partnerships. Some of those executives were let go; others left by choice. Four of the seven departed in the last two months.

It is a significant exodus in a short time, and many former employees describe a corporate culture at the fashion company that is unwelcoming, stressful, and occasionally hostile.

Jennifer Hyman, Rent the Runway’s chief executive, says that the changes are simply a natural step in the life of a fast-growing startup. “Like any startup in hyper-growth mode, growth often brings change, and with it, evolution in the executive team,” she says.

But former employees tell Fortune that the turnover is due to serious problems with the corporate culture at the New York-based dress and accessory rental company.

‘Unpredictable and erratic’

Five former senior employees, all female, spoke withFortune on condition of anonymity because they did not want to jeopardize existing relationships or, in some cases, violate nondisclosure agreements. Each of them described a stressful work environment that can be unwelcoming and non-inclusive. Three of them likened the atmosphere at Rent the Runway to the 2004 film Mean Girls. Each one made that reference separately, without prodding.

“The culture is unpredictable and erratic,” says one former employee. “Everybody knew and talked about it amongst themselves, but it was never formally acknowledged. It’s not like there were complaints to HR. People were too afraid. There wasn’t even really an HR.” The former employee adds that there were “frequent screaming matches” in the office between top executives.

Since May, Rent the Runway says, its general counsel has also been its head of human resources. Prior to that, the HR team reported to the CFO.

A different former employee says: “You don’t feel it’s an environment where women support each other. It felt like high school, it was very clique-y.”

Another ex-employee adds: “As a business it is actually strong. But there’s a lot of disillusionment and anger in the culture. There are a lot of talented young people there who are very bright but don’t really realize that they’re being treated in an unprofessional way.”

There is a private, closed Facebook support group called “Rent the Runaways” for people who have left the company. It has 96 members and, one member says, it exists because, “Everyone who leaves there has the same PTSD.”

A model that ‘did not work’

Harvard Business School classmates Jennifer Hyman and Jennifer Fleiss co-founded Rent the Runway six years ago as a dress rental site for women. It has ballooned to 850 employees (64% of them female) and has outgrown its offices, creating the need for a recent move to a bigger space in Manhattan’s West Village. Hyman, 35, is CEO, while Fleiss, 32, is now head of special projects.

The company has raised $126 million in venture capital and will not share revenue, but an investor says that revenue will be between $70 and $100 million this year.Fortune has reported[1] that the company had just $28 million in revenue in 2013, which was 25% lower than its internal projections, and lost $14.5 million. It is not yet profitable.

In July 2014, at Fortune‘s annual Brainstorm Tech conference, Rent the Runway announced[2] a new business: an unlimited accessories subscription. “Very honestly,” Hyman now concedes, “that model did not work. It took us four to five months to fully realize it. When we launched, we got such great PR that it looked like an immediate boost, but it didn’t sustain itself. It was a false positive. So we started iterating furiously.” In February, the company added dresses to the program, and in May added everyday clothing.

More than a year and a half after the initial launch, the Unlimited service is still in beta. “Under the covers, we’ve done 40 different iterations of this program,” says Hyman. The company says it has tens of thousands of women on the wait list. But a former senior employee says that many of the employees had serious doubts about Unlimited: “There have been so many different iterations and they still haven’t fully figured it out. It’s very much a prom dress rental company, but they’re trying to be more, and the problem is no one wants to rent that everyday stuff.”

Board member Scott Friend, a partner at Bain Capital, believes the Unlimited concept will be the big money-maker in the future. “The core Rent the Runway business, which was renting dresses and accessories for special events, is on this nice trajectory, that’s probably a couple-hundred-million-dollar business in the next few years,” he says, “But Unlimited, this subscription business for everyday fashion, is a far, far bigger additional opportunity.”

‘We needed a very different team to scale us’

In an interview at Fortune‘s offices, Hyman discussed the staff overhaul at her company and answered questions about the culture. The planning and perfecting of the Unlimited platform is the chief reason for the many staff changes at the top, she says. While thinking about the Unlimited idea, Hyman concluded that Rent the Runway can become a bigger company than Netflix. But many of the people who had been at Rent the Runway for years weren’t capable of moving it forward, she felt, because Rent the Runway had been their first job.

“Given that Netflix is a $60 billion company—and we don’t have to watch TV or movies every day, but we do all have to get dressed—the potential for Rent the Runway was 10 times bigger than I ever thought,” she says. “And I looked around at the team that I had and thought that we needed a very different team to scale us. This is not to say that you need to always have people who have ‘been there, done that,’ that’s not always true, but you need a mix of people who are Rent the Runway in their blood and then folks who had been C-level executives before, who weren’t learning on the job… who have been to the rodeo.”

Three new executive hires, Hyman feels, have been to the rodeo: CFO Scarlett O’Sullivan, a former Gilt Groupe board member and partner at Softbank Capital; chief logistics officer Chris Halkyard, former chief supply chain officer at Gilt Groupe; and events president Maureen Sullivan, a former president at AOL.

Former president and COO Beth Kaplan, who left her role in October, is still a board member. She defends the culture and the staffing changes. “Has Jenn had to make some hard personnel decisions? Yes,” she says. “But the only critique I would give her from a people perspective is she didn’t make certain decisions about people fast enough. If anything, she kept people around who were not a good fit.” As for the culture, Kaplan offers this: “I think it is a very passionate culture. For example, on a monthly basis, peers nominate other peers for a ‘core value’ award.”

When asked about the culture at Rent the Runway, board member Friend says, “You’re not the first person to voice that question. And it’s funny because I can’t tell exactly where it comes from. I haven’t lived it as an employee, so I don’t have firsthand knowledge. But I have firsthand knowledge of meeting with Jenn often, and I’m skeptical [of the criticism about the company’s culture].” He believes Rent the Runway is “in that awkward teenager phase.”

When asked about the comments from former employees, Hyman says, “It’s extremely disappointing to hear because I care so much about the culture and about every single person who I’ve ever hired. This has been by far the most emotional, difficult year of my career.” Asked to respond to the specific analogy of a Mean Girls culture, Hyman said, “I would describe it as the opposite of that. There are no cliques in the office. There is an openness. People feel extremely comfortable with me personally. I have office hours where they can come talk to me.”

‘A Cinderella experience’

During the interview, Hyman asked, “Substitute me with any male founder, and would this even be a story?” The answer is yes. In fact, Fortune has written numerous articles about apparent trouble at male-led companies. (See, for example, Fortune stories on: GitHub[3]Pfizer[4]RadiumOne[5]Secret[6]Snapchat[7], and Twitter[8].)

Rent the Runway’s executive churn has taken place amid growing concern with whether technology startups, especially billion-dollar “unicorns,” are overvalued. In the last two months, Fidelity, which has invested in a number of startups, marked down the value of its shares in big-name startups like Snapchat, Dropbox, Zenefits, Dataminr, and Blue Bottle. Square, with Twitter co-founder Jack Dorsey at the helm, priced its upcoming initial public offering at a value far below its previous private valuation.

Rent the Runway has been valued at $500 million. It askedFortune not to publish this story because it could hurt the company’s ability to raise money.

In May, Doubleday published The Knockoff[9], a novel co-written by Lucy Sykes, a former Rent the Runway employee, about a woman leading a fast-paced, demanding fashion magazine who is trying to keep her ambitious assistant from stealing her job out from under her. In a post on the “Rent the Runaways” Facebook group about the book, one member asked if anyone had read it; someone responded, “Why read it when you lived it?” Another commented: “Read it front to back, it’s undeniably RTR.”

When asked if anything about Rent the Runway’s culture needs to change, Hyman says yes—that it could do a better job of on-boarding new hires. But the day-to-day work environment, she says, is fun and feels like a family.

“The first core value we have is that everyone deserves a Cinderella experience,” Hyman says. “And I have experienced a Cinderella experience. And I really believe that most people who’ve come to Rent the Runway have had a Cinderella experience.”

 

References

  1. ^ reported (fortune.com)
  2. ^ announced (fortune.com)
  3. ^ GitHub (fortune.com)
  4. ^ Pfizer (fortune.com)
  5. ^ RadiumOne (fortune.com)
  6. ^ Secret (fortune.com)
  7. ^ Snapchat (fortune.com)
  8. ^ Twitter (fortune.com)
  9. ^ The Knockoff (www.amazon.com)
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