04/27/2011 04:19 pm ET Updated Aug 10, 2011

Rent The Runway, Designer Clothing Rental Service: The Next Big Idea?

A well-stuffed closet but absolutely nothing to wear -- it's a frequent mantra for women the world over. For Jennifer Hyman, it also sparked a business idea.

A few years back, Hyman's sister Becky, an accessories buyer at Bloomingdale's, was in search of something new and fabulous to wear to an upcoming wedding, but couldn't afford the designer gown of her dreams. The predicament got Hyman thinking. Several days later, she talked it over with friend and fellow Harvard Business School classmate Jenny Fleiss, and the idea for Rent the Runway grew from there. "When I met Jenny at school, I knew she was the perfect partner to build a company," says Hyman, 30. "Different skill sets, different personalities, but similar drive, respect and love for this company."

Rent the Runway, which rents luxury frocks for a fraction of their retail cost, launched in New York City in 2009. Customers simply join online, scroll through available attire from 95 designers and reserve their dream dress, which will arrive a few days before their event (an extra size is included to ensure the perfect fit). The day after wearing their Badgley Mischka or Proenza Schouler, they mail it back for free. Rent the Runway even takes care of the dry cleaning.

Some would-be entrepreneurs might have hesitated to launch a business in a troubled economy, but for Rent the Runway, the timing was just right. "We realized that it was an especially good time to start Rent the Runway in a recessionary environment," says Fleiss, 27. "Customers were more aware of cost per wear of their outfits, and designers were more open to adding on new sales channels and were eager to acquire new customers. We realized that while the recession had decreased sales of luxury dresses, there were still so many women who wanted to be able to have the fun experience of shopping and constantly wearing new things."

Of course, that realization wasn't just an educated guess -- the partners backed it up with good, old-fashioned due diligence. "It was a big risk for us to dedicate the next seven-plus years of our lives to a new, unproven business," Hyman says. "We spent most of our time selling the concept, scheduling meetings with whoever would speak to us, listening to the advice of designers, retailers and women of all ages."

One of the fledgling company's smartest moves, in fact, proved to be consulting with executives from several top-tier designer labels -- including Tibi, Matthew Williamson, Theory, Lela Rose, Moschino Cheap and Chic and Brian Reyes -- prior to launch. "We knew that the strength of the relationships we developed with designers would make or break the business," Hyman says.

The meetings also offered the entrepreneurs an opportunity to show designers how Rent the Runway could actually help them expand their customer base. "Designers needed a new way to introduce their brands to younger women who might feel intimidated buying their first designer dress," Hyman says. "As more women buy from the Zaras and H&Ms of the world, there was a need to provide a forum to test-drive a designer dress." To date, some 925,000 customers have signed up with Rent the Runway.

Fashion trends evolve swiftly, so keeping the inventory fresh and available will ultimately be key to Rent the Runway's success and survival. "We are constantly adding to and turning over our inventory but are also selecting classic pieces whenever possible that will last through the seasons," Hyman says. "Many designers are even re-cutting classic styles that were huge hits and can't be found in stores." Boosting inventory is a top priority: The 3,000 dresses in stock last year now number 15,000, and 4,000 accessories have been added to the mix.

It helps that they've raised $16.7 million in funding to date. In addition to financing inventory investment, the 45-employee business is using the capital to expand the warehouse and invest in talent -- and, of course, educate women everywhere about the beauty and fit of designer brands.

"There is something amazing about wearing a Herve Leger dress or a Lela Rose stunner," Hyman says. "Every woman deserves to feel beautiful, confident and fashionable every day!"

The original version of this article appeared on AOL Small Business on 4/27/11.