John Foley of Peloton (NASDAQ: PTON) - Part 1
John Foley is not a typical tech company CEO: his company is based in New York City; he majored in industrial engineering and started Peloton in his 40s.
John Foley is not a typical tech company CEO: his company is based in New York City; he majored in industrial engineering and started Peloton in his early 40s. Yet in just eight years Foley has built a fitness/tech/media juggernaut with cult following.
The company has been one of the major beneficiaries of Covid-19 pandemics as people want to stay fit without taking risks of being exposed to a virus. Demand for its product has been so high that the last quarter Peloton reported 172% growth and 15% GAAP net margin. While historically fitness has been prone to fads, this time may be different given Peloton’s substantial lead over competitors; relentless founder-CEO and their expansion into other fitness categories beyond just cycling.
So what kind of person is John Foley?
Holds a B.S. in Industrial Engineering from the Georgia Institute of Technology and an M.B.A. from Harvard Business School
His experience prior to Peloton was in Manufacturing (M&M/Mars) and Technology (IAC/InterActiveCorp)
Foley is of humble origin (worked at McDonalds from 14 y/o; had to work while obtaining his degree in Georgia Tech); he is still humble (“I’m still nobody”; “I’m not a very good manager”; “Most of the people at the company… are smarter than I am”), yet he is very ambitious (“My goal is to create the most coveted consumer product in the world”; “I like to set really stretched goals for myself. I think the Peloton brand will be bigger and more influential that Apple in 10 years”)
His stake in Peloton is worth $1.6 billion; he has not sold a single share since Peloton went public in September 2019.
Tenacious (“I had to pitch thousands of human beings to get 104 angel investors to give us the first $10 million to get any momentum going”)
Views Apple, Amazon, Tesla and Netflix as role models for Peloton
Describes his management style as “hire fantastic, hardworking, self-managed people and get out of their way”
Created a culture at Peloton “where failure is accepted and it’s applauded”
Biography
June 2012 – present: co-founder and Chief Executive Officer; chairman of the board since April 2015
Aug 2010 – Jun 2012: President of eCommerce at Barnes & Noble, Inc., a retailer of content, digital media, and educational products.
Mar 2005 – Aug 2010: co-founder and Chief Executive Officer of Pronto.com, a price comparison service platform and a subsidiary of IAC/InterActiveCorp, a media and internet company.
Jan 2002 – Mar 2005: President & CEO at Evite.com
Aug 2001 – Feb 2002: General Manager – Notification and Access at Ticketmaster
Jan 1997 – Oct 1999: Director of Operations at Citysearch
Aug 1990 – Dec 1996: Production Shift Manager at M&M/Mars
Mr. Foley holds a B.S. in Industrial Engineering from the Georgia Institute of Technology and an M.B.A. from Harvard Business School.
On why he called his company “Peloton”
“Peloton is a ball of riders at the front of a bike race. An outdoor cycle is balled together for aerodynamic purposes, for drafting off each other for efficiency.I wanted to name this company Peloton because we’re bringing the community of other riders around the world into your own home.” (Oct-16) [43]
Is Peloton a fad?
“I grew up in 70s and 80s with Richard Simmons … Coached classes is not a fad – it’s only increasing. To me it’s a human concept, not a fad concept”. (Jul-14) [9]
On reaction to the road-show: "It was binary: People got it and loved it or they did not get it and were scratching their heads and asking super cynical questions about fitness being a fad. In the last couple meetings, I asked people to raise hands if they thought fitness was a fad. No one really did. That's because while there are faddish things in fitness, fitness itself isn't going away and we're going at core cardio, cycling, strength, etc." (Sep-19) [92]
On his career before Peloton:
On working at McDonalds: “I was 14 years old I was living in the Florida Keys. My dad was an airline pilot and he wanted me to work so I got a job (In Florida you're allowed to work at 14). And for the next two or three years I worked from the grill flipping hamburgers to the fry station. Eventually you get promoted and you can interact with customers and take the money. But I learned a ton… I think I'm kind of the same guy was then, which I love people, I love working, hard work doesn't scare me. I love being a part of a team. At McDonald's you're delivering a service and a product and I enjoyed it. I love going to work it gives you a purpose so I think I think they liked me. I was a pretty good McDonald's worker.” (Mar-19) [83]
Foley started his career in a Skittles factory, a world apart from the New York’s artsy Chelsea neighborhood where Peloton eventually set up its fitness studio for live broadcasts. The son of an airline pilot and a stay-at-home mom, he had worked at McDonald’s as a teen in the Florida Keys. To pay for college at Georgia Tech, he enrolled in a co-op program where he spent every other semester working for candy giant Mars in Waco, Texas. After he graduated with an industrial engineering degree in 1994, Foley transferred within the Mars company to Los Angeles, where he started working on dog food brands like Pedigree. “I like to think that I’m not afraid of manufacturing because I worked at a midnight shift for six years in a manufacturing plant,” Foley says. “The hardware component of what we do, you know, we don’t shy away from.”
Foley eventually got swept up in the dot-com boom, which had spread to Los Angeles from San Francisco. In 1997 he started working at Citysearch, an online city guide later bought by Ticketmaster and folded into Barry Diller’s IAC, and got his first taste of what it meant to work at a startup. After a stint at Harvard Business School, Foley returned to IAC, where he ran groups like Evite.com, Gifts.com and Pronto.com. By 2010, he decided to change tacks and went to run Barnes & Noble’s e-commerce division, helping launch the Nook e-reader. But after a dozen years working for larger corporations, Foley wanted to be an entrepreneur of his own. “He wants to go big,” Pleasants says of his brother-in-law, who once said he’d like to get into politics someday. “He doesn’t want to tend to something. He wants to change something or make something dramatically better.” (Sep-19) [91]
“My dad was an airline pilot, and when I got to Georgia Tech, we decided to go into what was called a co-op program. I worked six months a year in Waco, Texas, as an engineer to get work experience and to pay my way through Georgia Tech so that he didn’t have to pay. After I graduated from Georgia Tech as an engineer, I took a job there. They paid really well, $46,000 a year, which was 50% more than what kids were making back in the early ’90s. I worked the midnight shift as a shift manager making Skittles and Starbursts in a candy manufacturing plant.” (May-20) [108]
“[My] background in manufacturing and technology, combined with my own passion for boutique fitness, led me to start Peloton.”(Mar-20) [117]
On starting Peloton
For Peloton’s Foley, Fixel’s (Lee Fixel – partner at Tiger Global Management LLC) investment was a lifesaver. While the company had earlier raised money from angel investors and on crowdfunding website Kickstarter, it needed more cash. Foley said he pitched Peloton to at least 100 Silicon Valley venture capitalists without getting takers. So when Fixel struck a deal -- which spurred others to also take an interest in grabbing a piece of the company -- it made it seem “as if I had got a date with Jennifer Aniston after being rejected by many girls,” Foley said. “Lee wired the money a week later.” (May-14) [7]
“These venture capitalists, I've learned, aren't risk takers, which is kind of a funny reality. It's made me a little bit of a bitter human being." (He estimates that he has personally pitched several thousand investors over the past five years.) (May-16) [34]
“I believed in myself, weirdly. My parents must have done a good job of saying that you can do anything, and I never lost faith. But it was trying, for sure. I was nobody. I still am nobody. And you have these named venture capitalists, people that I'd been studying for twenty years. Named firms, and named people within the firms. And you would sit them and they would say ... They would hear all about it, hear all about you, and they'd say no… But I was dogged. We knew we had something. We got enough support from our own little world as we built it that we were pretty sure that these guys weren't seeing it properly.”(Mar-19) [84]
On Peloton and its business model:
Like the e-reader tablets from Amazon.com or Barnes & Noble, Foley said Peloton hopes to sell the bikes at or below cost for a shot at making money from selling people the content — in Peloton’s case, classes live or on-demand with instructors and fellow spinners all connected via digital video cameras. (Jun-13) [1]
To that end, Peloton has borrowed a lot from boutique studios and what riders are addicted to, starting with the charismatic instructor. “Instructors who can command an audience and have great fitness knowledge are arguably like actors, they should be paid as such. We’re tripling what the going rate is to work at a studio”, says Foley, adding that with this platform, Peloton teachers will become global celebrities, capable of reaching thousands of riders at a time. (Jul-13) [3]
“In the same way that cable isn’t something where you buy a bunch of TV shows, we’re trying to keep the content new. Every day it’s fresh. Every day it’s relevant.” (May-14) [8]
“What I saw happening was a curious thing. Amazon was selling [the Kindle Fire] for $150 --making it for $250 – but getting the devices into people’s hands, so they could spend money for additional content. It wasn’t a tablet; it was a content delivery platform.” (Jul-14) [9]
“Never before have people been able to join a boutique cycle class while traveling from the comfort of their private jet. At Peloton, we want to help our riders achieve their fitness goals and maintain a healthy lifestyle in the easiest way possible. Forget diamonds, this is the ultimate luxury - saving people precious time to stay fit in the air, on the water, or at their beach home!” (Nov-14) [12]
"It's a gorgeous business financially. We can have a million bikes in homes and all of those people pay $39 a month, so the cost of distributing content is almost nil. What's more, because people have already bought into the Peloton system for a hefty $1,995, it makes the business less susceptible to churn”. (Nov-14) [13]
“That was the name of the game; getting the devices into consumer hands and selling them content after the fact. We realized that people don’t take a Kindle Fire on vacation and think about the product itself, they’re thinking about the content—that book they’re going to read or movie they’re going to watch.” (Jan-15) [15]
Larry Silver, one of the investors in the business, summed up Foley’s strategy nicely: “What Ted Turner did for news with CNN, we think Peloton can do for fitness,” he told Crain’s Chicago Business last summer. Foley agrees, noting that, eventually, he aims to stream as many as 12 hours of live content a day. “We could be like a TV network. So long as people want the classes, there’s really no limit to the amount of content we can create.” (Jan-15) [15]
Foley studied the indoor fitness equipment category and found a huge disparity between class workouts and those users could get through indoor fitness equipment at home. His team first considered developing just a software platform, but discovered that by being vertically integrated and building both the hardware and the software, they would able to deliver a dramatically better experience for consumers.(Feb-15) [16]
On what makes Peloton different from other products: “No other bike brings live, high-energy indoor cycling classes to the home. We have 12 live classes a day and a thousand rides in the on-demand library and can compete with people around the world via the global leaderboard. Riders can chat with their friends via a peer-to-peer video chat platform. There are full gamification elements to keep track of your achievements. It is a fully immersive fitness experience”. (May-15) [18]
“We thought about just being a software company, but it turned out there were no good bikes on the market. We wanted something that was really immersive.” (Sep-15) [21]
“We’re trying to become a business more like Apple or Tesla, one of these global consumer products that’s foundation is hardware and software technology. I don’t see us as a stationary bike company. I see us as the most disruptive company at the nexus of fitness and technology and content.” (Dec-15) [28]
Peloton’s target demographic, however, is 35 to 65 year old. “These are people who have children, live in suburbs, have nice homes, they have the money and space but don’t necessarily have time,” Foley said. (Jan-16) [30]
Peloton's riders aren't necessarily cyclists; they are cultish. One hundred sixty of them came to New York for a special home-rider event at the studio in February (and 1,800 have RSVP'd for another one in May). "Last week, we had four people posting photos of the Peloton logo tattoos they'd just gotten," says Foley, a fit 5-foot-9 man with ruddy cheeks, intense green eyes, light brown, closely cropped hair, and a nearly perpetual impish grin. "That's four in one week."(May-16) [34]
“What the consumer wants, what is making people addicted to these classes, whether it’s yoga or boot camp or spin or high-intensity interval training or whatever, it’s the group environment. It’s the other people. It’s the instructor. It’s the music. It’s the motivation.” (Sep-16) [42]
“Peloton is a technology company that aims to disrupt the fitness equipment category. We are software, we are hardware, we are retail.” (Oct-16) [43]
“Celebrity matters so much in this world. Think about Williams-Sonoma selling a new blender from [chef] Mario Batali. Batali is all over social media. It’s effectively a co-branded sponsorship between two brands. The same goes for the New England Patriots and Tom Brady. For us, the other brand is our celebrity instructors. We try to have a balance between both.” (Nov-16) [44]
“Our net promoter score is 91”.(Mar-17) [49]
“We currently have a 93 net promoter score and, I know it sounds crazy, but I want us to get to 100.” (Mar-17) [50]
“For sure we're a software company. The entire leadership team comes from consumer Internet… We decided to get into hardware because we didn't think there was any existing hardware that was good enough. So we went out and decided to make a bike and make a big tablet for it. But what differentiates us is the software, which includes the streaming and the gamification and the network. We're also a media company on top of that, because we're streaming 12 hours of live TV content each day and have another 4,000 classes on-demand. It's kind of like how Apple was before all the services went to the cloud and the handsets basically become dumb terminals, plus CPUs and smart-chips.” (Mar-17) [50]
On recruitment and compensation of fitness instructors: “We… pay three to four times more than market rate, plus a performance bonus where the top ones get a little bit more. We also care a lot about our culture, so retention hasn't been a problem. In five years from now, if other platforms like ours emerge, we'll have to continue to maintain that culture and make it even more attractive. One big way to do that is continue to improve the software, which makes the experience better for both users and instructors.” (Mar-17) [50]
“So it’s like Performance Theater. You are part of the experience. You’re not just consuming the content, you are part of the content.” (Jul-17) [59]
“We believe we have the second highest NPS in the world at 91. Our entire team of 450 people is focused on us becoming the first company in the world with a 100 NPS. And uniquely how I can even say that, because of our vertical integration.” (Sep-17) [60]
“Our intention was never to be a stationary bike company. We plan to be a disruptive company at the nexus of fitness, technology and media.” (Jan-18) [67]
“It is a media company akin to Netflix.” (Aug-18) [75]
“We are a content creation shop at this point.”(Feb-19) [82]
“We have a metric called Net Promoter Score, NPS, at Peloton. We track like a lot of modern companies and we believe we're going to be the first company with a 100 Net Promoter Score because we care about the retail touch points, the delivery touch points, the member experience after the purchase touch points.”(Mar-19) [84]
“In the very, very early days, we charged $1,200 for the Peloton bike for the first couple of months. And what turned out happening is we heard from customers that the bike must be poorly built if you’re charging $1,200 for it. We charged $2,000 dollars for it, and sales increased, because people said, ‘Oh, it must be a quality bike.’” (Jun-19) [85]
“If you have a Peloton bike and you and your partner ride it, it’s an insane value vis-à-vis anything else… On average out bikes are ridden 12-14 times a month, so you divide that by 39, you’re paying a couple of dollars per workout. That’s obviously orders of magnitude better than going to boutique fitness world. And we are going to show over time that’s even better value than going to the gym”(Sep-19) [95]
On why Peloton cut prices despite record demand: “It’s been something that’s part of our DNA and part of our philosophy since we launched the company. We never wanted a Peloton bike to be an expensive product for only affluent people. It’s always been our plant to do out Better-Best strategy on the bike like and on the tread line… We were excited to lower the price of the original Peloton bike; we were excited to launch dramatically lower price tread which is still a fantastic product… With a belt drive it was easier for us to manufacture, lower price for us to manufacture. We were excited to pass those savings on to customers.” (Sep-20) [114]
On competition:
“We don’t really have plans to open a bunch of studios, and we’re distinctly not competing against Flywheel or SoulCycle. The more successful they are, the better for our business, because we’re really competing against other at-home fitness products that you could put in your basement or home gym.” (May-14) [8]
The company has sold about 1,100 machines since they hit the market in November, and Foley says its “distributed technology” model could unfold into a billion-dollar business. (May-14) [8]
We see studios [e.g. SoulCycle] as complementary rather than competitors. And right now, there isn’t competition, but we fully accept there will be. We’re being more aggressive. We’re trying to create a network effect in our software. There’s all kinds of interconnectivity. We can pull from Facebook, so that you can see what your friends are liking and riding. You can interact with them by video chatting with them on the bike. If your friend in Los Angeles is doing the live class with you, you can click a button and talk to them. It’s very immersive in that sense. There’s nothing like it.(Mar-16) [32]
“We are running scared thinking that other people are going to get into the category. We know it will happen. Whether it happens next year or two years from now and whether it’s two or three competitors or 10 competitors, we don’t know.”(Sep-16) [42]
“I think there is going to be competition. Right now there is no competition, Peloton is the only game in town. But because it’s so good, because it’s so covered, because the consumers love it we expect competition to come from all angles. The answer in short is we are a very-very hardcore technology company. We make a tablet computer better than Apple. We write custom Android on the client side, Python services in the cloud… We are as hardcore of a tech shop as anything in NYC right now. So if Soul Cycle or Flywheel to try and reinvent themselves as somebody who can compete for software engineers with Google then maybe they can come after us. But I don’t want to cavalier, we will have competition”. (Mar-17) [49]
“We're not focused on the gym equipment opportunity at all. A weird, fun statistic… is four out of five Peloton bike buyers were not in the market for fitness equipment. So we're not effectively selling fitness equipment, we're selling fitness. People want to be fit. They want fun, effective, convenient fitness experiences from their home. And that's what we provide them. And nobody else provides them, so we're kind of a category of one when you think about where we're taking our business.”(Mar-19) [84]