How I Built This with Guy Raz - Live Episode! Peloton: John Foley

Episode Date: April 29, 2019

John Foley started climbing the rungs of the corporate ladder at a young age, first as a fast food server and eventually as an e-commerce executive. Still, at 40, he couldn't climb out of bed fast enough to make it to his favorite spin class. John couldn't understand why there wasn't a way to bring the intensity and motivation of a boutique fitness class into the home. Having never worked in the exercise industry, he teamed up with a few friends to create a high-tech stationary bicycle called the Peloton Bike. Today, Peloton has sold close to half a million bikes, with a valuation as high as 4 billion dollars. Recorded live in New York City. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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Airbnb.ca.ca. slash host. So really quick before we start the show, I want to tell you about a live event we are about to do in Portland, Oregon on Thursday, May 16th. I'll be talking with Seth Tibbet. He's the founder and CEO of Tofurke. The show is supported by American Express, and our other live events have sold out fast. So to get ticket, Go to nprpresents.org and I hope to see you in Portland. I was a nobody from Key Largo and here are named venture capitalists. I mean, I don't want to call them out by name, but think of 20 venture capitalists. You've heard their name.

I'm sitting there and they're saying, no, this is dumb, no thank you. And you're like, who am I to think that this named person at this named shop is wrong? From NPR, it's how I built this, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on the show today, how a man who knew almost nothing about fitness, media, or technology, built a brand that does all three. Peloton, a high-tech home fitness company valued at more than $4 billion. So it's hard to account for all the money generated by the fitness industry in the U.S., but if you factor in gym memberships alone, it's around $30 billion. a year. And that number is growing. And not just because people are becoming more health conscious,

a lot of that growth is being driven by what's called the boutique fitness category. Things like bar and yoga and spin studios, you know, smaller gyms that do one thing, but do it really well. Now, the thing about all of these options is that, for the most part, you need to book a slot, which is fine if you're super organized, but not so great if you're. you forget, which is where John Foley was back in 2011. He realized that a spinning class could only accommodate the 20 or 30 people in the room. Basically, the class couldn't be scaled beyond the number of spin bikes available. But what if you could scale it? What if that very same class could reach 1,000 people or 5,000 people or an unlimited number of people? And what if

didn't even need to make a reservation. Well, that idea started to swirl around in John Foley's head, and he couldn't shake it. But there were a few problems. For starters, John knew nothing about the fitness industry. Second, he didn't know much about technology, at least things like coding or how to make software. Third, he was in his 40s with kids, a mortgage, and a pretty safe job. And finally, and this is a common situation. He didn't have any money to launch it.

And yet just eight years later, John Foley has built Peloton into a business that's been valued at more than $4 billion. So how did he get there? Well, we invited John to tell a story in front of a live audience in New York City. John actually grew up in a small town in the Florida Keys. His dad was an airline pilot and his mom stayed at home to help run the household. John's first jobs were in fast food. In fact, in the 1980s, he would work at McDonald's, Wendy's, and Domino's pizza. But by the time he got to college, John moved on to candy.

When I was 19 years old, I got a co-op job in Waco, Texas at a manufacturing plant making with Skittles, Starburst, Snickers, and Twicks. Yum. Wow, that's a dream job. It was. Modern-day Willy Wonka. We made six million snicker bars a day. Wow. Just for North America's wild stuff.

I wore a hairnet, hard hat, steel-toed shoes, and a uniform working midnight shifts for five years to pay my way through college. I don't recommend it. Don't have your kids do it. Because you studied industrial engineering, right? That's right. And so the Mars job was really kind of to put you through school, or was that potentially going to be a career?

Yeah, it was both. It was, you know, get my foot in the door so that you can get a job when you graduate. And so when you were at Mars, you were mainly doing, like, you were on the production line for all those six years? Exactly, yes. Candy, chocolate, Eminem, Skittles. Lots of Skittles. I ended up being responsible for Skittles and Starbursts Manufacturing of North America, managing 200 people when I was 20 years, 22 years old. And it was great experience.

And it felt like a good job. They paid well and they treated me well. And I saw myself spending the rest of my life in Waco. Yeah. Can you eat skittles today? I don't. No. They're great.

They are good. I don't know if you guys have had Skittles on Halloween. They're great. So you get your fill of Starbursts and Skittles. Sure. And then you, I guess your sort of first kind of maybe grown-up job was with a tech company in your early 20s? Yeah, there was a little bridge there where I went out to L.A. for Calcan, Pedigree, Wiskas, Shiba, Petfood, which was the division of Mars. So at 25 years old, I said, hey, I'm kind of realized I didn't want to spend the rest of my life.

Waco, and I requested a transfer within Mars to L.A. where I started making pet food in Vernon, which is the meatpacking district of L.A. It's pretty grim scene itself. But that got me to L.A. And then I made the jump over to the tech company. And what was that company? So it was in 1996, and you guys all followed it like I do or know that in 96, the dot com was exploding. The internet was a thing. And there was a company called citysearch.com. A lot of you might remember. Oh, yeah. And I went over, and you guys appreciate this now. It's, you guys know this. Dot com startups are super fun, super dynamic. There's interesting people. It was quite a contrast to the manufacturing world in Waco, Texas,

whereas people who are going to, you know, kind of punching the clock, literally we punch the clock. And so it was a totally different style of person, and I just fell in love with the idea that you can work with great people that challenge you, that motivate you, that they're your age and they're also ready to take over the world. It was, it was, I found my people over at city search. But you decide after what a year or two in LA at city search to go to business school, to go to Harvard Business School. That's right. And coming from, you know, the Florida Keys and going to Georgia Tech as an engineer and then being in Waco, I just didn't know the world and I wasn't very exposed. I wasn't very savvy. I wasn't very confident. And all these hot shot people at City Search were way over educated and they

all went to these fancy schools and I was very intimidated by them. They worked, you know, internships at Goldman and McKinsey and they were this and that. And so I just didn't know that whether I could hang with them. And my brother-in-law encouraged me to apply to Harvard, Stanford, and Columbia. He said, if you're going to go to business school, try to go to one of the best. I got the rejection from Stanford. But luckily, I got an HBS and I was very excited. It in many ways changed my trajectory because it gave me the confidence to know that no one is that much smarter than the next person, and everyone's trying to figure it out, and so it was a transformative opportunity for me to go out. So when you got there, you didn't feel like you got there and thought,

you know what, actually, they're not that any more impressive than anyone else. For sure, after two years, I got there and was incredibly intimidated. Yeah. The language you talk, when you grew up in New York City and your parents' work at Goldman Sachs, your talk, I didn't know what an investment bank was. I knew TIB, the bank of the Keys, and that's where you got your checks cashed, right? That was a bank to me. So I didn't know anything about much, and I learned a ton, so it was cool.

All right, so you get out of HBS, and you got all these options. Where do you go? It's funny. I got a job at BMG Music, which was this, you know, it was my dream to work in the music industry. And it was in 2001. It was the recession. And so I accepted the job. And six months later, when I was set to start, I was going to go away to Italy for a week.

And I called the HR director. And I said, hey, I'm going to be out of the country for the next week. If you need to reach me here, it was there. And she's like, oh, my gosh, no one's called you. And I said, wait a second. What do you mean when no one's called me? She's like, oh, gosh, you need to talk to so-and-so. Turns out, because of the Napster disruption of it was right around that time where the music industry is being decimated,

my job had gone away, my whole department had gone away. Wow. And so I was sitting there coming out of HBS in this recession with no job, and I had to sign a lease in New York City, and I spent four months trying to get a job, calling back people, and they're like, oh, you know, you turned us down, screw you. So where'd you end up? So I went back to what was then IAC, Ticketmaster City Search.

The people that I'd worked with prior, and truth be told, my brother-in-law, who was the CEO of Ticketmaster, picked me up and dusted me off. and gave me an opportunity, kind of forced a role because he cared about me, and it was a moment that I needed. So ticket, so you go to Ticketmaster, and Ticketmaster owned by IAC, which is a bigger... That's right. Ticketmaster and City Search had merged, so it was still the same people that I had left. They had just bought this tiny company called Evite.com.

That interestingly, you'll appreciate this, a lot of budding entrepreneurs listening to this. They had poured, I believe, $45 million into building Evite. Wow. And I think we bought it for three million. million dollars because it was 2001 and everything had crashed. Wow. And so it had at one point 120 people. I got it down to six people. And so you were like running a startup within a bigger organization. That's right. And this is a tiny, tiny business that effectively meant nothing. And so there wasn't a lot of pressure, but we were the little engine that could. We saw it

becoming something massive. And so we put pressure on ourselves. We had a lot of fun trying to pull the rabbit out of the hat. And did you grow it? We grew it. We grew it. substantially from, call it a million dollars top line to $25 million top line and profitable. So, you know, in relative terms, successful, but still meant nothing to anyone at IAC. So you are, I guess, still in your maybe late 20s or early 30s by that point, I guess, in L.A. That's right. And were you married by that point? I was not right around that time. I think it was 32. I was meeting my wife, Jill, who was living in L.A. But it was right around that time.

So kind of take me back to your mindset at that time. Were you entrepreneurial in the way you thought about the world? Did you think, you know, I think I want to run a business? Or were you really focused on the kind of security and the stability of working in a big organization? Right around that time, I was starting to become entrepreneurial in mind because I was surrounded by these type of people. And you're seeing people take risks and get the reward. And I was starting to become, I have more belief in myself. There was enough of that.

conversation around the water cooler that I was starting to get that bug to go do something. And I guess sort of towards the end of the first decade of the 2000s, you jump to Barnes and Noble. That's right. How did that happen? So my buddy, a guy named William Lynch, became the CEO Barnes & Noble. And everyone knows that Barnes & Noble in 2010 was challenged vis-à-vis Amazon. But if any of you read Barbarians at the gate where a private equity company is attacking something and trying to take it private, Taking a company private sounded like a pretty fun pirate, you know, take the ship, exciting challenge.

And that was the goal. That was the goal. But we weren't able to do it. I mean, you were involved with the digital side of Barnes & Noble. We know it was going on with the retail side. It was like sort of in free fall. So what was going on with the part of the company you were running? I mean, was it – I imagine it was probably losing a lot of money.

Yeah, exactly. Trying to compete with Amazon 15 years late. I mean, you don't wish on your worst enemy competing against Amazon in their core category, right? So it was pretty rough. And yes, we were losing money. So were you starting to, at that point, 2010, 2011, starting to think, all right, I got to come up with the next thing? Yeah, I mean, at this point, I'm anxious. I'm, you know, 40.

I wanted to be, you know, big. And I'm just kind of spinning in my wheels. and I hadn't found anywhere to go. Oh, sorry. It's coming. It's coming. But you say you wanted to be big. What do you mean by that?

What did that actually mean? I don't know. I'm a competitive guy, and I study everything. I read every business book. I listen to how I built this. I really am a student of business. And after years and years and years of this, I would say, I think I'm as good as that person I just heard.

You know, some of them I think I'm better. And so, you know, what about me? I think I can do it. Give me a chance. And so I was starting to become pretty anxious and wanted to prove myself. So 2011, you're still at Barnes & Noble, and you get an idea for a company that would become the one that you now run. How did that happen? So like a lot of New Yorkers, I'm guessing a lot of you here, boutique,

fitness was exploding in New York City. Soul cycle, flywheel, Barry's boot camp, yoga had been around for a long time. I'd done spin back in the 90s in L.A., and I clearly felt that the boutique instructor-led, group fitness, high-energy, programmed experience was better than going to the gym. It was more fun than going for a six-mile run by yourself. It was more fun than going to the old big box gym and trying to throw around the weights and get on a treadmill and get yourself excited. And so I had tasted this content and I said, this is good. People want this. I want this. But it was at a different location at somebody else's time. You had to pay a lot of money to get that experience. And interestingly, my wife who is probably works out two or three times more a week than I do.

She's a poster child for this stuff. She premeditates her workouts for the week. And she'll say, okay, next Thursday morning, I'm going to wake up at six and go to this class. And so let me schedule and reserve my bike. And I just didn't do that. I didn't have that gene. I'm thinking at 10 o'clock at night before I go to bed, am I going to set the alarm tomorrow? Right. And that's how I think it.

So effectively, because the good locations and the good instructors are sold out so quick that I wasn't able to go to them, I was boxed out of it. And I said, if these classes sell out, these 50 bikes sell out in 30 seconds, would there be 500 people? If it was infinite room, would there be 500 people that wanted it? Would it be 2,000 people in New York that would want that great time and that great instructor? If you could scale it globally, would there be 50,000 people, 5 million people that would want that great instructor at that great time? And so I said it just started to scream distributed technology play. And obviously I knew enough about technology that got me excited. Do you talk to your wife right away?

Do you say, I've got this amazing idea or was it more of a slow burn? I think it was an amazing idea. It was Your words, your words, not mine It was, I think it came to me And I said, I think you can digitize that experience And build a hardware and software platform For consuming fitness content at home

So the light bulb went off What was a description you gave? So take me back to 2011. I met your house and you're like, Hey guy, I have this great idea. What are you telling me? Yeah, it's effectively Peloton bike. It was, here's a big screen.

screen and here is a bike that talks to the screen. So you have metrics and your competition and motivation. You have a leaderboard. You have great instructors. I knew enough about the content and the celebrity that you could, if you had the global scale, you could pay for the best instructors. And in a lot of these things, content is king. As a lot of you guys who are connoisseurs of the category, you know that sometimes you're, say yoga, your yoga instructor. is more important than the yoga studio. If your yoga instructor went to a different studio, you might follow him or her. And so the content really is important. And I said we could get the best people. And so I explained the whole thing, and I did go home and talk to my wife about it.

She knew the category. She knew me, and she's nodding. And luckily, she was behind it very early because, you know, I think for the rest of this podcast, we're going to talk about the bone crushing next seven years. And thankfully, she believed in, the idea. Who's the first sort of serious person you called to say, hey, I want to tell you about this because you needed to presumably do this with somebody else? Yeah, there were three phone calls

I made. My mentor, John Pleasance, he and I, he had just started a job at Disney, and so he dragged me on a Disney cruise. And we pulled out two spin bikes, and I was pretending to coach him through. I was like, say there's a screen here, and I was on the bikes, coaching him through. I was like stand up and and he didn't stand up. I was like, no, you have to stand up. You do what I say. And so I said, all right, now work hard. Now turn the knob and I worked him through for 10 minutes of faux class. And he sat down. He's like, I get it. That was better than I would have done myself. And so the light bulb went off in his head. So he was an early investor. So I got him. Then I called two of my co-founders. I got him, hisaukushi, who's still our general counsel and

one of my best friends. And he knew how to start a company. Like one of the things is, Once you have an idea and you're pregnant with starting the company and you have a backer, what do you do then? What do you incorporate in Delaware? Like all that stuff. I have no idea how to start a company. So he was instrumental and he was a very smart guy. And so he advanced the, you know, he wasn't just the legal guy. He was the co-founder never since.

And then a third co-founder, Tom Cortese, who is just... And he had worked with you at IAC. That's right. He'd worked with me before. And he's, I would never start another company without him. He's just so can-do and positive. And so I sat with him. As he remembers, it was a bottle of wine and some sushi takeout.

And at the end of it, he's like, I'm in. Wow. So you get a little bit of momentum of getting some other people on board. And things become more real when there's other people that jump in the foxhole with you. So it was that easy to convince those guys to presumably leave their jobs or do a side hustle with you on this? By the way, you were still at Barnes & Noble at that time. I was. But truth be told, guy, his sow, it was about two years before he left his.

job. So he was moonlighting, so he didn't have to take the risk, and Tom was out of work. So it wasn't, it wasn't as hard. It wasn't as hard as you. You always want to go to somebody who's out of work when you're trying to find a co-founder, right? He's the best type of co-founder. All right, so you've got these, you've got these friends, and you've got to start coming up with a concept. But from what I understand, one of the first steps you did was to go out and just raise some seed money from people. That's right. That's right. And, and, you know, and, and, you know, you pitched people you knew or people in your network or people that those guys knew? The seed round was relatively easy. It was $400,000 at a $1.6 million pre-money valuation,

so 2 million post. And you raise this from like hundreds of people, right? No, this was from, I think, eight people. And it was people who just knew me and trusted me and loved me and had worked with me in the past. So it was my best friend's dad who had some money, not a lot of money, but enough that he was willing to give me $50,000, which was the big check. And then my brother-in-law, who had made a couple million dollars in his life, so it was one of the richest people I knew. And he was willing to give, I remember the text, I said, are you in for $25,000? And he said, he sent me a picture of 50 cent. He's like, no, I'm in for Fitty.

He's a very excited. He's a very excitable guy. So you were like raising $25,000, $50,000 here and there, and the valuation was $1.6 million. That's right. Man, I wish I wasn't it that. Exactly. So initially your idea was let's just buy off-the-shelf stuff. Let's get an off-the-shelf bike and let's get an off-the-shelf tablet and let's try to do it that way.

Yeah, that's right. I mean, for all of you budding entrepreneurs, software is easiest. A pure software company is the easiest to do and it's easiest to raise money for. Every venture capital is looking for the next Instagram where you put $250,000 in and 18 months later it sells for a billion. million dollars. So we was trying to think can we be software only? And we started to look at the, but we started to do deep research on the bikes in the category. And as you probably know, the fitness equipment category is incredibly dopey. No tech, no design. And just, it didn't feel like there was a bike that met the bar of the quality that we wanted. So then we started thinking,

guy, let's make a bike and let's have a dongle to plug in your iPad. Everybody's got an iPad. And I kept coming back in my mind to the clock radio in your holiday inn that has the iPhone 4 dongle. And I said, I don't want to be that company that looks so dumb because your product is made irrelevant based on some other company's hardware cycles. And so I said, I think you've got to make the tablet. By the way, this wasn't me. This was our founding team. We were coming to this together. But these are the decisions that we made.

So you have, you've got some seed money. You get some office space, I think, in Manhattan. That's right. And even before you started to think about the actual bike, right, you went to Flywheel. You went to SoulCycle. You said, hey, do you want to partner with me on this? Is that what you did? That's right.

We went to SoulCyCycle and FlyWil. We said, you guys have instructors, you guys have studios, you guys make content. This is what you guys do. We're technologists. We're going to build a hardware and software platform. What about we come together? It seemed very obvious that that would be. good for us and good for them.

So it'd be like a joint venture almost. Yeah, exactly. And we got a couple weeks into a term sheet with flywheel, and then they backed away. They'd just gone through a financing round, and it didn't make sense with their new investor. Soul cycle, it was tricky. I don't think there was enough human chemistry with the team.

They were very big. We were nobodies. So the conversation was kind of one-sided in a way that I thought it would be a conversation of equals. but they were doing so well and getting so much affirmation from their community that it wasn't a conversation of equal, so it didn't go very far. So it didn't work out, and you decide, all right, we got to build this bike. By the way, you still were going to like SoulCycle classes and Flywheel classes, right?

Like you liked going to those classes. I did, yes. And why are you laughing? Well, all of us very quickly got kicked out of Flywheel and Soul Cycle. Wait, you're saying that you were in a class and somebody kicked you out? Yes. They had like monitors there? They were like, oh, there's John Foley.

He's going to be our competitor. So what happened? I don't know if you guys follow it. It's a very territorial category, especially in New York. The flywheel and soul cycle, and you had Julian Elizabeth on the show, who I now am friendly with. But because of the Ruth Zuckerman defection or... Right. She had started it with them and then she went to start flat.

She didn't defect. They separated. Basically right. And she's an amazing woman. I love Ruth. She went to start flywheel and so there was a lot of vitriol between the two companies. Yeah. And I understand, I mean, it wasn't personal.

It was, it's competitive and I can understand it. All right. So you've got some seed money and you've got to build a bicycle now. That's right. How do you even start? Like, what do you, like, where do you, like, where do you even go? to find out how to build a stationary spin cycle? Yeah, we went to Taiwan to trade shows.

Super fun, by the way. There's incredible if you go to Thai, fly Eva air to Taipei and go to one of these trade shows. Your mind is going to be really opened up with so much manufacturing and technology and interesting stuff over there. But we, those first two years of pulling the thread through on the technology and doing prototypes

and testing and tasting the dog food and getting people on the prototypes, It was so fun. The tough thing was those years, we just didn't have any money. So we were always about to run out of money. And when you have a vision and you have people and you need capital to build a business, and when it's not there, it's very scary and it's very stressful. Yeah, I'm wondering, I mean, when you went to, because manufacturing a spin bike is really expensive.

That's right. So did you start to go to VC firms and ask them for money? I would bet a pitch three times a day for four years. Wow. Between thousands of angels that ended up giving the first, we have 100 angels to get the first 10 million. But in order to get 100 angels at my success rate, I probably pitched 3,000 people. Wow. And then the 400 institutions that all said no.

All of them. All of them. So it was 100 angels that gave us the first 10 million. And then finally, after almost three years, Tiger Global, which is a New York City-based venture capital, thankfully, because the valley out in Sand Hill Road, the valley didn't see what was happening in New York City with the boutique fitness movement. I'd go out there and they would say there's two types of biking out here, John, mountain biking and road biking. I was like, okay, great. And they just didn't see what was happening.

And it was a blind spot for them. So luckily there were some venture capitalists, and Lee Fixel, a visionary at Tiger Global, saw it. And they were the first institutional check. But over that three-year period from 2011 to 2013-14, when you were pitching and pitching and pitching and pitching relentlessly pitching and trying to also, you know, run a business, that must have sort of been difficult. I mean, I can't imagine there, maybe not, but I can't imagine you wouldn't have had some self-doubt. Sure, there was, there were, there were quarters and years where there was incredible self-doubt. I mean, it had to be. I mean,

I was a nobody from Key Largo, and here are named venture capitalists. I mean, I don't want to call them out by name, but think of, 20 venture capitalists, you've heard their name. I'm sitting there and they're saying, no, this is dumb, no thank you. And you're like, who am I to think that this named person at this named shop is wrong? Yeah. I mean, just sort of sitting in their shoes for a sake,

it's super complicated. It's really expensive to produce. That's right. There's no market data about it. And so what was your response? That was the frustrating thing is the no market data, because we created a category in a sense. And I thought when the venture capitalists heard that,

they would say, wow, this is true vision, this is true disruption, absolutely let me in. And they were saying, no, there's no research. There's no, they look for what's called pattern recognition. And there wasn't a pattern in what we were doing. And so, you know, it was frustrating because I saw it clear as day. Our early members and customers saw it. They were saying, oh my gosh,

this thing's changed my life. They're going crazy for it. And still the investors weren't there. You had two kids. You were in your mid-40s, so you're not a 20, you weren't a 22-year-old eating ramen. I mean, the stakes were high. Stakes were very high. And at one point I told my wife, all right, we're going to sell our 401K because we need the money.

It doesn't sound very smart, but you're desperate. Yeah. And in the early days, when we had engineers and we had very little money, and you have to pay engineers There's a lot of money to get great engineers and give them a lot of equity, obviously. I cleaned the bathrooms and I vacuumed every day for three years in this little place we had. And I kept it clean because we couldn't afford a cleaning office. And I didn't want anyone else distracted with the cleaning. So, you know, I was that guy.

But then I turned into the fundraiser. And we made it work. Obviously, we're sitting here. But it was very, very dark days for a long time. When we come back, how Peloton eventually made enough money for John. to stop cleaning the bathrooms and how the company then went on to become a major force in the world of fitness.

Stay with us. I'm Guy Raz, and you're listening to How I Built This from NPR. Hey, welcome back to How I Built This from NPR. I'm Guy Raz. So it's 2013. John Foley is out trying to raise money, trying to keep Peloton afloat. And meanwhile, his co-founders are designing a bike

that's supposed to offer a high-tech alternative to the typical home workout. But when the first prototype arrived, there was a big problem. So if you know the spinal tap where it was 18 inches, not 18 feet, there was a little scale problem where the first prototype was about 40% too big. It was like, we looked at it and we're like, wow, that's a big indoor cycling bike. So funny, we have a good friend of ours, Lauren Salamondo, who is a tall, big. beautiful woman and we needed some marketing. So she's, you know, 5-11 or something. And we said, can you come model this bike so that the proportions look a little bit more normal?

Using trick photography. Yeah, exactly. So that was the first improvisation we had to do with one of the first prototypes. And was the bike as great as you had hoped it to be? I mean, aside from the giant scale. Yeah, no. The next prototype that we got that we got the scale right, we were much closer to launch and we were much more anxious with what with the next bike that came off the crate from Taiwan and We got on it. We were excited to look great. It was the right scale and we put the tablet on and I think my wife got on it to ride it because she was often our muse to to test things out and the whole thing started wobbling the the screen. She couldn't watch the instructor because the screen was wobbling so much and we tightened everything down tight everything down still wobbled like crazy and we realized there was just fundamental design flaws with the entire bike. But you, around that time, you had to do a Kickstarter.

Like, you guys decided to launch a Kickstarter. That's right. And Kickstarter's require a video. That's right. So you've got a wobbly bike and a giant bike. So how do you make the Kickstarter video? Well, it's the fake until you make it. Or at the whole time we say you've got to rob a few gas stations on the way of the perfect crime.

And so what you do is you ask the model and the Kickstarter video to not really ride it to be very delicate. So it doesn't shake. So it doesn't shake. And we know that we've got a little more time to work the kinks out and try and problem solve the wobble. When you guys did the Kickstarter, was that actually to raise necessary money or was it more of a marketing thing?

It was both, but we were very excited about the raising money piece of it. And it turns out. out it was a flop. It was incredibly disappointing. We thought, here's a video, here's a four-minute video tells you everything you need to know about Peloton, and 200 people, I guess we raised 300,000, 200 people bought, and 100 of them were investors. So it was, you know, back to the drawing board, do we have a business? How are we going to sell this thing? It was, it was a moment. I mean, at that point, you are building bikes that, I think you, the Kickstarter, you sold them for 1500, were people, investors and maybe other skeptics kind of pushing back and saying,

that's just too expensive. No one's going to buy that. One interesting thing, a couple months after the Kickstarter thing, we launched a website and we started pricing it at $1,200 because it was just over $1,200 was our cost and we're like, let's price it at cost because we have the subscription digital content business model that comes afterwards, so we don't need to make any money and we weren't selling any at 1200 and someone told me that at twelve hundred dollars it seems cheap it sounds cheap and so we said well let's increase the price and we increased the price and impossible to truly tell but it seemed like the velocity of sales increased so you have a piece of hardware you're building the software for it oh and by the way you have to be a tv production

company. That's right. You have to build a broadcast quality studio. And by the way, how big was your office, like in terms of square footage? It was probably 2,000 square feet. And how many people were working in there? At that point, it was probably 20, 25 people. And what did you guys know about TV production? Zero. What do you do? Like, what's your first step? Do you... So we, what I was going to say is we would, on Wikipedia, research. search, okay, television production camera. And you'd see, here's the really expensive one, here's the medium one. And, oh, a fun thing is our office was right by B&H photo.

So you go over to BNH photo and you talk to somebody and say, this is what we want to do, and they help you. I mean, this is the learning, this is the fun stuff of entrepreneurship. We love these days. And what was that, what did that first production studio actually look like? Was it a professional kind of studio? No, it was basically the back of our office. We hung a curtain and put four stationary bikes and put a camera.

Just like a static camera? A static camera, exactly, against the wall. We rented some lights, some studio lights. I think we had our CTO, Yoni, as a fake instructor, you know, to kind of do the first class before, because this was way before we could convince any instructor to join our team. This is crazy. So many moving parts.

Yeah. There's the bike. There's the software. There's getting instructors. there's a TV production. So how do you get instructors? I mean, I have to assume most of the great instructors are already

working at flywheel or Soul Cycle or other places. Yeah, sure. So we, I put an ad on social because you can't afford real ads, so you're just posting things on social. And it was, Peloton is looking for the 10 best instructors in the world. And it's just a ridiculous bombastic, I get it.

But it was, we were. And so let's see who bites. And so I remember one of the first, the first instructor that we hired was a woman at Jen Sherman, who was a big deal. Gotta love Jen. She said, look new further. I have the email. She has the email.

It was a moment, and her personality was captured in it. She's such a fun, charismatic, believes in herself, cheeky. Everything about a personality came out in this email, and she's like, you've found your person, and we did. And then quickly, Robin took a risk. That was awesome. Hannah, Cody, then not too distant. there was an energy and we tell them what we're doing and I think they they you know enough of them saw it and we didn't have a studio at that point we didn't have stores they didn't know how we were going to sell these

things yeah that's what I'm wondering I mean how did you even how are you going to get the word out about this like what was your distribution model how are you going to sell them yeah so you're in an office in manhattan yeah exactly who's watching the streaming videos that's right at that time we had this product that we thought was awesome and the website was up and no one was coming to the website So we started doing some Facebook ads and, you know, a trickle of sales came in, but not nearly fast enough to build a business. So we thought about having a pop-up in Grand Central because we're like we want to reach commuters because that seems perfect. Couldn't get the right spot, but I think it was either Tom Cortese or Ryan Engel, this young guy on our team, had the idea of going out to Short Hills Mall and finding out whether they had a pop-up location. Short Hills because it's the trend-setting capital of America?

Well, what you wanted in the early days, to your point, if you have a $2,000 product, you do think the lowest hanging fruit is going to be affluent neighborhoods. And that's an affluent neighborhood. It's incredibly affluent. I'd never been there. I'd never heard of it. And I ended up not going because I was still in the deep, dark days of fundraising. Somebody else launched the retail, and it was a combination of Ryan Engel and Tom.

But we did run the math, and we said we need to sell one bike a day in order to make this work. And how did it do? Was it like a curiosity? I mean, by the way, shopping malls are right on the decline, right? They're fewer and fewer. There's less and less foot traffic in shopping malls. So that was kind of a risk. But what did, what happened?

Did people check it out? Yeah, it was, looking back, it's amazing to me. It's still a miracle that this happened. But you think about who's going to come in, walk by a store in a mall they've never heard of, come in and check out a bike and get $2,000 in the credit card out and say, I want one once a day. Every day, somebody's going to come in and buy a Peloton bike. Very quickly, we were selling five bikes a day.

Wow. And it was just mind-boggling. That's just people never heard of this. And I will tell you, interestingly, the guy, the main objection back then wasn't the price. It was what happens to this bike when you guys go bankrupt? Right. Right. I mean, a legitimate question.

It's a startup. A totally legitimate question. You know, pick a number. 95% of startups go bankrupt. I have no idea. but it's a material, you know, the majority. And I had a good answer, which was if you're paying the subscription, we can keep an Amazon Web Services server going and park the content up there

and stream to the bikes because the economics will be, will still work for the business. So in bankruptcy, whoever gets this asset of the annuity of the, I had a story. It worked. Sometimes. And how much content, I mean, if you were an early adopter, if you were buying this at the Short Hills Mall, how much? content was available at the time? Ten classes.

They were filmed in that back room. But they weren't live yet. They weren't live yet. Yeah. So it was five months before we had our studio in Chelsea Open. So you were still selling a dream, but I will tell you vis-a-vis, I mean, even one Jen Sherman class

in a cheesy, you know, four-bike studio in the back of her office, her personality came out. And you get on it and you put your headphones on. You're like, I can take this anytime I want. And by the way, then click over, and you get to take a robin class, and enough was there that you're like, I get it. And you're going to add classes every week.

Sure, we're adding classes every week. And they got excited. And if you like fitness and you like to take, you know, risk taking, it was fun. So at what point are you able to go back to some of those investors and say, look, I have this model now. I can show you the, you know, where this is heading. When did you start to get a better reception from them? So the frustrating thing guy on that vector is,

a lot of people would say, I'm going to wait to see if there's bike sales. I'm going to wait to see if people want this product. I'd go back to those same people, and they're like, so you're selling bikes, but this is a subscription digital content business model. They might buy the bike and they might churn after a year. Come back after you have more cohort data

after a year or two on the churn of the subscription. I was like, wow, come on. I can't get two years down the road if I don't have more money. Were you surprised at how risk A lot of these VC firms are? Incredibly. I was, yeah, absolutely. I was de-heartened, demoralized.

And you think venture capitalists, you know, want to have a vision and take risks. But you're absolutely right, guy. They minimize risk. And you get it if they're shepherding your capital. They want minimal risk. But it didn't make sense to me at the time and still half dozen. So you've got the pop-up shop. Presumably you're online.

Where are 2014, I mean, February, that I'm assuming that pop-up shop closes. is. So now how are you selling the bikes? No, we were able to renew the lease on Short Hills. And we said, wow, this is working. Let's go get a couple more locations. I think we had four locations and we started selling bikes. All in shopping malls? All in shopping malls. So was it something that you guys felt customers or potential customers had to try that if they just saw it online, it wasn't really going to be enough because it's a big ask, right? You're asking people to shell out a considerable amount of money. And no matter how you make the argument look over time, you're going to save money

on gym membership, it's still, it's a big one-time cost at that time. Did you feel like, we got to get this in front of people, people have to sit on it and try it? That was exactly right, guy. It was you and your wife would walk up and I'd profile you and I'd say, okay, she's probably sole cycle, he's probably outdoor cyclist or whatever. And there is some gender bias in fitness. one of you would get on the bike within two minutes of me talking to you and say, hey, you've got to try, come on, please.

And I'd be adjusting the seat and minimizing the friction so that you get on, and it gets you on, get you on the pedals, and I would hand over the headphones to you, and I'd know what class to start with you, what instructor you might like, what instructor she might like, I'd know what class, and I would be all this, it was a fun game for me to try and get the hook in your mouth. Right away, as quickly as possible, I'd get you pedaling so that your endorphins start moving, so your body starts giving you reaction. headphones on, loud music, and you would look over at your wife and you'd say,

honey, this is amazing! And you were screaming in the mall because I'd make the music too loud. And generally, if I could get somebody on a bike, honest to God, I got to a point where it was 50-50 chance that you're going to buy the bike, even though you just heard of it. Wow. Because it is something that once you experience it and get on it and see it and it clicks, you want it.

So you're raising money, you're going to shopping mall, as your sales guy, all these things. Meantime, just curious, I mean, you're still, you've got children, presumably want to spend time with them. I mean, how did that impact your personal life? It was tough. Again, the fact that my wife believed in it meant a lot. Again, either Palton wouldn't work or a marriage wouldn't work

if she hadn't been, you know, a believer in it. It was very dark days, and it was, I was a shell of a human being. For several years, two years in particular, she would say, I'm feeling disconnected, you're not present, you're not here, and can we have a date night? And I would say, we'll have a date night

if we talk about what happens when we unwind Peloton. If that's the conversation, how we're going to move in with your parents, walk me through, walk me through the unwinding of this so that I don't, so something bad doesn't happen.

I mean, so you had like, you had six, significant anxiety. I was masquerading as running a, you know, a great company, and we were trying to put on a happy face and, you know, sell to the team and sell to the investors, optimism. And the truth be told, for two or three years, we were about to collapse, and we didn't have the money. And it was, it was stressful.

I mean, I mean, a lot of, I'm not the first entrepreneur to have gone through it. But it was the first time I'd gone through it. It was very tough. So when did you start to see, to see, like, a light? Like, when did you start to turn a corner? Was it when you started to open up those shopping mall locations? And when did you start to really see sales kind of pick up? I started seeing the light on Peloton about six months ago.

Okay. See, you're right. Okay. Got it. It was hard for a long, long time. But the traction, yeah, we started opening more stores. But then it's like you're selling 4,000 bikes and you have this massive burn and you have great shareholder expectations. You're still running out of money.

You go do a hundred pitches and you get 100 nose. Yeah. Even though you sold some bikes and you have some happy customers, you're still in the grind. Meantime, you have to, like, the company has to produce tons of content. The more bikes you're selling, the more demand there is. So how did you guys kind of do that? So the bet there was that we wanted to have a studio that was a content production facility, basically a television streaming studio.

And in the early days, it was, I say this, it was a spin studio with a television camera. Right. Now it is a television production facility filming fitness content. And we have, I mean, some of the best production people and some of the best on-air talent, obviously, in our celebrity instructors. But we've become a pretty hardcore media company. But in the early days, it was how do you rig up a camera and get the lights on the instructor so that the content is captured? So I know you said that it's, you know, you just started to get comfortable, less, less anxious six months ago. But, but I mean, you guys were profitable relatively early.

I mean, it wasn't huge profits, but you were profitable by, what, 2015? Yeah, I would say we were profitable because we could see profitability in six months. So I would say we were effectively profitable. We never truly turned a profit. But we would be scrappy enough that the margin in the bike and the price and the price. proceeds from the subscription would start to, you could see that it was going to pay our overhead, but then we would quickly want to triple down on a new product or a new market, a new marketing, and more higher growth or more stores. And so we've always needed money to fund the growth.

When did the investors turn? When did you start? Because, I mean, you've raised a billion dollars. Yeah. When did that turn? I mean, that's just a... The Series E, I mean, the date was two years ago, effectively, when investors started to see it. And we actually turned down. I mean, for the first five raises, we took every dollar we could from anybody. And that creates a cap table of 300 people, institutions and individuals. And, you know, some of them aren't my best friends. I would say 95% of them are, you know, friends, but 5% of them were people you wouldn't want to take money from. But when you don't have an option, when, you know, you're going to go bankrupt, you take money from literally anyone who will give

it to you. It's public knowledge or it's been publicly discussed that there's talk of Peloton doing an IPO maybe this year or next year could value it as high as $8 billion, maybe more. What do you, I mean, what is the vision of where this company is headed? What do you imagine it becoming in 10 years from now? So yeah, we, we're very excited about the category. We love fitness. We love technology and we love media. There's a metaphor that Henry Ellen Bogan at T. Roe Price put on my radar a couple years ago. I thought, wow, that's good. I hadn't thought of it. But the metaphor

was, in the 80s, you'd go to the arcade. And today, arcades are gone because you have better experiences in your home interconnected with the world, especially now with things like Fortnite, where your friends are in it. So it's social, it's sticky, it's a better location,

and it's a better value, because you're not paying 25 cents every time you die in Gallagher. dating myself but so we see a world where if you have better hardware the best bike or the best treadmill in the best location which is your home and you have great software and you have a global community of supportive people and it's time shifted

so it's when you want it you know why would you travel to an inferior experience with an inferior piece of fitness equipment with somebody else's sweat all over it so so we see a world where content will evolve and the programming will evolve and the software will evolve. But the hardware that you pedal is a concept. What, I mean, the company's got this huge valuation. It's just charging forward.

It's gotten a lot of attention. Does anything keep you up at night anymore? Are you feeling like, okay, thumbs up, you know, mission accomplished? No, not at all. No, I honestly believe we're just getting started. We have massive global ambitions. I think if we do it well, this will be one of the special companies of our generation. And so your question, Guy, what keeps me up at night is how do we scale our culture?

How do you go from 2,000 people to 50,000 people in the next five or six years and still have the fun.com energy, the trust, the transparency, having a fantastic culture where you're able to recruit and retain the best people. in the world is what keeps me up at night. How many stores do you now have? I think we have 70 globally. Wow. And how many bikes have you sold? Close to half a million. Half a million bikes. So you've got hundreds of thousands of subscribers around the world.

That's right. You said that just a few years ago you were like winding down your 401k or thinking about it and, you know, kind of freaking out a little bit about money because you got two kids and, right? You know, you're in your mid-40s at that time. Do you feel more comfortable now? Do you kind of feel like, all right, I'm going to be, you know, I'm going to be just fine. I'm be a rich guy.

I do. I do feel more comfortable. I'm not comfortable yet. I will tell you, my wife gets frustrated with me. I spend money as fast as we get it. And I bought my parents a house. They didn't have any money. I bought my parents' house.

And we just recently bought my in-laws a house. And so I am, you know, we don't have much money the bank account still because every time we get any money we're trying to impact the lives of people that have been there for us through the years. So I ask this question and I know that folks who listen to the show have heard me ask this question and I love this question because I love the different answers that I get to this question, which is when you think about all of the things that happen and all of the ups and downs, because it was a grind, right, where you are today and where you might even be in five or ten years from now, how much of this do you think was because

of your intelligence and your hard work and how much do you think it was because it was just luck so yeah um luck plays a lot apart in everybody's life i was lucky to have two parents that built me up and gave me confidence and love me that that is luck you hit the lottery when you have great parents right but but i do think uh like most entrepreneurial ventures um you hear that one percent inspiration 99 percent perspiration we check our egos at the door and everyone brings their best self to work. And I think that's how we've conquered a lot of obstacles. Okay.

One last question for you, John. I'll let you go. If you were sitting in this audience watching you, you know, 10 years ago even, what is it that you wish you knew then that you now know that would have helped you out? I was thinking you were probably looking up here and saying, I hope I'm not an entrepreneur at 48 years old. my buddy Amar Lalvani, who's the CEO of Standard, has a little saying, Risk is the tariff paid to leave the shores of predictable misery.

And one thing I did in the early days was I just started telling everybody that I was starting this company. Everyone who listened, I told him was starting this company for months. Looking back, I realized that I then had to deliver because I'm too ego-driven. and I couldn't look you in the eye because it was like, wait a second, you said you were going to do that. Yeah. So I think putting the energy out there

and telling other people gets the momentum going and holds you accountable. And I thought that was an important thing for me having the courage, which is basically I just, I had to deliver on my promises. John Foley, co-founder of Peloton.

John, thank you. I spoke to John on April 11th at the BMCC Tribeca Performing Arts Center in New York City. Oh, and I realized there maybe another reason why Peloton has caught on so well, no one's going to bother you, which might explain why Peloton has an army of celebrity writers, Hugh Jackman, Ellen DeGeneres, Richard Branson, even Usain Bolt. Hey, thanks so much for listening to this live episode of How I Built this.

Our show is produced this week by James Delahousie with original music composed by Ramtin Arablui. Thanks to our live events team in New York, Ali Prescott, Nicole Schaller, and John Isabella with recording engineer Isaac Rodriguez. Thanks also to Casey Herman, Rachel Faulkner, J.C. Howard, Julia Carney, Candice Lim, Katie, Montalione, Nora Cudsey, Neva Grant, and Jeff Rogers. I'm Guy Raz, and you've been listening to How I Built This.