The Exchanges

Q 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, you know, over, 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?

A That, that was exactly right, Guy. It was, you and your wife would walk up, and I'd, Profile you. I'd say, okay, she's probably soul cycle. He's probably our outdoor cyclist or whatever. And, um, there is, there is some gender bias in, in, um, in fitness. One of you would get on the bike within two minutes of me talking to you and say, Hey, you got to try it. Come on, please. And I'd be adjusting the seat and minimizing the friction so that you get on and get you on and get you on the pedals, put, and I would hand over the headphones to you. And I'd, I'd know what class to start with you. What, 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!

AI assessment note: “That, that was exactly right, Guy.”

Q now, who is looking out at the world and saying, There are going to be no jobs here. I mean, the risk is, you know, you take on a lot of debt. But was it a good decision for you? And do you think that given the economic outlook now, if you were, you know, back in your late twenties, would you have taken, maybe taken a decision like that?

A Yeah. Uh, that's a good question. I hadn't, I hadn't heard that, but that makes sense guy that people would, uh, try and take the next 24 months to, to get educated if the, if the jobs are going to contract and the economy is going to contract. For me specifically, it was a great decision, but I will tell you, I grew up in the Florida Keys and went to a public high school where 90 kids, uh, graduated and, and I think maybe 10 of them went to, went to college. It was a very non, uh, college prep environment. And my dad was an airline pilot, and I had great parents, but I didn't know much about business growing up in that environment. I didn't know much about much, to be totally honest. And then I became an engineer at Georgia Tech, and And I worked in manufacturing in Waco, Texas, and I, and I didn't know much about the world of finance or the world of business or the world. So for me, I was a uniquely, I would say, ignorant, you know, a twenty-eight-year-old kid, um, and I needed both the education and I needed the confidence. For a lot of people that I've connected with that are educated in the north, northeast or, um, lived in New York City or San Francisco or have parents who have, um, A little more access, uh, to the world of business, um, business school could be a waste of time and a waste of money, to your point, Guy, and you, you know, I had a 100,000 dollars of debt, W…

AI assessment note: “For me specifically, it was a great decision, but I will tell you”

Q Ocean and, um, come to LA or Seattle or wherever, and then distribute around the country. But you also have, you're also a logistics company. You also have Stores where you display and allow people to try the bikes or the treadmill. So let's talk logistics first. I mean, you've got Peloton, um, vans that go to people's homes and set them up. How is that? How does that work?

A Yeah, that was, uh, that was probably the biggest thing that we had needed to triage to make sure that our employees and our members were safe in this new COVID world. And we found, uh, again, the creativity of my colleagues, Uh, we found a lot of creative solutions on how to deliver bikes. Uh, we do what's called a threshold delivery where we don't even come into your home. We will put it on your porch or in your, uh, the precipice of your, of your garage and help you set it up and tell you what you would need to do. And, and we've created new tools online to help you do what our delivery folks would have done, uh, had they delivered it and spent the half hour setting it up. And now it's more of a self-service model because you don't want our team touching You know, your bike.

AI assessment note: “We do what's called a threshold delivery where we don't even come into your home”

Q And, and was the bike as great as you had hoped it to be? I mean, aside from the giant scale.

A Yeah, no, uh, the next prototype that we got, that we got the scale right, we were much closer to launch, and we were much more, uh, anxious Um, with what, with the next bike that came off the crate from Taiwan, and, uh, we got on it. We were excited. It looked great. It was the right scale, and, uh, we put the tablet on, and I think my wife got on it to ride it, because she was often our muse, um, to, to test things out, and the, the whole thing started wobbling. The, the, the screen, she couldn't watch the, uh, instructor, because the screen was wobbling so much, and we tightened everything down, tightened everything down, still wobbled like crazy, and we realized there was just fundamental design flaws with the entire bike.

AI assessment note: “we realized there was just fundamental design flaws with the entire bike.”

Q All right, so you get out of HBS, and you got all these options. What do you, where do you go?

A It's funny, uh, I got a job at BMG Music, which was this, you know, I was, it was my dream to work in the music industry, and it was in 2001, it was a recession, and so I accepted the job, and six months later, when I was set to start, I was gonna go away to Italy for a week, and I called the HR director, and I said, hey, I'm gonna be out of the country for the next week, if you need to reach me, here's there, and she's like, oh my gosh, no one's called you? And I said, wait a second, what do you mean 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 was being decimated, my job had gone away, my whole department had gone away.

AI assessment note: “I got a job at BMG Music, which was this, you know”

Q And you raise this from like hundreds of people, right?

A No, this, this was from, uh, I think eight people. Um, and it was, um, 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, uh, was willing to give, I remember the text, I said, are you in for 25? And he said, he sent me a picture of fitty cent. He's like, no, I'm in for fitty. Um, he's, he's a very excited, he's a very excitable guy.

AI assessment note: “No, this, this was from, uh, I think eight people.”

Q There's the bike, there's the software, there's getting instructors, there's a product, TV production. So how do you get instructors? I mean, uh, I have to assume most of the great instructors are already working at Flywheel or SoulCycle or other places.

A Yeah, sure. So we, uh, I put a, 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 ridiculous, bombastic, I get it, but, ah, it was, we were, and so let's see who, see who bites. And so, um, I remember one of the first, the first instructor that we hired was a woman named Jen Sherman, who was a big deal. Ah, gotta love Jen. She said, look no further, I have the email, um, 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 her personality came out in this email, and she's like, you found your person, and we did. And then quickly, Robin took a risk. Uh, that was awesome. Hannah, Cody, then not too distant. There was, there was an energy, and we tell them what we're doing, and I think they, they, you know, enough of them saw it. Um, we didn't have a studio at that point. We didn't have stores. They didn't know how we were gonna sell these things.

AI assessment note: “I put an ad on social... Peloton is looking for the 10 best instructors”

Q thousands and thousands of classes that are recorded, that are available, but you've got live classes. I mean, that's the whole attraction to Peloton is that you've got a live instructor and you've got a studio and you're a media company. Um, how are you doing that safely? How are you, how do you have instructors come to the studio in New York and get filmed for the live classes?

A Yeah, it's a good question. Uh, with our, with our instructors, we sent, you know, a couple 100,000 dollars of hardware and software into a few of our member, or a few of our instructors' homes and set up a, an ad hoc television streaming studio. It was fascinating to watch how quickly they were able to get world-class content streaming from a And a living room of one of our instructors. Um, and so yes, we did care about the authenticity and the freshness of our content. It's something that we told our members that they were going to get when they purchased their bike or their treadmill. So we've been, uh, trying to honor that, and I think it's really worked. I think, um, versus taking a class from two years ago, which are still available and still awesome, there's something about the conversation you're able to have and the relevance you're able to have and the connection you're able to bring to our members In their home when you're talking about what's going on in the world in that moment, uh, and so it's really, uh, it's really been cool to watch.

AI assessment note: “we sent... a couple 100,000 dollars of hardware and software into a few of our instructors' homes”

Q small, medium, and large businesses are in crisis in the U.S. How do you grapple with the reality that this crisis is a public health crisis, but you guys are actually really doing well and growing? I mean, your stock has doubled from where it was in September. Um, I mean, of course, it's great for Peloton, but is a part of you just, I don't know, conflicted about that?

A Absolutely. Uh, it's been a whipsaw, wild, uh, reality of going public, and the first earnings call was all about profitability. No one thought we could become profitable, and path to profitability, and everyone was thinking that we were hemorrhaging cash, and it was this terrible thing. The following call, we closed our losses, and all of a sudden, there was concern about growth, and it was no one cared about profitability, now it was growth. And the third earnings call, We were profitable and growing tremendously, but it was this new world order, to your point, Guy, and it was all of a sudden, oh gosh, we don't want to be vilified for being profitable. To your question, it's, we decided we need to really stay humble and really just focus on the fact that we're servicing a great need in our societies right now. Our communities need connection. They need fitness. But you're right. It has been from a, from a psychic positioning perspective. I was, you know, competitive business guy. I was so excited to show that Peloton is an awesome business and the total addressable market is massive. It's not small as some of the narrow-minded investors thought. So I was excited to show that, but all of a sudden it was through this lens of COVID. And so it was, it was absolutely tricky. There's no question. It was a good question guy. I agree.

AI assessment note: “I was excited to show that, but all of a sudden it was through this lens of COVID.”

Q What was the description you gave? So take me back to 2011. I'm at your house and you're like, hey guy, I have this great idea. What are you, what are you telling me?

A Yeah, it's, it's effectively Peloton bike. It was, here's a big screen. And here is a bike that talks to the screen. So you have metrics and competition and motivation. You have a leaderboard. You have great instructors. Um, 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, and a lot of these things, uh, content is king. As a lot of you guys who are connoisseurs of the category, you know that in some, 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, um, is, 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. Um, and thank, thankfully she believed in, in the idea.

AI assessment note: “It was, here's a big screen. And here is a bike that talks to the screen.”

Q Um, 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 eight billion, maybe more. Um, what do you, I mean, what, what is the vision of where this company is headed? What do you imagine it becoming in 10 years from now?

A So yeah, we, we, uh, we're very excited about the category. We, we love fitness, we love technology, and we love media. Um, there's a metaphor that Henry Ellenbogen at T. Rowe Price put on my radar a couple years ago. I thought, wow, that's, that's good. I hadn't thought of it, but the, the metaphor was, um, in the eighties, 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, it's sticky, it's a better location, um, and it's a better value Because you're not paying 25 cents every time you die in Galaga. Um, dating myself. Um, but, uh, so we see a world where if you have better hardware, the best bike, or the best treadmill, in a, 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, but the hardware that you peddle is, is a, is a constant.

AI assessment note: “we see a world where content will evolve, and the programming will evolve”

Q It's coming. It's coming. But you say you want it to be big. What do you mean by that? What did, what did that actually mean?

A I don't know. I'm a competitive guy, and, and I study, I study everything. I read every business book. I listen to every, uh, how I built this. Um, I, I, I really am a student of business, and, and after years and years and years of this, I would say, I think I'm as good as that, 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, uh, like a lot of New Yorkers, I'm guessing a lot of you here, um, boutique fitness was exploding in New York City. SoulCycle, Flywheel, Barry's Bootcamp. Yoga had been around for a long time. I'd done spin back in the nineties in LA, and I, I had, 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, I had tasted this content, and I said, this is, 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, um, interestingly, my wife, uh, who is, probably works out two or three times more a week than…

AI assessment note: “I'm a competitive guy... wanted to prove myself.”