Peloton CEO John Foley Talks Cheaper Bikes and Making the Most of Staying Home

(Miss this week’s The Leadership Brief? This interview below was delivered to the inbox of Leadership Brief subscribers on Sunday morning, May 24; to receive an email of next week’s edition, a conversation with Accenture CEO Julie Sweet, on Sunday, May 31, plus weekly conversations with the world’s top CEO’s and business decision makers in the month ahead, click here.)

Welcome to The Leadership Brief, TIME’s new weekly interview series with the world’s most influential CEOs and leaders. The current pandemic is putting extraordinary demands on leaders and our hope is to help you understand what leadership requires today. I’m Eben Shapiro, a deputy editor at TIME, having previously spent over two decades at The Wall Street Journal and the New York Times covering business and launching new sections. I’m thrilled to conduct these conversations about the challenges in front of us and how companies can respond nimbly and compassionately to the current moment. Each week, we will explore how the world’s most consequential business leaders are addressing the needs of their employees, customers, and stakeholders, and at the same time, charting a path forward in a future that looks very different than it did just a few short months ago.

We start with a conversation with John Foley, the 49-year-old entrepreneur behind Peloton, which is experiencing surging demand for the connected exercise bikes the company pioneered, transforming the fitness market. Peloton, which was founded in 2012 in New York City, has developed a dedicated following by allowing its members to connect to high-energy spin classes from their homes, on their own schedules. It sold its first bike in 2013 and now has more than 2.6 million members and 3,500 employees worldwide. With much of the nation on lockdown, usage has shot up. On March 25, for the first time, more than 1 million workouts were taken in one day by Peloton members. In April, its debut ‘Live from Home’ ride broke the previous record for largest live class with over 23,000 participants.

In the interview, Foley discusses his contrarian view of physical retail stores (he plans to use the pressure on malls and retailers to add more premium locations to Peloton’s nearly 100 retail stores world wide.) He also discussed plans to make the company’s bike, which retails for $2,245, or $58 a month for 39 months on an interest-free payment plan, more affordable. “If you can get to 20 bucks a month per person, you’re starting to get below Planet Fitness-style, low-end gym chain affordability, and we think that that’s a pretty big opportunity for Peloton,” says Foley.

Foley also discussed what he describes as his “emotional” response to “ad-gate,” his term for the blowback the company got late last year for a television ad that was widely criticized for being sexist and out-of-touch. “We do think we’re making people’s lives better,” he said. “And when people criticize us and make fun of us, it gets to me, to be totally honest.”

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Eben

(This interview with Peloton CEO John Foley has been condensed and edited for clarity).

Do you remember when you first heard about COVID-19?

I do. Wayne Holman, who is a health care investor and an investor in Peloton—a good friend of mine for the last 15 or 20 years—texted me and said, ‘There’s this COVID strain in this Wuhan Province in China. You should have it on your radar. It’s highly contagious and you should put your teams on alert and figure out a contingency plan for your supply chain in Asia.’ This was late January. It came on my radar as the threat was to the Asian supply chain, not yet a U.S. threat.

So you were cognizant of it relatively early on and began to take steps?

That’s a stretch. I did not begin to take steps earlier than the next guy. I put my head in the sand unfortunately, like a lot of Americans.

How is your business changing in the current moment and what will be permanent?

I don’t think people are going to rush back to crowded gyms. I just don’t see that happening. Especially people who experience Peloton, and why it’s a better experience at a better location with a bigger community, with better instructors, for better value. There will be gyms and will be boutique fitness operators. I just think it’s going to be a massively contracting category. The gym model was challenged yesterday. And I think it will be even more challenged tomorrow. And then the other thing; for some roles, and some functions in some companies, you’re seeing that working from home can be pretty efficient.

Has this also changed your view on the importance of your nearly 100 retail outlets around the world?

This is a contrarian view. I am more excited about our retail stores than I was 90 days ago. We are selling tons of Peloton products today without our stores being open. So a lot of investors are saying ‘Hey, we don’t need our stores.’ I’m thinking the opposite. I am really excited about the opportunity that is going to present itself with some retailers struggling and Peloton being able to pick up more premium retail locations. We’re going to be investing and making those special locations.

Has the current moment changed your view of the size of your potential market?

It hasn’t changed my view at all. I see a couple hundred million people on the Peloton platform in 15 years. But it has changed other people’s views for sure. There’s a lot of emails I’ve been getting about dots being connected on the potential size of our TAM (Total Addressable Market) and our SAM which is our Serviceable Addressable Market. We’re selling a lot of bikes in the last 8 weeks to people that hadn’t been considering buying a Peloton product in the past.

There was a period where your company was viewed as an accoutrement of the elite and you faced a lot of backlash for the “Peloton Wife” ad as being sexist and out of touch. Had you seen the ad before it aired? Were you surprised by the response?

It has been a rollercoaster. It’s been emotional for me because we do think we’re building something special. We do think we’re making people’s lives better. And when people criticize us and make fun of us, it gets to me, to be totally honest. I’ve developed thick skin, but it’s a little bit of a head scratcher. I had seen the commercial, and we struggled with telling the story of how special what happens on the Peloton platform is. It’s about those endorphins and being your best self and looking forward to waking up and looking forward to getting on the bike and getting off the bike and feeling stronger and more supported and more motivated. And a better dad or a better mom or a better professional. As marketers, we tried to kind of get into that a little bit with that spot. But the world didn’t want to hear it. The world, unfortunately, or some people—cynics—the cynical blogosphere at least—still sees fitness equipment as rote weight loss. It was unfortunate because that’s never been part of our brand. And it was really thrown in our face when—we call it ad-gate—when ad-gate happened. It really was unfortunate because what is happening at Peloton really is a beautiful special thing. When you’re not in it, you don’t appreciate it.

One pivot by your team seems to be changing how people view your company: You have extended your standard 30-day free offer for your digital classes to 90 days, so anybody at home could sign up to take classes for free for three months.

Right around the time of COVID, we all shifted into a couple of different things of how do you work through this. How do you work from home? And then how do we help, what can we do for our communities and our members and our employees? And the 90-day free trial was such a quick easy obvious—I forget even where it came from in the company. But within 12 hours, we had through text and email created a chain of “we should do this 90-day free trial.” I think it was on a Friday we decided to do it. On a Monday morning [we] launched it. It was 48 hours. There was a lot to do working with the app store. Working with our marketers, finance, our music partners because it’s not free to us. We have to pay for the music, so people have it with classes. So it was an investment. I think we’re investing $3 or 4 million in giving away that content. But there wasn’t one person in Peloton senior leadership or on the board that flinched. Everyone said absolutely. Give it away. Let’s do our part.

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How many people have signed up?

Six months ago, I think we had around 100,000 digital subscribers to that business. And within 45 days, we had I think close to 1.2 million people who had jumped on the trial. So it was—call it a 10x increase in engagement. In weeks.

And you have a backlog for your bikes. How has it impacted how you make bikes and filling orders?

We’ve had to scramble on a number of fronts. It’s incredible coordination that needs to take place. There’s rocket fuel in your business, and your business has just been displaced and you’re no longer together, you’re trying to change the engines on the plane when you’re in the air, or whatever the metaphor is. It’s tricky operational stuff.

What experiences in your career up to now have allowed you to respond the way you have?

I’ve got to talk to the Peloton culture and the team because I’ve been such a small part of the response, We have built a team that I believe is ready to run a $500 billion company. Pick a number. A FAANG-style leadership team; you have that type of alpha, awesome, committed professional that has a ton of stretch.

Will there be other products down the road?

We want to make our products even more affordable than they are today. Right now our bike is just over $2,000. But it’s $58 a month [for a 39-month, interest-free loan that covers the cost of the bike]. $58 a month [divided] by two people who are going to use it. Maybe even three people in your home. If we can get those monthly payments down, we can really open it up. And we want everyone in every socioeconomic class to be able to afford Peloton. That’s a big focus for us in the coming years.

It sounds like you’re looking at making a cheaper bike.

Well, let’s not call anything cheap that Peloton does. Let’s say that a year or two from now, we might have two products in the fitness category.

What’s the optimal price point, $1,000?

I don’t know. I wouldn’t think about it as an initial cash-outlay. I would think about it as a monthly payment. I think if you can get to 20 bucks a month per person, you’re starting to get below Planet Fitness-style, low-end gym chain affordability, and we think that that’s a pretty big opportunity for Peloton.

How is your supply and manufacturing chain? Where are the bikes manufactured?

Almost all of our manufacturing happens in Taiwan where we’ve been fortunate. It is an incredible country. It’s a bit like China meets the U.S. Pro-business, great people. And they’ve done an incredible job fighting off COVID. In our manufacturing plants, we have temperature tunnels so that nobody with a fever can come into the plant. And they’ve done a really incredible job keeping Corona at bay. And subsequently we’ve been able to keep our plants open.

I understand you put yourself through college working in a factory.

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.

You went to Harvard Business School and you worked the night shift at a candy factory. Can you share the most valuable thing you learned at each place?

I learned a lot about people from both experiences. On the manufacturing side, I became a manager at 22 years old of 120 people, and I learned to get out of the way because I didn’t know anything at 22. It was a weird management style, letting people do their thing. And it served me well throughout my career; getting good people and getting out of the way.

Harvard Business School was also a great experience for me coming from the Florida Keys. I was always intimidated by Ivy League kids and the pedigree in general, whether it was Goldman Sachs or McKinsey or Blackstone or KKR. Harvard Business School kind of opened my eyes that no one’s really smarter than the next person. Harvard Business School more often than not is children of privilege. It’s a lot of people who have played their cards well, or had their parents help them play their cards well. I met a lot of incredible people there, I’m not disparaging. Some of my best friends are from Harvard Business School. But I did come out of it with the confidence to think that no one’s really that much inherently smarter or better than the next person. It comes down to I think hunger and humility. That is really what we look for in people who succeed at Peloton.

How would your colleagues, your co-founders, describe your strengths as a manager?

I’m not sure they’d say I have many strengths at all. I do think that they will agree that I’m pretty hungry. Our team is pretty hungry. We’ve still got a lot to prove. We are in the first out of the first inning from our perspective. We’re just getting started. And I think we’re humble. I described Jenn Sherman, who’s one of our top instructors, one of our first instructors, as being incredibly confident and incredibly humble at the same time. We are collectively some of the best professionals in technology and fitness and media. But we are very humble to understand that there’s a lot we’re learning and there’s a long way to go with a lot more left to do.

Is there anything about being CEO that you don’t like, that you like to delegate?

Finance. Our CFO does 99% of finance. I engage because I want to know how we’re doing. But to say I don’t add value to her operation is an understatement. You can also say the same with technology. Our CTO doesn’t get any help from me. I’ll go sometimes months without talking to our CTO, which as a CEO of a technology company, that’s kind of rare.

I try to add value on the culture stuff. I care about people. I care about how people are feeling. I care about how people are getting along and the team spirit and the intangible of how our team is feeling. It’s something I’m passionate about.

FOLEY’S FAVORITES

BUSINESS BOOK: Jack Welch’s Winning. If you want to listen to it on audiotape and you get his Boston Southie accent and his passion for people. The first chapter’s on candor and … it punches you in the face with how to approach people in leadership. It’s kind of a PhD-level in leadership. I encourage everyone to check it out.

AUTHOR: David McCullough. I went to high school in Florida Keys and didn’t get much of a history education, so I’ve been playing catch up, and David McCullough books are a good place to start.

HOME DEVICE: I was going to say Peloton bike, but that’s probably too too obvious. I’m going to go with my coffee maker.

APP: Uber or Sonos. Dara [Khosrowshahi, Uber CEO] and Patrick [Spence, Sonos CEO] are both good friends. I’m on their apps all the time.