No one believed in Peloton's CEO as he built the company. Here's how John Foley just kept climbing

I’ve never been to a spin class. Actually, I’ve never been to any class where someone has told me how to exercise, at least not since I walked out of high school wrestling practice and never returned. But for the last few weeks, I’ve been gasping for breath while an instructor stares me in the eyes and barks inspirational messages to keep me adding resistance, to keep me going when all I wanted to do was stop. And … I sort of liked it?

The rides came thanks to a bike on loan from Peloton, the tech/media/social network/gym-equipment company whose expected IPO is one of the most eagerly anticipated of the year. The vertically integrated company sells equipment — so far, a bike and a treadmill, both with large attached flatscreens — that connect to a library of thousands of Peloton-produced live or on-demand classes. Highly motivational instructors, many of whom now have lesser-Kardashian-level Instagram followings, work the machine, the music and the cameras to keep you engaged. If that isn’t enough to keep you pedaling, a leaderboard tells you how you’re doing against others taking the class. If you’re not going to ride for your own betterment or to not let down the instructor, at least you can do it to trounce others.

The exertion doesn’t come cheap. The essential bike package is $2,400, plus $39.95 a month for classes and tracking. On the plus side, you never have to pay for a class or a gym membership you’re not going to use, you don’t have to park and you don’t have to sweat next to other people. (Wirecutter also made a strong argument that, after a few months of ownership, it’s competitively priced.)

The whole Peloton package has elicited a cult-like following, with users starting groups to trade stories of their successes or crafting trips to ride together in person in a Peloton studio in NYC.

But success for the company — last valued at $4.15 billion — was by far from guaranteed. And much could still stand in Peloton’s way.

In a recent #ConversationsWith, I sat down with Peloton's founder John Foley to talk about the history and next-steps for 2,000-person company. Among the topics we covered:

• How big he thinks the company can get and how he can get there at current price points;
• Why he stuck with vertical integration — even as every investor rejected the approach;
• How he dealt with the what he saw as age- and experience-bias;
• How he manages and what he worries about post-IPO;
• Why he tells young people not to chase their entrepreneurial dreams.

Would love to hear your thoughts on our talk — or, why not?, tell me about your favorite rides — in the comments!

Transcript edited for clarity. And here's a quick cheat sheet, if you just want the highlights:

Dan Roth: I've been getting to know your company from the vantage point of a bike in my basement. As you prepare for an IPO, how do you describe what sets Peloton apart?

John Foley:I would say the biggest thing is that we are a global technologies platform for streaming great instructor-led group fitness classes into your home. So you think about the bike, you think about our bike, the Peloton Bike. You think about the Peloton Tread, which also allows you to take the bootcamp classes from home. And then you think about Peloton Digital where you could do it on your bike or your tread. But it is to your point, the vertical integration, the hardware, the software, the media, the retail stores, and then the logistics of getting all of this into your home, set up, happy customers in a bespoke way that all in total creates a pretty big moat I would say.

DR: Any of those that you could pull out and still be the same Peloton or is it required that all of them be there?

JF:I know you're a student of business like I am, 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. And then the media coming to you, as you know, Dan, is our media. It's our instructors. We are touching you throughout your entire customer journey and we're trying to delight you at every phase.

DR: Competitors see this vertical integration — which is what gets you that high NPS — and say, "That's great. Their costs are too high, I'm going to scoop out a piece of this and win." How do you defend against that?

JF: Well, I don't believe our flank is open to a low-cost competitor because we have the scale now and because we are moving upstream and controlling more of our supply chain through tight relationships with our contract manufacturers. Because we don't sell through channel or through wholesalers, we are going direct to consumer, as you know, so the opportunity for us to keep the cost low to the consumer are optimized. Whereas I don't think somebody could come in and do a piece of it and find a better product. Or you could have an inferior experience for a lower price.

DR: I've seen a stat recently that you control about 8% of the gym equipment industry, up from nothing in 2014. What's your goal?

JF: We're not focused on the gym equipments opportunity at all. A weird, fun statistic to your question 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.

DR: Your early years of trying to find investors and customers was a difficult process. Would you talk about that?

JR: Yeah. In my mind's eye it was a guaranteed success because I saw and we learned early that the consumers wanted it. But to your point, Dan, it was almost impossible to capitalize. The investors did not see it. And even if they did, they would say, Wow, you're going to make hardware, you're going to make software, you're gonna open retail stores, you're going to stream media, you're going to create a global television streaming studio where you're going to do logistics.

DR: All of that was in the business plan from the beginning?

JF: For the most part. Logistics was kind of an asterisks, but we had to do it somehow. You have to deliver these bikes to 40,000 zip codes around the country and then globally. So you have to figure out logistics in some way, whether it's in house or through a partnership. It's logistical heavy, as you can imagine. And then at the end of the pitch, they would say, wow, this sounds very capital intensive and very hard. The trouble is, you don't know if there's a market for this product. And I would say, well, why wouldn't people want better fitness at a better location with better instructors and better hardware, better software? And why wouldn't people want this?

And they would just say: show us a report that people are asking for this. And I would say, there isn't a report. This is a new category of product. Doesn't this sound awesome? And they said, it does sound awesome. We're not gonna be able to invest. But John, before you leave, if you're able to pull this off, keep us in mind because we want one of these bikes.

And I was like, Oh God, please. Test my patience. So even they saw that it was a cool thing that they would want, but they just didn't seem ... Dan, as you know, a lot of venture capitalists have a no-hardware policy. And there've been some hardware companies that had struggled that were cool at one point, and then were no longer cool or were no longer good businesses. So people would benchmark us as a hardware company.

And it's like, No, no, no. We're a media company. The business model is subscription digital content, so it's a better business model. It's not susceptible to the ups and downs of a traditional hardware company, and you don't have the hardware a business model just arbitraging the delta between, you know, a bomb and consumer price. But, it was very hard. I always saw it, obviously that's why I was dogged in continuing to, no after no, to continue to try and raise the money. But, I will say the consumers did see it.

As soon as we put the headphones on somebody, with a prototype screen and a prototype bike, an off the shelf bike and off the shelf screen and we'd stream in a cheesy class from literally behind the wall. It was immersive. It was as fun, if not better, because you have the best seat in the house. You have the best instructor in New York City, now some of the best instructors in the world, and so as soon as people could taste the dog food, they loved the dog food. So we knew we had something. It was just a matter of getting the capital to keep it going.

DR: While this was going on, you were in your early forties, you had a family. As you were trying to convince these investors to back your company, you also had a family you had to worry about, your career was on the line. How were you able to justify keeping moving forward?

JF: I think a lot of the venture capitalists were saying, this guy is not 26, he's not 28. Is he willing to sleep under his desk and get this thing off the ground? Maybe he's a little long in the tooth. He doesn't look like other entrepreneurs. And I think that might've been a little headwind. I thought it was going to be an asset that I kind of had a little bit more gravitas, a little more experience, and I think the venture capitalists were thinking, "This guy's over the hill, and maybe not going to succeed because he's past his prime from an entrepreneur perspective." But who knows. It was trying.

DR: Your experience ends up counting against you. Did you ever think, maybe they’re right?

JF: 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.

And you're just like, "Wow. This person has bet on all the great companies in the past, and they're looking at me and saying ‘No thanks.’” It's pretty frustrating, and you do have to walk out of that meeting and kind of dust yourself off and say, "Why is that person I've had on a pedestal, 10, 20, 30, massive people, they all said no." It's just like, "Who is John Foley? Why would I not trust that they know better than I know?"

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.

DR: How do you think about building corporate culture?

JF: I hope they say it's the best place to work in the world, and it's the best place they've ever worked. We work very hard to try and create the best place to work with the best culture. You'd think, if you're an engineer, it's the best tech stack, it's the best progressive HR, mission-driven culture, the right Kind bars, the right IPAs on tap, the right Aeron chairs, the right architecture of the office. The right leadership, the right category, the right pre-IPO currency, the right growth, the right growth in your own career opportunities, and the right growth for the company, the profile of the company.

And I will say, Dan, you hear these things, "In order to win in the marketplace, you must first win in the workplace." I think that's more true today than ever.

DR: Your instructor have huge social personas, they get endorsements, they're followed. How do you make sure that they are staying with Peloton versus jumping to a competitor and taking their followers with them?

JF: Yeah, it's something we also obsess about. Let me give you the cavalier answer, there's nowhere else to go. Peloton is a category of one, these people are training millions of people a month, globally. So they can't jump to a competitor, really.

The "real" answer though is, I'm being tongue-in-cheek there, we are crazy committed to making sure that these people stay here for the next decade or more. We pay 3X or 4X better than the studio down the street, we have, again, the pre-IPO currency where people are going to make good money. We allow them to build their career and their brand globally where they're teaching millions of people.

DR: I saw a quote where you said you never attend a meeting where someone else could just as easily represent your point of view. Is that the way that you manage?

JF: I do. In fact, I'm a student of leadership, and one time I heard Mark Zuckerberg talk about how the first four or five thousand people that came to Facebook, he personally interviewed. I'm the exact opposite. I interview almost nobody. Because you run your department and I trust you to build a great team.

But the way Peloton is being built right now is very autonomously, where we hire incredibly talented people and we point them in the right direction and get out of their way. Why that works right now is we're doing so much. We're still growing more than 100% year-on-year, and we need to divide and conquer. It's kind of necessity is the mother of invention.

DR: A lot of companies, after an IPO, find that the culture is different. What are you doing to put into place efforts to make sure that the company stays the way you want it to stay?

JF: I'm glad you're asking these questions, Dan, because this is the number one thing that I care about. We have a world-class VP of HR. A VP of people, Amy Stoldt, who is a 10 out of 10 and has crushed it for the past four or five years building us from 60 people to 2,000 people. We recently talked to her and said, "Do you mind if we bring in somebody who is a chief people officer, who has taken a company from 2,000 to 20,000 and maintained a world-class startup fund culture?"

And she said, "I don't mind, I've never done that, let's go find somebody." So she checked her ego and was fine with being layered in a sense because she's so committed to what we're doing. And she and I are now ... The three of us with William [Lynch] are going to look for the best chief people officer in the world, who has taken a company from 2,000, 20,000, without any degradation of this fun, startup culture, which I care deeply about, Dan.

To your question, yes, I want it to stay the same, and we're going to find somebody who's done it. And I will tell you, there's five or ten people in the world who have done it. You think about the great companies, the Googles, the Facebook's, the Netflix that have scaled in that sense and maintained culture?

I will say some of them, some of the great companies that you and I study are no longer that, and have gotten too big. You hear about rest, invest, and some cultures just don't have that hunger and that dynamism, and that familial feel and the stuff that makes Peloton great today. I'm nervous that we're going to lose it in three or four years, especially if we transition into the public market. So it is one of the biggest things that I'm focused on right now.

DR: You often talk about the democratization of fitness.

JF: Sure.

Dan: When you have such an expensive equipment, how are you going to make sure this gets into the hands of everyone?

JF: We're trying to be platform agnostic with our content, and so any screen in your home could be a place to take a yoga class, or take a Peloton boot camp class, or take a Peloton cycling class. So if you have a treadmill in your basement ... Let's say you bought a $500 treadmill 10 years ago. You can transform that treadmill into a Peloton boot camp class onto your 60-inch television screen by flipping it up to any number of ways to get that content onto your screen. And in that way, you don't have to pay for our hardware, our bike or our treadmill, with just the digital platforms.

DR: And you don't mind if five years down the line half of your users are coming just from the app and they don't have the equipment? You're agnostic on whether they are using the benefits of all the vertical integration you've done?

JF: 100%. I love it, Dan. I actually would love that scenario. We are seeing that a large number of people who experience, who taste the content in digital first end up buying our bike or end up buying our tread because your wife gets addicted to your old cheesy spin bike in your basement, and taking our classes, and here comes your anniversary, and you're like, "Honey, I upgraded you. Here's the Peloton bike." It's going to be the best gift she ever receives because it is a dramatically better hardware platform.

DR: Would you talk a little bit about career advice?

JF: My biggest advice is to find a category that you enjoy, whether it's real estate, or consumer goods, or retail, or fitness, or fashion. Pick something that you're interested in and go work at a great company. Just get five or 10 years of experience understanding the industry from a great platform.

But the people who say at 22 years old "I'm going to go be an entrepreneur," God bless them, good luck to them, but at least for my own children I'm going to say get some experience and learn something at a great company where there's plenty of learning to be had and then start to consider .

DR: When you are hiring, are there skills that you're looking for in particular that you think people don't spend enough time developing?

JF: There's a mantra I heard at one point that I've stuck with is "hire specialists, promote generalists." In order to succeed at Peloton, I look for those people that are the micro-leaders that are carrying the torch on all the agendas that I care about. The entrepreneurship, the fun, the supportive, great culture, and those are the people that rise up at Peloton, I believe.