I wanted to dig into this story purely because what I knew of Peloton really was just from the headlines. During the pandemic, stock pickers and the business media crowned Peloton the business of the future. It was called the Apple of fitness. You had the Obamas, Usain Bolt, Leonardo DiCaprio, dozens of high-profile celebrities as customers, and some of Peloton's live classes had bigger audiences than Madison Square Garden. And then, just as quickly, the same press that had lauded him turned on him. Foley and Peloton became the poster child for pandemic-era hubris. A company that reached a $49 billion valuation is now just worth $2.6 billion. Was it all Foley's fault? That's what we'll find out in today's episode. It's a cracking story, enjoy.
John Foley was born in 1971. The family lived in Key Largo, Florida. His father flew for Delta. His mother was a housewife.
Foley was working at McDonald's from just 14 years old. He's always had a great work ethic. Here's a quote from him: "I don't think I'm quite smart enough, and I don't think anyone is quite smart enough just to show up and use their intelligence and win. I think you have to have some baseline of intelligence, but the rest is just flat, hard work."
As someone who has pretty average intelligence, I agree with Foley 100% here. In 1989 he got into Georgia Tech to study industrial engineering.
To pay for it, he joined Georgia Tech's co-op program, alternating semesters of college with paid work at Mars, at their Skittles factory in Waco, Texas. He did that for four years, graduating in 1994, and stayed with Mars, where at just 23 he became a production shift manager over a hundred and twenty people.
Then in 1996, as the dot-com boom was taking off, at twenty-five, he joined a dot-com startup called Citysearch — an online local directory for city guides, restaurant reviews, and local business information.
Citysearch went public in 1998. Foley didn't make a fortune from it — to quote him: "I was such a junior guy that I didn't have any real equity" — but he had made enough to go to Harvard Business School in 1999, and spent two years there getting his MBA.
Around this time he met his wife Jill, an attorney, and they would go on to have two children.
After his MBA, he rejoined Citysearch, which by this time had been merged with Ticketmaster and was owned by Barry Diller. Now, I did an episode on Diller a good while ago. I really like the guy, and one thing Diller was brilliant at was nurturing talent. He had this philosophy when it came to hiring — basically, he believed hiring senior-level talent was a sign of failure; instead, he sought fresh energy and raw potential, qualities he could shape. It was a gamble but it mostly worked, mainly due to Diller's ability to read people and put them in positions to succeed.
So young executives who worked under Diller include Michael Eisner, who would go on to run Disney for 20 years; Jeffrey Katzenberg, who became chairman of Disney Studios and founded DreamWorks SKG; Dawn Steel, who went on to make history as the first female to head a studio when she took the top job at Columbia Pictures; Dara Khosrowshahi, the current CEO of Uber; Strauss Zelnick, CEO of Take-Two Interactive — the guys behind Grand Theft Auto — and there are loads of others.
When Foley joined Diller, Diller was in the process of building IAC, his massive media and internet empire. On the internet side they had various search and comparison sites, they had Ticketmaster, they had the biggest online dating sites including Match.com, and travel sites like Expedia, TripAdvisor, Hotels.com.
And while Diller nurtured talent and gave them plenty of breathing space, it wasn't easy — the culture was intense, data-heavy, demanding total discipline around Customer Acquisition Cost (CAC), search engine optimization, conversion rates, and consumer lifetime value (LTV).
But Foley obviously did well in this environment, because he rose through the ranks and was appointed President and CEO of Evite — this was a digital party invitations website — and he turned it into a profitable business unit for IAC.
As a result of this success, IAC backed Foley to incubate and launch Pronto.com, a price-comparison search engine. And again, while we don't have any revenue figures, in IAC's quarterly earnings reports, Pronto.com was repeatedly singled out as a top-performing business.
But by 2010, the comparison-shopping landscape was getting squeezed. Google was increasingly prioritizing its own shopping results at the top of search pages.
So in 2010, Foley left to become President of eCommerce at Barnes & Noble — essentially, as Foley said himself, his job was to take down Amazon — a tough task. Amazon's revenue was six times that of Barnes & Noble and growing, its market cap was 80 times Barnes & Noble's, and most crucially, it had all of the momentum.
Barnes & Noble had a two-pronged strategy. The first was the Nook — an e-reader to take on Amazon's Kindle. The Nook wasn't a bad product — it captured around a quarter of the e-reader market. But then Apple launched the iPad. Suddenly people weren't just choosing between e-readers anymore — they were choosing between an e-reader and a tablet that could do almost everything.
Outside of the Nook, simply growing the online business meant discounting, so Foley ran into constant resistance from the physical bookstore executives, who saw online discounting as a threat to their own stores.
In short, Foley was fighting a losing battle here.
So we're in 2011. Foley and his wife were both big into their fitness and loved going to spin classes, because at this time you had the likes of SoulCycle and Flywheel pioneering a new type of spin class, taking spin classes away from the big gyms to dark rooms lit by candles or neon lights, with high-end sound systems, loud upbeat music, and charismatic, celebrity-like instructors hyping up the room.
And the popularity of these classes led to what was called "booking wars" — classes for popular instructors filled up in seconds. You had to log on to the website at precisely 12:00 PM on Mondays to fight for a spinning class days in advance.
And at $32+ per class, non-refundable, going three times a week for two adults added up to hundreds of dollars a month. Then, of course, if you had a busy job, as Foley and his wife had, a commute, and young kids at home, getting out of the house to make it to your spinning class was a real hassle.
So Foley was saying to himself there has to be a better way, and he realized there was a massive business opportunity here.
His idea was simple: take the premium, instructor-led studio spin class experience and put it directly into people's homes. Instead of paying $32 every time you want to do a spin class, and all the travelling time, the traffic, managing your kids around your classes, you could buy a bike with a screen and stream top-tier instructors either live or stream thousands of classes on demand, whenever it suited you.
Pretty simple, and pretty good idea.
He was also at a stage in his life where he wanted to do something — in his own words: "By the time I was approaching 40 I wanted to be my own person. I'm not that ego-driven, but at some point you want to go out on your own and have your own story."
I think most of the people listening to this podcast can empathise with that sentiment — entrepreneurs just have a yearning, a need to do something on their own, plant a flag, create something special, or the desire to be your own boss. The motives might be different, but the need or desire to do it is there. And I think it has to be applauded, because it's risky — you're often leaving a secure, well-paying job, you need to have some sort of belief in your abilities, it's always going to be tough, a lot tougher than you expect, but it's also so much fun and so liberating.
So at the start of 2012, Foley founded Peloton, raised $400,000 from friends, family, and a handful of early angel investors, putting the company at a $1.6 million valuation.
He then pulled in some key executives who he'd worked with at IAC, and they built their first prototypes by taking off-the-shelf stationary bikes and zip-tying Android tablets to the handlebars, just to prove the basic idea worked — that software could actually track and sync with pedaling in real time.
Through the rest of 2012, Foley went out and pitched — he estimates that he got turned down by more than 400 VCs.
The timing wasn't great — Instagram had just sold to Facebook for $1 billion with only 13 employees, Snapchat was becoming the next big thing, and investors were chasing apps that could scale overnight, not some expensive hardware business that needed factories, inventory, and logistics.
So Foley had to go back to individuals. In December 2012, he raised $3.5 million, entirely from private angel investors, and this allowed them to start designing a prototype.
Then, in June 2013, they took the idea straight to customers with a Kickstarter campaign, raising just over $307,000 from 297 backers. The Kickstarter wasn't really about the money — it was about answering one question: did people actually want this? And with nearly 300 complete strangers willing to pre-order an expensive product from a company that hadn't yet built a single bike, Peloton had its answer. It had proved demand.
Then, in April 2014, they raised $10.5 million from Tiger Global Management, valuing the company at $36 million. Tiger liked the model, which was, in essence, a bike for $2,000 and then a monthly subscription of $39 — and the subscription business ran on much higher margins than the hardware, so Peloton was pitching it as a bike plus a software business bolted onto it.
A month later, in May 2014, Peloton opened its flagship broadcast studio so instructors could start streaming live classes out to bikes around the country.
Revenue in 2014 was $10 million; a year later, 2015 revenue was $50 million.
Growth came from a variety of sources — there was word of mouth, there were the instructors themselves, who were starting to build strong personal brands on Instagram, and Foley used Facebook ads at a time when it was still pretty cheap. On top of this, Peloton opened up showrooms in high-end malls, because Foley knew that when it came to a $2,000 bike, people would want to actually try it out in person.
And Foley himself worked the floor in these showrooms for years, every weekend, personally selling roughly a thousand bikes face to face. So he was working his ass off to grow the company.
It's worth reminding ourselves that Foley's previous expertise, working with Barry Diller, was figuring out the lifetime value of the customer, the cost per acquisition — all the good data that gets investors interested. And now, in 2015, with more than 10,000 customers, Foley could prove something investors loved: more than 90% of customers were still paying for their monthly Peloton subscription a year after buying the bike. That is a seriously high retention rate, and it proved that once someone bought into Peloton, they were locked in long term.
So between 2015 and 2017 it raised $400 million, and revenue was doubling every year, so by 2018, with revenues up at $435 million, a subscriber base of 245,000, they launched a treadmill machine, expanded into Canada and the UK, and launched a huge broadcast studio.
By 2019, revenue had more than doubled again, to $915 million, and Peloton was valued at around $4 billion. The business was still loss-making, but investors are almost always willing to overlook that in exchange for rapid growth. The obvious next step was an IPO.
And while the IPO valued the company at around $8 billion, the market's reaction was lukewarm, because to most investors Peloton was, in essence, a hardware company. So every new customer meant manufacturing, shipping, and servicing an expensive exercise bike, opening showrooms, and producing live content. It wasn't a business that could ever generate the kind of high margins and profitability that successful software companies enjoy.
It also wasn't helped by what became one of the most controversial adverts of the year. Peloton's 2019 Christmas commercial — later dubbed the "Peloton Wife" ad — was widely criticised as sexist and old-fashioned. I watched it myself and, initially, didn't really see what all the fuss was about. So I showed it to my wife, without telling her there had been any controversy, because I didn't want to influence her. She hated it. She described it exactly as the critics had. Which just goes to show how out of touch I can be. The backlash was immediate, dominating headlines and wiping more than a billion dollars off Peloton's market value in just a few days.
So let's just pause and review where Foley and Peloton are at this stage, because everything is about to change pretty drastically for them. But up to now, despite the hullabaloo over the Christmas ad, Foley has done really well up until now. He's spent 8 years working like a demon and has taken his idea and built it into a business that is generating close to a billion dollars a year — how many of us can say that? He has done a fantastic job.
But then, as I said, everything changed in March 2020 — the Covid pandemic hit. Gyms shut down worldwide, and demand for a bike you could ride in your living room went through the roof.
Suddenly their supply chain was overwhelmed — their factories were located in Taiwan, and even when they had them running 24/7, they still couldn't keep up with demand — and the pressure to get the bikes out would lead to corners being cut, which would come back to bite them hard, but that's for later in the episode.
Normal delivery wait times of 1 to 2 weeks stretched into 3 to 4 months.
Now, I don't think there was much Foley could have done here in relation to the immediate supply chain issues — no one could have foreseen the pandemic and its impact.
Peloton flew exercise bikes from Asia to North America on cargo planes at more than 10 times the normal ocean freight cost, wiping out their hardware profit margins just to get bikes into living rooms.
And while a lot of investors argued Peloton should shut down its expensive retail stores now that everyone was buying online, Foley took the opposite view — he saw struggling landlords and thought this was the moment to grab premium storefronts cheap.
While this move appeared visionary during the lockdown era, it became a massive financial liability when gyms reopened and home fitness demand cooled off.
On the plus side — and for Peloton, it was one hell of a plus — the pandemic transformed the company almost overnight.
Throughout 2020, Peloton became a cultural phenomenon. It was suddenly one of Wall Street's favourite stocks, one of the handful of businesses, like Zoom, perfectly positioned for a world stuck at home. Every quarter seemed to produce another headline about soaring demand, another analyst upgrading the stock, another magazine calling it the future of fitness.
That attention created a powerful flywheel. The more Wall Street talked about Peloton, the more the media covered it. The more the media covered it, the more celebrities started posting about their Peloton workouts. And once people saw the Obamas, Usain Bolt, Leonardo DiCaprio, and a host of other celebrities riding one, Peloton wasn't just selling fitness anymore — it was selling membership of an exclusive club.
The instructors became celebrities in their own right. Some live classes attracted more than 20,000 riders at once — the equivalent of filling Madison Square Garden.
Riders bought Peloton-branded clothing, built online communities around their favourite instructors, and some fans even got tattoos of the company's logo. It was being described as the Apple of fitness.
Revenue surged to $1.8 billion in 2020, and its market value rocketed to around $28 billion.
And this is the moment where Foley got it wrong. He didn't see the pandemic boom as a temporary surge. He believed it had permanently changed how millions of people would exercise. So instead of preparing for demand to normalise, he now built Peloton's entire strategy around the assumption that riding a bike or running on a treadmill at home wasn't just a nice, sizeable niche business, but was actually going to be the future for anyone who had previously gone to the gym. Here's a quote: "I see a couple hundred million people on the Peloton platform in 15 years."
Now, it's easy with hindsight to criticise Foley. But if you go back and read the newspapers, watch the interviews, and listen to the analysts from 2020, there was a broad consensus that the pandemic had permanently changed how we would live. People predicted the death of the office, the decline of business travel, the end of the daily commute, and a permanent shift towards exercising at home.
In fairness, some of those predictions turned partly true — millions of people still work from home several days a week. So yes, looking back on it, Foley called it wrong. But standing in the middle of 2020, with demand exploding quarter after quarter, it didn't feel like an unreasonable conclusion, especially when the company reached a billion dollars in quarterly revenue in February 2021, and its valuation hit a high of $49 billion.
But that was the high point, because as we move into 2021, with vaccines being rolled out and lockdowns ending, gyms starting to open up, and Peloton's own internal data — like website traffic, lead conversions, and orders — were already showing that the extreme lockdown surge was normalizing.
And this, I think, is where Foley can rightly come in for some criticism, because he makes some very bad calls.
First off, he went on business TV shows and kept predicting massive growth. Not only this, but he then announced a massive investment of almost $1 billion to buy an equipment manufacturer, as well as a commitment to build their own 1-million-square-foot facility — doing this at the exact moment consumer interest in Peloton was beginning to slow down, and he had the internal facts and figures.
Then in April 2021, the US Consumer Product Safety Commission (CPSC) issued a public warning about Peloton's treadmill — the design was defective. Small children and pets who crawled near it could get dragged under the machine. There were 70 injury incidents, including a life-changing brain injury to a 3-year-old, and, tragically, the death of a six-year-old child.
Foley's response was widely criticised. Rather than immediately recalling the machines, Peloton dismissed the CPSC's warning as "inaccurate and misleading," insisting the treadmill was safe if owners followed the instructions and kept children and pets away from it.
However, under mounting pressure, Foley reversed course. Peloton recalled around 125,000 machines, and he later admitted the company had "made a mistake" in its initial response and publicly apologised.
In November 2021, the softening in demand was first made public when management slashed full-year revenue guidance by a full billion dollars, and they also reported a loss of $376 million.
And then there was this number: 91% of Peloton's hardware inventory was sitting completely unsold. The stock dropped 35% in a single session. And the bad news just kept coming.
HBO's Sex and the City reboot premiered, and the character Mr. Big, played by Chris Noth, has a fatal heart attack right after a Peloton ride. Peloton stock fell another 11% the next morning.
The company hired Ryan Reynolds' marketing agency, Maximum Effort — and let me just stop there for a minute. Ryan Reynolds seems to have his hands in so many different pies — this guy doesn't just endorse companies, he's a very active and astute investor and businessman. He's made hundreds of millions from mobile, to gin, to sports investments. I'll definitely do an episode on him.
Anyway, Reynolds' agency produced a parody ad within 48 hours, bringing the actor Chris Noth back to insist "he's alive." It was a very clever save and bought the company some much-needed kudos, but then the ad was pulled just a few days later when accusations of sexual assault were made against Noth.
As Foley said of that time: "The stock was getting crushed. And then the Mr. Big thing happens… it was brutal. All of a sudden, we were just being trolled… everything was collapsing."
Anyway, by this stage, Mr. Big was the least of its problems.
In January 2022, internal slides leaked showing Peloton had stopped production of both the Bike and the Treadmill altogether — there was simply too much unsold inventory, $1.5 billion dollars worth. Its market cap dropped to $8 billion — that's a $40 billion fall within just 12 months.
Activist investors were now calling for Foley's head, and in February 2022 he agreed to step down as CEO. Taking his place was Barry McCarthy, the former CFO of both Netflix and Spotify — a numbers man brought in to clean up the mess — and he saw the company for what it was, not a hyper-growth company, but a niche, premium fitness business. Within weeks, he cut 2,800 jobs — around a fifth of the workforce — cancelled the $400 million factory project, and targeted $800 million in annual cost savings.
But the problems kept coming. Remember I mentioned that, during the pandemic, Peloton was working around the clock to get bikes out the door? Well, quality had suffered. In 2023, the company recalled around 2 million bikes after seat posts were found to be breaking during rides.
Despite everything, Peloton survived. Today it's a profitable business generating around $2.4 billion in annual revenue, and almost six million members across its platform.
Now, as for Foley, I came across a good few articles describing him as having lost everything — that's not exactly true. He did have to sell off a lot of his Peloton equity, plus his $50 million Hamptons house, just to meet margin calls when the stock collapsed. But it's estimated that he still walked away with tens of millions from those sales. So yeah, a huge fall from being a paper billionaire, but nowhere near broke.
And while many might think his reputation is damaged, the same people who backed Peloton in the early days still believe in him, because they've invested $45 million in his new venture Ernesta — a direct-to-consumer custom rug company.
Now, the main reason I wanted to cover this story, as I mentioned at the start, is that Foley became something of a joke — the poster boy for losing the run of yourself during the pandemic. And look, he made mistakes. But put yourself in his shoes for a second: a business that was growing to the extent that its revenues were doubling every year, reaching $1 billion in annual sales even before the pandemic, and then when the pandemic hits, sales go through the roof, celebrities are endorsing your product, the financial press is agreeing with your own logic that the world had changed for good. It's understandable he got swept up in it. It's also understandable that in the middle of all of that crazy growth, and crazy time, mistakes were made.
And I really like the guy on a human level — I've listened to him on a few podcasts and he just comes across as a pretty decent, down-to-earth kind of guy who gave up a safe, well-paying job when he was 40 and bet on himself, and built a billion-dollar business — that's not failure in my eyes, so I think credit where it's due.
What's unusual about Peloton is it's the story of what happens when a once-in-a-century pandemic collides with one of the fastest-growing companies in America — and everybody, not just John Foley, got carried away at times. And I think that's what makes it such a great business story.
So that brings us to listeners' emails, and this one comes from Henrik, who would love me to do an episode on Daniel Ek, the founder of Spotify — great suggestion, Henrik, that's on my list, and thanks so much for listening.
And remember, if you have any comments, any corrections, or any story you'd like us to cover, email us at: info@gbspod.com
All the best folks.