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Volume 22 No. 7
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Peloton’s survival of the fittest

Inside the wild, seven-year ride from being an unloved startup to an exercise company powerhouse with a million rabid followers, a $4 billion valuation and big plans for the future.

While rolling to consecutive World Series appearances the past two seasons, Los Angeles Dodgers manager Dave Roberts made sure he took time for two things: using his Peloton bike and comparing how he did to a pair of colleagues, Dodgers executive vice president and CMO Lon Rosen and president of baseball operations Andrew Friedman. Because their schedules varied, the trio didn’t take live Peloton classes together. Instead, they compared their power output and mileage, and plan to continue doing so in 2019.

CEO John Foley (left) and president William Lynch have made all the right calls in growing the company.
Photo: patrick mccarthy

“So far, it has mostly been about accountability,” Roberts said. “But this year, we’re going to figure out how to quantify it and log it so we can see who wins. Because there has to be a winner.”

Right now, though, the clear winner is Peloton. In French, the word literally means “pack.” In the sports world, the term, which is heard most often during the Tour de France every summer, describes how the main group of cyclists in a race clump together, gaining energy from each other as they draft and slipstream at speeds above 25 miles per hour. In the business world, it describes a New York-based exercise equipment and media company that in just seven short years has expanded its own squad to over a million riders who exercise at home while pedaling along with classes streamed from New York City studios. And this Peloton shows no signs of slowing down.

Peloton co-founder and CEO John Foley described his company as a disrupter at “the nexus of fitness, technology and media,” and its $4.15 billion valuation last August is proof that it has become just that.

Certainly the devotees among the company’s global community who maniacally use the equipment to shed pounds, get fit and connect with fellow riders would agree. Peloton’s most famous piece of equipment is the bike, which sells for $2,245. It is delivered fully assembled and includes an attached tablet that receives multiple remote updates per month. In 2018 the company began selling the Peloton Tread and launched an app, Peloton Digital, that offers outdoor runs, yoga, meditation, and strength and stretching classes.

Peloton: Pedal to the metal

2012: John Foley conceives of Peloton
2013: Company builds its first bike, launches Kickstarter campaign; first retail store opens in northern New Jersey
2014: First venture capital investment from Tiger Capital
2015: Company becomes profitable; opens first New York City studio on W. 23rd Street
2017: William Lynch hired as company president
2018: Introduces Peloton Digital app; launches Peloton Tread; opens Christopher Street studio and first U.K. studio in London
2019: Expected IPO
2020: Expecting to open four-studio space and new company headquarters in New York City

In December alone, fitness classes taught and filmed in Peloton’s three New York City studios were streamed over 5.1 million times. The original studio is an 8,000-square-foot cycling space on West 23rd Street, and the other is a dual studio that opened last May and takes up 12,450 square feet on Christopher Street in the West Village. One of those is devoted to the sleek, high-tech treadmill that retails for a steep $4,295 and is already beating sales projections. The second is devoted to yoga and meditation, the latest vertical added to Peloton’s suite of fitness offerings.

Each studio doubles as a television studio. While the instructor leads the class, a crew dotes on participants by offering towels and water, while also keeping them from walking in camera lines and counting down the seconds before the class goes live.

It is all just as Foley imagined it would be when he first had the idea for the company seven years ago. In 2012 Foley, a Harvard Business School graduate, was working as the president of e-commerce at Barnes & Noble. He and his wife, Jill, were cycling and boutique fitness addicts, but with a toddler son and an infant daughter at home, getting to the gym was becoming increasingly difficult. He thought about the arcades of the 1980s that had all but disappeared because consumers soon found better video game experiences at home. In the same way, he hoped to bring a boutique fitness class experience into basements and living rooms everywhere.

Peloton Tread, released last year, is beating sales projections as it helps the company move in a new direction.
Photo: courtesy of peloton

Venture capitalists, though, saw Foley’s big ideas as a pipe dream, and firms declined to invest.

“I dramatically misjudged the challenge of raising money,” said Foley, who began in February 2012 with a seed round of $350,000 from a dozen angel investors and $50,000 out of his own pocket. “I invested all of my money into Peloton. I did not take a salary for years. At one point, I had to sell my entire 401K to fund a few more months of my burn. I borrowed significant money from my friends to keep creditors away. It took almost six years before we were truly out from under capital risk.”

The first prototype of the Peloton bike was built in 2013 and was used to make a video that launched a Kickstarter campaign that June; 297 backers pledged $307,332, proving consumer demand and bringing Peloton into the public eye. The company sold its first bike that year, and in January of 2014, Peloton began fulfilling orders taken after the Kickstarter campaign. One year later, as sales continued to grow and the company first became profitable, Peloton raised $30 million in a Series C. Last August, Peloton announced its most recent round of funding, a $550 million Series F led by the VC firm TCV, bringing the total amount of capital raised to $1 billion.

Peloton: Capital gains

Seed round February 2012: $400,000
Series A December 2012: $3.5 million
Kickstarter July 2013: $307,332
Series B April 2014: $10.5 million
Series C April 2015: $30 million
Series D December 2015: $75 million
Series E May 2017: $325 million
Series F August 2018: $550 million

Source: Crunchbase.com

Foley and his four co-founders — each of whom are still at the company — have spent the past seven years doing precisely what the early, reluctant investors who turned them down thought they couldn’t. They conquered the hardware challenge by building the best indoor bicycle on the market, then added the software component with its attached tablet computer. They hired a team of exceptional instructors with cult followings to raise awareness and drive interest; launched a fitness network to stream classes 24/7; built 58 brick and mortar retail showrooms throughout the United States, along with a website to sell and market his products; formed a logistics company to deliver, install and maintain the equipment for consumers; and created a fitness app to tie it all together.

Since Peloton first became profitable at the end of 2015, it has twice been named the fastest growing company in New York City by Crain’s New York Business, posting a compound annual growth rate of over 250 percent per year; revenue was $170.8 million in 2016, $365 million in 2017 and over $700 million in 2018. On the heels of that growth — it has now sold over 400,000 bikes — the company’s Series F capital was used to launch the Peloton Tread, then yoga, and to expand the company into the UK and Canada. More European markets will follow.

“Six months ago, we were really a single-product company around the bike focused on the U.S. market,” said Peloton President William Lynch. “Now, we have three products across three international geographies and we’re going into many more.” 

The bike has remained the same, but the software on the attached tablet receives frequent updates.
Photo: courtesy of peloton

Foley lured Lynch to Peloton in February of 2017 to help manage the company’s growth. The pair met, according to Lynch, “when we were in Los Angeles and young.” They first worked together at Barry Diller’s InterActiveCorp; Foley ran Evite and Pronto.com and Lynch ran HSN.com and Gifts.com. Later, Lynch became CEO of Barnes & Noble, where he oversaw the launch of the Nook and its digital content service and recruited Foley to run e-commerce.

Since Lynch joined Peloton, the company’s product diversification has further separated it from other providers in the at-home fitness space. Echelon’s Smart Connect bike and Flywheel Sports’ Fly Anywhere bike offer experiences similar to Peloton, albeit with much smaller libraries of classes and without the cult following. It is noteworthy that Peloton filed suit against Flywheel in September, alleging their competitor copied their at-home bike after losing increasing numbers of customers to Peloton. (The company does not track market share.) Foley, though, said he doesn’t view these other companies as competition.

Peloton: Revenue rising

(fiscal year ends in February)

FY 2016: $60 million
FY 2017: $170 million
FY 2018: $365 million
FY 2019: $700 million+

“Peloton’s unique combination of the best hardware, software and instructors, coupled with our now global community of inspiring members, creates a unique at-home experience that is currently a category of one,” he said. “There are, of course, companies scrambling to figure out a response and coming at the opportunity with far-neutered and less-integrated experiences, but they all fall dramatically short and don’t rise to the status of true competition in my mind.”

There are three entry points into Peloton. If the price of a Bike or Tread are not in one’s budget, then for $19.49 per month — less than the cost of one boutique fitness class — a user can access all Bike, Tread and Yoga classes, as well as strength and stretching classes, meditations and outdoor runs, through the Peloton Digital app or website. “Studio fitness is life changing, but it’s not available everywhere across the country,” said Tread instructor Selena Samuela. “Now people can get the best group fitness experience at home and become part of this awesomely engaged community in the process. Before Peloton, that wasn’t possible.”

Samuela is a former professional boxer. Robin Arzon, Peloton’s most popular cycling and Tread instructor, is a former corporate litigator with 198,000 Instagram followers. Cycling instructor Ally Love is the in-arena host at Barclays Center for the Brooklyn Nets. Yoga instructor Kristin McGee is a guru for the stars whose celebrity clients include Tina Fey and LeAnn Rimes. Former professional
cyclists George Hincapie and Christian Vande Velde have even guest-taught more than 30 Peloton classes. While all of Peloton’s 26 instructors are rabid fitness enthusiasts and
social media influencers who were previously the best instructors at the best boutique fitness studios, Lynch said they are much more than that.

“Being a Peloton instructor is like being one of Michael Jackson’s backup dancers,” said Lynch. “They have to be the best in the world. It is one thing to teach in a boutique studio, and a whole other thing to project and be telegenic to 20,000 folks at home. It’s about how they come across on camera.”

Hiring instructors with built-in followings, like Robin Arzon, boosted Peloton’s popularity.
Photo: courtesy of peloton

But right now, it’s about the face Peloton is presenting to the world as the company prepares for its IPO. Foley has said that will occur sometime in 2019, and Peloton has reportedly started interviewing banks. Last spring, the company hired Jill Woodworth as its new chief financial officer. Formerly of JP Morgan, Woodworth has taken 26 companies public, including Planet Fitness. Peloton recently announced plans for, as Lynch describes, a “35,000-square-foot, four-studio shrine to fitness and broadcasting,” that will open in Manhattan’s Hudson Commons in March 2020, close to a new, 312,000-square-foot company headquarters. And in 2019, Peloton for the first time had three different ad campaigns for its three different products — Bike, Tread, and Digital — running simultaneously, though the size of the media buy was not disclosed.

“We’ve been busy,” Lynch said. “For a long time, we were run as a startup. Now, we are growing up as a super well-managed company.”

Lindsay Berra is a freelance journalist who was a senior writer at ESPN The Magazine and a reporter at MLB.com.