How Peloton Found the Secret to Scale

Meet the tech company disguised as a cycling brand.
How Peloton Found the Secret to Scale
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Peloton’s first cycling studio wasn’t exactly an architectural masterpiece. “We created this 10-by-10 busted, back-office studio with some black curtains and cut a hole in one for the camera lens. We put eight really cheap bikes in the audience and a nicer bike on a pedestal, propped up on some bricks,” recalls cofounder and CEO John Foley. “This is where we recruited our instructors.” He seems, at least in part, horrified at the memory. “I can’t believe they left their jobs for us.”

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That was in 2012, when the bootstrapped startup was attempting to lure top-notch cycling instructors away from their current jobs at the Soul­Cycles and Flywheels of the world. At Peloton, they would record classes in a yet-to-be-built studio in New York City; classes would then be streamed live or on-demand to Peloton customers around the world for $39 per month. The company would sell $2,000 stationary bikes for the home, outfitted with a built-in tablet that people could use to watch the classes, as well as track their fitness goals. Five years later, the company has come a long way from those creepy black curtains: Sales in 2016 reached more than $150 million.

“Young people are going broke going to SoulCycle each week,” Foley says. “But they do the math on Peloton and know the bike will pay for itself in x amount of time.”

But for Peloton’s first three years, investors wouldn’t touch it. “The last company I started sold to Barry Diller for $120 million, I went to Harvard Business School, I have led massive companies,” says Foley, who was the president of Barnes & Noble’s online division when he decided to launch Peloton. “In my mind’s eye, I was someone you’d want to bet on.” But investors told him his company was just too far-fetched. They were concerned he was doing too much -- making hardware, making software, selling a bike, creating content and doing his own logistics. “The difficulty is a 10 out of 10,” they’d tell him, “and you don’t know if there’s a market.”

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But Foley believed he was seeing what nobody else was. Yes, in-person indoor-cycling classes were booming, but they wouldn’t boom forever. “Young people are going broke going to SoulCycle each week,” he says. “But they do the math on Peloton and know the bike will pay for itself in x amount of time.” The company went forward without institutional investors; it managed to deliver several hundred bikes on its own, and the over-the-moon feedback from early adopters was enough to keep Foley going. “People would write and say, ‘I feel like I have a unicorn in my living room,’” he recalls.

And Foley might just have a unicorn of a startup. Classes currently reach more than 100,000 customers worldwide, and a new rollout of commercial-grade bikes to gyms, universities, hotels and even U.S. firehouses could rapidly grow that number. Foley believes they can reach 20 million subscribers in the not-so-distant future. “If you ask women what they like about a group fitness class, they’ll tell you 15 things about the instructor, the environment, the social pressure, but they won’t tell you about the bike,” Foley says. “It’s not about the hardware. It’s about the content. But we can deliver both.”

Edition: June 2017

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