WEBVTT - Peloton Stalls Out 0:00:04.400 --> 0:00:07.800 Welcome to tex Stuff, a production from I Heart Radio. 0:00:12.119 --> 0:00:14.840 Hey there, and welcome to tech Stuff. I'm your host, 0:00:15.040 --> 0:00:18.200 Jonathan Strickland. I'm an executive producer with iHeart Radio and 0:00:18.280 --> 0:00:22.639 how the tech are you? And just like that, Peloton 0:00:23.040 --> 0:00:27.920 has halted making treadmills and bikes, at least temporarily. I 0:00:28.040 --> 0:00:31.120 felt I needed to lead with that sort of phrasing 0:00:31.160 --> 0:00:34.000 before getting into the actual episode. I actually hope you 0:00:34.080 --> 0:00:37.800 don't get that reference, and don't worry, because one it's 0:00:37.840 --> 0:00:40.760 not important, and too, I will explain it before the 0:00:40.840 --> 0:00:43.400 end of the episode. It's nothing to get hung about. 0:00:43.600 --> 0:00:47.680 It's just me trying and failing to be cute and clever. 0:00:48.479 --> 0:00:51.559 But I did want to talk about Peloton, a company 0:00:51.640 --> 0:00:54.520 that was all the buzz just a couple of years ago, 0:00:55.320 --> 0:00:59.280 and now a decade after it launched, is currently in 0:00:59.720 --> 0:01:04.080 her moil. Big issues at Peloton right now. By the 0:01:04.120 --> 0:01:07.360 time you hear this episode, maybe that will have changed, 0:01:07.400 --> 0:01:10.840 because things are changing that quickly. I also thought it 0:01:10.840 --> 0:01:13.000 would be good to use Peloton to talk about a 0:01:13.040 --> 0:01:17.360 business model that tons of different tech companies have really 0:01:17.400 --> 0:01:21.560 been trying to leverage, uh namely that of finding the 0:01:21.640 --> 0:01:26.360 way to continuously generate revenue from your customers. Um. There 0:01:26.360 --> 0:01:28.040 are a lot of different ways of doing that, which 0:01:28.040 --> 0:01:30.160 I will touch on later in this episode. But that's 0:01:30.160 --> 0:01:32.880 what we're seeing throughout the text sphere, and it has 0:01:32.920 --> 0:01:35.360 been for some time now. It's not brand new. However, 0:01:35.720 --> 0:01:39.000 Let's first start with the history stuff of the company itself, 0:01:39.560 --> 0:01:44.520 and Peloton's history is actually pretty fascinating, particularly if you 0:01:44.560 --> 0:01:48.640 do a little digging. But the oversimplified version, the one 0:01:48.680 --> 0:01:51.639 that I actually saw in a lot of i'll be honest, 0:01:51.720 --> 0:01:55.680 not very well written articles, is that a guy named 0:01:55.720 --> 0:01:58.400 John Foley wanted to find a way to help people 0:01:58.560 --> 0:02:02.559 like himself and his wife Jill, pursue their passion for 0:02:02.720 --> 0:02:06.120 fitness and indoor cycling without having to go through all 0:02:06.160 --> 0:02:09.920 the hassle and expense of finding the right place that 0:02:09.960 --> 0:02:13.679 has the right classes and the right instructors. And that 0:02:13.840 --> 0:02:17.040 all this led to the idea of connected fitness devices 0:02:17.080 --> 0:02:20.960 in the home that could stream workouts and allow you 0:02:21.160 --> 0:02:26.120 the benefit of having that really great instructor without having 0:02:26.160 --> 0:02:29.520 to you know, seek them out, set your schedule to theirs, 0:02:29.560 --> 0:02:32.680 and pay on a prayer class basis. But that's just 0:02:33.040 --> 0:02:37.320 part of the overall story. See, there were five co 0:02:37.560 --> 0:02:41.880 founders of Peloton. John Foley was just one of them, 0:02:41.919 --> 0:02:45.000 although by all accounts I come across, Foley was the 0:02:45.040 --> 0:02:47.960 guy with the idea and the one who sort of 0:02:48.000 --> 0:02:52.519 brought everything together. So he is critical crucial to Peloton. 0:02:52.639 --> 0:02:54.440 But there are four others. We should talk about two, 0:02:55.000 --> 0:02:59.079 and Peloton's history is also one about networking, and I'm 0:02:59.080 --> 0:03:02.919 not talking about the Internet or WiFi or anything like that, 0:03:03.040 --> 0:03:06.840 rather the concept of knowing the right people at the 0:03:06.960 --> 0:03:11.160 right time to make stuff happen. So the five co 0:03:11.320 --> 0:03:16.480 founders of Peloton are John Foley and Tom Cortiz, Hassao Kushi, 0:03:16.960 --> 0:03:22.520 Graham Stanton, and Yonnie Thing. And this group has a 0:03:22.520 --> 0:03:27.160 lot of collective experience in different fields over the course 0:03:27.200 --> 0:03:30.840 of their respective careers, both in tech and in leadership. 0:03:31.240 --> 0:03:34.560 So let's do it quick and totally unfair glimpse at 0:03:34.600 --> 0:03:38.280 each of them. Keeping in mind this is sort of 0:03:38.320 --> 0:03:41.840 like the cliffs notes of cliffs Notes about each of 0:03:41.840 --> 0:03:45.160 the founders. So John Foley, according to what I've read, 0:03:45.800 --> 0:03:48.920 was a gifted student in school, one of those people 0:03:48.960 --> 0:03:51.000 who never really had to put forth a ton of 0:03:51.040 --> 0:03:54.640 effort in their school work. I was that way for 0:03:54.720 --> 0:03:56.920 a couple of subjects, but not all of them. He 0:03:57.000 --> 0:04:00.600 also became enthusiastic about fitness as a teenage or. He 0:04:00.680 --> 0:04:04.960 particularly got fond of cycling. He attended Georgia Tech, so 0:04:05.120 --> 0:04:07.240 just down the street from me, and he got a 0:04:07.240 --> 0:04:10.640 degree in industrial engineering and then later he earned an 0:04:10.760 --> 0:04:14.360 m b A at Harvard Business School. Among his various 0:04:14.360 --> 0:04:17.600 positions that he's held over his career, he served as 0:04:17.640 --> 0:04:21.600 a production shift manager for eminem and Mars Candy Uh. 0:04:21.760 --> 0:04:25.159 He served as president and CEO of Evite dot com, 0:04:25.680 --> 0:04:28.919 and later became founder and CEO of a company called 0:04:28.960 --> 0:04:33.039 Pronto dot com while also heading up Evite and Gifts 0:04:33.080 --> 0:04:36.159 dot com. And he would become the CEO of Peloton 0:04:36.760 --> 0:04:40.440 once we get to that point. Tom Cortiz went to 0:04:40.520 --> 0:04:43.919 George Washington University, where he earned a bachelor's degree in 0:04:44.000 --> 0:04:48.080 fine arts, which is not a credential you expect to 0:04:48.160 --> 0:04:51.719 find in a tech entrepreneurs resume. He worked for a 0:04:51.760 --> 0:04:55.039 company called a show Cub, which he describes on his 0:04:55.160 --> 0:04:58.560 LinkedIn page as a business that quote connects the most 0:04:58.640 --> 0:05:03.839 innovative social entrepreneurs around the world, offering critical access to funding, 0:05:04.200 --> 0:05:08.240 knowledge sharing, and a host of other value added services 0:05:08.360 --> 0:05:12.120 end quote, which kind of sounds like it's a networking company. 0:05:12.480 --> 0:05:16.000 Later he became the VP of Product Management at Toronto, 0:05:16.480 --> 0:05:20.880 which remember John Foley was head of and he you know, 0:05:21.080 --> 0:05:25.560 also he points out in his LinkedIn profile that Pronto 0:05:25.960 --> 0:05:30.960 is an I a C slash Interactive Core company. Uh. Now, 0:05:31.080 --> 0:05:35.360 quick aside here, Interactive Core c O r P is 0:05:35.480 --> 0:05:40.160 one of those companies that gobbles up other companies. Right, 0:05:40.200 --> 0:05:42.920 it's a conglomerate. And it all started off as a 0:05:42.960 --> 0:05:45.640 business that was actually dedicated to expanding the reach of 0:05:45.680 --> 0:05:48.000 the home shopping network of all things, and it went 0:05:48.040 --> 0:05:50.159 by a totally different name back then. Now I'm going 0:05:50.240 --> 0:05:52.240 to have to do a full episode about the history 0:05:52.279 --> 0:05:56.359 of I a C. Because it gets pretty complicated and 0:05:56.520 --> 0:05:59.880 bonkers a lot of companies that are related to media. 0:06:00.040 --> 0:06:06.159 But he's have truly you know, gargantine and confusing histories. 0:06:06.839 --> 0:06:09.440 Some of the businesses that I a C Has owned 0:06:09.440 --> 0:06:13.320 over the years include Ticketmaster, uh, the television assets of 0:06:13.440 --> 0:06:19.240 Universal Studios, Expedia, Lending Tree, asked Jeeves was an I 0:06:19.360 --> 0:06:22.880 a C company and anymore? And as we'll see, I 0:06:23.040 --> 0:06:26.680 a C is sort of a lynch pen for uh 0:06:27.440 --> 0:06:30.760 of the co founders. Okay, so that's fully and Cortiz. 0:06:30.839 --> 0:06:33.880 Next we have Hissao Kushi. He earned a degree in 0:06:33.920 --> 0:06:37.080 English at the University of Amherst. And you might wonder, 0:06:37.400 --> 0:06:40.440 what do you do with a b A in English? 0:06:40.680 --> 0:06:43.599 And if your princeton in the musical Avenue Q, you 0:06:43.680 --> 0:06:46.680 kind of wandered through life aimlessly. But Kushi didn't do that. 0:06:46.760 --> 0:06:50.480 He pursued a law degree at the Boston College Law School, 0:06:50.760 --> 0:06:53.760 and he became a lawyer and served as a lawyer 0:06:53.760 --> 0:06:55.479 for a couple of years in a law firm. And 0:06:55.520 --> 0:06:58.159 then and I love this part, he then turned his 0:06:58.240 --> 0:07:01.360 hand at being a screen right or for five years. 0:07:02.200 --> 0:07:04.960 I'm not sure if any of his work ever made 0:07:05.000 --> 0:07:08.159 it to an actual screen. I did a search on 0:07:08.200 --> 0:07:11.559 IMDb and came up blank. Doesn't mean this work didn't 0:07:11.600 --> 0:07:14.760 make It may mean that he's uncredited because of you know, 0:07:14.840 --> 0:07:18.560 rewrites and things like that. But anyway, he then went 0:07:18.600 --> 0:07:21.480 on to work for companies like Ticketmaster, and then I 0:07:21.600 --> 0:07:24.640 A C in general and Evite in particular, so there's 0:07:24.640 --> 0:07:29.440 another connection through I A C. Next, we have Graham Stanton. 0:07:29.880 --> 0:07:35.040 He earned degrees and applied mathematics and economics from Harvard University. 0:07:35.160 --> 0:07:38.040 He worked as a developer for a company called Zero Degrees, 0:07:38.080 --> 0:07:40.640 which is kind of a was a competitor to LinkedIn. 0:07:41.400 --> 0:07:45.160 Then he went on to work for drumroll Please Pronto, 0:07:45.520 --> 0:07:48.440 you know, one of those I A C companies, and 0:07:48.480 --> 0:07:51.280 then he held various roles within I A C before 0:07:51.440 --> 0:07:54.880 being named president of Gifts dot Com, also under I 0:07:55.040 --> 0:07:58.520 A C. And rounding out the co founders, we have 0:07:58.840 --> 0:08:03.600 Yoni Thing, who received an undergraduate degree in computer engineering 0:08:03.680 --> 0:08:07.160 and a master's degree in electrical and computer engineering from 0:08:07.200 --> 0:08:10.120 Georgia Tech, again just down the road. Much younger than 0:08:10.280 --> 0:08:14.600 John Foley. However, he worked for companies like Cisco and Skype, 0:08:14.640 --> 0:08:17.400 and then had just taken a job with ticket Fly 0:08:17.960 --> 0:08:21.960 before he would become a Peloton co founder. So he 0:08:22.080 --> 0:08:26.240 was the one co founder who did not work for 0:08:26.280 --> 0:08:28.520 I A C. At some point in his career. However, 0:08:29.080 --> 0:08:32.079 his former college roommate had worked for I A C. 0:08:32.640 --> 0:08:34.920 That's where the connection to the others came from, and 0:08:34.960 --> 0:08:37.760 it's how Thing was was kind of tapped to come 0:08:37.760 --> 0:08:40.840 on board with the other co founders. So out of 0:08:40.840 --> 0:08:43.560 the five co founders, four worked for various companies that 0:08:43.600 --> 0:08:47.120 were under the IO A C domain. H And also 0:08:47.200 --> 0:08:50.640 all but Feng had served as an executive at a company. 0:08:50.800 --> 0:08:54.000 Three of them had served as c suite executives, like 0:08:54.480 --> 0:08:58.320 chief executive officer or chief operating officer. So, in other words, 0:08:58.679 --> 0:09:01.679 by the time Foley was making his pitch, he was 0:09:01.760 --> 0:09:05.720 buddy buddy with several experienced and influential veterans in the 0:09:05.800 --> 0:09:10.319 business world. Now, that kind of situation does not, by 0:09:10.320 --> 0:09:12.840 any means guarantee that a venture is going to be 0:09:12.880 --> 0:09:16.800 a success. However, it does mean you've got a pretty 0:09:16.880 --> 0:09:20.480 good foundation to work from. You've got folks who have 0:09:20.800 --> 0:09:25.840 actual experience, particularly in leadership positions. However, and this is important, 0:09:26.320 --> 0:09:30.360 none of them in the fields that Peloton was really 0:09:30.440 --> 0:09:34.760 focusing on. So while they definitely had experience and knowledge, 0:09:35.080 --> 0:09:39.800 it wasn't necessarily in the specific industry that Peloton was 0:09:39.840 --> 0:09:43.440 getting into. But anyway, the story goes that fully came 0:09:43.520 --> 0:09:46.840 up with the idea for Peloton that indoor cycling, gems 0:09:46.840 --> 0:09:49.760 and studios those were not a new thing. The Soul 0:09:49.840 --> 0:09:53.480 Cycle brand had launched in two thousand six, and we 0:09:53.520 --> 0:09:56.720 wouldn't get the beginnings of Peloton until two thousand twelve. 0:09:57.760 --> 0:10:01.960 So uh, there's also a Flywheel Sports that had launched 0:10:02.120 --> 0:10:05.439 before Foley had ever pitched the idea of Peloton. Fly 0:10:05.520 --> 0:10:10.160 Will Sports had also pioneered gamifying indoor cycling workouts by 0:10:10.160 --> 0:10:14.120 incorporating scoreboards that would show a writer's performance compared to 0:10:14.160 --> 0:10:19.560 others within that same class, but these were all centralized models. 0:10:19.880 --> 0:10:23.600 They required customers to go to a physical location a 0:10:23.720 --> 0:10:27.760 gym or a studio, and obviously that limits the number 0:10:27.760 --> 0:10:30.520 of people who can actually participate at any given time, 0:10:30.559 --> 0:10:34.120 because rooms have a top capacity and classes can fill 0:10:34.240 --> 0:10:39.200 up quickly, specifically for popular instructors, so there was a 0:10:39.240 --> 0:10:42.199 limit to where that business model could go. You could 0:10:42.240 --> 0:10:45.439 open up more locations, but you couldn't magically make a 0:10:45.520 --> 0:10:49.319 room larger than what it was. Foley's idea was that 0:10:49.400 --> 0:10:52.559 you could have the exercise equipment, in this case a 0:10:52.640 --> 0:10:56.840 stationary bike, and you could incorporate a screen into the 0:10:56.920 --> 0:10:59.920 design of that bike itself, and the screen would be 0:11:00.000 --> 0:11:03.560 connected to a home network, and that would allow the 0:11:03.679 --> 0:11:06.959 user to stream classes, so that you know, the writer 0:11:07.200 --> 0:11:09.560 could get the same benefits as if they were attending 0:11:09.559 --> 0:11:12.720 a spinning class in person, without ever actually having to 0:11:12.800 --> 0:11:16.720 leave their own home. Classes would not be limited by 0:11:16.760 --> 0:11:19.400 the physical size of a studio. You probably would still 0:11:19.480 --> 0:11:22.319 limit the size of classes, but there could be hundreds 0:11:22.320 --> 0:11:24.680 of people as opposed to maybe a couple of dozen. 0:11:24.760 --> 0:11:27.920 And you could also record classes, which would give writers 0:11:27.920 --> 0:11:31.160 the chance to pararticipate in in a class that's led 0:11:31.160 --> 0:11:35.760 by their favorite instructor, even if the writer's personal schedule 0:11:35.880 --> 0:11:38.840 wasn't matching up with the instructors schedule, so you didn't 0:11:38.880 --> 0:11:43.560 have to, you know, reshape your life around the the 0:11:43.559 --> 0:11:47.839 schedule for workouts. Foley says that he first called up 0:11:47.920 --> 0:11:51.000 his zow Kushi, whom he referred to as his very 0:11:51.000 --> 0:11:54.000 close friend, and Kushi was living in Los Angeles at 0:11:54.000 --> 0:11:57.640 the time with his family, and initially, Kushi says he 0:11:57.679 --> 0:12:02.360 thought Foley's idea was ludicrous, that no one would want 0:12:02.400 --> 0:12:05.680 to take classes over a video screen in the basement 0:12:05.720 --> 0:12:08.760 of their house on a stationary bike all by themselves. 0:12:09.520 --> 0:12:12.880 But then he says, he thought about the quality of 0:12:12.920 --> 0:12:15.679 the media and how that could define the quality of 0:12:15.720 --> 0:12:20.280 the experience. That if you were able to recruit, say, 0:12:20.320 --> 0:12:25.679 the most charismatic and effective instructors to serve on your team, 0:12:25.760 --> 0:12:28.760 well then the product sells itself because that's the thing 0:12:28.840 --> 0:12:31.040 that people are going to latch onto. So he saw 0:12:31.120 --> 0:12:34.920 Peloton not as an exercise company, but more like a 0:12:35.000 --> 0:12:38.760 media software company, and that made him more willing to 0:12:38.800 --> 0:12:41.600 come on board, though he would do so from the 0:12:41.600 --> 0:12:45.240 comforts of Los Angeles. He didn't move across the United 0:12:45.280 --> 0:12:50.160 States for this and worked almost as more of a 0:12:50.200 --> 0:12:54.040 consultant in the early days. Foley then pitched his idea 0:12:54.120 --> 0:12:56.959 to Tom Cortez, who was living in New York City. 0:12:57.200 --> 0:13:02.200 Cortez had also recently become a fitness enthusiast and was 0:13:02.320 --> 0:13:06.280 training for triathlons, among other things, and he came on 0:13:06.320 --> 0:13:09.360 board right away, although he was planning a trip with 0:13:09.440 --> 0:13:13.760 his his fiancee or maybe they had just gotten married. Anyway, 0:13:13.800 --> 0:13:15.640 he was playing a trip which put him on hold 0:13:15.679 --> 0:13:17.880 for a couple of weeks, and there was a very 0:13:17.920 --> 0:13:20.880 close call that Fully almost hired somebody else to take 0:13:21.240 --> 0:13:23.840 Cortiz's place, but that all got strained out once he 0:13:23.920 --> 0:13:27.720 came back. Soon the other co founders joined in, and 0:13:27.760 --> 0:13:30.880 Fully's main job would be to seek out investors in 0:13:30.880 --> 0:13:33.640 the company, and they got to work putting the pieces 0:13:33.640 --> 0:13:37.760 together to create the value proposition of Peloton. Now. Early on, 0:13:38.320 --> 0:13:41.880 Folly had thought about creating the service side and not 0:13:42.080 --> 0:13:45.680 getting so much into the hardware side at all, because 0:13:45.720 --> 0:13:50.120 hardware is hard. You have to you know, design it, 0:13:50.559 --> 0:13:53.440 you have to engineer it, you have to manufacture it 0:13:53.600 --> 0:13:58.400 and then ship it to customers. These are all huge expenses, 0:13:58.440 --> 0:14:01.280 not just in money, but in resources and and and 0:14:01.400 --> 0:14:05.000 you know time, and it takes a lot of time 0:14:05.040 --> 0:14:08.800 to go from creating a few bikes to scaling up 0:14:08.800 --> 0:14:12.760 to mass manufacturing. And that's when you hit the point 0:14:12.760 --> 0:14:15.800 where the cost of individual components starts to come down. 0:14:16.280 --> 0:14:19.400 Early on when you're manufacturing, if you're doing small batches, 0:14:20.240 --> 0:14:24.360 it's more expensive. It costs more per component than it 0:14:24.400 --> 0:14:28.280 will once you get to manufacturing at scale, when costs 0:14:28.360 --> 0:14:32.920 typically come down and you have a better profit margin 0:14:33.040 --> 0:14:36.920 on a per unit basis. So at first, Fully was 0:14:36.920 --> 0:14:39.840 actually considering finding a way to partner with existing hardware 0:14:39.880 --> 0:14:44.680 manufacturers and he would end up, you know, providing the 0:14:44.800 --> 0:14:49.200 virtual class side of Peloton's business model, and the other 0:14:49.600 --> 0:14:53.880 partners would supply the hardware. However, being a plucky young 0:14:53.960 --> 0:14:56.400 company with no name in the space meant Fully was 0:14:56.440 --> 0:14:59.760 hitting a lot of brick walls. Among the established companies 0:14:59.800 --> 0:15:02.600 out there, nothing was really fitting his vision. He also 0:15:02.760 --> 0:15:07.200 felt that the prevailing stationary bike designs in the industry 0:15:07.800 --> 0:15:11.000 didn't have the aesthetics they felt were needed to sell 0:15:11.200 --> 0:15:14.840 his Peloton idea. So the group decided that making a 0:15:14.880 --> 0:15:19.440 bike would be a necessary component to Peloton's approach. I'll 0:15:19.480 --> 0:15:21.840 talk more about the early days of Peloton in just 0:15:21.920 --> 0:15:32.000 a second, but first let's take a quick break. The 0:15:32.080 --> 0:15:36.200 decision to make their own bicycle, their own stationary bike, 0:15:36.200 --> 0:15:38.760 would make things a bazillion times harder in the short 0:15:38.840 --> 0:15:42.120 run for Peloton, largely because a lot of investors were 0:15:42.160 --> 0:15:45.680 not interested in backing an unproven company aiming at a 0:15:46.800 --> 0:15:49.800 yet non existent market, because no one had done this yet, 0:15:50.120 --> 0:15:52.400 so you couldn't prove that there was a market out 0:15:52.400 --> 0:15:55.720 there for it, and that this Furthermore, this company was 0:15:55.760 --> 0:15:57.840 going to be building its own equipment, which again had 0:15:57.880 --> 0:16:00.360 no proven success in the marketplace, that they had never 0:16:00.400 --> 0:16:03.480 made an exercise bike. Fully said that he had. He 0:16:03.520 --> 0:16:05.480 got a lot of nose in those days, but then 0:16:05.480 --> 0:16:07.200 he also got a lot of people saying, Hey, if 0:16:07.240 --> 0:16:11.200 this ever does become a thing, I want to buy one. 0:16:12.000 --> 0:16:14.400 I imagine that had to be a pretty frustrating experience 0:16:14.440 --> 0:16:16.480 to be told I'm not going to invest in your 0:16:16.520 --> 0:16:19.760 company idea, but when you finish making it, I want one. 0:16:20.560 --> 0:16:24.000 Fully was convinced that the bike itself wasn't really as 0:16:24.040 --> 0:16:26.760 important as the experience was, so he was drawing from 0:16:26.760 --> 0:16:30.440 his own history of attending spinning classes and gems. He 0:16:30.480 --> 0:16:33.880 said that people would talk about the playlist that was 0:16:34.000 --> 0:16:37.520 used during the workout, or the instructors approach and attitude, 0:16:38.280 --> 0:16:42.560 and how those things motivated the attendees while they were 0:16:42.600 --> 0:16:45.640 taking the class, and that was what fully saw as 0:16:45.680 --> 0:16:48.200 being the truly valuable component in what he wanted to 0:16:48.240 --> 0:16:51.120 bring to Peloton. That that meant that they would have 0:16:51.120 --> 0:16:53.120 to find trainers who would be a good fit for 0:16:53.160 --> 0:16:56.880 the service. Now, all of this was happening before they 0:16:56.880 --> 0:17:00.840 had their first actual prototype bike, and it sounds to 0:17:00.840 --> 0:17:03.200 me like they were really laying the track down as 0:17:03.240 --> 0:17:06.640 the train was rushing toward them. That really comes through 0:17:06.640 --> 0:17:08.920 if you read stories about the first auditions they held 0:17:08.920 --> 0:17:12.240 for trainers. They put out notices on platforms like Facebook 0:17:12.280 --> 0:17:14.240 to look for people who would be willing to be 0:17:14.320 --> 0:17:17.800 part of this great experiment. Apparently, they leased a small 0:17:17.880 --> 0:17:20.639 office space in New York City and they hung up 0:17:20.800 --> 0:17:24.879 a black curtain to section off part of the office space. 0:17:25.200 --> 0:17:29.879 The curtains purchased from Walmart. According to Foley and behind 0:17:29.920 --> 0:17:32.880 the curtain. You had the team, or at least part 0:17:32.880 --> 0:17:35.480 of the team, with cameras poking through the curtain to 0:17:35.560 --> 0:17:39.399 capture the audition of trainers who would actually kind of 0:17:39.480 --> 0:17:44.600 lead a few of the staff in a session. They 0:17:44.640 --> 0:17:47.760 did not have a working Peloton bike prototype at this point, 0:17:48.200 --> 0:17:51.480 and according to every account I've seen, the auditioning trainers 0:17:51.560 --> 0:17:56.920 had to use a broken stationary bike. They frequently called 0:17:56.960 --> 0:18:01.560 it broken or rusted or jan kie uh. The trainers 0:18:01.560 --> 0:18:04.200 were told that they had to put together a playlist 0:18:04.200 --> 0:18:06.560 of music and show off how they would conduct an 0:18:06.600 --> 0:18:10.919 online spinning class and work to the camera right to 0:18:11.040 --> 0:18:15.520 show that they could actually motivate people through a streaming 0:18:15.640 --> 0:18:19.080 video kind of feed. The first trainer that the company 0:18:19.119 --> 0:18:23.359 hired was Jen Sherman, who really became a celebrity in 0:18:23.400 --> 0:18:27.600 the Peloton group, and in an interview with Fortune magazine, 0:18:27.840 --> 0:18:31.280 Sherman said that they had this little tiny corner of 0:18:31.280 --> 0:18:34.040 the office that was sectioned off by black velvet curtains, 0:18:34.280 --> 0:18:40.119 so frigging shady. That's actually Sherman's quote. However, she soldiered on. 0:18:40.280 --> 0:18:43.200 She put together a routine and she led John Foley, 0:18:43.320 --> 0:18:47.360 Tom Cortiz and Yoni Fan through a workout, and according 0:18:47.400 --> 0:18:50.560 to Foley, Sherman was able to get through all the 0:18:50.640 --> 0:18:54.720 strange limitations of the setting and the audition and show 0:18:54.960 --> 0:18:59.280 that this idea was not just possible, that it could 0:18:59.520 --> 0:19:04.120 really take off, and that possibility was really the important 0:19:04.119 --> 0:19:08.280 component of Peloton's sales pitch to investors. A stationary bikes 0:19:08.280 --> 0:19:11.880 were by no means new. In fact, bikes that incorporated, 0:19:12.240 --> 0:19:16.359 you know, sensors weren't new. There were bikes on the 0:19:16.400 --> 0:19:19.840 market that had screens that could give writers feedback on 0:19:19.880 --> 0:19:22.440 stuff like their heart rate or the level of resistance 0:19:22.480 --> 0:19:26.000 they were currently using, or that could display images of 0:19:26.119 --> 0:19:29.639 landscapes that the writer was virtually moving through where the 0:19:29.680 --> 0:19:32.240 resistance of the bike could change as you encounter a 0:19:32.320 --> 0:19:35.080 virtual hill and that kind of thing. But creating an 0:19:35.080 --> 0:19:39.280 interactive media platform that was the new thing, and to 0:19:39.359 --> 0:19:44.119 sell that, the trainers were absolutely a pivotal component. And 0:19:44.200 --> 0:19:46.200 then you have the name of the company. The group 0:19:46.320 --> 0:19:49.679 chose or fully really chose Peloton because it is a 0:19:49.720 --> 0:19:52.720 French term meaning a group of cyclists in a race. 0:19:53.480 --> 0:19:56.520 This also reflected the company's gold to create a community 0:19:56.640 --> 0:20:00.760 of users who would become enthusiastic evangelists for the brand 0:20:01.200 --> 0:20:04.480 Fully recognize that spin classes work really well in part 0:20:04.920 --> 0:20:07.520 because you you can feed off the energy not just 0:20:07.600 --> 0:20:10.560 of the trainer, but your fellow cyclists who are in 0:20:10.560 --> 0:20:13.239 the class, and he wanted to make sure that the 0:20:13.280 --> 0:20:18.120 Peloton product would support community, knowing that if it did, 0:20:18.640 --> 0:20:21.000 users would do a whole lot of the marketing work 0:20:21.359 --> 0:20:23.960 for the company on their own. It would just be 0:20:24.040 --> 0:20:27.960 great word of mouth. The co founders started off with 0:20:28.000 --> 0:20:31.399 around four hundred thousand dollars of seed money. Fifty thousand 0:20:31.440 --> 0:20:34.679 of that was Fully's own cash, and that's when they 0:20:34.720 --> 0:20:37.840 first launched the company back in twelve. At the end 0:20:37.840 --> 0:20:40.320 of that first year, Fully and team had managed to 0:20:40.400 --> 0:20:44.280 raise three point five million dollars in Series A funding. 0:20:45.040 --> 0:20:48.120 Now that's a pretty nice chunk of change, but when 0:20:48.119 --> 0:20:51.280 you're talking about a company that's going to produce hardware 0:20:51.840 --> 0:20:57.440 and software and provide an ongoing stream of produced media content, 0:20:58.280 --> 0:21:01.440 it's not really that much money. The costs of developing 0:21:01.440 --> 0:21:05.080 the bike and then manufacturing the bike would be considerable. 0:21:05.480 --> 0:21:08.280 Early on, the co founders took their compensation in the 0:21:08.359 --> 0:21:10.800 form of equity in the company. They didn't draw a 0:21:10.840 --> 0:21:14.080 salary because they wanted to stretch that money as far 0:21:14.119 --> 0:21:18.120 as they possibly could. They tapped a designer named Eric 0:21:18.280 --> 0:21:21.399 Valency to come up with a three D model for 0:21:21.480 --> 0:21:25.440 their bike. Design Ynni Thing worked on creating a back 0:21:25.520 --> 0:21:27.639 end system for the bike that would do stuff like 0:21:27.720 --> 0:21:32.520 track metrics and also allow streaming media content to go 0:21:32.640 --> 0:21:34.800 to a touch screen display. So it had to do 0:21:34.840 --> 0:21:36.600 all this right. He had to make sure that he 0:21:36.640 --> 0:21:38.840 created got a you know, a processor that would be 0:21:38.840 --> 0:21:45.040 capable of handling these different tasks simultaneously without being overloaded. 0:21:45.480 --> 0:21:48.040 And then they worked towards building a bike for real 0:21:48.119 --> 0:21:54.080 zs In the team launched a Kickstarter campaign and this 0:21:54.160 --> 0:21:58.040 served many purposes. It was, of course a crowdfunded campaign, 0:21:58.320 --> 0:22:02.200 and it was partly there are just to raise more money, 0:22:02.240 --> 0:22:05.359 but it was also a means to advertise the concept 0:22:05.440 --> 0:22:08.720 of the Peloton bike to a wider audience and to 0:22:08.760 --> 0:22:12.800 get buy in from customers to create that core group 0:22:13.000 --> 0:22:15.680 of fans. And you've got to remember the word fan 0:22:15.840 --> 0:22:19.439 is a shortened word for fanatic, and a lot of 0:22:19.440 --> 0:22:23.080 writers will use words like fanatic or cult when they're 0:22:23.119 --> 0:22:27.879 describing the Peloton user base. Anyway, the video for the 0:22:27.960 --> 0:22:30.399 kick started campaign showed off the prototype version of the 0:22:30.440 --> 0:22:33.760 Peloton bike and It turns out that the actual prototype 0:22:33.800 --> 0:22:37.399 that was shown in the video had some pretty serious problems. Namely, 0:22:37.960 --> 0:22:42.760 it was unstable and wobbly, like really wobbly, So they 0:22:42.800 --> 0:22:45.960 made sure to avoid showing it wobble in the video. 0:22:46.000 --> 0:22:49.640 They showed it stationary, like truly stationary, no one using 0:22:49.640 --> 0:22:52.639 it or anything. Uh. And this was a marketing effort, 0:22:52.720 --> 0:22:54.479 right Like. They had to do that because if they 0:22:54.520 --> 0:22:59.200 showed it wobble then that would never work. Uh. They 0:22:59.240 --> 0:23:03.320 also were able to get their manufacturer to change their 0:23:03.440 --> 0:23:07.480 approach and reinforce the legs on the bike so that 0:23:07.520 --> 0:23:11.040 it would no longer wobble. And it was a pretty 0:23:11.119 --> 0:23:16.400 simple stationary bike design. It wasn't super you know, complicated. 0:23:16.800 --> 0:23:19.800 It had a very large touch screen display mounted in 0:23:19.840 --> 0:23:22.840 front of the handlebars. That screen, according to the campaign, 0:23:22.920 --> 0:23:25.639 was a twenty one and a half inch ten a 0:23:25.720 --> 0:23:30.320 DP resolution LED display. The display connected to a circuit 0:23:30.320 --> 0:23:32.359 board that had a one and a half giga Hurts 0:23:32.480 --> 0:23:36.240 dual core processor from Texas Instruments inside it. It also 0:23:36.280 --> 0:23:40.399 incorporated a forward facing camera and a microphone, so not 0:23:40.520 --> 0:23:44.159 only could you watch a class streaming to you, the 0:23:44.240 --> 0:23:47.920 class could see and watch you. This is the part 0:23:47.960 --> 0:23:50.720 I like to call the nightmare of Peloton, or at 0:23:50.800 --> 0:23:53.800 least Jonathan's personal nightmare, as I am certain that I 0:23:53.840 --> 0:23:56.400 do not want anyone looking at me when I work out, 0:23:57.320 --> 0:23:59.360 But then I'll be honest. That's been kind of a 0:23:59.359 --> 0:24:02.960 moot point for two years and going now because I 0:24:03.000 --> 0:24:06.840 haven't worked out in two years, so I guess I 0:24:06.880 --> 0:24:10.200 don't need to worry about it. Users would be able 0:24:10.240 --> 0:24:13.480 to connect the bike to a WiFi network. Obviously you 0:24:13.520 --> 0:24:15.320 would need to in order to be able to receive 0:24:15.359 --> 0:24:19.199 streaming content. UH. The bike also supported Bluetooth tech, so 0:24:19.240 --> 0:24:22.560 you could connect your own wireless headphones or speakers to 0:24:22.680 --> 0:24:25.640