The Fall of Peloton

By Jonathan Paglialunga, Director of Operations

In September of 2019, Peloton and its founder, John Foley went public with optimism about the future of the company on the trading floor. Two months later, Foley boasted about the “predictability of the revenue” for the technologically connected fitness company.

In a November 2019 interview, Foley stated, “We know how to grow and stick the landings on what we tell the Street, what we tell our board and our investors [about] how we’re going to grow.”

There is a stark contrast between his words from 2019 and the second-quarter fiscal 2022 conference call on Feb. 8, 2022 conference call. In this call, Foley acknowledged that he “made mistakes along the way” and that it was a time for  “holding ourselves accountable.” Changes succeeding these statements included his departure as CEO, several executive and board changes, and a wide range of cost-saving measures, including cutting roughly 20% of its corporate workforce.

In the last year, Peloton has seen its stock price drop more than 73% and has faced questions about how long John Foley should be CEO of the company post- IPO given the bumpy roads the company has faced.

How long should a founder stay on as CEO after an IPO? There is no accurate answer. Founders like Jeff Bezos have stayed on as CEO for more than 20 years after an IPO while realizing massive growth along the way. On the other hand, Groupon founder, Andrew Mason, was fired as CEO in 2013, 18 months after the company went public.

According to Jeffrey Sonnenfeld, senior associate dean for leadership studies at Yale School of Management, “20-30 years ago, the trend from many venture capitalists would be to push out founding management at a critical change in the life stage of a company after which ‘professional management’ would come in.” This trend has appeared to have died out mostly due to more experienced leadership groups who have worked within various company life cycles. Sonnenfeld argues that bad reasons for this change are caused by, “founder shares that secure your leader-for-life status in the empire.” With respect to Peloton, Foley will remain chairman, and alongside other company insiders, will control 60% of the organization’s voting stock which could continue to hurt the company’s success.

Recently, Harvard Business Review produced a study of the financial performance of over 2,000 publicly traded businesses and discovered that, on average, founder-led companies outperform those with non-founder CEOs. Surprisingly, the difference in performance virtually drops to zero three years after a company’s IPO and by that point, founder CEOs can actually start hurting the firm’s performance.
It is unclear if Peloton under the new CEO, Barry McCarthy, will be able to rejuvenate the strides the company has made in the fitness industry.  According to McCarthy, “Finding product/market fit is incredibly hard to do. It’s extremely rare. And I believe we have it. The challenge for us now is to figure out the rest of the business model so that we can win in the marketplace and on Wall Street.”

Photo by Andrew Valdivia on Unsplash

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