George McKenzie(00:00.108)

I think they're reframing what they are in the marketplace. and originally it was what we talked about. They were a luxury, expensive bike, catered service with these personalities that are strong and celebrity personalities. And now it's rent-a-center. You can rent one, put it on your iPad, get on whatever junkie bike you got. Who cares? It's aimed at everybody.

It's kind of hard to watch.

Welcome to Married to the Startup. I'm Alicia MacKenzie, a wellness entrepreneur and digital creator. Alongside me is my amazing husband, George, the CEO who's always ready for a new challenge. We've been navigating marriage and running startups for over a decade, and we're here to share the real, unfiltered journey with you. Join us for insights and candid conversations about integrating love, family, and entrepreneurship. This is Married to the Startup, where every day is a new adventure.

Welcome to episode 56 of Married to the Startup. I am your host, Alicia McKenzie.

and I am your co-host, George McKenzie. I almost forgot my name. Was that a hard one? Yeah, you know, it's late in the day.

Alicia McKenzie (01:10.008)

We were doing a four person, what was it? It was for South by Southwest, and it was a video, and one of our girls kept, like, forgetting her name. I think we had to record it, like, five different times because she just couldn't say her own name. She's like, I'm not sure what's going on right now, but this is just, it's not working.

Never had that happen to me. Sometimes.

They're hard. All right, we are in the last week.

I know, it should be like a Christmas show. Is this the last week? It's the last week of the year. last full year year. Yeah, it is. It

So going into 2026, and I'm sure everybody's got their New Year's resolutions.

George McKenzie(01:50.158)

I guess maybe in the next episode we should go over like the family budgeting or the family forecasting for... Yeah. That's a good idea. That'd be interesting.

Yeah, like, we set our hair up.

Alicia McKenzie (02:02.132)

But New Year's always kind of grains my gears. The thought of...

he's just here, Peter Griffin. Grinds my gears.

where I pull it from. The thought of like this new year, new you, let's do a full overhaul of all of your habits and let's go dry January and let's do this. It just seems so extreme to me. And coming from the health and wellness space, coming from a nutrition coach aspect, from a fitness coach aspect, like... it never works. It just never works out.

I mean, I'm sure it works for some people. I think it's a mental, it's like mental gymnastics. I'll give an example for me. I have a hard time starting a new workout routine or a new diet routine, not on a Monday. Why? I don't know. It's just in my brain, I'm like new week, new go. I can't start a new diet on a Wednesday. It just doesn't work for me.

your week doesn't start on Sunday.

George McKenzie(03:06.198)

No, it starts on Monday. Monday is the start of a work week. That's the start. So, so I get that and I get how like, you Hey, it's been a bad year. I've got a lot of bad habits. I'm going to start clean. There's a, it's a reset, reset of the clock, reset of everything. I'm going to start better. I get it. It's like in even in business, right? Hey, that month close, it was not a great month or that quarter closed, not a great quarter, but onto the next quarter. This next quarter, we can roll out a new marketing campaign. We can do new, we can be better. Right.

So I get it. It's easy to pin it on a day, but most people would make, yeah. It's kind of like when you set your budget, right? You should have a stretch goal, but your budget should be realistic and obtainable. And if you set goals, like if your BHAG is your yearly goal, the big, audacious goal. So if your BHAG is, want to have a $50 million revenue company.

Yeah.

Alicia McKenzie (03:55.978)

stands for?

George McKenzie(04:04.492)

You can't then say, year one, we're gonna generate $50 million, right? Because you're never gonna do it. And I think that's what a lot of people do with their personal goals for the New Year's. I'm gonna lose 50 pounds. I'm gonna work out four days a week. I'm gonna invest. I'm gonna get a better job. I'm gonna get a degree. And you do all these things that are b-hags that you're gonna do this year.

That's my, I think that's my quip with it. It's that everybody makes these huge broad stroke, I wanna do all of this, but they never set up a plan to actually accomplish it. So saying you're gonna do, like, I'm gonna be vegan. January 1st, I'm gonna be a vegan. I'm gonna cut out every single thing that is not vegan. How long do you really think that's going to last versus...

This week, this month, let's just cut out eggs. Right, I'm taking eggs completely out of my diet. Fantastic, I 100 % support you. January 1, no more eggs.

I'll be vegan one day a week.

Like, make it attainable. It's just, it's... I have a hard time watching people make these huge goals and then, like, I have to be the bad guy and be like, okay, let's break that down into maybe six different goals that we can actually accomplish together. But then they were like, no, no, no, I want to go hard, hard and fast. Let's go, let's go all in.

George McKenzie(05:26.35)

I'm all in type person. Yeah, I get it. Wait until the second week of January.

Right? Like being an all-in-type.

Or even like February and then you feel like a failure because you weren't able to do what you said you were gonna do and then I have to pick up all the pieces, which is also why the health and wellness industry is exhausting because it's like I'm a therapist.

Yeah, imagine being a therapist. That's what I was just thinking. That's probably the similar to a therapist or if you're in any sort of addiction crisis type thing. Everybody's gonna relapse. The odds are they're gonna relapse. you're like, it's gotta be a hard career choice. Hats off because it's required and needed, but man, it's kinda like being a weatherman. You're wrong more times than you're right. Right? It's like the constantly... I guess. Yeah.

It's like trauma

Alicia McKenzie (06:12.046)

Happy job

It's kind of like tax accountants are like, hey, you got to prepay all this amount and then like, hey, look, you're getting a refund. You're like, I'm not getting a refund. I overpaid four months ago. It's not a refund. Exactly. If I didn't overpay four months ago, I'd have had that money four months ago.

You're giving me my money back.

Alicia McKenzie (06:35.896)

But the new year is the inspiration for today's topic. Right, new year, new you. Okay, I'm gonna work out three days a week. And I'm gonna use my big, beautiful Peloton to do it.

New year, new you.

George McKenzie(06:49.226)

Nice. We have one of those. We actually have three or two of those. We have.

We have the Peloton Tread, the Peloton Bike, and then we also have the Hydro Rower.

Yes, I have yet to get on that. I need to do that. That's going to be my New Year's resolution. I'm going to hydro row. Once a week? Once a week. There you go. That'll be my cardio. Attainable. Yeah, I need to introduce cardio into it. Once a week. Let's do it.

See, that's

hydro route, right? But Peloton was the princess of the pandemic.

George McKenzie(07:15.594)

It was. I think it was, it even had a little cache prior to pandemic, I thought. I remember it was in the malls, right? And you had like these high-end stores. Yeah. Cause I was in the Galleria here and you're like going, you're like, Ooh, this is cool. Wow. It's online. You got this big TV attached to the bike. That's kind of new. Normally you just had this big screen that kind of showed you the hill you're climbing or your output. But this was a television screen connected to internet. Someone's staring at me and talking to me. You're like, this is cool.

Yeah.

Alicia McKenzie (07:43.822)

So let's set the scene. January, 2021, Peloton stock hits $167 per share. Woo hoo, we're all rich baby. The company is worth $50 billion. They can't keep up with demand. All the gyms are closed.

Okay.

George McKenzie(07:57.742)

Of course not.

And what was the rise up of? What was the evaluation problem?

Everyone's working out from home. We're still setting the scene. And John Foley, he's the CEO on top of the world. In January, 2024, that same stock is worth $6 a share.

bringing the market cap down to a couple hundred million maybe.

big tree fall hard.

Alicia McKenzie (08:19.574)

right? And John Foley, who was the CEO, is no longer.

Yeah, you can't go from 50 billion to a couple hundred million in market cap.

Yeah, so as we head into 2025, you and I were just talking about it. Like, is Peloton, do they still have the brand recognition? Are they still able to gain more of the, gain more users?

Yeah, I don't know. It's interesting. We had an interesting discussion. I think there's a lot of competitors in the space now. Like they were definitely first mover and they had first mover advantage at the right time when the pandemic hit because their product fit the need for a lot of people. And I think since there's been a ton of new entries into the market in that product space and you couple that with no longer a quarantine requirement and it just becomes, think,

the, the, the Psalm there, the service, the obtainable market, they missed it. They, they misjudged how big that was. And I think that that obtainable market, they've probably got a good share of it, but it's just not a big enough market for the valuation that they had and the investments that they made.

Alicia McKenzie (09:30.318)

But they started out with a great vision, right? 2014, the idea was to bring the boutique fitness into your home. Yeah, I mean, it's like... the boutique fitness experience into your... Exactly, have you ever been to SoulCycle? I have not. There's something about SoulCycle that is just, it's addictive. Really? It's addictive. But I had one bad instructor who kept yelling into the mic. Yeah.

It was.

George McKenzie(09:38.338)

Yeah.

Yeah, like a soul cycle.

George McKenzie(09:54.111)

All I remember is you you almost blew your ear out.

It was really bad. Like, had ringing in my ear for, three days. It was terrible. And then that completely turned me off soul cycle. So I go back every once in a while, but...

That's what I loved about CrossFit. think was the workouts were great, but I think it was more the community, the people there pushing each other and the instructor and everyone's hanging out. I thought that, yeah, the experience was better than the workout.

It was the experience.

Alicia McKenzie (10:23.822)

Yeah, for sure. For sure. So in 2014, they raised $400,000 on Kickstarter.

Okay. Great. That sounds good, right? they have some hardcore manufacturing calls.

And they sold 297 bikes at $1,500 a piece. Right? And this is 2014. Like that's a lot of money in 2014.

Nice.

That's a lot

George McKenzie(10:45.92)

Did it have the online capability at that point probably?

I think it did. Okay. I think it did. But then when they started to get bigger and more brand recognition, they raised the price. And then they also raised the subscription price to $44 a month.

Right. mean, yeah, it's one way to go about it.

Right? So they were positioning themselves as luxury fitness.

Yeah, and I think that's kind of, that was a good market position for them. Because you started to see it, right? You started to see it even just the layman here. You started seeing it in, for me, you look at housing, like high-end homes that are being sold, and you see like a Peloton in a room off the master bedroom in spec homes. You're starting to see it in these high-end multi-million dollar houses, this Peloton strategically placed right outside. And it was in...

George McKenzie(11:38.594)

started to go into shows, remember, it in...

I know that was actually it was in and just like that, but that actually hurt

Yeah, I'm just starting to say it became this high end possession that was associated with Yeah, so I thought that was a great positioning for them.

It was synonymous with luxury.

But one thing that was really, really interesting to me and the Peloton experience was their positioning of their instructors. Right? Like, there were almost many celebrities. Like, you've got Cody Grigsby, who I love. Like, I still love. And he was one of my favorite writers. And then you've got Robin Arzon, and you've got Ali Love and Jess King. Like, they were all positioned as, like, these big personalities.

George McKenzie(12:24.618)

And they did a good job recruiting and getting stars.

Yeah, little mini celebrities in the Peloton world. And it was great. And they had this world-class content studio in New York City. And being picked to go be one of the Peloton riders in this studio, like, that was highly sought after. I don't know if it still is.

Yeah, I don't know. But yeah, and they had the leaderboards. I mean they had a lot a lot they did a lot right fight it Yeah, they did a lot

They game a right, right? Like I will kill myself on a Peloton bike trying to get high up on the leaderboard and not be jumped.

Yeah, I've gotten to the point. Yeah, that doesn't doesn't entice me anymore. I don't really care. Am I in the middle of my age range? Good.

Alicia McKenzie (13:05.656)

I'm high babe.

I'm not there to win. I'm there to sweat out some calories.

Right? So in 2019, they IPO'd and they were valued at $8 billion. $8 billion? Yeah.

So I wonder when they IPO'd, the, a lot of people IPO and you think, that's the exit, right? So that's how the shareholders and everyone gets their out, right? The private equity and the VCs, that's how they get their out. They take their equity positions, they sell them pre-market or right at open to the open market and they get to, know, liquify their equity.

Yeah.

George McKenzie(13:46.006)

I'm sure from the CEO's perspective, his net worth jumped a bunch, but then it's also, okay, now that I've raised this capital with selling these shares, what do I do with that capital? And do I have a plan for it? Or is the plan really, hey, we have to go public so everybody can exit and get rich off the public's...

Yeah, that's a good point. I wonder what the inner thoughts behind IPOing was.

I need more liquidity to invest, to grow.

Yeah, I mean it happened at a good time though, right? Because 2019 you IPO at 8 billion. Yeah. And then in 2020...

Yeah, the pandemic happened.

Alicia McKenzie (14:21.548)

The pandemic happened and all the gyms shut down and there's no boutique fitness and...

Yeah, and it was a sustained time period there where getting to a gym was difficult. And then you combine that with, these gym fees are expensive. one, you can't get into the gym, so you start to cut your memberships because, well, how am going to pay if I can't go there? And then even months after, it was, oh, you still can't go there, or the classes had to be limited, and it became this really challenging environment to find a gym. So...

being able to have the gym experience at home became very attractive.

I mean, we were early adopters of the Peloton though. I still remember it in our Dangerfield house, right? And I remember it being in the basement and the baby was really, really little. I can't remember which one, was it Maddox? It was Maddox, he was tiny and he was in his little bouncer right next to me as I'm like doing a 30 minute Peloton ride because that was the only way I could get in any sort of movement. So we were early adopters, that was what, 2016 maybe? 2015, 2016?

Yeah, somewhere around 2016.

Alicia McKenzie (15:29.324)

Yeah, so we've had the bike for almost a decade and we've had the tread for probably four years.

Yeah, and that's the interesting, like the hardware is still fine. Yeah. Yeah. And I think that also probably contributes to their financial problem. Yeah.

Maybe a little.

Alicia McKenzie (15:40.418)

We've had no issues.

Alicia McKenzie (15:46.996)

How many Peloton bikes do I really need?

Well, that's the yeah. And I think that, you know, they got a little bit of a fool's gold in 2021.

Yeah, so Peloton demand exploded during the pandemic. The wait times were six to eight weeks. right, and the stock price goes from approximately $30 a share in March of 2020 to $160 a share in January of 2021.

Everybody know what I Yeah.

George McKenzie(16:10.11)

And if you're the CEO, if you think about it, and I'm sure he's getting board pressure, like, hey, the demand is off the charts. We got a six week wait and that six, every time people are waiting on that hardware, that means we're losing six months worth of subscription. And the subscription service is the gift that keeps on giving. So you're like, hey, how do we solve that? How do we solve that? And you're like, well, we have a problem because of supply chain, supply chain, supply chain, the thing we heard a billion times. So then it's the board probably pushing, hey,

We need to collapse the supply chain. need to vertically integrate so we can control inventory. If we control inventory, we can shrink the lag between purchase and delivery, which means we can then generate more subscription revenue faster.

Yes. So the Q4 revenue in 2020, the year of 2020, Q4 revenue was $758 million.

Yeah.

George McKenzie(17:03.394)

Yeah. Which is.

up 232 % from the previous year.

Yeah. Right. So that's the question. If you were the CEO and knowing the same variables that we just talked about, one, COVID, people are at home. Two, it's kind of a luxury play and your demand spiked this much. Would you think that's a predictor of the future or it's...

indicative of the situation.

And a one-time world win. Winfall, guess is a better term.

Alicia McKenzie (17:39.808)

just in what world is growth like this sustainable?

It's probably not. It isn't. It's not. And I think most companies have that same problem. Like getting, I'll say like in companies I've run and the experiences I've had with private equity guys, they want 20 % top line growth and 20 to 30 % bookings growth while maintaining strong, even like at a certain point you just fall victim to the law of large numbers. When I was running a division of the Accenture, right? You had a huge...

slice of the pie, know, three, $400 million of revenue, right? And then you say, hey, I gotta grow that by 20%, which means I need to have 80 million of recognized. So that means depending on the month, I've got to anywhere from 80 million if I booked a January one and delivered it to, if I book it halfway through the year, 160 million of revenue. And I can't lose any. Like it just becomes harder to hit that 20, 50.

thousand percent sales increase. It's just, it's really difficult to maintain that kind of, you know, onboarding like OpenAI now, their revenue is just going through the charts. But I think at some point you can't have exponential revenue growth unless, you know, maybe for them they're doing it by tokens and more people are using it. So maybe eventually.

Back to the point. Back to the point. Right? So the problem is you have all this demand. You've got board pressure. You're trying to figure out how to make this work. You've got access to capital. You've got all the things. So I think one of the biggest things that founders have a hard time with is if you ingest all of this capital, knowing where to put it, it's key. Yeah. Right?

George McKenzie(19:10.196)

You board pressure, I'm sure.

George McKenzie(19:15.06)

And you're sitting on top of the world, probably all the analysts are. Yeah.

George McKenzie(19:21.262)

out.

Alicia McKenzie (19:33.632)

Nobody's gonna give you 250 million dollars if you don't know what you're doing with it.

Yeah, or the opposite, like you're in this boom and people throw money at you. Now you've taken too much and you don't know how to spend it in a way that will catapult the business forward. So now you're probably borrowing money on stock, right? So you stock's trading $160 a share. You're able to take out a note at a very low interest payment with probably a lot of covenants around stock price and...

And now you're like.

George McKenzie(20:04.766)

it money's cheap and you're taking it. And then, you know, when the stock price drops below your covenant and you trip your covenants, now all of a that debt becomes super expensive.

So up to this point, Peloton wasn't manufacturing their own bikes, right? It was all outsourced. So in order to speed up to me or in order to meet demand and speed up the process of building your own bikes, the CEO decided let's bring it in-house. Right. So they spent $400 million to buy Precor, which Precor

When you say that name, like I'm automatically like taken aback to when I was 12 years old on my very first treadmill, like in the middle of some military gym and it said pre-core across the front. Like this is an old school brand.

I think hotels. Yeah, it's a hotel treadmill.

They have been manufacturing their own equipment, think, from the origin. So they bought Precor and then they secured a location to start doing their own manufacturing in the middle of Ohio.

George McKenzie(21:03.916)

Right, so think that's getting PreCore, probably a decent idea, right? You've broadened your revenue streams, so now it's not just bikes and treadmills and online training. Now you have an in-hotel commercial brand that you could also start to mix Peloton in with and start to sell into that community. It makes sense. And the fact that they have some manufacturing, great.

And then you double down and say, all right, now I'm going to take the manufacturing you have and I'm going to move it to the new one that I built and we'll do double the amount. Yeah. Right. I that's where you start to fall. Cause that is, you know, the only way that works is if demand continues to rise.

Yes.

Alicia McKenzie (21:44.718)

And I think that was the damning assumption, right? Is to assume that, okay, this pandemic boost in people wanting to be a Peloton rider and own a Peloton bike and we're gonna go into the treads and we're gonna get the rower and we're gonna do all this, it's gonna last forever.

Yep. And I think that's the hardest part as a CEO. And that's probably one of the parts I do best. Yes. Right. It's very easy to get caught up in the good times. And there was times when you're winning all the awards and every contract you bid on, you seem to win and things are just going your way. And you got to be able to be smart enough to say, Hey, I need to know that it may not always be this way.

Yeah

George McKenzie(22:33.272)

So when I invest, I have to be cautious that I have a back out plan or I know what levers I'm gonna pull if demand falls, if I start losing sales, if I start not getting what I thought I would get. And then, you know, that's kind of a pessimistic view, but I think you gotta have both sides. And there's a lot of CEOs that are great cheerleaders and they're always optimistic.

And that's probably why they're great CEOs. And that's why they're great salesmen. And that's why they can motivate people. It's that eternal optimism. But eternal optimism, when faced with adversity, yeah. Right, it's like.

I'm positive this plane is going to crash.

Yes. Yeah. Yeah. Or no, we can get out of it. Of course, he'll pull up. We'll pull up. We'll pull up. Right until you don't. And I think a lot of, you know, CEOs can do the same thing. We're like, know, we're cash burn is this, but they're afraid to cut or don't want to cut enough. And then you're like, I'm going to get new sales and I'll run it. Well, I'll run it with new sales, new sales.

Yeah, right.

Alicia McKenzie (23:37.458)

So that was their first mistake, was assuming that the demand would continue forever. We all know that wasn't the case. But then, they also had a couple of marketing snafus, which it's comical to me because I remember them so vividly. The first one was the holiday commercial where the husband bought his wife a Peloton bike.

Yes, I don't know why that's so controversial.

Because it's like buying me a vacuum.

I know, but weren't there commercials about that too? Was that a big... And I think it also was, you gotta look at the context of when that commercial came out. It was probably in the height of the Me Too movement. So it was like just really bad timing. Like today, that's probably a fine commercial. It probably wouldn't get you blacklisted.

I don't I think it might I really think it might

George McKenzie(24:25.816)

think the time that it came out was the worst possible time for that kind

And I think it wouldn't land well now is because we're on the ozempic thing and everybody's going like uber skinny and like it's, yeah, I don't think it would land well period, right? So bottom line, husbands don't give your wife a Peloton, right? Because then all of the backlash was, he saying she needs to lose weight? Is he calling her fat?

She bought him a Peloton. Do think it would gone over better?

No, because I think women are more harshly judged for their appearance than men are. Would you agree?

Yeah, probably. think it's.

Alicia McKenzie (25:04.736)

Are you? No, you don't have to agree with me.

I agree. I greater than 70 % of the judgment comes from other women. are more judgmental of women than guys are judgmental of women.

Okay, let's just, let's take it back a minute. We're watching the news and there's this woman that comes on, I'm not gonna say who she is. she's an older woman and you were like, oh, look at that neck.

this

George McKenzie(25:33.166)

It happens sometimes, yeah.

Really? Right? But then if she had gotten Botox or like a facelift, it'd have been like, ugh. Look at that facelift. What is she thinking? Right? You can't win. You can't win as a woman. It was a tough life. Okay, second marketing snafu was, and just like that, the scene where...

Tough life.

George McKenzie(25:51.689)

Snack Food Number One.

George McKenzie(25:57.612)

product placement until they fucked up. my god. You're like, this is cool.

But the Peloton bike killed Mr. Big.

I know but it was a whole it had a lot of run. It was like a whole episode of him riding the Peloton Getting it in you're like, hey, this is awesome. What it's our commercial for Peloton

It was so great until he died. Until he died. The man died. just like that. Like, once you do that, you've lost control of your narrative, right?

until he died.

George McKenzie(26:19.022)

And just like that, I collapsed.

George McKenzie(26:28.002)

Yeah, yeah, yeah. I wonder if they had any insight into that scene.

Yeah, right? Like did somebody preview this before it went live? Like maybe this isn't a good product placement.

The love story that this whole thing was about, hey, we're going to kill him on the belt tie. Sound good? You good for the product placement? Like, yeah, sure. No. Why not? We'll get you healthy and we'll kill you. Or kill your spouse if you buy him one for Christmas.

So those were marketing issues. then there was an actual like...

But there was also the one on billions, right?

Alicia McKenzie (27:05.526)

No, I don't remember that one.

Yeah, it was the same thing. Was was on the peloton. Yeah. And they were spying on him with the ring and they were like, hey, his heart rate is going up, blah, blah, blah, blah. And he was working out the peloton. Like, yeah, indicators are he's about to have a heart attack and they rushed to his house and saved him. Oh my gosh. You know, remember that was the same time. So those two were heart attack-ish.

I don't.

Maybe if he would have died, would have remembered it.

We watched that show. I know we did. But Wise lived, yeah. They saved him and it was all about the big railroad. They were spying on him, but it saved his life because we spied on you. All right, third snafu.

Alicia McKenzie (27:38.326)

Yeah. Third snafu, which is a really big one. April of 2021, a kid dies by getting pulled under the treadmill. I remember that too. We immediately took the key out of our Peloton tread and put it somewhere away.

EEEE

George McKenzie(27:53.762)

Yeah, I think we always did that though. We're always paranoid. We are. I am paranoid.

I don't know.

But even now, even to this day, like I'm terrified Fitz is going to sneak into the Peloton room and get pulled under the tree. Right? So reports of 70 plus incidents, including children and pets being pulled under. Right? That was another hit.

Yeah.

George McKenzie(28:13.292)

And all because the back of the tread, was too much space between it and the floor. Oversight and design and engineering there. Can't believe they didn't catch that in product safety testing.

Yeah.

Alicia McKenzie (28:25.742)

I mean, is that something you really test for? I wonder if a kid can fit under there.

Yeah, but I mean, you'd think the treadmills have been around for a long time. And they hadn't had this problem. So you're like, I wonder, someone solved it some other time. And now Peloton goes, we can make it higher in the back. They're like, no, you can't. There's a reason no one else does that.

They had a good run.

Alicia McKenzie (28:44.268)

But rather than apologizing, the CEO doubled down on the fact that it was a consumer safety problem and that it was essentially their fault.

Yeah, even if it's technically correct, it's not the right tone. Right.

You apologize. You admit that the...

Hey, we had a flaw in our quality assurance testing and product safety testing and we're addressing it and we're shipping this and it's costing us and I would, they should have led with it. We're going to spend $5 million shipping out new replacement parts to fix this and adjust our manufacturing.

Yeah. Yeah. So you have all those hits and then you have summer of 2021, everything opens back up, things are starting to go back to normal and the demand takes a drastic fall off of a...

George McKenzie(29:32.526)

Yeah. And that's, you know, that's back to the, that flawed assumption. Yeah. Now reality is coming back to what the adjustable market really looks like.

So Peloton ends up cutting the bikes by $400. Warehouses are sitting full of bikes for pandemic demand that is no longer there. And then the stock begins to drastically decline from its January high.

Yeah, you can see it's a cacophony of bad things. yeah, if you misjudge the market and now you're saying, hey, I've got to create a company that can produce and sell bikes for a million people a year, and then you realize that post-pandemic, the adjustable market is really 500,000 people a year, you've got way too much supply. And most likely...

you're taking on a ton of backed out, backed up by a stock price of 160. So a lot of debt triggers are happening.

Yep. And then November of 2021, what happens to the stock market?

George McKenzie(30:45.894)

that was, yeah, that was not fun. Yeah.

I know. Stocks plummet 35 % in one day. You remember that very... It's a hard day.

do remember that. It's like, ugh. Yeah. Back to the salt man.

Yeah, Wall Street turns bearish. Things aren't as frothy as they used to be.

Yeah. Now money becomes tight. Yeah. Everything was different, different environment.

Alicia McKenzie (31:10.542)

And everybody's starting to realize that all of those pandemic bumps were temporary.

Yeah, all the surplus, all the...

Do you remember though, in the beginning of the pandemic where we're like, this is gonna be two weeks and then...

I remember distinctly, I like, this is going to be cool. Yeah. That'd be fun. We set up a little like picnic table in the kitchen area and we put like a mat down like, oh, the kids will do crafts. be like a two week, uh, you know, summer vacation.

Spoiler alert, it was not too weak.

George McKenzie(31:37.546)

It was not. more like two years.

So Q2 of 2022, they missed their revenue by an estimated $1 billion.

Yeah, I mean, it's shocker. Yeah, I just think they misjudged the size of the market.

And they lost $439 million in a single quarter. Yeah. Sales down 20 % year over year. And their stock is now under $40 from a high of $167.

Yep, that's the opposite.

George McKenzie(32:04.643)

Mm.

Yeah, just imagine how many covenants are popping.

Right, so February of 2022, they go into their first round of major layoffs, which is what you need to do to keep your stock company afloat.

But I wonder how much of their spend was labor versus just raw materials. mean, like they're very hardware. The cogs are very high probably for the bikes. So I can only imagine that they don't, there's not a lot of discretionary spend to cut.

Yeah.

Alicia McKenzie (32:35.788)

Yeah, so they ended up cutting 20 % of their workforce, so 2,800 employees. But what the sad part is, is that it was leaked to media before the employees even knew.

Yeah, that's a hard one. That's a hard That happens a lot though.

Yeah, but it's still it doesn't make it any less shitty like, sorry, somebody accidentally leaked this, but you lost your job.

Yeah, I mean it happens a lot. I've had layoffs. I had to do layoffs. And the problem, you try to time it the best you can to reach everybody at the exact same time. And you don't want it to be a mass event where you have like, 2,800 people, come to the auditorium, you're fired. Right? It's more of, hey, individual teams will go team by team. The problem is you can't shotgun it all at once. And especially if you have people in different time zones and different continents, it becomes a wave. And...

As soon as you say it to the first group, everybody's on Slack, everyone's texting and you can't keep a lid on it. So I just, that's a hard one.

Alicia McKenzie (33:32.558)

So he, the CEO initially denied that layoffs were coming, right? Yeah. So he denied it. So the leak happens, he denies it, and then he announces it like three days later. Yeah. Like, come on.

Well, that's not good.

George McKenzie(33:45.006)

That's... Yeah, that just makes you seem like a liar. It's... Yeah, you're just a liar at that point.

just poor decision making. Yeah, yeah. So an internal memo leaked showing Foley saying that the company was resetting. And this one I'm having an interest, like I'm conflicted, right? So during these layoffs, they're coming after the CEO saying he's still keeping his Hamptons house.

Okay, what does one have to do with the other? What does one have to do with the other? Your personal life and your work life should not be co-mingled. That's like saying you're doing poorly at your job, you should sell your house.

cutting thousands of jobs.

Alicia McKenzie (34:24.214)

Yes, I think that's what they're saying. But why? Your company is struggling. Obviously,

What I'm gonna do, sell my house, take my personal money and put it in the company? Is that what you're saying?

I think they're alluding to the fact that he is making enough to maintain his $22 million house in the Hamptons. I just made that number up. have no idea if it was $22 million. But that sounds right. I mean, if you're owning in the Hamptons, it's probably 15 to 22 million. But you're making enough to keep that house, but you're not making enough to keep your 2,800 employees.

Yeah, what are you gonna do? I mean True altruism, I guess and you just say hey, I'm gonna take a dollar salary and take my salary and distribute it amongst What ten people? Yeah, fifty people. Mm-hmm And and then what and then and then six later I got to cut the 50 people and I still make a dollar like it's the eat the rich thing. I just don't get like Yeah

He has to lay everybody up. has to make that decision. He has to live with it. And then most likely he's going to get canned. So yeah, he may carry that salary a little longer than you, but most likely he's getting canned.

Alicia McKenzie (35:29.784)

Yeah. So they cut their staff 20%. They closed all of their retail shops, right? There was one in the mall right at the street. They paused all manufacturing.

don't Not anymore. Yeah, makes sense.

What do do with that facility?

And then John Foley steps down as CEO in February of 2022. I'm sure it was. He becomes the executive chairman, keeping some controls. The stock is now under $30 a share. And in September of 2022, he is officially out as chairman. Right. I don't know. Was he able to maintain his

I'm sure it was his decision.

George McKenzie(35:58.424)

Yep.

George McKenzie(36:07.608)

Yeah. And then. the Hamptons house?

My guess is yes.

And then his board member, who is also his wife, also exits the company. Right, so now the new CEO, Barry McCarthy, he was a former CEO of Spotify and Netflix, or I'm sorry, the former CFO of Spotify and Netflix.

god.

George McKenzie(36:28.942)

All right, so now it's obvious they view this as a subscription business, not a hardware. That whole foray into pre-core and building, you're like, yeah, that was a mistake. We don't want to do that at all. We want to be all content library and subscription service. Bike is nothing more than a mechanism to get you to subscribe to the service.

Absolutely. Great.

Alicia McKenzie (36:47.51)

Absolutely.

Alicia McKenzie (36:51.554)

For sure. So they set up a rental program and then they also set up a partnership with Amazon. And then they set up an app only subscription, right? Cutting their price from, think it was $39 down to $12.99 a month. You have the ability to use Peloton's content on any bike and any tread and...

On Apple TV to do the fit and the yoga and the workouts. Yeah. Yeah. I'll use that.

And their biggest competition there is like free YouTube videos, right? During the pandemic, the amount of influencer or fitness coaches and fitness influencers that develop their own content for free on YouTube, right? You're competing with that.

Yeah. And you're competing with Apple fitness and I mean, it's still there. it? Yeah. There's a lot of these online fitness apps that exist and you're competing with all the other people like Nordic track and everyone else decided, Hey, the bike thing's good. I have, I make treads. I can make one with the TV.

Did that really take off?

Alicia McKenzie (37:48.014)

Great, so now you have the ability to rent a bike monthly for $89.

sounds like a bad deal. It's like renting your router. Like, you're gonna buy that bike ten times over.

Not really, what if you just want it for like two months?

Oh, that seems like a lot of hassle. Does it? Yeah, you're gonna pay for a subscription and rent a bike for two months and then give it back?

Maybe. But by setting up this rental program, it's basically an admission of guilt that $2,500 for a bike was too much.

George McKenzie(38:13.486)

Yeah, I mean, it's, it now they're re, I think they're reframing what they are in the marketplace. Like in the originally it was what we talked about. They were a luxury, high end, expensive bike, know, catered service with these personalities that are strong and celebrity personalities. And it's kind of, uh, you know,

something you want to attain to get into the New York studio, like all this stuff that made it very luxurious and high-end. And niche. Now it's rent-a-center. You can rent one, put it on your iPad, get on whatever junkie bike you got, who cares? This is $4 a month, $10 a month. It's aimed at everybody. It's really a fall from grace. It's like seeing Hermes going, hey, you know what?

it's kind of hard to walk.

George McKenzie(39:02.85)

We're going to sell it for $400 and we're going to be in Walmart because our target market has, we've exasperated it. So now we're going to go after the low end market, which most people, most companies create a new brand to do that. Not, you know, tread on the old. Yeah. Yeah. And make a high end brand. Now the low end.

not try to rejigger.

Yeah. Yeah. So they had additional layoffs. They're trying to restructure this thing into some sort of profitability. They closed all of their retail showrooms at the end of 2022. And the total job losses in the two years was over 5,000 people.

Yeah. I why do need all these people? Yeah. Why do Basically, know, you really, if you outsource all the manufacturing and the shipping, dropshippers and everything, you probably just need the personalities. Yeah. And maybe some IT.

Yeah, so then that $400 million pre-core acquisition.

George McKenzie(39:59.022)

Probably not looking so good. They're probably trying to jettison

massive write-offs, right? And then they're trying to sell off the excess manufacturing equipment, right?

I got to, yeah. And probably just, they just want to get out of the manufacturing altogether, I'm sure. Yeah. And sell it and create some sort of agreement to continue to manufacture there for some period of time so that the new buyer gets immediate customer.

So where is Peloton today in your mind? Where do you see it fitting into our fitness landscape?

Yeah, I mean, think it still has, it's the, you know, home gym experience. And I think it's just another piece of equipment in your home gym. It's no different than buying a regular Nordic Trek treadmill or buying, you know, whatever dumbbells and you pay the subscription and so you can have an online trainer. But I don't think it's so differentiated in the marketplace that you wouldn't say, if I had all those things...

George McKenzie(40:59.136)

If I have a bike and I have dumbbells, do I need Peloton or can I use Apple Fitness? mean, if Apple Fitness is cheaper than most people probably going to defer to the cheaper one, unless it's a personality driven thing where like, I got to work out with Jess King or I got to work out with him.

See, that's what I was just gonna say. And remember that brand loyalty we were talking about? I feel almost brand loyal to Cody Grigsby and who's the other woman that I... Oh my gosh, what is her name? She does all of the hikes. No. Blonde girl. Oh my gosh, Rebecca something. But she does all of the Peloton hikes, right? Like I...

The personality.

George McKenzie(41:30.254)

Listen.

George McKenzie(41:40.392)

Yeah, I wonder what kind of contracts they have with those people if they wouldn't just jump ship to like it's like being a An athlete like yeah, if you're loyal to Cody or whomever and then Apple or Google or whatever new fitness App says I'm gonna pay them more to come over here and bring all their audience with them Exactly

I don't know if I care that much.

If they left, would you go like, canceling my Peloton, I'll go over to. Right. But if you don't own the Peloton, then, you know, so I still think they have a place in the marketplace. I just don't think the market is that big. Or Schwinn. Who? Schwinn? Like the people that make bikes? Like the bicycle? Yeah, they make the same bike. Do they? For half the price. Yeah. Nordic Track is a big one.

No, because I own the palace.

Alicia McKenzie (42:15.0)

Who do you think their competitors are?

Alicia McKenzie (42:25.868)

Schwinn do an air bike also that they tried to compete with the rogue bike

Yeah, they did. Well, Rogue was, Schwinn was first. Rogue built one after. And the Airdyne was first. Schwinn had the cheap one, then Airdyne had the expensive one. So yeah, think Schwinn's there. think Nordic Track is probably their biggest direct, I would say, because Nordic Track has their whole iFitness network and same kind of trainer thing. They have the treadmill, they have...

But those bikes were like a hundred bucks.

Alicia McKenzie (42:40.364)

Airdine. That's what I'm

Alicia McKenzie (42:44.556)

when the rogue monster came out.

George McKenzie(43:00.158)

all the same equipment, all the same everything. And I think they're cheaper when it comes to the unit price. then you think about an app only, there's probably a billion competitors in that space.

There's so many apps, and I feel like I've prescribed, subscribed to all of them.

It's a crowded marketplace. And I think they're going for a very finite amount of customers. That's not one. And I think we talked about like the bike. Once you've sold that bike, we haven't bought a new one in six years. if the market cap, if there's a million people on the market for this and you sell the 500,000 of them in the first year, there's not much left to sell to it because no one's going to rebuy. Like Apple did a great job of continually forcing you, A, illegally, and then B,

coming up with minutia of features to get you to buy the new one. And it's more really just the cache of, oh, do you have a 15? You don't have the 17 plus or eight. I don't even know what fucking number it is anymore. I don't feel that. But I mean, there's a lot of people that do, right? And especially the younger people that are big on what version you have. I'm sure...

Yeah.

Alicia McKenzie (44:09.038)

Do you think our children fall prey to that?

Not now because I'm not in that environment, but I think eventually. Really? Yeah. Yeah. I was listening to a radio show this morning. They were talking about it's football related. But it's interesting how their take is the generations, like my generation, very competitive, right? Like when you play, you hate the other team. And when the game's over and you lose, you're like, fuck them. You go back to your locker room. And then now...

Let's make sure they don't.

George McKenzie(44:37.272)

The younger, like games over, like, swap jerseys, let's sell, know, the game's over, we lost, you know, just, and it's a generational thing. think younger people, it's more about playing the game, scoring the points, putting up the fantasy points, and if you lose, you lose, you win, great, and I think, I mean, I'm sure that doesn't apply to everybody, but it's interesting if that kind of culture is going everywhere, and it's like,

Do you think that's just in the DC area though? Do you think?

No, no, I think it's everywhere. It's everywhere? Yeah, I think because it's sports are becoming more me than team. And if I did great and we lost, if it was just shit, I still did great. I'll put it on my reels. I'll do all this Insta Famous and...

Interesting. So the current stock price, what do think it is? What do think it is? Give me a guess.

Okay.

George McKenzie(45:22.574)

I already looked, so I $10.

Five to seven dollars you share.

Down from 160 I hope that the founders and the early employees of Peloton sold at 160 or somewhere north of 100 I had the ability to yeah and got something out of the same with like the people that invested all that money in GameStop I'll be sold and made profit

from a high of $167.

Alicia McKenzie (45:49.624)

That market cap is now approximately $2 billion down from a high of $50 billion.

It's two billion. billion. So lost 48 billion market cap. Ugh. Yeah.

Yeah. Their subscribership is declining.

Yeah, there's too many people in that space and they don't differentiate.

So they're around 3 million, which is down from their growth trajectory.

George McKenzie(46:12.788)

And do remember when they tried to launch clothing? They did. They tried to come up with their own brand of clothing and then they got sued by Lululemon because it looked exactly the same. Because they probably couldn't, can't beat them, join them. Like we tried to do it and they sued us and we're like, yeah, it looks exactly the same.

No.

Alicia McKenzie (46:22.384)

Well, and now they're partnering with LuluLot.

Alicia McKenzie (46:30.732)

So they're still not consistently profitable, blowing through cash. I wonder, there was talks of a Peloton acquisition, wasn't there?

Yeah, there was a lot of rumors that Apple was gonna buy them when they launched the Apple fitness thing. then that kind of, because Apple, you know, crushes in the manufacturing process. But yeah, they just didn't. I mean, maybe a Nordic track or someone will do it to take market share because they have a similar environment or maybe another fitness thing will buy it because it just, you know, snaps in and can amplify their existing user base. Something to give them. But I think acquisition is probably the only way out.

Yeah, so their CEO, Barry McCarthy, stepped down in 2024. And now the board is considering going private or selling.

Yeah, yeah, I wonder if you go private though, is there an opportunity to be profitable if they're inconsistently profitable? Someone must have a vision or a plan of how do I make it consistently profitable?

Yeah. I know.

George McKenzie(47:35.212)

Yeah, I think someone buying it and just gutting it would make more sense.

I'm just, really interested to see the way out here.

Yeah. Cause you could see it. I'm a Nordic tractor has the exact same thing, right? I can just buy them, kill off the Peloton bike and tread and rower and take the personalities, take all the library of content and push it out to my user base. And I cut all the costs except for the people who are training. And then I get all those subscribers and I can maybe sell them my new bike or rower or whatever.

to replace the one they have because eventually I'll stop feeding content to it and then push all this library of new to my old people.

So think the biggest failure here for Peloton was conflating pandemic success for continued success.

George McKenzie(48:28.994)

Yeah, I think that's probably the big, it's a similar story to the McKinsey one we talked about before. It's where, you know, they expanded a little too much for the demand that they had. And I think they did the same thing. They saw this demand and it was fool's gold. They thought, hey, this is the future. Everyone's gonna be working at home. I'm gonna make this sales growth is gonna continue.

I just, who was the person in the room going, but what happens if it doesn't continue? Right? was?

No one, no one, because everyone's got stock that's now worth 160. Yeah. And it opened at 40. Yeah. everyone's forexed money. Everyone's super happy. No one wants to piss on the parade and be like, hey guys, eventually the pandemic will end and people will go back to gyms. What do we do then? We'll do the treadmill. We'll sell them the treadmill.

Right?

Alicia McKenzie (49:24.82)

Yes!

Yeah. Yeah.

And then we'll do a rower. What other stationary equipment can we make?

And you're also in an industry that's easily replicated.

Yeah, I mean, that's I think the two the moat that they had around the business. They thought they had a bigger one than they did. Yeah, and you know the luxury brand that kind of wasn't a big one. There's not a big barrier to entry like no a lot of people could enter that marketplace quickly and easily and you couldn't Differentiate enough and keep everybody away

Alicia McKenzie (49:58.902)

Yeah. So I think the interesting question here is that, if a competitor launched with 75 % of your features at 50 % of the price, would your customers stick around?

That's a good question to ask yourself. That's a great question to ask yourself. Right? And if not, why?

And I think for... Yeah. Right? I mean, I'm brand loyal to Peloton just because I'm too lazy to get the equipment out of my house.

And you've already had this capital commitment and yeah, it's sunk costs and you shouldn't evaluate it, but it's still your cost avoidance for the new stuff. Like even though the Schwinn is $700, $800 and we spent $3,000 for our Pelotons. Did we? Between them, I'm sure. I don't know. Probably more. you know, I already paid that money and I'd have to pay an additional $700 to get the Schwinn or $800 to get the Schwinn. Why would I do that? Just the one I have, as long as it works. Until one day when...

that screen doesn't work or they don't allow me to continue to receive content through it. And then you'll be like, all right, this is a piece of trash and maybe I'll reevaluate my home solution.

Alicia McKenzie (51:05.024)

Yeah, you know what's funny though is that I was working out at the St. James with a friend and I'm sitting on this rower and I'm like, I miss having a rower. And then about a month later, a brand reached out to me and they were like, hey, do you want to put a rower in your house?

Yeah, because that's probably Instagram listening to you and then saying, let me sell this data to all kinds of manufacturers of influencer that once there are.

Baby.

Alicia McKenzie (51:29.342)

I mean, so here's Hydro Row and the baby uses it and I use it. It's great.

I like to use it. excited. I like the shorter rows, like 1K. OK.

Well, it's time-based. It sounds like, here, 20... 10 minutes.

I can't for 10 minutes. I used to do two Ks in seven minutes. There was no chance I'm rowing for 10 minutes today. Five minute row?

I mean, they start with four minutes. Okay. Right. So you do your baseline training and then they gradually

George McKenzie(52:00.576)

I like that. it's something, it's a program, something to work. Yeah. Like that's I need. I've been doing the Chad GBT thing for my personal work. It's nice. It gives you a 12 week program.

Yeah, right. So if you're interested in getting into rowing, go check out Hydro Row.

I like it. I drew a friend of the pod.

the pod. All right. So your Peloton checklist for 2025, is your growth sustainable or are you riding a wave? I don't know.

Yeah. Is the moat that you have around your business deep and wide or is it narrow? Yeah, exactly.

Alicia McKenzie (52:35.278)

And what is your shit plan? Like if demand drastically drops for your service, what are you going to do?

What's the fallback?

And are you still the right CEO? I think that's a harder question.

Yeah, that's difficult to ask. Most people aren't self-aware enough for that, but it's hard.

I feel like there's a couple of cases in my head that I can think of.

George McKenzie(52:56.958)

There's some people that are, you can be self-aware and I think it just takes the right mindset of knowing exactly what you want to do and what you're good at. when you get to a point when those things don't match the role description anymore, you got to say, I can step away and still be impactful and still do the work that I'm uniquely qualified and good at. That's the hard part. That is the hard part.

Can you check your ego though?

Alicia McKenzie (53:22.918)

So, final thoughts, I feel like this Peloton story is heartbreaking only because I think they had such a good product and a great idea and they blew it all up.

Maybe, know, sometimes you get too big too fast. Yeah, and you don't know how handle the success

But it was, nobody knows how to build a company in the middle of a pandemic, It's like learning how to parent a child in the middle of a pandemic. We did so many things wrong at the beginning of this, at the beginning of 2020, right? But it's, hindsight's always makes things very clear.

Everybody did, yeah.

George McKenzie(53:58.882)

Yep, always 2020.

Yeah. All right. Any any final thoughts? Two. Okay, let's go eat.

I'm hungry.

All right.

Alicia McKenzie (54:11.234)

Thank you for tuning into Mary to the startup. We hope you enjoyed today's episode. If you did, please take a moment to like, rate, and subscribe to our podcast. Your support helps us reach more people and keeps the conversation going. If you have any questions or topics you'd like us to cover, drop me a message. I love hearing from you guys until next time.

George, out.