3 Important Lessons Any Business Can Learn From Peloton

Over the course of a year, Peloton has seen an impressive rise and a massive fall. It’s important for any kind of business to understand this story to avoid the same mistakes. 

Not many businesses go from a market cap of almost $50 billion down to approximately $12 billion within a year. 

Peloton seemed like the perfect business at the perfect time. The company has awesome products, a dedicated fanbase, and it offered the ultimate workout solution for a world in quarantine. 

So what happened?

Let’s explore Peloton’s rise and fall, and cover the most important lessons we can gain from it. 

The Rise and Fall of Peloton Explained

In case you aren’t aware, let’s quickly recap Peloton’s rollercoaster ride over the last two years.

Peloton started in 2018 as a modern fitness company that brought the gym into your home.

The company’s early growth was steady, selling over 400,000 bikes in its first few months and attracting $994 million in investments. In 2018, Peloton had a valuation of more than $4 billion. 

The company was doing well, so they went public in 2019 at $29 per share. This gave Peloton a $7.7 billion valuation, but shares closed 11% lower at the end of trading. 

This poor performance was in part due to its status as a lossmaking company. 

In 2020, Peloton saw a massive upswing in its stock price. This was thanks to pandemic-fueled growth. With gyms closed, its bikes and treadmills were perfect for people that were looking for ways to stay active at home.

This demand helped Peloton achieve a 172% surge in sales in the fourth quarter of 2020. At the same time, more than 1 million people subscribed to Peloton’s streaming classes. 

However, the pandemic had a severe impact on their supply chain. 

The company was struggling to meet demand. The result? Annoyed customers vented their frustrations online. 

In response, the company invested more than $100 million to reduce manufacturing and shipping times. It also committed a further $400 million to build a factory in Ohio a year later.

This hype around Peloton helped the company’s stock rise more than 440% to more than $170 at the beginning of 2021. Although this impressive growth wouldn’t last for long due to several reasons. 

First, as the world, and gyms, started reopening in 2021, demand for at-home exercise equipment dropped. 

Second, the fitness company was stuck in a saturated, limited market. Most people that wanted a Peloton bike or treadmill already had bought one. And they weren’t in the market for another stationary bike any time soon.

Peloton was also facing criticism for rejecting a call by the Consumer Product Safety Commission to recall its treadmill after several accidents.

Finally, in January 2022 CNBC reported that Peloton had to halt production. This was due to the decrease in post-pandemic demand which left the company with excess treadmills and bikes in their warehouses.

The Results Of Peloton’s Problems

The result of all this was an 80% drop in share price to $24.22, well below the $29 share price of the company’s stock market debut. This led investors to accuse John Foley, Peloton’s founder and CEO, and the board of mismanagement, calling for Foley’s firing and Peloton's sale.

To save at least $800 million in costs, the company went through a significant reduction in staff. They laid off 2800 employees, including 20% of company executives. Foley also stepped down as CEO, taking on the role of the executive chair instead. His replacement is Barry McCarthy, the former chief financial officer of Spotify and Netflix.

Other efforts to minimize costs include reducing the number of warehouses Peloton operates. The company will also start working with more third-party providers for deliveries. 

Finally, Peloton announced that it is winding down the development of its Ohio factory.

3 Essential Lessons Any Business Can Learn From Peloton

Peloton’s rapid rise and fall offers three great lessons for all entrepreneurs.

Lesson #1: Under-Promise, Over-Deliver

First, always under-promise and over-deliver, not the other way around. 

Peloton’s CEO had no control over supply chain issues during the pandemic, but he did have control over how they managed customers' expectations. 

Some customers were promised delivery times of seven weeks. But when their shipment was delayed, many received a simple notification with no other explanation. 

For customers that paid in the thousands for their product, this felt like a slap in the face. ‘

The result was a flood of unhappy customers posting online. Foley missed an opportunity to give consumers realistic delivery dates. Then delight them with an early delivery when the supply chain issues improved.

Lesson #2: Hope for the Best, Plan for the Worst

Second, hope for the best, but plan for the worst. 

While Foley couldn’t have predicted the pandemic and its effect on Peloton, he assumed this growth trend would continue. This left the company without a strong backup plan in place, which resulted to be a recipe for failure.

Peloton’s products target a niche market, and thanks to the pandemic, most of their target audience had bought their bike already. 

The world reopened in 2021 and demand for its products decreased. But Peloton continued with its efforts to expand manufacturing. This led to unsold products at warehouses. 

Lesson #3: Always Adapt

Finally, be like water. 

For a company to be successful, it needs to rapidly adapt to changing circumstances. Too often Peleton would be too slow to react to the market.

The company underestimated the pandemic’s impact on its growth. This led it to overinvest in products with waning demand. The result was a dramatic decline in stock price that triggered immediate action from the board. 

Summary

Peloton had a good thing going, but a few critical mistakes resulted in the company taking a massive plummet. Recovering the business will certainly be tricky. 

No matter what kind of business you operate, understanding these 3 lessons from Peloton’s story is important. They could be the secrets to your long-term success. 

Read the full story on Peloton's problems for more details.