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Peloton CEO John Foley’s departure is latest example of founders hitting a wall during crisis

February 8, 2022, 8:14 PM UTC

Peloton Interactive founder and CEO John Foley will hand over the reins to a more seasoned executive, the company said Tuesday, in a move that thrilled investors tired of the incessant string of crises hammering the once high-flying connected fitness company.

Peloton shares rose 33% in midday trading on news of his exit.

Foley, who started the company in 2012 and has faced ongoing criticism over his leadership in recent months, will cede his position to former Spotify and Netflix CFO Barry McCarthy, but will remain as executive chairman.

The Peloton case makes clear that the entrepreneurial skills needed to launch and transform a startup into a corporate behemoth are not necessarily the same as those needed to run and scale a large company that faces unique challenges and growing pains.

While founders are typically known for risk-taking, idea generation, and the ability to find market opportunity, successful CEOs often take a more measured approach, are adept at crisis management, and prioritize fiscal discipline, something Foley seemed to concede in a letter to shareholders.

“I’m incredibly proud to have worked with such talented teammates over the years who have helped me build Peloton into what it is today, and I’m confident that Barry is the right leader to take the company into its next phase of growth,“ he wrote.

Foley is just the latest example of a founder-CEO relinquishing management control as the company scales and adapts. In 2018, Chipotle Mexican Grill’s cofounder-CEO departed after the company struggled to come back from a food safety crisis. The fashion tech company Stitch Fix more recently welcomed a CEO to replace its founder amid business expansion woes, and Groupon famously fired its irreverent founder-CEO in 2013 as it sought steadier leadership.

ANOTHER REVENUE FORECAST CUT

On Tuesday, Peloton cut its revenue forecast for the fiscal year ending in June for the second time, down from $4.8 billion to around $3.8 billion. Just six months ago, Peloton forecasted a fiscal 2022 revenue of $5.4 billion, underscoring a decline in demand for the company’s products after a pandemic-driven boom.

Peloton will also cut some 2,800 jobs, and expects to slash roughly $800 million in annual costs and reduce capital expenditures by about $150 million this year. In addition, it plans to cease development of its $400 million factory, Peloton Output Park. That its next CEO is a former finance chief, rather than an operator, illustrates the corporate finance competence and strategic leadership know-how that’s needed to run a fast-growing company.

In 2020, Peloton sales soared and shares quintupled thanks to housebound Americans eager to maintain fitness routines. But Peloton struggled to meet demand later that year, leading to countless unfulfilled delivery promises that angered customers. The company soon bought Precor, a manufacturing company, for $420 million in an effort to meet demand for its products and reduce the wait times.

By November 2021, fears arose that the acquisition had been an overcorrection to high demand when Foley, in an earnings call, admitted slowing business growth and difficulty winning over young customers who viewed the product as too expensive. Last month, Peloton announced a six-week suspension for certain products effective this spring.

Peloton has also grappled with communications crises in recent years. Last April, analysts upbraided Foley for his tone-deaf response to a recall of one of its treadmill lines, which involved the death of a child.

With about 80% of voting power, Foley will still have sway at Peloton. But in McCarthy, the fitness company will have a CEO who some believe is better equipped to manage the company’s financial operations and burnish its public image.

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