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The fall of Peloton’s John Foley and the market’s big founder problem


John Foley is the co-founder of Peloton Interactive Inc. and the chief executive officer. He poses for a photo in front the Nasdaq Marketplace in New York on Thursday September 26, 2019.

Michael Nagle | Bloomberg | Getty Images

It took approximately two months. Peloton’sJohn Foley, founder of IPO appeared on “Closing Bell” with CNBC where he praised the “predictability” of revenue for the connected fitness company.

“We are able to increase and keep the landings in what we say to the Street, our board, and our investors.” [about]Foley stated how they would grow in the Nov. 5th 2019 interview.

That’s a very different tone from what Foley said on the company’s second-quarter fiscal 2022 conference call on Feb. 8, where he acknowledged that the company had “made missteps along the way,” that it was “holding ourselves accountable,” and he was going to “own” that — which 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.

Peloton, two-time champion CNBC Disruptor 50 companyFoley had led the company since its inception in 2012. His fellow founders Yony Feng and Tom Cortese have also remained senior executives. Graham Stanton was the other cofounder of the company, and he left it in March 2020. However, he continues to be an advisor according to his LinkedIn.

Peloton has had a bumpy ride that saw its stock prices drop by more than 73% during the past year. It raises questions about the longevity of a founder-CEO, like Foley, post-IPO. Especially if it starts looking more like a HIIT/hills run than a smooth one.

It is a varied track record. One side is Jeff Bezos, a founder who has remained as the CEO for over 20 years. AmazonIPO that saw huge growth. There’s Steve Jobs. He left Apple in tension with the board after hiring John Sculley as “professional CEO”, only to return and oversee one of most significant business turnarounds ever recorded. There are also other options. GrouponAndrew Mason, founder, was dismissed in 2013 as CEO after a number of Wall Street errors, falling stock prices and public mishaps.

Jeffrey Sonnenfeld, Yale School of Management senior associate dean, leadership studies, stated that, 20-30 years ago, venture capitalists were pushing for founding management to be removed at the most critical stage of a company’s history. “Then the professional management came in,” he explained.

It’s less common now. Sonnenfeld explained that this is due to having an experienced group of leaders who have experience managing companies through different lifecycles. Foley did, with Barnes & Noble and other start-ups. He said there were bad reasons as well, like founder shares that guarantee your leader-forlife status in an empire. Foley, along with other insiders, will still hold about 60% of Peloton’s voting stock.

Peloton responded to press requests for comment.

Is it the right time to let go of a founder?

In technology, there are more founders than ever before. Manish Sood founded Reltio cloud data management firm. wrote in a 2020 CNBC op-ed that the reason he replaced himself as CEO after nearly a decade in charge is that he “recognized that to sustain predictable hyper-growth requires a special set of skills, and Reltio would require a CEO with experience leading public companies.”

Sood said, “Preparing yourself for growth requires courage at every stage.” Because they are fervent believers in a unique vision, entrepreneurs can often put their lives at risk when starting businesses. Sometimes they face seemingly impossible obstacles. You need to have a lot of knowledge to know when a company is in need of a pivot.

Jack Dorsey was likewise moved when he unexpectedly retired as TwitterIn November, CEO

There is a lot of discussion about how important it is for a company to be ‘founder-led. Ultimately I believe that’s severely limiting and a single point of failure…I believe it’s critical a company can stand on its own, free of its founder’s influence or direction,” Dorsey wrote in a memo to Twitter employees.

Some efforts have been made to determine the shelf life of founder-CEOs. Recently, Harvard Business Review study of the financial performance of more than 2,000 publicly traded companies found that on average, founder-led companies outperform those with non-founder CEOs.

This difference drops to zero after three years, which is when founder-CEOs “actually begin detracting firm value.”

The authors stated that data showed that founder-CEOs increase firm value prior to and during IPO. This suggests that a founder friendly approach makes sense for VCs who often invest in companies that are still at their early stages, and then cash out soon after they IPO. “However, given our finding that on average, post-IPO performance is lower for firms with founder-CEOs, investors looking to get in after a company has already gone public would be wise to take a less founder-friendly approach — and investors, board members, and executive teams alike will benefit from proactively encouraging founder-CEOs to move on before they reach their expiration dates.”

Peloton is still uncertain about its future and whether it will be able to regain momentum that helped it become a major player in the industry.

Barry McCarthy, the company’s CEO, spoke of his experiences working with Reed Hastings (visionary founder) and Daniel Ek. NetflixAnd Spotify, respectively, in his first email to Peloton staffCNBC received the statement by stating that he “now partners with John.” [Foley]”To create magic of the same sort.”

It is extremely difficult to find the right product/market match. It is rare. McCarthy stated that McCarthy believes we possess it. The challenge now for us is to create the other parts of our business model, so we can compete in the market and Wall Street.

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