support for how I built this and the following message come from American Express You want to build your business They can help build your business with financing solutions for eligible business customers The powerful backing of American Express Don't do business without it Terms apply Visit americanexpress dot com slash business So really quick Before we start the show I want to tell you about a live event we are about to do in Portland Oregon on Thursday May sixteenth I'LL be talking with Seth Tibbett He's the founder and CEO of Tofurky The show is supported by American Express and our other live events have sold out fast So to get tickets go to NPR presents dot or GE and hope to see you in Portland E I was nobody from Key Largo and here are named venture capitalists I mean I don't want to call him out by name but think of twenty Venture Capital's you've heard their name I'm sitting there and they're saying No this is Dom No thank you And you're like Who am I to think that this named person at this name shop is wrong from NPR It's how I build this show of that innovators entrepreneurs idealists and stories behind the movements they built I'm guy rising on the show today How man Who knew almost nothing about fitness media or technology built a brand that does all three pellet on high tech home fitness company valued at more than four billion dollars So it's hard to account for all the money generated by the fitness industry in the U S But if you factor in gym memberships alone it's around thirty billion dollars a year and that number is growing and not just because people are becoming more health conscious A lot of that growth is being driven by what's called the boutique fitness category Things like bar yoga spin studios you know smaller gyms that do one thing But do it really well now The thing about all of these options is that for the most part you need to book a slot which is fine if you're super organized but not so great If you forget which is where John Foley was back in two thousand eleven he realised that a spinning class could onley accommodate the twenty or thirty people in the room Basically the class couldn't be scaled beyond the number of spin bikes available But what if you could scale And what if that very same class reach a thousand people or five thousand people or an unlimited number of people And what if you didn't even need to make a reservation Well that idea started to swirl around in John Foley's head and he couldn't shake it But there were a few problems For starters John knew nothing about the fitness industry Second he didn't know much about technology at least things like coding or how to make software Third he was in his forties with kids a mortgage and a pretty safe job And finally and this is a common situation He didn't have any money to launch it And yet just eight years later John Foley has built Pellet on into a business that's been valued at more than four billion dollars So headed to get there Well we invited John to tell a story in front of a live audience in New York City John actually grew up in a small town in the Florida Keys His dad was an airline pilot and his mom stayed at home to help run the household John's first jobs were in fast food In fact in the nineteen eighties he would work at McDonald's when these and Domino's Pizza But by the time he got to college John moved on to candy When I was nineteen years old I got a coop job in Waco Texas Att A manufacturing plant making Skittles starburst Snickers and Twix Yeah wow it's a dream job Wass Modern day Willy Wonka We made six million snicker bars a day Wow just for North America's wild stuff I wore a hair net hard hat steel toe shoes in a uniform working midnights shifts for five years to pay my way through college I don't know I don't recommend it Don't Don't have your kid to do it because you you studied industrial engineering right That's right And so the Mars job was really kind of put you through school or was that was potentially going to be a career Yeah it was good It was both It was uh get my foot in the door so you can get a job when you graduate And so when you were at at Mars you were mainly doing like you're on the production line for all those six years Exactly Yes Candy Jack Lemmon And get lots of skittles I ended up being responsible for Skittles and Starburst manufacturer in North America managing two hundred people when I was twenty years twenty two years old and was great experience and it felt like a good job They paid well and they treated me well And I was I saw myself spending the rest of my life and white go Yeah Can you eat Skittles today I don't know They're great They're They're I don't know if you guys have had skittles on Halloween You get your fill of starburst in Skittles here on DH then you I guess you're sort of first Kind of Maybe grown up job was with a tech company in your early twenties Yeah there was a little bridge there where I went out to l A for cal Can pedigree whiskers Sheba pet food which was the division of Mars So a twenty five years old I said Hey I'm kind of realized I didn't want to spend the rest of my life in Waco and I requested a transfer within Mars to L A Where I started making pet food and Vernon which is the meat packing district of Elliot's pretty pretty grim scene itself But that was what's got me to L A And then I made the jump over to the tech company And what was that company So it was It was in nineteen ninety six and you guys all followed it like idea are or know that in ninety six the dot com was exploding the Internet was a thing and there's a company called City search dot com A lot ofyou My room Oh yeah I went over and you guys appreciate this Now it's you guys know this dot com Start ups are Superfund super dynamic There's interesting people It was quite a contrast to the manufacturing world in Waco Texas where people who are going to you know kind of punching the clock Literally literally we punch the clock on DSO is a totally different style person and I just fell in love with the idea that you can work with great people that challenge you that motivate you that they're your age and they're also ready to take over the world It was it was I found my people over at city search But you decide after a year or two in L A at city search to go to business school to goto Harvard Business School That's right on DH coming from you know the Florida Keys and going to Georgia Tech was an engineer and then beating Waco I just didn't know the world and I wasn't very exposed I wasn't very savvy I wasn't very confident And all these hot shot people at City search we're way over educated and they all went to these fancy schools and I was very intimidated by him They worked the you know internships at Goldman and McKenzie and they were this and that And so I just didn't know that whether I could hang with them and my brother in law encourage me to ply to Harvard Stanford and Columbia he said If you're going to go toe business goal try to go to the one of the best I got the rejection from Stanford but luckily I got I got on HBS and it was very excited It in many ways change my trajectory because it gave me the confidence to know that no one is that much smarter than the next person and everyone's trying to figure it out And and so it was It was a transformative opportunity for So when you got there you didn't feel like you've got there and thought you know what Actually they're not that I'm any more impressive than anyone else for sure After two years I got there and was incredibly intimidating Yeah the language you talk when you know when you're when you grew up in New York City And your parents work at Goldman Sachs Your talk I didn't want investment bank was so even I knew that T I be the bank of the keys on that was That's where you've got your checks Cashed That was a bank huh S Oh I didn't know anything about much on I learned a ton So it was It was cool All right so you get out of H B s and you got all these options What do you want to go It's funny I got a job at BMG Music which was this you know it was it was my dream to work in the music industry and it was in two thousand won it was the recession And so I accepted the job And six months later when I was set to start I was going to go away to Italy for a week and I called the HR director and I said Hey I'm gonna be out of the country for the next week If you need to reach me here is there and she's like Oh my gosh no one's called you And I said Wait is that what you mean When I was called me she's like Oh gosh you need to talk to so and so turns out because of the Napster disruption of that was right around that time where the music industry is being decimated my job had gone away My whole department had gone away And so I was sitting there coming out of HBS in this recession with no job and I had to sign a lease in New York City and I spent four months trying to get a job calling back people and they're like Oh you know you turned us down to screw you So we're doing down So I went back Tio what was then I see Ticketmaster citysearch The people that I work with prior right And truth be told my brother in law who was the CEO of Ticketmaster picked me up and dusted me off and gave me an opportunity kind of forced role because he cared about me And and it was It was a moment that that I needed so ticket to go to Ticketmaster Ticketmaster owned by I see which is a bigger That's right Ticketmaster and Citysearch had merged so it was still the same people that I had left They had just bought this tiny company called dot com that interestingly you'LL appreciate this AA lot of budding entrepreneurs listening This they had poured I believe forty five million dollars into building Invite on And I think we bought it for three million dollars because it was two thousand one and everything had crashed Wow And so it had at one point one hundred twenty people I got it down to six people and so you were like running a startup within a bigger organization That's right and this is a tiny tiny business that effectively meant nothing And so there wasn't a lot of pressure but we were the little engine that could We saw it becoming something massive And so we put pressure on ourselves We had a lot of fun trying toe pull a rabbit out of a hat and did you grow it We grew it you know substantially from called it a million dollars top line to twenty five million dollars top line and profitable So you know in relative terms successful but still meant nothing to anyone But I see So you are guest still in your maybe late twenties or early thirties By that point I guess in a way that's right And were you married by that point I was not right around that time I think was thirty two I was meeting my wife Jill who was was living an ally Booze That was right around the time So so kind of Take me back to your mindset at that time were you Were you entrepreneurial and the way you thought about the world Did you think you know I think I want to run a business Or were you really focused on the kind of security in the stability of working in a big organization Right around that time I was starting to become entrepreneurial in mind because I was surrounded by these type of people and you're seeing people take risks and get the reward And I was starting to become have more belief in myself There was enough of that conversation around the water cooler that I was starting to get that bug to go do something and I guess sort of towards the end of the first decade of the two thousands you jump to Barnes and Noble That's right How did that happen So my body got him William Lynch became the CEO Barnes and Noble And everyone knows that Barnes and Noble in two thousand ten was challenged Visa VI Amazon But if anyone read barbarians at the gate where they are private equity companies attacking something I'm trying to take it private Taking a company private sounded like a pretty fun pirate Tight you know take the ship exciting That was the goal That was the goal But way we're unable to do it I mean you were involved with the digital side of ours No but we know it was going on with the That's a retail side It was sort of in freefall So what was going on with the part of company you were running I mean was it Imagine it was losing a lot of money Yeah exactly Trying to compete with Amazon fifteen years late I mean you don't wish on your worst enemy competing It's Amazon and they're in there in their core category Right So it was pretty rough And yes yes we were losing money So were you starting Tio at that point two thousand ten Two thousand eleven Starting to think All right I got to come up with the next thing Yeah I mean at this point I'm anxious I'm you know forty I wanted to be you know big And I'm just kind of spinning in my wheels and I hadn't found anywhere to anywhere to go Sorry Coming It's coming But you say you wanted to be big What do you mean by that What does that actually mean I don't know I'm a competitive guy and I study I study everything I read every business book I listened every how I built this I really am a student of business And after years and years and years of this I'd say I think I'm a CZ good is that is that person I just heard You know someone might think I'm better And so you know what about me I think I could do it Give me a chance And so I was starting to become pretty anxious and wanted to prove myself So two thousand eleven you're still at Barnes and Noble and you get an idea for a company that would become the one that you now run How How did that happen So like a lot of New Yorkers I'm guessing a lot of you here Boutique fitness was exploding in New York City Soulcycle flywheel Barry's bootcamp Yoga had been around for a long time I done spin back in the nineties and Ella and I clearly I felt that the boutique instructor led group fitness High energy programed experience was better than going to the gym It was more fun than going for a six mile run by yourself It was more fun than going to the old big box Jim and trying to throw around the weights and get on a treadmill and get yourself excited And so I had tasted this content and I said This is This is good People want this I want this But it was at a different location at somebody else's time You had to pay a lot of money to get that experience And interestingly my wife who is probably works out two or three times more week than idea she's She's a poster child for this stuff She premeditate sir workouts for the week and she'LL say Okay next Thursday morning I'm gonna wake up at six and go to this class And so let me see your schedule and reserve my bike and I just didn't do that I didn't don't have that gene I'm thinking at ten o'Clock at night before I go to bed right now and I'm going to set the alarm tomorrow right And that's how I think It's so so effectively because the good locations and the good instructors are sold out so quick that I wasn't able to go to them I was boxed out of it and I said if the's classes sellout these fifty bikes sellout in thirty seconds would there be five hundred people If it was infinite room would there be five hundred people that wanted it with me you know two thousand people in New York that would want that great time and a great instructor if you could scale it globally would there be fifty thousand people Five million people that would want that great instructor at that great time And so I said it It just started to scream distributed technology play and obviously knew enough about technology that got me excited Do you talk to your wife right away Do you say I've got this amazing idea or was it more of a slow burn I think it was an amazing idea It was Honey your your words your words not mine Oh it was I think it came to me and I said I think you can digitize that experience and building hardware and software platform for consuming fitness content at home So the light bulb went off What was the description gave So take me back to two thousand eleven I'm at your house and you're like Hey I have this great idea What do you What do you telling me Yeah it's It's effectively Pellet on bike It was Here's a big screen And here is a bike that talks to the screen So you have metrics in a competition of motivation You have a leader board You have great instructors I knew enough about the content and the celebrity that you could If you had the global scale you could pay for the best instructors And in a lot of these things content is king As a lot of you guys who are kind of stores of the category you know that And some Sometimes you're say yoga Your yoga instructor is more important than the yoga studio If your yoga instructor went to a different studio you might follow him or her And so the content really is important And I said we could get the best people And so I explained the whole thing and I did go home and talk to my wife about it She knew the category She knew me and she's nodding and luckily she was behind it very early because you know I think for the rest of this podcast we'LL talk about the bone crushing next seven years Thank thankfully she believed in the idea Who's the first sort of serious person you call to say They won't tell you about this because you needed to presumably do this with somebody else Yeah there were There were three phone calls I made my mentor John Pleasant's You know he just started job Disney And so he dragged me on a Disney cruise and way pulled out to spin bikes and I was pretending to coach him through I was like Say there's a screen here and I It was on the bikes coaching him through I was like Stand up and he didn't stand up I was like No you have to stand and do what I say So I saw it all right Now we're card down to turn the knob And I worked him through for ten minutes of folk class and he said that he's like I get it that that was better than I would have done myself And so the light bulb went off in his head So he was an early investor so I got him Then I called to my co founders have got him in South Kushi who's our star general counsel and one of my best friends And he knew how to start a company like one of the things is once you have an idea And you're pregnant with starting the company and have a backer What'd you do then What do you write for Parade in Delaware Like all that stuff You've no idea how to start coming So he was instrumental and he was a very smart guy And so he advanced You know he wasn't just the legal guy was he was co founder Never since And then a third co founder Tom Cortez E Who is just And he had worked with you And I see that's right He'd worked with me before and he's I would never start another company without him He's just so can do and positive And so I sat with him Assi remembers There was a bottle of wine and some sushi takeout and at the end of it is I come in So with you get a little bit of momentum of getting some other people on board and things become more riel when there's other people that jump of the fox always So it was that easy to convince those guys too presumably leave their jobs or to a side hustle with you on this By the way you were still at Barnes Noble At that time I was But truth be told guy his sow it was about two years before he left his job So he was moonlighting so he didn't have to take the risk And Tom was out of work so it wasn't What are you always want to go to somebody who's out of work That's what we're trying to find a co founder right He's the best Tifico founder All right so you've got these You've got these friends and you got to start coming up with a concept But from what I understand the one of the first steps you you did was to go out and just raise some seed money from That's right That's right on DH You pitched people you knew or people in your network or people that those guys knew the seed round was was relatively easy It was for hundred thousand dollars at one point six million pre money valuation So two million post and you raises from like hundreds of people write No this was this was from think eight people and it was people who just knew me and trusted me and loved me and it worked with me in the past So it was my best friend's dad who had some money Not a lot of money but enough that he was willing to give me fifty thousand which was the big check and then my brother in law who had made a couple million dollars in his life So it was one of the richest people I knew and he was willing to give him Remember the text I said Were you in for twenty five And he said he sent me a picture of Fitty Cent He's like No I'm in for fifty He's a very excited He's a very excitable guy So you were like raising twenty five thousand fifty thousand here and there and the valuation was one point six million dollars That's right Well she wasn't that exactly so initially your idea was Let's just buy off the shelf stuff Let's get enough the shelf bike and let's get enough the shelf tablet and let's try to do it that way Yeah that's right I mean for all of you budding entrepreneurs Software is easiest Saw appear Software company is easiest to do and it's easy stories money for every venture capitalist is looking for the next Instagram where you put two hundred fifty thousand dollars in on eighteen months later it sells for a billion dollars So we was trying to think Can we be software on Lee And we started to look at the but we started to do a deep research on the on the bikes in the category And as you probably know the fitness equipment categories incredibly dopey no tack no design and just didn't feel like there was a bike that met the bar of the call of quality we wanted So then we started thinking Guys let's make a bike and let's have a dongle to plug in your iPad Everybody's got an iPad And I kept coming back in my mind to thie clock radio and your Holiday Inn that has the iPhone for dongle And I said I don't want to be that company that was so dumb because your product is made irrelevant based on some other companies hardware cycles And so I said I think you've got to make the tablet By the way this wasn't me This was our founding team We were coming to this together but these were the decisions that we make So you have You've got some seed money You get some office space I think in in Manhattan That's right And even before you started to think about the actual bike right you went to flywheel You went to Saul Cycle You said Hey do you want a partner with me on this Is that Is that what you did That's right We went to Soulcycle Apply what we said You guys have instructors You guys have studios You guys make content This is what you guys do were technologists We're going to build a hardware and software platform What about we come together It seemed very obvious that that would be good for us and good for them So I like a joint venture Almost Yeah exactly And we got we got a couple weeks into a term sheet with flywheel on Then they backed away They just gone through a financing around and it didn't make sense with their new investor Soulcycle It was tricky The only there was enough human chemistry with the team They were very big We were nobody's So the conversation was kind of one sided right in a way that I thought it would be the conversation of equals But they were doing so well and getting so much affirmation from there right there community that right it wasn't a conversation of equal so it didn't Didn't go over so it didn't work out And you decide All right we got to build this bike By the way you still were goingto like soul cycle classes and flywheel classes right Like you like going to those classes I did Yes And what were you living Well we have all of us very quickly Got kicked out of flywheel in soul cycle Wait You're saying that you you're no A class and somebody kicked you out Yes They like monitors there Like they were like Oh there's John Foley He's goingto be our competitors So what What happened It Because I don't know if you guys follow it It's a very territorial category especially in New York the flywheel in soul cycle And you and you had Julian Elizabeth on the show right now I'm friendly with But because of because the Ruth Zuckerman defection all right she had started with them and then she went to she didn't defect That's in that Despite that they separated right on DH She She's amazing woman I love Earth She went to start flywheel And so there was a lot of vitriol between the two companies and I understand I mean it wasn't it wasn't personal It was It's competitive and you can I can understand it All right so you've got some seed money and you've got to build a bicycle Now how do you even start like what do you like Weird Even go to find out how to build a stationary spin cycle Yeah we went to Taiwan to trade shows super fun By the way there's incredible if you go to type fighters fly Eva air to Taipei and go to one of these trade shows Your mind is it really opened up with so much manufacturing and technology and its interesting stuff over there But we must first two years of pulling the thread through the technology and doing prototypes and testing and tasting the dog food and getting people on the prototypes that it was so fun The tough thing was those years we just didn't have any money So we were always about toe run out of money And when you when you have a vision and you have people you need capital to build a business and when it's not there it's very scary and it's very stressful So yeah I'm wondering I mean when you went to manufacturing spin bike is really expensive So did you start to go to VC firms And I asked them for money I would bet a pitched three times a day for four years Wow between thousands of angels that ended up giving the first we have one hundred angels to get the first ten million But in order to get a hundred angels at my success rate I probably pitched three thousand people and then the fourth of the four hundred institutions that all said no All of them all of them s O It was one hundred angels that gave us the first ten million And then finally after almost three years Tiger Global which is a New York City based venture capitalist thankfully because the valley out in Sandal Road the valley didn't see what was happening in New York City with the boutique fitness movement that I'd go out there and they would say There's two types of biking out here John Mountain biking and rode by candlelight Okay great him Hey And that they just didn't see what was happening And it was It was a blind spot for them So luckily there were There were some Venture capitalist and Lee fix l A visionary Tiger Global saw it And they were They were the first institutional check But over that three year period from two thousand eleven to two thousand thirteen fourteen when you were pitching and pitching and pitching relentlessly pitching and tryingto also you know run a business that must have sort of been difficult I mean I can't imagine that Maybe not but I can imagine you wouldn't have had some self doubt Sure There there was There were There were quarters in years where there was incredible self doubt I mean it had to be I mean I was a nobody from Key Largo and here are named venture capitalists I mean I don't want to call him out by name but think of twenty Venture Capitalist You've heard their name I'm sitting there and they're saying No this is Dom No thank you And you're like Who am I to think that this named person at this name shop is wrong Yeah I mean just sitting in their shoes for psych It's super complicated It's really expensive to produce That's right There's no market data about it And so what did you what was your response That was the frustrating thing Is that no market data Because we created a category in a sense And I thought when the venture capitalist heard that they would say Wow this is true vision This is true disruption Absolutely let me in And they were saying No there's no research There's no that They look for what's called pattern recognition and there wasn't a pattern and what we're doing And so you know it was it was frustrating because I saw it clear as day are our early members and customers saw it They were saying Oh my gosh this things changed my life there They're going crazy for it And still the investors weren't there You had two kids were in the mid forty so you're not twenty one twenty two year old Rahman I mean there's the stakes were high Stakes are very high and it's fun One point I told my wife All right we're going to sell her for one because we need we need the money It doesn't sound very smart but you're desperate Yeah And in the early days are when we had engineers and we had very little money And you have to pay engineers a lot of money to get great engineers and give them a lot of equity Obviously I clean the bathrooms and I vacuumed every day for three years in this little place we had and I kept it clean because we couldn't afford a cleaning office And I didn't want anyone else distracted with cleaning So you know I was that guy But then I turned into the fundraiser on DH We made it work Obviously we're sitting here but it was very very dark days for a long time when we come back Help L Aton eventually made enough money for John to stop cleaning the bathrooms and how the company then went on to become a major force in the world of fitness Stay with us I'm Guy Raz and you're listening to how I built this from NPR support for this podcast comes from American Express director of global sales strategy Chase Hae In's explains how American Express works with their customers to find the right financial solution for their business It's a lot like solving a puzzle Each customer's different Each business is different We really want to understand what your goals are for the year for three years out and what would extra financing due to help you achieve those aspirations One of our customers is a long standing family run restaurant and the son's dream was to open up a second location Finances were a little bit tough as they were just running the business and we're able to partner with him understand exactly what he needed and help him open up that second location and now they're onto their third So whether it's a need to open a second location or fulfill a big new order we want to make sure that we're there for you along that journey American Express wants to help you move your business forward with flexible financing solutions Chat with them today to see if you're eligible or visit americanexpress dot com slash business tto Learn more terms Apply before we get back to the show I want tell you about another podcast I host Deaver Think that Fortune one hundred CEOs have sleepless nights or that four star generals get anxiety or that big city mayors gets scared How the greatest leaders in the world navigate crisis and setbacks and how did they learn to become leaders Find out on my new podcast Wisdom From the top It's available exclusively on Luminary a new podcast app that lets you hear your favorite shows and exclusive ones from people like Trevor Noah Lena Dunham and Roxane Gay You can download the luminary app to your smartphone or check out luminary podcasts dot com to sign up to Listen right now Hey welcome back to how I built this from NPR Guy Raz So it's two thousand thirteen John Foley is out trying to raise money trying to keep Pellet on a float And meanwhile his co founders designing a bike that's supposed to offer a high tech alternative to the typical homework out But when the first prototype arrived there was a big problem So if you know the spinal tap where it was eighteen inches not eighteen feet there was there was a little scale problem where the first the first prototype was about forty percent Too big It was like we looked at it like Wow that's a fig's indoor cycling So funny we have a good friend of ours Lauren Salamanca who is a tall beautiful woman and way needed some marketing So you know she's you know five eleven or something And we said Can you come model this bike so that the proportions look a little bit more normal Isaac Trick photography Yeah exactly So that was the first improvisation we had to do with that One of the one of the first product And was the bike as great as you had hoped to be I mean aside from the giant scale Yeah the next prototype that we got that we got to scale right we were much closer to launch and we were much more anxious with what with the next bite They came off the crate from Taiwan and we got on it We're excited to look great with the right scale and we put the tablet on and I think my wife got on it to ride it because she was often our muse to test things out and the whole thing started wobbling the screen She couldn't watch the instructor because the screen was wobbling so much and we tightened everything down Tine Everything down still wobbling like crazy And we realised there was just fundamental design flaws with entire bike But you around that time you had to do a kick start like you guys decide a launch Kickstarter That's right And kick starters require a video That's right So you've got a wobbly Viking giant bike So So what do you How do you make the kickstarter video Well we uh it's the fake it till you make it or sell it on We say you gotta rob a few gas stations on the way the perfect crime on So what you do is you ask the model in the kickstarter video to not really ride it to you know be very delicate So and we can cast it doesn't shake So it doesn't shake and we know that we've got a little more time to work the kinks out Intern trying you know problem solved the wobble when you guys did the kickstarter was that actually to raise necessary money Or was it more of a marketing thing It was both but we were very excited about the raising money piece of it and it turns out it was a flop It was incredibly disappointing We thought Here's a video is a four minute video tells you everything you need to know about Pelt on and two hundred people I guess we've raised two hundred thousand two hundred people bought and one hundred of them were investors So it was you know you know back to the drawing board Do we have a business how we're going to sell this thing It was it was a moment I mean at that point you are building Bike said I think the kickstarter you sold them for fifteen hundred were people our investors and maybe other skeptics kind of pushing back and saying That's just too expensive No one's going to buy that one interesting thing A couple months after the kick started the thing we launched a website and we started pricing it at twelve hundred dollars because it was just over twelve hundred dollars was our costume were like Let's price it it cost because we have the subscription digital content business model that comes afterwards so we don't need to make any money And we weren't selling any A twelve hundred and someone told me that a twelve hundred dollars it seems cheap It sounds cheap And so we said Well let's increase the price And we increased the price and impossible to truly tell But it seemed like the velocity of sales increased So you have a piece of hardware you're building the software for it Oh and by the way you have to be a TV production company That's right You have to build a broadcast quality studio And by the way how big was your office Like in terms of square footage It was probably a two thousand square feet And yet how many people were working in there at that point is probably twenty twenty five people And what did you guys know about TV production Zero What What do you do like what's your first step You so so we wasn't saying we would on Wikipedia research Okay television production camera And you'd see here's the really expensive one hears the medium one and oh a fun thing is we were Our office was right by being H photo So you going to be in a photo and you talk to somebody and say this is what we want to dio and they help you I mean this is the learning This is the fun stuff of entrepreneurship we love these days And what What was that What did that first production studio actually look like Was it a professional kind of studio No it was It was basically the back of our office We hung a curtain and put four stationary bikes and put a camera just like a static camera A static camera Exactly Against the wall We rented some lights some studio lights I think we had our cto Yoni as a fake instructor You know kind of do the first class before because it's his way Before we could convince any instructor to join our team this's created so many moving parts Yeah there's the bike There's the software There's getting instructors There's a productive e production So how do you get instructors I mean I have to assume most of the great instructors are already working at Flywheel soulcycle or other places Yeah sure So we I put I put an ad on Social because you can't afford realize who you just posting things on social And it was Politan is looking for the ten best instructors in the world and it's just ridiculous Bombastic I get it But it was we were and so let's see who see who bites And so I remember one of the first The first instructor that we hired was a woman Agent Sherman who was a big deal I gotta love Jen she said Look new further I have the e mail She has the email it So it was a moment and her personality was captured in it She's such a fun Charismatic believes in herself She he everything about a personality came out in this email and she's like You've found your person and we did And then quickly Robin took a risk That was awesome Hey and ah Cody than not to distant There was there was an energy and we tell him what we're doing and I think they you know enough of Messiah We didn't have a studio at that point We didn't have stores They don't know how we're going to sell these things and that's one wondering I mean how did you even how you get the word out about this And what was your distribution model How you going to sell them Yeah sure An office in Manhattan who's watching the streaming videos That's right At that time we had this product that we thought was awesome and the website was up and no one was coming to the website So we start doing some Facebook ads and you know a trickle of sales came in but not nearly fast enough to build a business So we we thought about having a pop up in Grand Central because we're like we want to breach commuters Seems perfect couldn't get the right spot But I think he was either Tom Cortez E or Ryan Angle This young young guy on her team had the idea of going out to Short Hills Mall and finding out whether they had a pop up location Short Hills because it's the trendsetting capital of America Just well what do you want Ari Short Hills and early days to your point if you have a two thousand dollar product you do think the lowest hanging fruit is going to be affluent neighborhood And that's an affluent neighborhoods incredibly affluent I'd never been there I'd never heard of it And I ended up not going because I was still in the deep dark days of fundraising Somebody else launched the retail It was a combination of Ryan Angle and Tom and But we did run the math and we said We need to sell one bike a day in order to make this work And how did it do ever Was it like a curiosity I mean but by the way shopping malls are right on the decline right They're fewer and fewer There's There's less less foot traffic and shopping malls so that was kind of a risk But what did what happened People check it out Yeah it was looking back It sze amazing To me it's still miracle that it's that this happened but you think about who's going to come in walked by a store in a mall they've never heard of Come in and check out a bike and get two thousand dollars and the credit card out and say I want one once a day every day somebody's gonna come in to buy palate on bike very quickly We were selling five bikes today and it was just mind boggling That's just people never heard of the same I will tell you interestingly guy the main objection back then wasn't the price it was What What happens to this bike when you guys go bankrupt right Right I mean a legitimate question That's a star Totally legitimate question I'm picking up ninety five percent of start ups go bankrupt I have no idea but it's it's a material you know sharing majority and I had a good answer which was If you're paying the subscription we can keep an Amazon Web services server going and park the content up there and stream to the bikes because the economics will be we'Ll still work for the business So in bankruptcy whoever gets this asset of the annuity of they I had I had a story where sometimes and how much content I mean if you are early adopter if you're buying this the Short Hills mall how much content was available at the time of ten classes They were filmed in that back room but they weren't live yet They weren't live yet Yeah so it was You know it was five months before we had our studio in Chelsea open So you were still selling a dream But I will tell you Visa VI I mean even one Gen Sherman class in a cheesy you know for bike studio in the back of her office Her personality came out and you get on it and you put your headphones on You're like I can't take this any time I want it by the way Then click over and you get to take a rob in class And enough was there that you're like I get it and you're going to add classes every week Sure we're adding class every week and they got excited And if you like fitness and you like to take you know risk taking it was it was fun So at what point are you able to go back to some of those investors and say Look I have this model now I can show you the you know where this is heading Uh when When did you start to get a better reception from them So the frustrating thing guy on that vector is a lot of people would say I'm gonna wait to see if there's bike sales I'm gonna wait to see if people want this broad right I go back to those same people and they're like So you're selling bikes But this is a subscription digital content business model They might buy the bike and they might churn after a year Come back after you have more court data After a year or two on the churn of the subscription I was like Wow come on I can't get two years down the road if I don't have more money Were you surprised at how risk averse a lot of these VC firms are Incredibly I was Yeah absolutely I was heartened to moralize And you think venture capitalists you know want to have a vision and take risks But your absolute right guy they minimize risk and and you get it If their shepherd in your capital they want minimal risk But it didn't didn't make sense to me at the time And still half dozen So you get the pop up shop Presumably you're online Where are two thousand fourteen I mean February that I'm assuming that pop up shop closes So now how are you selling The bike's Know we were able Teo renew the lease on Short Hills and we said Wow this is working Let's go get a couple more locations We had four locations and we started selling bikes Mole in shopping malls all the shopping malls So is it Was it something that you guys felt customers or potential customers had to try that if they just saw it online It wasn't it wasn't really going to be enough because it's a big ask right You're asking people to shell out a considerable amount of money And no matter how you make the argument look over you know over food Over time we're going to save money on gym membership It's still it's a big one time cost At that time Did you feel like way got to get this in front of people People have to sit on it and try it That that was exactly right God it was you and your wife would walk up and I profile you and I'd say Okay she's probably Soulcycle He's probably our outdoor cyclist or whatever there is there is some gender bias and fitness One of you would get on the bike within two minutes of me talking to you and say you gonna try Come on please And I'd be adjusting the seat and minimizing the friction So you get on get you on get you on the paddles put And I would hand over the headphones to you And I know what class to start with you What What instructor you might like what instructor she might like I know what class and I would be All this was a fun game for me to try and get the hook in your mouth right away as quickly as possible I'd get you pedaling so the endorphins start moving Your body starts giving you reaction headphones on loud music And you would look over your wife and you'd say Honey this's amazing right Right We're screaming in the mall because I'd make the music too loud Yeah And generally if I could get somebody on a bike Honest to God I got to a point Where was fifty fifty Chance that you're going to buy the bike even though you just heard of it Because it is something that once you experience it and get on it and see it and it clicks You want it So you're raising money You're going to shopping mall is your sales guy all these things I mean time just just curious I mean you're still you've got children presumably want to spend time with them I mean how did that impact your personal life It was It was tough again The fact that my wife believed in it meant a lot again either Saletan what It worked Our marriage wouldn't work if she hadn't been you know a believer in it It was It was very dark days And it was I was you know a shell of a human being for several years to two years in particular She would say I'm feeling disconnected You're not president You're not here And can we have a date night And I would say I will have a date night if we talk about what happens when we unwind Pellet on If that's the conversation how we're going to move in with your parents What's going Let's walk me through walk me through the unwinding of this so that I don't Yeah something bad doesn't happen I mean so you had like you had significant anxiety I was masquerading as running a a great company And we're trying to put on a happy face and you know sell to the team and sell to the investors Optimism and and the truth He told for two or three years we were about to collapse and we didn't have the money and it was it was stressful I mean I mean a lot of I'm not the first entrepreneurs have gone through but it was It was the first time I've gone through It was very tough So when did you start to see To see like a light Like when did you start to turn a corner Was it when you started to open up those shopping mall locations And when did you start to really see sales kind of pick up I started seeing the light on Pellet on about six months ago Okay All right Okay You got it It was hard for a long long time But the traction Yeah we started opening more stores but then it's like you're selling four thousand bikes and you have this massive burn and you have great share Older expectations You're still running out of money you go Do you know what one hundred pages and you get a hundred knows Even though you're sold some bikes and you have some happy customers you're still in the grind Meantime you have to like The company has to produce tons of content if the more bikes you're selling them or demand there is So how did you How did you guys kind of do that So I bet there was that we wanted to have a studio that wass content production facility basically a television streaming studio And in the early days it was I say this It was a spin studio with a television camera Right now it is a television production facility filming fitness content And we have I mean some of the best production people and some of the best on air talent obviously and in our celebrity instructors But we have become a pretty hard core media company But in the early days it was How do you rig up a camera and get the lights on the instructor so that the content is captured So I know you said that You know you just started to get comfortable less less anxious six months ago But But I mean you guys were profitable relatively early I mean it wasn't huge profits but you were profitable By what twenty fifteen Yeah I would say we were We were profitable because we could We could see profitability And in six months So I would say we were effectively profitably whenever truly turned a profit But we would be scrappy enough that the margin on the bike and the proceeds from the subscription would start to you could see that it was going to pay our overhead But then we would quickly want triple down on a new product or a new market a new marketing and more higher growth or more stores And so we've always needed money Teo fund the growth When did the investors turn When when did you start Because I mean you've raised a billion dollars When did that turn I mean that's just a Siri's eat I mean the date was two years ago effectively when investors started to really see it and we actually turned down I mean for the first five raises we took every dollar we could from anybody And that creates a cap table of three hundred people the institutions and individuals And you know some of them are my best friends And I would say ninety five percent of them are you know friends But five percent of them were people you wouldn't want to take money from But when you don't have an option when you know you're going to go bankrupt you take money from literally anyone who will give it to you It's public knowledge Or it's been publicly discussed that there's talk of pellet on doing an Ai Po may be this year or next year Could value It is high Is eight billion maybe more What do you mean What is the vision of where this company is head and what do you imagine it becoming in ten years from now So yeah we we were very excited about the category We We love fitness We love technology and we love media There's a metaphor that Henry Allen Bogan at T Rowe Price put on my radar a couple years ago I thought Wow that's that's good I hadn't thought of it but the metaphor was in the eighties you'd go to the arcade and today arcades are gone because you have better experiences in your home interconnected with the world especially now with things like fortnight where your friends are in it So it's social it's sticky It's a better location on and it's a better value because you're not paying twenty five cents every time you die in Galata I'm dating myself But so we see a world where if you have better hardware the best bike or the best treadmill in a best location which is your home and you have great software and you've a global community of support of people and it's time shifted So it's when you want it you know Why would you travel to an inferior experience with an inferior piece of fitness equipment with somebody else's sweat all over it So So we see a world where content will evolve and the programming will evolve and the software will evolve But but the hardware that you pedal is a is a constant What I mean the company's got this huge valuation It's just charging forward has gotten a lot of attention Does anything keep you up a knight anymore Are you Do you feel unlike OK thumbs up you know Mission accomplished No no not at all Though I I honestly believe we're just getting started We have massive global ambitions I think if we do it well this will be one of the special cos of our generation And so your question guy what keeps me up at night is how do we scale our culture How do you go from two thousand people to fifty thousand people in the next five or six years and still have the fun dot com energy The trust the transparency Having a fantastic culture where you're able to recruit and retain the best people in the world is what keeps me up at night How many stores do you now have I think we have seventy globally Wow And how many bikes have you sold Close to a half a million Half a million bikes So you've got hundreds of thousands of subscribers around the world That's right You said that just a few years ago you were like winding down your fora one k or thinking about it and you know kind of freaking out a little bit about money because he had two kids and write you know you're in your mid forties at that time do you feel more comfortable now Do you Can you kind of feel like all right who I'm going to be You know we're gonna be just fine Me a rich guy I d'Oh I do feel more comfortable I'm not comfortable yet I will tell you my wife gets frustrated with May I spend money as fast as we get it And I've bought my parents house They didn't have any money about my moment Barrett's house And we just recently bought my in law's house on DH So I am You know we don't We don't have much money in the bank account Still because I'm every time we get any any money we're tryingto impact the lives of people that have been there for us through the years So I asked this question and I know that folks who listen to show have heard me ask this question And I love this question because I love the different answers that I get to this question which is when you think about all of the things that happen and all of the ups and downs because it was a grind right where you are today and where you might even be in in five or ten years from now How much of this do you think it was because of your intelligence and your hard work And how much do you think it was Because it was just luck So yeah Luck plays a part in everybody's life I was lucky to have two parents that built me up and gave me confidence and love me That that is luck You hit the lottery when you have great parents right Um but But I do think like most entrepreneurial ventures you hear that One percent inspiration ninety nine percent perspiration We check our egos at the door everyone brings their best self to work And I think that's how we've conquered a lot of obstacles Okay One last question for a job for less Ugo if you are sitting in this audience watching you you know ten years ago even what is it that you wish you knew then that you now know that would have helped you out I was I was thinking you're probably looking up here saying I hope I'm not entrepreneur forty eight years old No my buddy of Marlow Vanni who's the CEO of Standard as well saying risk is the tariff paid to leave the shores of predictable misery And one thing I did in the early days was I just started telling everybody that I was starting this company Everyone who listen I told him was starting this company for months Looking back I realized that I then had to deliver because I would don't to ego driven I wouldn't You know I couldn't look you in the eye because he was like Wait a second You said you were going to do that Yeah So I think putting the energy out there and telling other people gets a little gets the mo mentum going and hold you accountable And I thought that was that was an important thing for me having the courage which is basically I just I had to deliver on my promises John Fully co founder of Paella Time John I spoke with John on April eleventh be MCC TriBeCa Performing Arts Center in New York City Oh and I realize there may be another reason why pellet on has caught on so well no one's gonna bother you which might explain why Pellet on has an army of celebrity writers Hugh Jackman Ellen Generals Richard Branson even Hussein Bolt Hey thanks so much for listening to this live episode of how I built this Our show's produces weak but James Dalhousie with original music composed by rum teen Arab Louis thanks to our live events team in New York Ellie Prescott in The Coal Schaller and John Isabella with recording engineer Isaac Rodriguez Thanks also to Casey Herrmann Rachel Faulkner Jacey Our Giulia Carni Candace Limb Katie Monte Leone Nor could see Grant and Geoff Rogers I'm Guy Raz and you've been listening to how I built this This is NPR thanks to our twenty nineteen lead sponsor of How I Build This Campaign Monitor an email marketing platform used by more than two hundred 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