It’s 9:30 on a Thurs­day morn­ing in July, and Can­dace Ryan is get­ting ready for her sec­ond work­out of the day. Al­ready dressed in span­dex from a 6 a.m. visit to the gym, Ryan wraps her blond hair in a tight bun be­fore clip­ping her white and or­ange spin­ning

Bloomberg Businessweek (North America) - - Contents -

Pelo­ton’s sta­tion­ary bike is a thing of beauty, but how far can it go?

The ma­chine is a $ 1,995 Pelo­ton. Its frame, matte black with splashes of or­ange, is made of ul­tra­light car­bon steel and alu­minum. Un­like the hard, chaf­ing seats on most sta­tion­ary bikes, the Pelo­ton sad­dle is re­mark­ably com­fort­able. The bike for­goes a chain for a rub­ber belt, making it al­most silent. And in­stead of re­ly­ing on fric­tion to cre­ate the tension that sim­u­lates hills, the Pelo­ton uses mag­nets. It feels like ped­al­ing through but­ter. As Ryan pumps away in her reverie at her Shel­ter Is­land, N.Y., sum­mer home, a leader board dis­played on the 21.5-inch wa­ter­proof An­droid tablet af­fixed to the bike shows the progress of 81 other Pelo­ton riders around the coun­try, synced in a vir­tual pack. Three-quar­ters of the way through her ride, Ryan is bat­tling for the top po­si­tion with Jose59 and Bat­tishill, the user­names of two men she’s never met, who are also rid­ing alone at home. “All right, Can­dace!” a dis­em­bod­ied woman’s voice en­cour­ages from the tablet. Ryan, 41, laughs and ped­als faster.

The voice is Christine D’er­cole’s, an in­struc­tor lead­ing the group from a stu­dio in New York City. There, she’s lit up on a stage like a con­tes­tant on Amer­i­can Idol. Cam­eras pan across the room as she shouts at her riders, who watch her through the tablets on their bikes. As ev­ery­one pushes through sprints and climbs to El­lie Gould­ing and the Dave Matthews Band, D’er­cole of­fers spacey mo­ti­va­tions: “The only weight we need to lose is the neg­a­tive thoughts in our head.” A few riders are ac­tu­ally in the stu­dio with her, but most are con­nected re­motely, and D’er­cole talks to them as if there’s no dif­fer­ence.

Ryan fin­ishes third, trail­ing Jose59 and Bat­tishill. “They came out of nowhere,” she says af­ter­ward. “I don’t care, as long as I’m hang­ing with the boys,” she adds a lit­tle un­con­vinc­ingly. Ryan is used to fin­ish­ing at the top. She shares the Pelo­ton bike, along with an­other at her home in New Jer­sey, with her hus­band, an an­a­lyst on Wall Street. Pay­ing a flat $39 monthly fee, she works out with Pelo­ton around 15 times a week, log­ging on to as many as four classes a day. Af­ter a ride, Ryan of­ten joins riders on the Of­fi­cial Pelo­ton Rider Face­book page, a pri­vate group with more than 3,000 mem­bers, where they share stats, thank in­struc­tors for a “beau­ti­ful ride,” and plan their next work­out.

Thanks to die-hards such as Ryan, Pelo­ton’s sta­tion­ary bike has be­come not just a ve­hi­cle for a gru­el­ing work­out and a so­cial net­work­ing de­vice but the lat­est sta­tus sym­bol for the con­spic­u­ously fit. Pelo­ton expects to make $50 mil­lion in rev­enue this year and has raised $120 mil­lion in fi­nanc­ing, in­clud­ing a $75 mil­lion round in early De­cem­ber, largely from pri­vate eq­uity fund Cat­ter­ton. The com­pany says it’s sold al­most 20,000 bikes since Jan­uary 2014. Al­though it has only about a third of the riders of its near­est spin- cult com­peti­tor,

Soulcy­cle, it earns al­most half as much. Soulcy­cle de­clined to com­ment, cit­ing a silent pe­riod ahead of an ini­tial pub­lic offering that could value the startup at as much as $900 mil­lion. But in fil­ings, Soulcy­cle, which hosts its rides on-site at its branches, men­tions go­ing af­ter the “at-home” au­di­ence, too.

Pelo­ton, Soulcy­cle, and an­other cy­cling startup, Fly­wheel, are rid­ing a boom in bou­tique fit­ness—chains that charge ex­or­bi­tant fees for a spe­cific type of work­out, from hot yoga to barre, a bal­let-in­spired fit­ness reg­i­men. In 2014 bou­tique stu­dios made up 41 per­cent of in­dus­try rev­enue, up from 22 per­cent the year be­fore. In­door cy­cling is par­tic­u­larly in vogue, and Pelo­ton’s classes rank among the tough­est, its bike among the most cov­eted.

On a re­cent Thurs­day, Pelo­ton’s co-founder, John Fo­ley, sits in the com­pany’s New York head­quar­ters, a typ­i­cal startup

space with ex­posed duct work and A class at the

hard­wood floors. He’s wear­ing hotPelo­ton stu­dio

pink Nike Pe­ga­sus sneak­ers and in New York fit­ted jeans, and his navy polo shirt is snug around his bi­ceps, toned from reg­u­lar work­outs and sun-kissed. “I’m kind of an in­for­mal guy,” Fo­ley, 44, says. “I’m not a cor­po­rate dress-in-a-suit-to-try-and-im­press-peo­ple-withmy- or­ga­nized-thought guy.” Later, try­ing to help a writer, he adds: “You can call me a douchey busi­ness guy” who’s “so poor that I can’t af­ford any­thing.” He then ig­nores a ques­tion to check his buzzing iphone. “One of my in­vestors just texted me,” he says, grin­ning. He shows off his iphone’s screen, which fea­tures a pic­ture of a bike with a sweaty towel draped over the han­dle­bars. The cap­tion reads: “On the bike, bitch.”

or Soulcy­cle—he can’t re­mem­ber which—in 2011. As a fa­ther of two, he says he no longer had time for his fa­vorite classes. “When we were sans chil­dren, we found time to go to yoga, spin, and work out,” Fo­ley says of him­self and his wife, Jill, a for­mer ac­tress and lawyer who now runs Pelo­ton’s re­tail arm. But with kids, “it be­comes a lot harder to get in fit­ness in gen­eral, es­pe­cially bou­tiquestyle fit­ness. It was kind of a frus­trat­ing thing, be­cause we loved it.”

Spin­ning isn’t par­tic­u­larly con­ve­nient. You can’t sim­ply drop into a class. Stu­dios run on a sched­ule; the most pop­u­lar ses­sions sell out within min­utes. And you can’t just hop on any in­door bike. Most re­quire spe­cial shoes with metal clips that hook into the ped­als, and a class is noth­ing with­out a tai­lored playlist and an in­struc­tor you want to look like or date. Even so, the ac­tiv­ity had al­ways ap­pealed to Fo­ley be­cause of its ef­fi­ciency: A chal­leng­ing 45-minute class burns from 400 to 600 calo­ries, and most ses­sions de­liver a full- body work­out by in­clud­ing pushups on the han­dle bars, crunches, and even weightlift­ing.

Af­ter go­ing to what he calls a “s - - - t y pub­lic school” in the Florida Keys, Fo­ley work- stud­ied his way through an engi­neer­ing de­gree at Ge­or­gia Tech. He spent five years in oper­a­tions at Mars, the candy com­pany, be­fore land­ing at Ci­ty­search, the proto-yelp, which even­tu­ally merged with Tick­et­mas­ter. For the next 15 years, Fo­ley helped start var­i­ous com­pa­nies— Evite, Pronto, Proust—at Tick­et­mas­ter’s par­ent at the time, IAC. He also spent two years as pres­i­dent of e-commerce at Barnes & No­ble be­fore his 2011 epiphany in the sad­dle: Peo­ple would pay to

re- cre­ate the cy­cling class ex­pe­ri­ence at home. Fo le y and three co- founders, all of whom have tech back­grounds, worked on the bike’s hard­ware and soft­ware for two years be­fore the first unit shipped in Jan­uary 2014. It was de­signed by Eric Vil­lency, a kind of Jony Ive for sta­tion­ary bikes, who also de­signed the sil­ver or yel­low bikes used in Soulcy­cle stu­dios. In­stead of charg­ing a pre­mium for the bike, Pelo­ton of­fers it at cost and makes money on sub­scrip­tions. For fit­ness cred­i­bil­ity, Fo­ley hired Mar­ion Ber­rian Roa­man, the grande dame of pump­ing it on a sta­tion­ary bike. Roa­man, 43, ran a cy­cling stu­dio in East Hamp­ton, N.Y., for more than 15 years be­fore sell­ing her busi­ness to Fly­wheel in 2013. She joined Pelo­ton as the first bikes were ship­ping and spent a lit­tle more than a year as the chief con­tent of­fi­cer and gen­eral man­ager of the com­pany’s New York stu­dio. (Roa­man has since left the com­pany. “I got them started, got the stu­dio up and run­ning, and it was just the right tim­ing,” she says.)

Roa­man helped re­cruit some of New York’s best spin in­struc­tors. Pelo­ton won’t say how much it pays its in­struc­tors, but it claims to of­fer two to three times more than com­peti­tors and has turned its staff of 12 into fit­ness celebri­ties. ( Soulcy­cle’s in­struc­tors make up­wards of $ 125 for a 45- minute class.) “It’s dif­fer­ent than teach­ing any­where else,” says Lisa Niren, a for­mer Fly­wheel in­struc­tor who jumped to Pelo­ton in 2014. “Peo­ple al­ways sort of look at fit­ness in­struc­tors, idol­iz­ing them. This is on a whole other level.” Fans have rec­og­nized Niren on the street and asked to take her pic­ture. When she worked at Fly­wheel, she got Star­bucks gift cards from ador­ing fans; at Pelo­ton, some­one gave her an Ap­ple Watch.

“Peo­ple used to go to church on Sun­day—that was their weekly rit­ual and their com­mu­nity,” Fo­ley says. “Most 25-year- olds aren’t re­lat­ing on that plat­form, but it’s ‘I’ll see you at the stu­dio.’ ”

This year’s in­door cy­cling may be last decade’s Zumba, or Tae Bo, or Jazzer­cise. The crazes fall as fast as they rise. Nordictrac­k, the ski- in­spired ma­chine with more than $450 mil­lion in sales at its peak in the mid-1990s, filed for bank­ruptcy in 1998, though the brand is still around. Even net­work­ing on­line while sweat­ing has prece­dents, go­ing as far back as row­ers and run­ners log­ging miles into bul­letin board sys­tems via hand­set modems in the salad days of the Web. But so­cial net­work­ing prob­a­bly wouldn’t have saved Nordictrac­k, and it might not guar­an­tee Pelo­ton’s sur­vival ei­ther.

Fo­ley, of course, says he isn’t wor­ried that Pelo­ton will have the half-life of a step class. “Once you dis­cover the Pelo­ton bike, 10 years from now, are you go­ing to go back to the old world where you have a bike star­ing at the wall?” he asks. Men’s Health this year crowned the Pelo­ton bike the best car­dio ma­chine in its an­nual fit­ness awards—not that it mat­tered much to Fo­ley. “I wasn’t even ex­cited about it, be­cause of course it’s the best car­dio fit­ness ma­chine in the world,” he says. “The bar is so low.”

Pelo­ton and other cy­cling shops aren’t sell­ing a work­out so much as a life­style, which devo­tees can pur­chase in the form of branded cloth­ing, ac­ces­sories, and even food. Soulcy­cle’s on­line shop is ex­ten­sive, offering leg­gings and mus­cle tanks with its sig­na­ture skull and cross­bones logo, along with backAt work in packs, in­fant one­sies, and the same

grape­fruit- scented can­dles that the stu­dio

per­fume Soulcy­cle stu­dios. con­trol room Soulcy­cle took in $112 mil­lion in

rev­enue in 2014. Fo­ley says Pelo­ton will be big­ger. “We’re not try­ing to be bet­ter than Soulcy­cle,” he says. “We are bet­ter than Soulcy­cle.” Pelo­ton’s de­mo­graph­ics skew slightly older and wealth­ier than Soulcy­cle’s; the av­er­age per­son who buys its bike is 46 and mar­ried with kids. Cou­ples of­ten share the bikes, which is one rea­son Pelo­ton claims more riders than bikes sold. Pelo­ton has 12 show­rooms for its bikes in up­per- class en­claves such as East Hamp­ton and New­port Beach, Calif., where prospec­tive riders can see the ma­chine and buy branded gear.

Fo­ley prefers to com­pare Pelo­ton to con­sumer-prod­uct gi­ants such as Tesla, Nest, Gopro, and Ap­ple. Ac­tu­ally, not Ap­ple. “You’re go­ing to think I’m a to­tal douche for say­ing this,” he says. “I used to say we want to be the Ap­ple of fit­ness. I’ve stopped say­ing that. We are five times bet­ter in the cat­e­gory. Ap­ple’s not five times bet­ter than its com­peti­tors. We want to build the big­gest con­sumer-prod­ucts brand in the world. We’re go­ing to make Ap­ple look small-time.”

com­pany’s fans al­most match him for zeal. Pelo­ton’s most direct line to its cus­tomers is the pas­sion­ate, ob­sessed Face­book group, where bike own­ers and those con­sid­er­ing the plunge spend their days and nights. “I’m on it [Face­book] all the time, con­stantly, all day,” says Laura Pugerude, 48, who cy­cles in her home in Chan­tilly, Va. “Most of the time, if I pick up my phone I have no­tices.” Ryan, known as the group’s un­of­fi­cial pres­i­dent, spends hours each week com­ment­ing on fel­low riders’ work­out stats and chat­ting about ev­ery­thing from leg­gings to playlists.

In June she helped or­ga­nize an in-per­son ride in New York City with a pop­u­lar in­struc­tor, Jen­nifer Schreiber Sher­man. More than 20 peo­ple from as far away as Vir­ginia, Ohio, and Wis­con­sin, showed up. Mem­bers gush about Pelo­ton in a way that the unini­ti­ated would con­sider in­ti­mate or ob­ses­sive or em­bar­rass­ing. One ap­par­ently ad­dicted woman talks about tak­ing a “spir­i­tual break” from the bike. An­other ad­mits to cry­ing dur­ing a ride.

“It re­minds me a lit­tle bit of what we see with Cross­fit or some of those pro­grams, just in terms of the com­mu­nity around it and how peo­ple really can get kind of fa­nat­i­cal,” says Alexis Cona­son, a psy­chol­o­gist who spe­cial­izes in body im­age is­sues. “It can take on al­most a cult­like qual­ity for cer­tain peo­ple. It’s cre­at­ing a cul­ture of nor­mal­iz­ing be­hav­iors that wouldn’t be nor­mal­ized in other com­mu­ni­ties.”

Mem­bers of the Face­book group cel­e­brate “hat tricks,” or three rides in one day. Ev­ery few weeks, the group will of­fer mem­bers a chal­lenge, such as who can log the most miles in 10 days. Pugerude, who typ­i­cally rides two or three times a day, won that one, rid­ing al­most 675 miles. On the last day she did nine rides.

“I think that’s pretty ag­gres­sive,” Fo­ley says. “Some peo­ple are ad­dicted to work­ing out.” In­vestors are drawn to the brand specif­i­cally for that on­line com­mu­nity, he says, and it pro­vides Pelo­ton with insight into its clients’ psy­ches, be­hav­iors, likes, and dis­likes. But some­times, Fo­ley says, “it’s a bit of a li­a­bil­ity.” When in­struc­tor Niren, for ex­am­ple, left the com­pany, the Face­book page erupted. “Ev­ery once in a while there is neg­a­tive en­ergy,” Fo­ley says. “For the most part, th­ese groups self-mod­er­ate. If peo­ple are beat­ing an is­sue into the ground, they will be voted off the is­land. Ev­ery­one wants this place to be a pos­i­tive, sup­port­ive, en­cour­ag­ing, op­ti­mistic place.”

Af­ter se­cur­ing its most re­cent round of fund­ing, Pelo­ton is set to dou­ble both its engi­neer­ing staff and its re­tail lo­ca­tions within the next year. It just opened a sec­ond cy­cling stu­dio in Chicago. The com­pany plans to of­fer classes in other lan­guages from the New York stu­dio in 2017 so cus­tomers around the world can log on. And the com­pany will go pub­lic some­day, Fo­ley says.

Get­ting up from a con­fer­ence ta­ble, he sketches the next few years of his life: He’ll use the money from the IPO to kick­start a cam­paign to be­come pres­i­dent of the U. S. This coun­try could use prac­ti­cal politi­cians, Fo­ley says.

In the mean­time, Pelo­ton’s ob­vi­ous chal­lenge is to at­tract more riders like Ryan. She started work­ing out af­ter the birth of her sec­ond child, when she weighed more than 200 pounds. Now she’s cut. Start­ing from her shoul­der down to her wrist, each sec­tion of Ryan’s arm has its own line of def­i­ni­tion. On Face­book, she’ll oc­ca­sion­ally post a sweaty, post-pelo­ton selfie. Even though she’s never met most of her fel­low riders, she thinks of many of them as friends. “I got to know the peo­ple, and I got to see their pro­files,” Ryan says. “Maybe be­cause we’re all sweat­ing, you feel like she showed up as much as I showed up. It puts us all in the same place. It’s a good place. It’s a really good place for a lot of peo­ple.” <BW>

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