WHEN: Today, Thursday, October 21
WHERE: CNBC Disruptor 50 Summit
Following is the unofficial transcript of a CNBC interview with Tom Cortese, Peloton Co-Founder & Chief Product Officer, live during the CNBC Disruptor 50 Summit today.
All references must be sourced to CNBC Disruptor 50 Summit.
JULIA BOORSTIN: Thank you so much, Tyler. And Tom Cortese, thank you so much for joining us here today to talk about being a disruptor and how to keep innovating during a period of so much uncertainty and change. Thanks for joining us today.
TOM CORTESE: Julia, thanks so much for having me. Excited to be here. Excited to be among this great group of disruptors.
BOORSTIN: So Tom, I want to start off with this idea of being a disruptor and being an innovator. And I think it’s really notable that you and your co-founders are still running the company. That is a very unusual thing for a startup, to transition to keep that leadership when a company goes public. But we’re going to return to that topic. I want to start off with this idea, though, a big innovator and how you keep innovating. So my question is, after this period of transformation and change of the way we all live and exercise, how are you thinking about innovation now to hold on to consumers and capture more of them as we enter this new hybrid work/life world?
CORTESE: What a great spot to start Julia. You know, we live and breathe innovation here at Peloton. And I get to spend my days with the folks involved in hardware, software and content. And if you think about our business and what we get to do, we get to innovate almost on three different timelines. With our daily content production, we have our instructors and our producer team, our music team, innovating, essentially, daily, looking at trends and how our members are working out, how consumers want to work out, bringing new class content to the forefront, being able to test new class types, etc. And we can do that on a daily basis and immediately respond to changing tastes in consumer behavior. And then on a, you know, weekly or monthly basis, we’re putting out software updates to all of our equipment, our bikes, treads, whatever else might be coming, our TV apps, our iOS and Android apps on a multi-week or multi-month basis, we’re putting out updates. And again, that same idea where our teams are just plugged in to an understanding of what our members are doing as they move through our system, looking for those pathways where our members are finding enjoyment and trying to just widen those pathways, looking for areas where there might be any friction and just ripping them out. And then third, you know, on a one or two-year cycle we’re innovating in hardware and we’ve got teams who are deep into looking at what’s happening in, you know, motor technology for the future to create the future treadmill or other what’s happening in industrial design, how to create the most unique equipment that fits into the convenience of home in a way that we know our customers love. So what is just so much fun about our business is that we can innovate across all three of these areas, and we can do it on these unique timelines, and just keep on going.
BOORSTIN: Yeah, I mean as you talk about innovating over, you know, near term, medium term and long term, it seems to me like the pressure to accelerate the pace of innovation on all three of those levels is more intense than ever, because you have people who have more options than ever. And I’m not talking about other exercise bikes they can use at home, I’m talking about, yes, there are things like Mirror and Tonal, but more realistically, people are just leaving the house and may be less willing to make a big investment in at home fitness. How do you think about sort of overall maintaining and accelerating your pace of innovation?
CORTESE: Yeah absolutely. It’s about creating something that consumers love. And when you look at Peloton and you look at the system that we’ve built you look at the fact that, you know, year over year, our members workout more with us year two than year one, more in year three than year two, right. The proof is in the data points that we’ve created a system that is engaging in a way where folks finally feel that they can enjoy working out, they have fun working out, they want to work out, and so they do, right. And you know, I think what we should remember about what we are all doing is we are bringing products to market to people, to consumers. For us, they’re our members. And when you can show genuine value and you can show that you produce something that works for the consumer in a special way, that’s how you capture the attention of the consumer. And, you know, we believe that we’ve found a very special formula when we entered the market with bike, and we’ve been able to bring that same type of formula to tread. We’re now using that formula and bringing it across multiple modalities with our app based platform and we’ve got a ton more in the pipeline. And so we’re just going to keep staying focused there. We know what we have, we know how to make our members tick, and we’re going to go bring that across multiple modalities and across multiple geographies and keep on going.
BOORSTIN: Well we look forward to seeing what other products you launch. But I think that you raise this interesting point about sort of innovating and figuring out how to apply this model that you came upon early in Peloton’s lifecycle to all these other platforms. And that brings me to this topic of adapting from being a startup to being a big public company. And we see a lot of companies have changes in leadership, but Peloton is relatively unique, that you and your co-founders are still running the company. So I’m wondering how you think about maintaining the speed of a startup, the energy and innovation of a startup and also figuring out how to adapt to the structures and the oversight of being a public giant effectively?
CORTESE: There’s a lot there, but I’ve got to start with the fact that, what’s funny to me about this whole concept. And the question is, you know, for me, I’m still me. And I’ve been the same me for 10 years. My co-founders are still the co-founders who I’ve been working with making Peloton happen for the last 10 years. We still have the same level of remarkable trust in one another. And you know, we still argue with one another in all the same ways, right. And so, I know to the outside world now we are a big company but, you know, we are still that core group. And some of the principles that applied back when we were five people that now apply when we’re more than 5,000, I think are the ones to focus on. And my favorite of which and the one I think has really made this all work is this notion of divide and conquer. You know, when we got together as five folks, we each had our own unique role that we were to play and I won’t go through what they each were. But layered on top of having that unique and discreet role, we each had a great deal of trust that the other would, you know, bring to bear what we expected of each other. So that we would arrive together at that same point and be able to drive the business forward. And along the path when you’re operating under divide and conquer like this, you also have to be super cognizant of all the things that you actually do well and the things that you actually do not. And I think we have a pretty conscious group, especially on the do not piece. And what we’ve been able to do, taking this divide and conquer method, and then taking this self-awareness call it, we’ve been able to look and say hey, where do we have holes and how can we shore up our executive team, you know, with folks who can plug in in different ways and bring different perspectives? And so here we are now, and it is 10 years later from the founding just about. And if you look at our executive team we’ve got this great mix of, you know, the old folks like me who have been there since day one. And these, you know, remarkable professionals who have been sewn into the fabric of our corporate culture and help us drive. And now together, we continue to push.
BOORSTIN: Some valuable lessons there. I think probably for many different types of companies, this idea of self-awareness and hiring to fill the holes and also delegation and dividing and conquering, I’m wondering if there are any other lessons you’ve learned in the past decade about what it takes to successfully adapt into this sort of public company roll? I mean, I always reference what Reed Hoffman says about going from being a pirate to being part of the Navy. You know, you start off small and scrappy and then all of a sudden you’re the establishment. So what do you – any other piece of advice, what would you tell entrepreneurs about what it takes to successfully make that jump?
CORTESE: Look, you know, whether or not we’re perceived as the establishment when I walk into, you know, a certain room or not, is up to, you know, the folks, the folks looking in. I do think it is really important to stay true to your core values, to stay true to those things that made you work and I just gave you examples of what I think made us work when we were small. And I’m certain that we’re able to continue to bring those cultural elements to bear, even as we’re a bigger company. And so again, we remain that same company. We wake up with that same hunger, we continue to have that chip on the shoulder that we’ve had from day one when no one wanted to invest in Peloton, right. We still wake up thinking we’re that guy, right. We’re those guys. And we also wake up every day with sort of the recognition and the burden that even though we are 10 years into this journey, we look down and we find our toes just standing on the starting line, because that opportunity ahead is so enormous, and that’s an incredibly energizing thing, right. Some days I wake up and it’s the opposite of energizing. Like how after 10 years am I still on the starting line? But it’s also just awesome. Like, wow. Okay, guys, we’ve got the world’s opportunity ahead. Let’s go get it.
BOORSTIN: So Tom, as you look at the next 10 years, my question is what kind of company is Peloton? Is it a fitness company? Is it a media company? Is it a tech company, a hardware company? Maybe all of those things? But how would you articulate what the future is of this company?
CORTESE: We’re a company focused on providing tremendous value for our members. And what’s been interesting about our journey is we’ve had to be a whole great number of companies in order to make that happen. In order for us to step into fitness and completely innovate and change the narrative of how people feel about home fitness, how people approach fitness from something that they had to sort of will themselves to do, to being something that they can enjoy can enjoy doing, from something that they had to sort of travel to go make happen, to something they can do from the convenience of their home, from something where all of a sudden, you know, the magic and power of a group can be right there with you wherever you are. In order to completely shift that industry, and draw consumers into a whole new system for fitness and show them that it works for them, we had to go and innovate in all these different categories, right. We had to become a hardware company, we had to become a software company. We’ve built studios, we’ve built our own delivery facilities. I know you like talking about supply chain these days. We’re in the process of building a factory in Ohio. And we’ve done all those things not because we wake up and say like, wow it would be awesome to create a really complicated business. But we do them because we have to do them in order to provide the value that we want to provide for our members. And so, as long as we see opportunity to provide value, we’re going to go do what we need to do. And what’s great about that formula is that when you put forward a product or service that genuinely creates value for the consumer, the consumer is going to be there.
BOORSTIN: So let’s talk a little about supply chain, though. I saw this joke that the Press Secretary at the White House made about the tragedy of the delayed treadmill. And so sort of poking fun at the fact that there are things that are maybe nice to have that are delayed like treadmills, but then also much more serious things that are delayed. How are you approaching the supply chain issue? Yes, down the line, you might have a factory here in the U.S., but how big of a problem could this be for you nearer term?
CORTESE: You know, it was certainly a problem over the last 18 months. Thankfully, we have a team who also has deep in their bones this notion of having a bias to action. And you know, we pulled all the levers that we can pull. You know it was reported at some point, you know, we were putting bikes and treads on planes in order to be able to get them here. But we have a very robust supply chain that we’ve been building over the last number of years. We have a big investment in Taiwan and our partners and in our facilities, and we have great relationships with carriers. And through both our investment in the state of Ohio and our new partners, an acquisition of Precor, we’ve been building out our North America production and supply chain capabilities. So we’ve just been attacking this across every aspect of the supply chain with everything we’ve got, so that as we look ahead, we feel very comfortable about being able to chase this opportunity as the globe sort of settles out of this chip shortage and ocean shortage that we’re seeing right now.
BOORSTIN: Yeah, I mean that is certainly an issue that so many different companies are dealing with. But you did have a unique issue, which was this treadmill recall. Tell me how you approached that crisis and how you tried to learn from it for the future.
CORTESE: Yeah, look, you know, we had to recall the treadmill this summer. And it was a gut wrenching moment for all of us as executives, as founders, as a team to wake up to the news of a tragedy and determine how to respond to it. You know, over the course of building this business, we’ve been, you know, we’ve genuinely enjoyed all waking up to being able to receive these wonderful notes from our members, social posts etc. talking about how Peloton has allowed them to transform their lives. Especially over the pandemic, we got so many folks reaching out and saying, you know, I am so thankful that through this I had my treadmill or I’m so thankful I had my bike. I’m so thankful I had the Peloton app. And that’s what powers us. That’s what makes us feel good about what we’re doing and makes us want to continue to bring Peloton product and service to more and more folks. And so to get, you know, for this to happen, you know, gut wrenching, you know, moment of the recall to happen, you know, it was just something that was devastating. But we’ve responded really swiftly. We now have the all new Peloton tread out in market. And, you know, we’ve baked in a number of features that we believe make us the out in front, innovator now in safety for treads. And our team is energized by the notion that, you know, with all of these aspects of the fitness industry where we’ve been the out in front innovator, our team is energized, that we can now take this charge and become, you know, the far ahead runner in everything safety related for innovation in fitness.
BOORSTIN: So looking at that moment of being able to turn a crisis into an opportunity for transformation, you also had an example of something much smaller, of course, though, with the marketing issue around the Peloton ad for holiday 2019 which upset a lot of people. You shifted gears after that marketing mishap some would say, and really shifted on consumer stories, real stories of Peloton users. I’m wondering what your advice would be to startups or to companies in general about how to use crisis as an opportunity for positive change?
CORTESE: You know, I almost forgot about that ad after everything that’s happened in the last three years. I’ve got to say, I really think we were misunderstood on that one. But we won’t relitigate the past. Misunderstood or not, it clearly didn’t resonate and that was something that was quite obvious to us and our team. And so we turned around and we said, alright, we had something that we meant, it didn’t come across clearly. You know, let’s regroup and as we regroup, you know, that’s what we came back to. We said look, let’s get back to just allowing the story to tell itself. We know that folks who have Peloton, love their Peloton. Let’s let them tell the stories. And let that be known. So, you know, these type of mishaps happen, right. And we obviously didn’t get all tangled in and out about it, we picked up and we were on to the next.
BOORSTIN: Yeah certainly every crisis is an opportunity for reflection and positive change, neither of those two issues seem to have been holding back Peloton at all. Really remarkable growth for your company. Tom Cortese, thank you so much for joining us today to talk about Peloton’s journey and what’s ahead.
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