John Foley: From Peloton to Rugs | Business Untitled Episode 9

Introduction to Business Untitled we were the tip of the spear coming out of Co pelaton was one of the fastest going up and we we came slamming down within the next six months every Growth Company on the planet came down to the tune of 50 to 90% collapse that's right we were just the first one Pelton was a incredible company incredible brand fun you know thing to to build with great Founders and great team and now I'm selling rugs and a diverse career can keep you engaged and excited and learning and having fun so I think business is a great way to do it all right guys we are back with business Untitled subscribe like comment add us on Instagram Tik Tock I love Tik Tok too I'm here with YouTube YouTube I'm here with the World Famous Dave Barry Mike thought I was going to say the world famous Mike no but the World Famous Dave Barry and Mike novag grats and I'mma pass it to Dave well I want to introduce our next guest uh he's been a friend of mine for a long time and business partners as well John Foley John it's great to have you here thanks for having me joh here yeah John for reference uh I guess I got introduced to you by either Mr lovani or Dave heler back in the day and um that was when you had left John was CEO of Barnes & Noble interactive right or online something like that online.com yeah online.com um and then went and we're going to talk about this went on to found pelaton which was amazing and I was lucky enough as was Mike to be uh in that from the beginning so we're talk about that these guys a little bit was an incredible incredible uh vision and Company um he is has a new Venture now called ernesta which which is direct to Market direct to Consumer carpets and he's going to tell us about that uh went to Georgia Tech Harvard Business School a total business stud and we're happy to hear and maybe more importantly because he was kind of a CEO of the moment he's now going to be our talent scout for all these other entrepreneurs because he seems to know all of them yeah so that's pretty awesome we just hired a guyc welcome John thank you thank you for coming to the podcast it's small Tech Community here in New York City of direct consumer Founders but in general uh i' I've put my arms around other Tech entrepreneurs in New York because I'm proud of what's Happening Here in New York I love New York and it's a little bit of a competitive thing to the valley where I think what we're doing is super cool and I think the people doing it are cool so it's been a fun connect with all these people with saying that about New York I saw this uh post that went pretty viral with Ken Griffin and Jeff bezo and it was saying one guy makes 38 million a day the other guy makes 3 million a day and these two guys are advocating for Tech and finance to be run from Miami wow do you think that's possible sounds sounds like Republicans I don't think it's not even close to being respons those guys are there to pay less tax let's be really clear about it yeah but that's what I'm saying what everybody moved let me tell you the total office space being built in Miami total right now being built in Miami is less than one building in Hudson yards Miami is a tiny little place relative to New York City and so there's not a place for the talent to even be stored those guys are putting companies there but their talents all in New York but stay 20 minutes away from Miami what I think they're just they don't have the infrastructure of human capital to build the worldclass businesses they can bring people down there because you're right there's cheaper taxes and I like going to Miami for the weekend but it's it can't be into the same breath as New York City yeah John Foley's from Florida he could he could give us some I grew up I went to high school down in uh Isa marada tavanir in the Florida Keys wow that's the middle of nowhere never heard of it yeah it's tiny do they have black people there yeah lots yeah I like that yeah it was good it a diverse Community fun graduate with 100 Kids four of us went to college wait no way yeah yeah it's crazy it's just kind of there's not a lot were you one of the Rich Kids I was we had a house most most kids grew up in trailers so I was you know my dad was an airline pilot I I was probably top 10% well down there yeah wow isn't it funny when you're you're like when I grew up the guy whose dad was the orthodontist was the rich guy like dude they're so rich because his dad was an orthodontist the rest of our parents were military work you know military government workers it's it's just that snow globe you grow up in there's a pecking order right for sure yeah yeah why don't we start out with like just talking about growing up huh growing up yeah grow growing up and how you got into business uh I got into business because there's you know it's the Willie Sutton rule go go where the money is I needed to make money and uh um interestingly my son is now 15 he's taking the SAT and going to this this uh public high school down in the keys it wasn't like college prep environment so I remember taking the SAT and I got 750 on math and I got Foley's Manufacturing Experience 530 on verbal which is 1280 and not I say it in a in a I got the exact same thing oh that's so funny it's not it's not something you should be proud of good or no it's not good by today by today's standard that's the hunger we like that today today's stand school kids today's standards you're not getting at a good school that's right yeah 1280 is not good but t for your question Dave um with a such a 220 points difference during math and science it kind of said I needed to go into engineering or something where Math and Science was going to be better so I went to Georgia Tech I paid my way through Georgia Tech working and Waco Texas um making candy um wearing a hairnet steel toe shoes and a uniform how old were you I was 19 when I got into this Co-op program and I started working six months a year for five years to pay so what kind of what kind of candy so um I'm just trying to get that visual oh yeah so it's proper proper candy billions of dollars worth the candy made out of this plant but I was responsible at one point for all of the Skittles and Starburst North uh uh production for North America as a shift manager I I managed a midnight shift oh wow um but this plant guys made uh also made Snickers and Twix and we made six million snicker bars a dayit just just for the North American Market six million that's why we all fat that's why we're fat we're going to talk about obesity in another episode so in one end of the spectrum you were partially responsible for getting America fat full circle and in other Spectrum you felt so bad you got them healthy it's true that's true see that keeping track keeping track so you did the KY for how many years uh effectively through college and then for a couple years afterwards it was probably six or seven years working in Waco back to back to country music million snicker bars a day tons yeah it's crazy so wo Texas that was post the the Waco tragedy during dur there I saw the five Branch dividian yeah yeah yeah yeah you're too young for branch devidians I was there that's crazy I Che it out they were there that long the FBI and the CIA and the ATF I think it was it was ATF ATF would be working out in in our gym and they'd show up in the morning because they had to get the workout it was like a couple months standoff I believe yeah crazy yeah yeah but uh to you answer your question Dave I got into business because it's um one as I've gotten older I'm trying to push my kids into business I think it's fun business you know I guess we're going to talk about pelaton at some point Pelon was a incredible company incredible brand fun you know thing to to build with great Founders and great team and now I'm selling rugs and it's you know I think and I don't need to tell Mike novogratz or or either of you that a diverse career can keep you engaged and excited and learning and having fun so I think business is a great way to do it and obviously if you're if you're good at it you can make some scratch on the side what was your first business whether it was like official you went and filed the LLC or the moment like I always tell this Nintendo story like my first business is looking back was me hooking up my Super Nintendo outside my house and charging kids right and I look back and I was like oh [ __ ] that was a business so we haven't to edit this story out of each podcast because it's in each one who in one podcast what was your first business like offic unofficial or official yeah so I was working at McDonald's for most of high school and on the side um back to my dad being more affluent we had a you know 19t center console boat that I could run around in and Florida Keys and you're you know yeah yeah I mean felt I felt Rich it was it was uh it was good living um especially when you have a couple pops and you have girls on the boat it's kind of you know but again you're not getting into college spending your weekends and afternoons doing that too much right but to answer your question Mel um there was some side hustles you can do on a boat including running crab traps lobster traps and trying to um put together a small business selling crab or Lobster in the marketplace it never became much but every morning you wake up thinking you're going to be you're going to make some money or you're going to pull up the motherload of of crabs or lobsters or whatever yeah but I had to be like kind of from whatever money you made from that that had to be like one of the moments you fell in love with the idea of business yeah sure yeah exactly I also saw Mike you brought up orthodontist um my dad was nline pilot and his job was always the same and he flew planes for 35 years for Delta and then Delta went bankrupt and he lost his pension and he lost his big tragic story from my father but um but as a you know as a lawyer largely or a doctor or dentist or orthodontist those jobs you can make good money but it's it's obviously capped it's you know couple hundred thousand dollars which for most Americans you're super excited about that most immigrants that's kind of the golden ticket is to get one of those jobs and but um I saw very quickly that um that you know if you're super Dynamic and you want to you know run up the hill Dreaming Big in Business and try to share in the upside of of your hard work you you got to take a little bit different angle and obviously business is one of those ways same thing with you Mel I know You' kind of the business of music is is similarly exciting yeah it is I think uh at this point just all business is exciting to me honestly so that the the Nintendo story that's where I fell in love and then it's the music kind of what cigarettes music is what pushed me over the top but then I just fell in love with like just business like you said just earning and not having a limit to it and dreaming more than anything I fell in love with the dream of uh one day possibly being a billionaire like Mike novr mentions every single podcast that he is a billionaire I've never said that I'd like that yeah that same thing well it's it's also what I like and I think we all probably played some sports I know you're hardcore both of you were hardcore I don't know your background but um but I like sports and I like team stuff and to your point Mel with business you can get with some other friends and some other business people who inspire you you can define a challenge you can raise some money and you can attack that challenge and hopefully we'll talk about ernesta and I'm having more fun than I've ever had in my life uh you know I've had a rough couple years but I'm back at it and Def find a new challenge and a little bit little bit probably like you Mel where you find a new artist or a new genre or something that just is a whole new uh uh Vector of learning for you you know it's interesting I'm just thinking of like we're on like seventh or eighth podcast and if there was a theme song it could be chumba WBA I get knocked down but I get up again that literally you know I mean I'm just thinking of almost every guy who sat in that seat uh everyone's you know falling on their ass my greatest success with music is City Moog and when I first heard the music I didn't even [ __ ] understand what they were saying and it wasn't something that I listened to at the time now I fell in love with the music cuz I came to understand what they were talking about but at the time it was just like it was like rocking and roll mixed with hipop these two kids just screaming and I just saw something so different that I was like it's attracting me to it and I feel like the rest of the world is going to get this yeah sure but it wasn't like music I loved it wasn't like music I even understood it was just the emotion in it I just knew if I feel like this other people are going to feel like this and that group blew up they just did Madison Square Garden they do Arenas now like they sell millions of dollars of merch every year I'm a fan I'm a fan he's a fan he did the mosh pit with them so it was just like and now I love the music after I understood it but in the moment when they were in front of me it's kind of like what the [ __ ] is this but I don't know I feel something yeah I was going to ask I was going to say what what was that initial inspiration that aha moment for Pelon yeah yeah how did you before that real quick transition from Candy to what how did yeah so yeah my brother-in come up with this John Pleasants who I think you guys know real neque iy just spent Thanksgiving with him he's still my best friend and and married my sister um but he was uh six he's six years older and I used to work for him uh he was a big mentor to me I went to this you know very uh I say rough because it wasn't rough rough but it was very poor um public high school in the Florida Keys my brother-in-law went to St Paul's Yale Harvard Business School he was like on this gorgeous pedigree track and so when I when he came into we never like those guys but when he came into my life it kind of changed my life because he he was similar to me and he was Dynamic and excited and we shared so much in common and I saw I could you know potentially be like him and so I applied to um well first of all he got me over to the early days of of the internet company called citysearch.com which was a local city guide in 1996 wow which was the early days of the internet early yeah and it was super fun so I left manufacturing um Mars Incorporated which is a great family held company which most people stay their their their entire career so it was very odd that I was leaving but I was like I think this the dynamicism of the people in the inter in the Internet space was something intoxicating and very you know you guys have seen it I'm sure it's similar to the last five or 10 years of uh of crypto I would guess it's just really Dynamic people who are you know want to take the hill and want to work hard are Dynamic and smart and generally well educated but anyway um so I went to City search and then he encouraged me to apply to Harvard Business School I applied to Harvard Business School I had this kind of The Sun Shines on a dog's ass every now and then moment where they were I think they were interested in my manufacturing background and my dotc Ticketmaster & Business Dynamics background both of which were pretty rich for as young as I was having started when when I was 19 working in the um manufacturing so anyway I got into Harvard Business School not because I did that well at Georgia Tech not because I tested that well just because because there was something in it I was different than the Mackenzie guy or the Goldman guy or that you know so um uh and that kind of changed my life all of a sudden I you know showed up really nervous and insecure and two years later I had the confidence to be able to sit with guys like you and and know that I could you know I I don't say I could hang because that might be a little bit too uh uh self-aggrandizing because I'm I'm still insecure being able to hang with you guys but um uh it did change my life and so coming out of that I went back and worked for John Pleasants again at Ticketmaster which was owned by Barry Diller at the time and so something Mel you asked about my first real entrepreneurial thing um I really liked working at I Joey Levan who's a buddy of mine who's now the CEO was there um all these interesting very smart Dynamic people and Barry did a pretty very good job creating a culture and so what we did uh there guy named Dan Marriott who was my partner founding a company called pronto.com but he did something interesting I don't know whether you've heard about it it's a separately capitalized inside of a corporate shell Phantom Equity structure with a forced put call option after 5 years where the company had to buy out our 20% they're the funding partner and so we effectively started a company without Venture back backing we started it with I backing but it was within that parent compan it was pretty cool to keep Dynamic people at your company you fund them you agree to fund them and it was this baseball arbitration you know put call thing that they had to pay us for the value of the company we created so even before I was on the radar venture capitalist um we were doing entrepreneurial stuff where we would share in the upside of what we created within I so that was kind of whose idea was that was that Barry's idea or it was Dan Marriott this very smart he went over to Stripes group with Ken Fox he's a private Equity guy um but he was kind of a deal genius and he came up with this and he saw me as a good operating partner so we team did you get close to Barry at that point yeah I I I worked directly for him for six or eight years and uh and I I had a great relationship with him I um as we might talk about uh and I think you guys are very similar I know you you are actually both of you are um just you you're you're aggressive and you want to win and I put so much pressure on myself by by the way Barry Diller's a multi- multi billionaire multi-billionaire I have nothing I I had nothing and now I'm back to pretty close to nothing but uh at the time was I was so hungry that he didn't have to put pressure on me I mean he's notorious that he's tough but but you know at one point he's like John if you don't figure this out I'm G to fire you in six months I was like oh my God you'd give me I'd give myself six weeks I was like you're giving me and it he kind of frustrated him because he's like God I was trying to really lean on him and it backfired I was like I got to figure this out I don't like I need the money you like you're fine I got I got I was I had a fire in my belly and so my he his his tough nature never bothered me I actually appreciated you know that he was hungry and wanted a lot out of his team and I app I like that next so next uh so I go I jump over to uh Barnes & Noble for a hot second with my partner William Lynch who was the CEO um and we were trying to make a last minute last ditch effort to run to to go after Amazon and looking back it was too little too late we were actually going to try and take it private uh but the leases were seen as long as debt and so you couldn't lever it m because it was effectively long-term liability or something that makes sense now in retrospect but at the time I didn't understand that technicality so you guys were trying to what buy uh Amazon no oh compete with Amazon compete withon yeah Barnes & Noble which was uh you know Amazon's the most well-run company in the last 25 years and and they had a 15-year Head Start so it was kind a little bit arrogant or Hubers to think that we had any chance and certainly history would say that we didn't um and so we we uh that only lasted for like 18 months and to answer your question Dave um I was staring at the Nook and the Kindle world and when I was at Barnes & Noble and I'm going to tell you what the Nook and the Kindle are it's a hardware platform with software customade software to consume content at home my wife still uses the Kindle yeah and so you have this Hardware device in your home there you go and the software and you can have access to millions of books yeah available when you want them MH so I was like a lot of people at in my 30s with my my wife um and I did Soul cycle flywheel Berry's boot camp um yoga all these different you know fancy Boutique Fitness stuff you remember I'm sure Suki was in that world if not yourself as well um and it was really cool um yeah cheeseburgers um so anyway talk about Fitness with but but we you know this early days of music streaming and you're like okay you can stream music YouTube's taking off you can stream video and I said I think you can build a vertically integrated Hardware software platform I was probably pitching you guys right about this time within within a year of Navigating Business Ups and Downs was saying I I and and I I think if you look back I was pitching you on pretty much what we built you know almost to the interface you know it was very clear in my mind what it was supposed to be including the Berry's boot camp part of it which would be the treadmill workout which I think treadmill treadmill is a bigger market and by the way to this day I think it's a huge opportunity for pelaton that I have one and I use it yeah the treadmill sometimes with with the uh with the programming with on and off and do the weights and it's an efficient workout right unlike a treadmill that is super Bor an old school treadmill is super boring yeah but when you say okay get on the treadmill for five minutes get off grab your 30 pound weights do this stuff get down the floor do push-ups and you know mountain climbers get back on the treadmill and assuming everyone's done a boot camp workout it is super good for your heart and your and your cardio but it's also it shreds you in a way that a a soul cycle workout doesn't right you know or or or a biking workout doesn't so anyway um we saw the bike workout we saw the tread workout and um and so the idea was great the team was great our Founders are great the real challenge that you guys sat front row to including you on the board was the fundraising challenge it was it was one of the hardest companies I could ever imagine to you know I'm I know that there are other Founders that have had as hard a time or maybe harder but I think to my knowledge you can count them on one or two hands I just don't know we had to raise a lot of money and and nobody was there you remember these days I remember yeah I was kind of a lucky investor because I think you know our kids were going to the same school and my wife met you and and I didn't realized Dave and uh hel were getting in originally and then we all got together and I'm in I'm in but I wasn't paying as much attention to these guys and it took us there was another round and then another round and I was like and I remember in my mind saying I'm never investing another Hardware business I mean I didn't even know Hardware software was quite Frank I was a macro guy but I was just getting into Venture but I that became like a truism because of how many damn rounds you had yeah well being being on that board it was to me it was amazing because the the amount of capital that put it you know building the bikes in Taiwan right in addition to building a software platform was just daunting and so it was uh reasonable that we would or you would you know kind of underestimate that and I know you went from really having known you at that point in time being somebody that was like all about the inspiration the ideas of the product is spending like at that point in time had to be 75% of your time was just Court in capital right at least 75% you're right Dave I I've said this and this is honest truth that I did not build pelaton my co-founders built pelaton when I was out on the road trying to raise money for two or three years how many how many rounds were there before I think eight rounds and billions of dollars yeah yeah wow oh wow yeah what was the first round how much you raised 400,000 at a 1.6 million pre money so two million post and what was the last round uh well she just the tiger route that I like an idiot sold into at about a billion dollars yeah that was when the stock was at 15 and then the tcv round was um I think the series I sold into the round right before the IPO against the advice of Dave Barry against the advice the CEO and against the advice of Dave heler uh I took the advice of a new guy I just hired who's a great guy and a great investor and he was like it's a bike company and I was like I think it's a platform company but he was so convinced he own a 24-page paper and I'm a people pleaser and he was working at my office and I was like you know i' made a lot of money it was the first Venture investor I think collectively I'd put have been $300,000 in and I got like six and a half seven million doar out of it so I was like 20 times my money on a bike company and I was likeo and then boom well and then boom this way so it's I think the story is still being told right I mean I I in my mind it's the single worst trade I ever did yeah and uh well you guys know the story the rest of the story is kind of public right it's uh it was we were running a fantastic company I thought great team great brand great culture um we became profitable pre uh pre um covid and so everything was firing and we had a business model that we were very proud of that doesn't exist anymore um and I think that's part of the reason that the market doesn't love the story like they used to is the the model was we had gross margin in the hardware so call it 40% gross margin let's say it cost um let's say fully Allin it cost $1,200 to get you a bike Peloton's Growth Strategy and we sold it for $22,000 so that $800 of margin we would put into marketing and run television ads and have stores and so on the first transaction when you buy the bike um if we spent $800 CAC we would be uh neutral we called it net CAC zero CAC is customer acquisition customer acquisition customer acquisition cost and the gross margin and the hardware paid for that cost of acquisition so then on month one the subscription margin would fall to the bottom line and so that was how we kind of ran railroads and and it was a gorgeous business model that we were very proud of and we were growing 100% year on year and that's how we were in the business right then covid came and we started chasing you know capacity and you know eight billion people are uh stuck at home every gym is shut down and my doctor once called me up he said do you think he could like call your friend who started the pelaton cuz I really really need a pelaton oh man I got so many requests for well yeah wow I was talking by the way I went to out to poly prep uh um thanks to you guys uh and talked to um one of the a class on um these high schoolers are learning personal finance and they um uh I I mentioned this situation right in covid and I said well you know what the funny thing is guys or team is what um what would you do when the demand is through the roof and Supply is limited what does you what does economic theory generally tell you to do prices and even they said you could raise prices and I was like you you could raise prices and I said why why wouldn't we raise prices in that environment and they couldn't answer it and the answer is because you would be voted off the island as a jerk trying to take advantage of the situation and only let rich people get the the endorphins and the mental health benefits and the physical health benefits of having a pelaton in their home so you're sitting there with the same prices you know you could readjudication invest in capacity invest in capacity until 2 years later yeah too much capacity the world decided that Co was over and we had we're sitting on this capacity so then we had what you call fixed cost delivering because we had all these fixed cost and it delived and it cost me my job we hit we missed a quarter missed another quarter and all of a sudden you know John Foley is Persona n grada and you know he's a bad business guy and it's like you looking back you know the interesting thing is as it's interesting though you make so many good decision decisions in business to build this thing and struggle through it and raise the capital and then it's what CEOs do get paid for though there was one call and you made the wrong call and boom it really was and I don't know whether we made the wrong call I think we tried to get as many bikes to people who are stuck at home as possible and when you think about the existential trying to help people through covid you know I I feel pretty good about that you know well maybe you may morly the right call but as a shareholder spending us so much on on on building out capacity that you're not going to need again how do you balance that or how do you def I'm I'm not Jud for sure with the benefit of hindsight there are things I do differently yeah no question obviously and and the company becomes a different company to run at right like 500 million to five billion to 15 billion that's a great question keep going yeah no that that's where I was going to go because I I had a front front row seat to John running pelaton those first bunch of years and he did an absolutely phenomenal job of leading that company threading needles to get it right that that is no small feat to get a company to go from scratch to being NASDAQ right right into and the market cap was at at the peak was what the peak like 15 billion wasn't it no north of 40 I believe oh was wow so but do you think forgetting who this is this when I you answer the question do you think when it was a 15 billion 20 billion company with back kind of sales that there was a different skill set needed than you had uh or in retrospect in retrospect I don't think that but at the time I did so I approached the board and said we should get a a big fancy CEO who's done this before and so for 18 months I recruited CEOs that I thought were fantastic we had two worldclass incredibly seasoned killer CEO on the one yard line twice because you're right Mike I'm I'm not the founder who's you know thinking that Foley's Approach to New Ventures this is mine because all I cared about was shareholder value I was a big shareholder and I wanted to take care of other shareholders and I said maybe John Foley from kargo this kid who you know this crappy public high school maybe there's somebody better than um by the way Coral Shores is a great high school I'm just to dispar what's your mascot what's your mascot the hurricanes come on Hurrican come on no it's just they don't have the resources um it was a poor when I say poor there just was a under capitalized public high school like a lot of public high schools these days um Visa these fancy private schools in New York City it was a very poor school but the CEO thing though it's a crazily interesting question because in some ways you went through a two-year up down that is probably a one-off in terms of most people's business life cycle right where you had a global event that created a surge of demand for all kinds of things that then brought forward demand two to three years and created the downside of all that you know an air pocket that how do you managed through there some there's some turbulence there I agree and I I as I keep history and I tried to you know through dinner parties and with my friends and my family I try to tell the the story of history that is favorable to me and I'll tell it here is we were the tip of the spear coming out of Co pelaton was one of the fastest going up and we we came slamming down in January is of 2022 2 22 within the next six months every Growth Company on the planet came down to the tune of 50 to 90% collapse that's right we were just the first one yeah and she got all the Press we got all the Press we were fit we were the fitness company that went up and here comes John Foley running his company to the ground but then every other company did the same thing and all of a sudden it was maybe it wasn't John Foley maybe it was a covid reset on consumer and growth companies were getting hit by the increased rates that were everyone saw and there was a real unwind in growth Tech and it had nothing to do with John Foley except the air pocket of the of the fixed cost deliv by the way my last before I had some tough conversations with the board I was laying off 3,000 people I I had got the memo that you have that we need to reset the cost structure that's that's an obvious thing so well that was that guess that would have been my only if I'm on your board my only thought would have been can the guy who hired all the people be tough enough to fire the people and for sure because I care so much about the company right but you're right that the the the theatrics around that that that stock price I business is Tough Enough in normal circumstances though when you're on the Leading Edge of like coming into covid supercharging and then the rug get gets pulled out underneath it's just going to be so talk about the psychology of leveraged you know $40 billion company it crashes down before you go into that I want to ask some fun questions when did you make your first million dollar and what did it feel like I might have been 38 and it felt great I mean it was uh I mean I I put it all into a down payment in a West Village uh op and then all of a sudden I didn't have any money and now I have a rent check you know I know so it it wasn't like I was you know driving a fancy car or you know ringing the cash register running around like acting a fool but um it did taste like okay this is when you work hard and you get equity and you figure out um you know business and you start to do well in business there you you it felt good and what when uh like our friend here when uh when you hit that height and you became a billionaire what did that feel like don't answer Mike let him just yeah at that stage it it um it becomes funny money I don't know how you feel it just it's you you read an article and it's a little bit you start to look at yourself from the outside in um and for me it definitely was funny money it was paper money and I never I never realized it I never actualized it so it was just a it was a concept and it was an article but it didn't um I started spend I started buying things what was your biggest purchase we gotta be honest M flashing his watch around um you know all the usual stuff no no no we don't know we don't know we want to know he's got he's got one of the nicest Town come on let him one of the great indulgences of of that that type of money is is flying private and and we did it for a The Journey of Founding Peloton couple years and and we don't we don't anymore and it's um it's okay to say I bought a Jet I did well you buy a share through netjets and it's it's really good living um at at at business school one time Warren Buffett came to speak to us and he said that you know if you make $300,000 a year or more and I think that's moved up inflation adjusted for 25 years ago so call it if you make $750,000 a year which is a ton of money I I get that for but he said once you make that you're living in the same neighborhood as he is you're eating at the same restaurants you're wearing the same clothes you're there's not much difference between waren Buffett and somebody making 750 except for the the flying private thing and what does he call it what's his name uh his plane the indefensible oh is that right yeah yeah no for real the name of Buffett's plan is the indefensible or used to be well for us for us I'm a pretty social guy you guys know this I I have lots of friends and I love family and friends and so anytime we would fly private I would pack the plane with with so I you know I I wasn't flying right by myself cuz I you know that would that would be indefensible but it's an Indulgence and um and it was fun but it's also not something I miss now like we fly commercial we fly back of the bus and you know we're regular family but the the core stuff that matters in your life of having dinner with friends and drinks and and you know working out and spending time and you surfing or doing whatever you do it's all very similar so I feel like M told me to ask you about the boat oh the boat yeah also how do you know about a boat I did have a fancy boat for yeah oh he must have Googled you cuz I didn't even know you had a boat I do like uh but again that was kind of um in the crushing 10 years 12 years of building pelaton I often wasn't the father or the friend I wanted to be yeah I was head down um I I will get um uh a cold sore when I get stressed out sometimes um don't know why I'm sharing this probably oversharing ZX ZX is your cure my my my good friends call it the the cold sore years which was like every time they saw me I had a cold sore and it was because I was brutally brutally brutally stressed and I it was trying to you when your company's about to run out of money and it's a high-profile thing and I'm going to lose your money you guys are going to hate me and not really but I think you're going to hate me because I lost your money because I bankrupt the company so you got to keep the money coming to pay for the bills and it was very very stressful so anyway when I bought the boat when I had the money now I don't have the money and don't have the boat uh but uh uh I thought about it as giving back to my hosting people on the boat was such an intimate if you've ever spent time on on a boat where you spend you know you sleep there and you have meals and it is such a fun quality time with your loved ones that I I felt like it was a gift more to them than me where I could and obviously I enjoyed it but um that was a kind of a celebration for everyone around me to participate in um The Limited success I had for for the time you know what I completely get that cuz Mike's boat is more a gift to me right than all right wait go on what you say I I want to change it to ernesta and talk about I was going to say the the the transition so like listen I I said we get knocked down you get up again when you get knocked down it sucks and so how did you emotionally get through that Valley cuz it's a valley you know it's a shitty Valley yeah uh of oh I just blew this cat I'm not as rich as I thought I was I'm embarrassed I coming up with a narrative how long did that take before you were back on your feet and with your mind clicking again and saying hey rugs like what's what's that that was it a year was it 18 months was it it was uh there was no time I I was ready to get back on as soon as I saw things going sideways at pelaton I started working on the next business plan because wow um I that's actually kind of badass yeah I crowed like a baby for weeks well I will tell you I am uh super blessed that my family and my friends did like are the 100% the same and they never saw me they never loved me for money and they never cared about it other than um we had fun when we had it you know smoke them if you got them um and now I'm back at it and it's the same group of friends and my wife has been super super strong through all kinds of unwind a lot of was just the logistics of unwinding of selling houses and um working through um just the Foley's Business Philosophy uh the realities of having money and going back to where you started um there's there's some you know uh Logistics to that that are just kind of um and and they're they're frustrating because it's like in your face that you're you're losing money you didn't have like go to a healing place and take time and just try to you just healed through relationship and starting over yeah it's pretty awesome yeah I also want the viewers to know from everything I understand like uh you didn't go completely back to where you were like fin financially you still did pretty well right like in in the you know in the big scale of things like you you still live you're right I mean more than you did before nowel 100% And I always remind myself Visa 99.9% of the world I with my health and my family and my living in New York City and being able to pay my bills and and maybe something left over I'm not complaining about my financial situation at all you're 100% right that's a very important call out to answer your question I don't know what I have left um because I'm still unwinding and there's some liquid things that you don't know like I um I I haven't paid my tax bill for last year so I'm still trying to get liquid to you know and then I have more tax bills coming and I don't I have a a private Equity investment that you don't know whether it's a 05x in this environment or 3x and that type of Swing so I mean you know I I say bankruptcy could still be upon me I I don't think that's the case but it could happen yeah or I could I could have you know tens of millions of dollars left and and it's it's still a juggling Act of trying I'm I'm I'm looking to sell my primary residence in New York City I'm looking to sell my I had a fancy house out in East Hampton and I moved into a much more modest place I'm now trying to sell that much more modest place um it's a real unwind you know but but I'm not complaining because one and it might be a transition a good transition to reesta I think I'm going to get back on top and and I'm GNA you know that's what I'm saying it's resilience it's like to even like to go through that tell the story and that's why I think I said that because I wanted our listeners to understand that even when you aim so high right even your failures ain't as like low as like somebody who isn't trying so you still ended up like you said you have tens of million ions of dollars or not but you're still in that space But you had enough resilience to go while pelaton was going down create a new [ __ ] company that in itself is just crazy and how did how did that come about yeah and a completely different space yeah I uh um I've been thinking about this business for a long time um it's probably like some of the clients you work with on the music side is you're in this band and you're doing this but it doesn't mean you don't like this genre and you could go join some other people and all of a sudden you're in a different band and it's um I didn't know you like jazz well I'm a drummer of course you know it's like whatever you could you could jump around and so as a business guy um to answer your question Mel I like building Brands I like um building great teams which ernesta team is you know 3x better than pellaton team at the same stage it's insane um and luckily uh I don't want to say I'm better at raising money I've earned a little bit of Goodwill and I have a great relationship with two investors in particular who got behind me this time and and allowed the fundraising process to be much easier but uh I think the rugs category I don't know how deep you want to go into rugs you want to go you ra 25 million for it initially right yep exactly um last year about about this time last year and um uh so the rugs category I believe has been is broken MH it's super super fragmented there's 200 places you could buy a rug today in big box stores homegood stores rug specialty stores you go to your designer you can go to a local uh mom and pop carpet installer and but there's no Brands so think about Warby Parker Warby Parker if you want a nice pair of glasses you go to warie Parker because they've curated um great you know eyewear your your grandfather went to Walmart to buy glasses but you probably Mike still buys glasses from Walmart these are War's baby they are right Warby Parker yes New York City The Conception of Ernesta from Walmart which we love Walmart cuz you know they're they're not going to hurt you they're going to elevate your style they're going to they're they're going to be on Trend they're going to be laugh at his glasses all the time let me let me tell you the warie guys too I throw a lot of parties those guys might throw more parties than me really they throw great parties oh yeah we went to one of day shout out son of a Neil Dave I haven't been invited to these parties what to be fair I don't think we was invited either we just it was in the Hampton and we just went that's awesome all right so keep going keep going so um these so we think by the way Warby is also a good value um you know they're they're on Trend they're great great experience great Community great brand all that stuff so um the difference in um the Warby business and the ernesta business is that there's better margins in rugs so I think about it more like a we call it sugar water in I went to Georgia Tech where um Coca-Cola was headquarters sugar water business model as you know is the cost of the product isn't much pennies but the marketing is where the money goes and the margins are such that um we are going to spend more probably two or three x more on marketing than we are on the rug we we're buying that we're selling so it's a real opportunity for people like myself and our and our CMO Alan Smith to build a brand where you think if you want a high quality custom cut rug that feels like a super fancy New York City designer you know uh brought it to you and made it for you and it fits your space and it's high quality and it's a good value and it's a good experience and all these things and you just say hey you need drugs go to aresta and that business doesn't exist yet and so we're really excited about um one of the fun things is we talked about Google reps right away 70% of area rug searches on Google are unbranded oh wow 99% of custom area rug searches on Google are unbranded so we say ernesta is going to be the brand we're going to do what we did with pelaton acquire customers efficiently have the right unit economics build a big business and talk about the name for a sec ernesta yeah you don't know you don't know anything about okay good so growing up in the Florida Keys uh my dad grew up in Cuba he was in the Navy in guantan Bay so Ernest Hemingway he and I fished a lot Ernest Hemingway is a is a big you know we've read all his books Keys guy right you got to love Ernest anyway and then Bob Marley talked about the islands Bob Marley's middle name is ernesta ernesta Nesta Nesta no way yeah yeah soing way plus Bob Mar did I come to you while smoking a blunt be honest I'm not a smoker I'm I'm an Irishman and I probably drink too much so I got my vices but I'm not a big smoker but in the keys there's a lot of smoking contact exact contact exactly but uh the fun thing about the nod to Bob Marley and this bus business is that the bigger your rugs by the way look around here guys the bigger your rugs the better music sounds the better the better sounds are because they don't bounce off of walls they don't bounce off your floor so if you have a rug that is you know 4 inches from the side around the whole room you can have better conversations you can have Listen to Better music it sounds sound is better if the rug is bigger and that's something your rug Revolution is starting right here right now entitled talk to me yeah please let me put some money in this time uhhuh no wants to get in this time really rich pelaton this will be a bigger business than pelaton that's another kind of Tam is Big I've got Tam is huge 100 million rugs sold in the US every year you know Tam is no total addressable market for rugs rugs huge huge holy [ __ ] yeah it's big it's big is the rug business so I know with you know fishing and mattresses unfortunately because I've got a big stake in Casper mattress uh they kind of suffered the pelaton thing everyone shopped ahead now that people aren't buying houses you know people get new mattresses and new furniture new bed when they flip houses move to somewhere else rent somewhere else uh is rugs the same cycle and are we coming out of that cycle well uh rugs a little different no rugs is similar when you move to a new house you buy five or 10 new rugs so um of the hundred million rugs sold in the US every year it is Lumpy but for our business it would it would uh blend across yeah and you're just start anyway so you're yeah ex take market share yeah we're we're Market Analysis for New Business so I say one rugs also mattresses are dominated by probably five or six companies that do have Brands right Serta purple whatever rug is completely fragmented just taking market share rug is absolutely fragmented for sure right so yeah Market in rugs to have a hugely successful compan or you need a bull market in mattresses to have roll up as well as 100 million every year no there's no brand one brand name that takes the larger part of that market name name a rug company no I I don't know name a mattress company Casper come on that's right how did you identify that like so I um I'm a weird uh I like design I think you like design and seeing your house um I care about spaces and I care about entertainment and I like um I'm I'm not the most fashionable guy um my buddy Mar loani was over last night you know Mar um he has like this cool fashion and um I'm just kind of a meat and potatoes get dressed in the morning I don't really care what I look like but I do care I'm house proud when people come over you were over I like um having good music on I like having good lighting color temperature sidelighting I like the rugs Furniture you know conversation people I know you're have been going to your party Mike I realized that you you're such a student of this stuff like I am and and it takes one one I was really appreciated all your little attention to detail and so I've always loved drugs and I've I've been on the internet since 1996 and so I've seen the Evol evolution of there was a company called rug man.com I used to spend a lot of time on because they basically it was rug shopping 1.0 where kind of flattened The Experience where you were able to say I want some red I want some blue I want it this size and it would you know 30 years ago you went to a rugs Merchant and you had some nepes Sherpa guy schlepping rugs and dragging them around and you and your wife would just sit there and you felt bad for this guy because he's sweating and you you you know you're not going to be buying a rug you're just browsing and you feel horrible because this person's working so hard for you right um and so the internet kind of changed the game in rug shopping the first version of that that was just access to images and a database driven front end that allowed you to access inventory in a more efficient way from home and so I I bought a bunch of rugs from from rug and I've always been a student of the evolution but I used to when I didn't have money you'd go to Home Depot you'd go to Lowe's you'd go to um Pottery Barn and buy you know rugs standard siiz rugs and then for that hot second when I had money I was able to work with uh designers and I'm guessing your wives have designers and you you get a fancy you know interior designer and they say you don't want an 8 by10 from Potter Barn that's kind of you know offensive to them think that that would look good in your space you want something higher quality that fits the room that's you know the right color and the right that's perfect for your room that's custom and that's what a nice designer and by the way we hope to sell to those designers who want a great experience and a great price and um uh and by the way we also solved the supply chain side where it doesn't take six months to get a custom rug it takes directionally two weeks to get it from ernesta so we are also hardcore we talk about the consumer branding side our coo is also an assassin who is changing the supply chain side of custom rug so we're we're going after this in a bunch of different angles um all you know with the with the um intention of go to the consumer what's the most compelling thing about aresa curation so we help you like Warby Parker we get you to something that's going to be on Trend and gorgeous and high quality um the right price um the right uh speed the right experience um we're bringing content and Community to our Commerce experience where our uh video content will help you you know sit with a designer a designer on our team who Rosa or ktie will walk you through why this rug is great and why you want it in your house um other we're going to bring community in like we did with pelaton where you can learn from uh you know the interior design um ideas from other people who live in your area or like rugs or somebody who bought this rug and why did they put a brown coffee table on it versus a a glass coffee table on it or whatever but so all kinds of different vectors but um it's basically awareness of a brand that you can trust and um elevating the category along along the way rugs like fitness equipment I would say fitness equipment before pelaton was a Dopey category full stop y Dopey marketers Dopey Brands Dopey products you know you think of a The Role of Innovation in Business spin bike that you would have bought 15 years ago crap yeah so pelaton elevated the fitness equipment category through Cool brand and Innovation and everything we we hope to elev at the rug category so that you know I'm not laughed out of the dinner party when I tell people starting a rug company they're like wait everyone everyone says is it is it a uh connected rug I'm like no just old school rug it's just better it's better better than it's ever been let me ask a question smart rug yeah smart rug I I see myself more as an investor than an entrepreneur but I've had a couple entrepreneurial moments in my life or false starts and when I first got out of college or first got out of the army and I came here it was the Blockbuster roll up era like what what can I roll up and I had this great idea that dry cleaners MH the business that's created the most millionaires in the history of America is dry cleaners no [ __ ] way the most millionaires in America have started dry cleaning businesses but so I was like okay you're not going to compete when you looked at rugs was there anything that scared you like wait a minute is there is there any of that like well that's obvious why it hasn't been rolled up or why is there not like I'm just trying to push is there any reason the rugs haven't been rolled up there's not a brand because it is kind of crazy we all have rugs yeah it's a huge category um I think what's what's the the obstacle I think uh the reason why a business like this hasn't taken off yet is ignorance on the consumer side the consumer doesn't know why a 8x10 rug sucks I did interesting yeah so part of our when we think about marketing we I I don't call it marketing I call it education of why a custom rug high quality from one of the reasons why we we invested heavily right away into sampling operation so if you if you want to check out an Nea rug don't buy aesta rug go to the website and get you know five or 10 samples that come to you um within two days of you know 12 12 in x 12 in in a box and you get to feel it and put it down and you and your spouse can have a glass of wine and you know put them on your flooor and talk about what you want question if you had if you could pick any super power in the world to have would it be oh gosh I picked Thor I thought hair hair which came true we'll see later on um a superpower or superhero either either but you got it can't the great thing is this guy has answered every question we've asked him and he's done it with thoughtfulness and whatnot and now he's stumped by superhero everybody is who's the uh who's the who's the I guess I'm more than most people growing up in the keys I'm I'm a water guy I love the Boating and I love the thing so Aquaman um being able to swim with the fish and the and the porpus and the manate boy Aquaman I like that maybe uh maybe help save the reefs somehow as Aquaman maybe a a marketing campaign there we go M I was going to ask with with uh pelaton it was a direct to Consumer it was dig digital only ended up going also into stores right like and I remember that discussion that debates about should you start to put physical locations do you have any plans like that Foresta or do you think it'll be completely online no we are actively uh pursuing uh retail strategy or stores uh were're in lease negotiations and four or five different locations all right ounce of gold Dave all right so ounce of gold at the end of every podcast we ask uh just for your like ounce of gold of wisdom like what are you going to leave the listeners with it can be anything basically but we've heard a lot of Amazing Stories ideas about you know how you started pelaton or Nesta all those things that happen in your life but like if you were going to leave people kind of with one ounce of gold you're giv a commencement add dress at Georgia Tech yeah what do you tell the kids one one one t tag tagline yeah doesn't just have to be a sense but kind of like your your nugget that you leave us with well this isn't piy so it's not going to be some magical uh sound bite for a for a headline but uh one I think my um my superpower uh would be um finding and somehow I don't know how uh maintaining friendships with Incredible people and as it relates to business I mean you we all know this but I don't think I don't see it enough is you're only as good as the people around you and uh pelaton was a great company and Scaling and Managing Growth should be again a great company um with because of the co-founders and and the partners that we had um and the same thing with aresta we are um we have this incredible group of highly motivated everyone has a ton of equity and we're g to but we have fun and we're excited and it it I think it's a cliche that you say it you want to surround yourself with high integrity people but it's just it's it's good for your life it's good for your soul it's good for your reputation if you're doing business it's good for your balance sheet um because these people are you know similarly uh aggressive and and dynamic and hardworking and on my Tombstone it would say John Foley was surrounded by great people and it feels good to go through life that way and and I think good things happen when you're able to um have invest in people the ounce of gold that's great of gold give gold and and my prediction is gold prices are going up 2012 today on its way to 4,000 in a couple years I've never seen it now to Gold there you go don't think it's a quarter and lose it actually when you're drunk Irish what's it worth Mike $2,012 all right wow kidding me we're trying to get you that plane back yes I want to just wrap up and say you know one of the things that we've seen with the lots of entrepreneurs is curiosity and tenacity and you have those in Spades and so I'm buying calls on John Foley uh John Foley and tell can you tell the people where they could get anesta rugs from ora.com an.com an.com look for it I I I really appreciate John being here he's a Serial entrepreneur he's done amazing with really everything he's done those were some great stories I didn't even know all of them but like was you know a monstrously successful company and a really brilliant creative um idea and ernesta I think is I mean being in the business a little bit I just think it's going to be a home run because I think it's a really fragmented tough place to to find you know to find and so I think it's exciting so we wish you the best of luck thank you Dave thank you you to [Music] connect