Businesses that Make Long-Term Decisions Based on Short-Term Success Usually Fail in the End
Have you ever had one of those experiences in business when you feel you’re riding high and your enthusiasm for the future of your company is based on a spike in sales and short-term sales projections? And then, after increasing your spending and hiring a lot of additional staff, reality hits. You then find your short-term enthusiasm has resulted in hiring too many people, and your sales projections go so far off the rails that the company ends up in a financial free fall. If this didn’t happen to you, you are probably not Peloton.
Peloton, the exercise bike company where you pay instructors a monthly fee to yell at you while you’re riding, was all the rage in the home fitness boom that occurred during the COVID pandemic. In 2021, the company employed 8,000 people but as of June last year, that number was down to around 3,500.
Peloton CEO Barry McCarthy, who came to the company after runs at Netflix and Spotify in 2022, tried to take what he learned from those companies and make it less of a stationary bike-selling unit and more of a subscription service for access to those enthusiastic trainers screaming at you. It didn’t work. In a memo to employees and shareholders, McCarthy said, “Hard as the decision has been to make additional headcount cuts, Peloton simply had no other way to bring its spending in line with its revenue.” He stepped down this month (May 2024) amidst yet another 400-employee layoff.
So, what went wrong, and how can a small business learn from the experiences of a publicly traded company like Peloton? Let’s count the ways.
1—If you develop a short-term cult following for your business, know that those people will soon chase another shiny object.
Peloton built their business success on the acute cult-like following they received during the pandemic when people were stuck in their homes and needed a release on the seat of a stationary bike where their video screens told them they were going somewhere again. While the pandemic seemed like it was going to go on endlessly, we all knew that eventually, we’d be let outside to play again. This truism somehow escaped Peloton, whose supply chain couldn’t deliver bikes on time, and then when they were able, the pandemic ended and all those people they hired to meet the needs of the cultists, were no longer needed when sales plummeted. No businesses should ever make decisions based on a faddish devotion and have enough understanding of their business model to know that sales will ebb and flow in different seasons of consumer fickleness.
2 – It’s better to be late delivering your product than to rush something out the door that’s not ready for your customers.
Peloton made some horrible and even deadly decisions to meet pandemic demand for their bikes. In order to lessen the delivery time, they cut corners, resulting in massive recalls because some of their bikes injured and even killed people (a child).
3 – Don’t make desperate promises you can’t keep.
Every company should know its bottom line for success, and market share decisions should never be made by giving stuff away you can’t afford. At the end of the pandemic, panicked over a rapid drop in sales, Peloton started offering a free year of membership—not a month, but a year. Not coincidentally, the layoffs began after the free year was offered.
4 – When You’re the Joke, Laugh With Them
Peloton became a meme, a TikTok video, and an Instagram reel, and it was all about making fun of the company and its cult-like users. The company could have joined the joke, but it resisted, and its social media reflected a company with no sense of humor and some pretty tough-to-watch commercials. All of a sudden, owning a Peloton wasn’t a status symbol; it was a sign of pretentiousness.
What the company didn’t understand is that those social posts, even the ones making fun of them — kept them in the public zeitgeist. They didn’t capitalize. Any business would have loved the attention Peloton got, negative or not, but if you don’t have a clue how to leverage it, you’ve lost your opportunity to build market share. Instead, their lack of self-awareness turned their product ownership from a personal status symbol to ownership douche status. So they pivoted and started pushing subscriptions to those who already had a bike and had begun collecting dust after the pandemic.
Small Businesses don’t have 8,500 employees and global brand awareness, but the successful ones that have been around for decades know the importance of basing business decisions on what’s best in the long run. They have a controlled and vibrant social media presence that reflects strong business principles and shuns faddish get-rich-quick and cringy marketing. Most importantly, they are prepared for sales peaks and valleys, and their headcount and investment reflect this.
Don’t be a business that squanders its original brand identity so as to become so pretentious that its product owners are viewed as self-absorbed cultists. In other words, don’t be Peloton.