Earlier in the year, Peloton experienced troubles related to its leadership decisions during the coronavirus pandemic to expand well beyond its means. As part of their earlier strategic solution stable, Peloton decided to reduce the cost of its products. Those steps have not materially helped valuation so now, ironically, it is shifting to raise the cost of its products, close a significant number of stores and cut approximately 780 jobs. Their CEO has communicated their new focus is now on cash generation to give life to the company. For those that have been in business for a while, it is not a surprise that cash generation is important; in fact, we’ve heard the phrase ‘cash is king’ for generations. Alarmingly, Peloton to now come to this realization is striking. So, what are some of the fundamentals that seem to be missing?
As we wrote earlier this year, Peloton seemed to have material gaps in their business planning (Read Previous Peloton Blog). In a sound business, they would be thinking about evaluating critical decisions across several possible scenarios to ensure the business is robust in a world that is constantly changing and dynamic.
Another apparent strategic gap relates to risk management. Here are just a few risks that have materialized: Peloton had their exercise bikes used on two television series to ‘kill-off’ main characters; they have had parts falling off their equipment; some Peloton equipment has been labeled a safety hazard for children. And Peloton has had significant failures in the financial viability of their decisions. Solid organizations must have an annual process to review the risks to the business, and a more frequent cadence during unstable times. What are the customer risks? What are the market risks? How about legal and reputational risks? What other factors should they worry about that could impact their future success? Getting those strategic risks on the table to discuss and plan for would generate ideas on how to reduce the likelihood of those risks materializing. Once identified, there is no question that short-term adversity can translate into long-term advantage if properly managed.
More sound strategic minded leaders could have helped avoid the sad personal impacts to Peloton employees and their families. And Peloton’s user customer base is likely a bit worried about the future value of the expensive exercise equipment if the company cannot succeed for the long term on delivering content to keep them biking.
To learn more about appropriate strategic planning and risk mitigation, feel free to contact any one of our experts.
Crisis cost time, money, customers, and careers, generally in that order. Peloton seems to be hitting on a number of these cylinders now.