Pod Insights The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch 20VC: Peloton CEO Barry McCarthy on Leadership Lessons Learned from Reed Hastings and Daniel Ek, What is Peloton's Competitive Advantage and Why Peloton is a Team and Not a Family About this episode Barry McCarthy is Peloton’s CEO and President. McCarthy is a seasoned executive who served as CFO of Spotify from 2015 to January 2020, and CFO of Netflix from 1999 to 2010. Prior to Netflix, McCarthy held various leadership positions in management consulting, investment banking, and media and entertainment. McCarthy has served on the boards of directors of Spotify and Instacart since January 2020 and January 2021, respectively. In addition, McCarthy has served as a member of the boards of Chegg, Eventbrite, MSD Acquisition Corp, Pandora, and Rent the Runway. In Today's Episode with Barry McCarthy We Discuss: 1. From Netflix to Spotify to Leading Peloton: How did Barry make his way into the world of startups and come to work with Reed Hastings at Netflix? What are his single biggest takeaways from working with Reid? Why did Barry decide to move to cold Stockholm to work with Daniel Ek and Spotify? What makes Daniel the special leader that he is? Was Barry nervous about assuming the role of CEO @ Peloton? Are the elements he was most worried about the elements that are his biggest challenges today? 2. Barry McCarthy: The Leader What does "high performance" in business mean to Barry? Daniel Ek has described Barry as the "most strategic dealmaker in the world". What does Barry believe makes him so good at dealmaking? Where do so many go wrong? Barry pioneered the model of the direct listing, why does he believe they are better? Why was it right as an approach for Spotify? Will we continue to see more? What is Barry's framework for making tough decisions? How has it changed over time? 3. Barry McCarthy: The Master of Boards: Barry has sat on some of the best boards from Netflix to Spotify to now Peloton and Instacart, what does Barry believe makes the best boards? Where do many boards go wrong? Where do they become dysfunctional? What can and should be done to stop that? How does Barry advise other board members on the right way to deliver tough news constructively? What is the single biggest advice Barry would give to young board members assuming their first boards? Where do many young board members go wrong? 4. Barry McCarthy: Mastering the Mechanics: Daniel Ek suggested that I had to ask about “demand creation theory and your ideas about whether the market is efficient”. What did he mean by this? How does Barry think about it? How does Barry think about the interplay between gross margin, experience and retention? Why did Barry decide it was the right decision to evolve the strategy from owning distribution to working with Amazon etc?
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Speaker 00 The brand is golden and the user experience is platinum and always has been. So the many mistakes that have been made along the way, but from the get go, it's had product market fit. And despite all of the footfalls, it has never once damaged the product market fit.
0:14 Harry Stebbings? This is 20 VC with me, Harry Stebbings, and I'm so excited for this episode. I've been one of the biggest Peloton users and fans for the last two years. And today we're joined by, as Daniel Ek described him, the best strategic deal maker in the world, Barry McCarthy, CEO and President at Peloton. Before Peloton, Barry served as CFO of Spotify from 2015 to 2020, and CFO of Netflix for an incredible 11 years from 1999 to 2010. Barry's also served on the boards of Spotify and Instacart since January 2020 and January 2021. In addition, Barry's also served as a member of the boards of Chegg, Eventbrite, MSD Acquisition Corp, Pandora and Rent the Runway. And I want to say so many thank yous for so many incredible questions, suggestions today.
0:58 Harry Stebbings? Daniel Ek and Shaq, Mike Moritz, Gustav Soderstrom, Jeff Jordan, Kevin and Julia Hartz, Fiji Sumod, Instacart and many more. It really did make such a difference. But before we dive into the show today. 20 VC is supported by First Republic Bank. When private equity and venture capital firms are funding the innovations of tomorrow, speed is of the essence. That's why at First Republic, you'll be paired with your own banker, who will remain dedicated to helping your team through all market cycles and will be ready to respond quickly to your requests. As a First Republic client myself, having a direct relationship with a personal banker, who I can really depend on to help me make the right decision, matters a lot. In fact, your banker will serve as your single point of contact by phone, email
1:42 Harry Stebbings? or First Republic's secure app. Visit firstrepublic.com today to learn more. That's firstrepublic.com, member FDIC and equal housing lender. And speaking of amazing partners with First Republic there, if you're a venture capitalist or corporate strategist, I want to tell you about Tegus. Tegus is the only company in the world that aggregates qualitative information on private companies from seed stage to pre-IPO. With Tegus, you can access other VCs and
2:10 Speaker 02 Founder's expert call transcripts from previous rounds to help source fast growing companies, create compelling emails to really get a founder to respond and be excited to speak, and to diligence companies when a round is moving fast. Tegus also provides the most flexible and highest quality way to run your own expert calls. With no upfront fees or call minimums, the ability to do a 30 minute call and simply pay the expert rate at an average of $300, Tegus makes expert calls easy. Find out why a majority of the top venture funds are using Tegus on a daily basis. Head over to tegus.co/growth for your free trial. And speaking of incredible resources like Tegus there, I've always been a massive history fan, and so I want to talk about Cooley, the global law firm built around startups and venture capital.
2:55 Speaker 02 Since forming the first venture fund in Silicon Valley, Cooley is one of the most active law firms representing both early stage and late stage financings, handling more than 1,300 private financings every year, with an equal split of investor and company clients. So to learn more about the number one most active law firm representing VC backed companies going public, head over to cooley.com and also check out cooleygo.com. Cooley's award winning free legal resource for entrepreneurs.
3:22 Harry Stebbings? But that is enough from me, so now I'm so excited to hand over to Barry McCarthy, CEO and President at Peloton.
3:34 Speaker 02 You have now arrived at your destination.
3:37 Harry Stebbings? Barry, this is such a joy to do. As we just said, I've stalked you for many weeks now with the references from Gustav, from Daniel, from so many others. So thank you so much for joining me today.
3:48 Speaker 00 Oh, it's absolute pleasure.
3:49 Harry Stebbings? Now, I would love to start with a little bit of context. We look at the incredible journey you've had, and I'm going to skip a few steps in between. But I'd love to know, how did you make your way into the world of startups first? And then how did you come to be CEO of Peloton most recently?
4:03 Speaker 00 I got involved in startups in the 1980s when I was first bossing, and they pulled together an investment pool and were investing in startups. So I was invited to participate in that group as a venture capital investor, and I spent seven years doing it on just about every mistake you could possibly make. And then along the way, I realized that I wanted to be Being an operating guy. And then it took me quite a while to convince someone to hire me in my first operating role. Eventually that led me to Reed Hastings doorstep in 1999 when I was the 48th employee. And then, you know, the rest is sort of history. And then with the fact that Peloton, I was comfortably retired and an avid Peloton fan user. And had many years of successful association with T C P, both co-investors in Netflix and co-investors in Fata by.
4:45 Speaker 00 And read about some of the difficulties in the business and thought it was particularly relevant coincidentally. Things I'd done in my career that gave me some insights into maybe some of the challenges that were facing and possibly some of the fixes. I was anxious to play another big game with an iconogram, which Peloton is. And fortunately, I was able to convince them to give me a shot at and jumping in and turning it around.
5:05 Harry Stebbings? I'm sure that was a tough decision for them looking at your incredible journey.
5:09 Speaker 00 Well, I'm not everybody's cup of tea, let me put it that way.
5:11 Harry Stebbings? We'll get to it.
5:15 Harry Stebbings? I heard some weaknesses too. I just, I'm fascinated. And I'm sure Ben told you, I go off schedule a little bit. What was Reed like back in 1999? We see this incredible leader today. What was Reed like back then in 1999?
5:29 Speaker 00 Well, his resell vision was to be retired, fund the company and the performance kind of got sideways and he came off the sidelines. And replaced Mark Randolph as the CEO. And then the very first thing he did was to bring in Patty McCord and rebuild the entire team. So I came in as part of the rebuilding and it was then an a la carte business. Now, he had been very successful building company culture, software, first ended up selling and been taken public by Morgan Stanley. And I think was maybe the second most successful IPO of all time, if I'm recalling correctly out of my depth there. In hindsight, I think he wished that he had the opportunity to build it in a slightly different way. He had been a first time CEO at Pure and this was his do over in effect. He was quite deliberate in the way that he built the culture and measured performance.
6:13 Speaker 00 Eventually we found product market fit. This is subscription model, as it turned out, not as a a la carte business. And once we stumbled into the subscription model, the business literally started doubling each year. And for, gosh, five or six years, just kept doubling.
6:27 Harry Stebbings? Barry, I do have to ask, we're all functions of our history and you've never been on a podcast like this before, my friend. What are you running from and what are you running towards?
6:37 Speaker 00 Running from boredom and whatever the antidote for boredom is, what I'm running to. I love the game and I love being able to play on a team. Let's see, if I was used to musical analogy, I'd say the kind of music that you can play as a soloist is quite a bit different than the music that you play when you're in an orchestra. And I find the orchestral music to be particularly engaging. My whole life, I've been involved in organized sports on teams in high school and college. And I miss it terribly when I'm not playing on a team. For me, business provides that opportunity. We happen to be associated with fitness, which has also been an important part of my life. The mission and the values of the business happen to resonate with me personally, but it's mostly the opportunity to do it with a group of folks.
7:15 Harry Stebbings? Listen, I deeply agree. Having gone through COVID, I felt like Olivia Amato got me through COVID and it's got nothing to do with my crush on her. I promise you, it's engagement is so wonderful. But I do have to ask you, you mentioned team. I spoke to Daniel before, I spoke to Shaq before, and you said you've got to ask, why did you move from sunny California to the cold, dark Stockholm? What was it that compelled you to join Spotify at the time?
7:38 Speaker 00 Music. I knew music from my previous life at a company called Music Choice, from my experience on the board of Pandora. Spotify owned Cool. Daniel was using my pattern recognition skills. As exceptional in his own way as Reed was exceptional in his way, one in 25 million, it was a unique opportunity to work with someone that I had come to admire and trust. I had been on his board before he invited me to join the management team. Stockholm was not on my list of places to live for sure. And I terribly missed California. On average, you know, living in Stockholm is great. In the summer, the sun never goes down and it's one of the most beautiful places on earth. And in the winter, it's one of the most depressing.
8:20 Harry Stebbings? Yeah.
8:21 Speaker 00 So that was a little bit of a struggle. But I would say in comparison to the life we led in California before we moved to Stockholm, it was an absolutely fabulous experience. We led a relatively small and insular existence in Silicon Valley and we had a much bigger life, much more. Some in Stockholm. Reflecting on those two years, it was a terrific opportunity. And interestingly enough, it brought my wife and I much closer together. It could have gone south pretty fast, but since, you know, we were in a foreign country, we didn't speak the language and we were sort of dependent on each other. And he actually still has friends that she engages with in Stockholm, the book club. Eventually, we moved to New York when Daniel asked me to also run the ad business and it was kind of sad to go. But it was tremendous fun while we lived there.
9:03 Harry Stebbings? I'm going to ask you a weird question, which is when you're running at the top of your game, as you have done for so long. What are the secrets to a successful marriage? This is clearly something I have not mastered.
9:14 Speaker 00 I felt miserably the first time. We have shared values and we have common interests. We actually like being with each other. And interestingly enough, most of the success I've had in my career has come after we met. So I'm saying that she's been very much part of it.
9:28 Harry Stebbings? You mentioned Daniel and how he was so central to your decision to move to Spotify. He described me before the show as the best strategic CFO dealmaker in the world. Why do you think he said this and what do you think makes he so good here, Barry?
9:41 Speaker 00 Probably said it because he hasn't met most of the CFOs in the world.
9:46 Harry Stebbings? It was a large day to start. But really, what do you think led him to say that?
9:50 Speaker 00 We were a great team and we had a terrific run together and a lot of success and we broke new ground and we were quite compatible. I wanted to do new interesting things and he's particularly interested in new interesting and smart things. He's a risk taker in ways that were appealing to me and two, had a skill set that was complementary to his own. We never stepped on each other's toes. He absolutely has skills that from a product perspective that I don't have. I'm saying the business model from a financial perspective was a mess when I walked into it. But there was a lot of low hanging fruit when I got involved in Spotify. And so the partnership worked really well at a personal level and professionally.
10:25 Harry Stebbings? One of the reasons I'm sure is your innovation around direct listings and how you played such a pivotal role with Spotify in terms of the direct listing. And I spoke to Jeff Jordan at Andreessen as well. I told you, I really stalked you. And I spoke to Jeff and he said, you're going to ask about direct listings. Why do you feel direct listings are better? And what do you think you saw that others didn't see about the direct listing model being so good?
10:47 Speaker 00 Well, there are a couple of things to unpack as it relates to direct listing. It's a drug that's very effective for addressing certain kinds of clinical circumstances. It's not for every occasion and not for every company. Point one, so at Spotify, I was trying to solve a particular problem. I wasn't trying to reinvent the going public. I think it's very much to Daniel's credit. I walked in the room and I very intentionally said to him, hey, this crazy idea to do something that's never been done before. Now, an awful lot of CEOs and boards, I know if you were foolish enough to say that to them, would go, whoa, whoa, whoa. And Daniel was like leaning forward in his chair and couldn't wait to hear what the idea was. Two, when you take a company public, you need to sell enough shares for there to be a liquid market and you dilute the existing shareholders.
11:32 Speaker 00 Now, the typical rule of thumb, you're going to raise sort of 12% of the market cap of the company, 10 to 15. It may be as low as seven if it's going to trade by appointment in the aftermarket. Okay, so for us, that would have been well north of a billion dollars. We already had lots of billions on the balance sheet and we didn't know what to do with the existing cash. We certainly didn't need any more. The existing investors had no economic incentive to dilute their ownership interest to raise more cash that we more can use productively. So how do you solve that problem? That's what got me thinking about the direct listing as an alternative to solve. Question for the lawyers was, securities lawyers, okay, well, how do you go public without actually selling stock? Is there such a thing? How would you do it? And so we ripped off an existing structure, mostly used by companies that are coming out of a bankruptcy proceeding or are being spun out of large public companies and then
12:17 Speaker 00 used it in a novel way in the IPO market. I think the thing that most people don't understand, even very experienced bankers have to point out, is that the stock opens in a direct listing exactly the same way it opens in a traditional IPO, which is exactly the way it opens for already traded public companies.
12:34 Harry Stebbings? Do you think we will continue to see many more direct listings moving forward?
12:38 Speaker 00 Well, not in the current capital environment, and that's because public company shares are trading at such a steep discount that the only way you're going to get a company public is if you essentially promise to the institutions who are going to buy the IPO a big pop in first day trading. And that's a traditional offering.
12:54 Harry Stebbings? Final one before we actually get to, you know, how you work. On kind of the move to Peloton, this was your first time adopting the role as CEO. Were you nervous about being CEO for the first time?
13:04 Speaker 00 It was Daniel, a very successful venture capitalist, who'd been on the Netflix board for a long time, named Tim Haley. Both of whom, counsel, I had sought, and my wife, together got me thinking about the CEO role. Because initially, I was talking to Peloton about a COO role. So I wasn't entirely sure I had the chops to actually step up and lead it. But in the course of understanding the sort of the challenge ahead in the business, I thought, well, the only rational way to actually do that is if I can be assured that, at the end of the day, I have the final say how we manage through the turnaround. Because different from Daniel, where I had a relationship of trust, and I'm not throwing shade at any of the founders. We didn't know each other, and I didn't know if I could trust their judgment or not. We just simply were unknown to each other.
13:48 Speaker 00 And that was more risk than I was willing to take.
13:50 Harry Stebbings? When you have that decision, you have the pros and the cons. And when you talk about the challenges that you may be nervous about, are the challenges that you were nervous about, the challenges that you face today, is it what you expected in terms of the hard things? Or are the hard things different?
14:04 Speaker 00 I knew that from experience in situations like that, you don't know what you don't know. You're absolutely going to discover things that will be challenging to you. And you're going to have to be good enough in real time in order to figure out how to deal with those flex-want events. And we had a couple. Maybe a few more than I was anticipating, but we've been able to navigate them successfully. The biggest surprise to me is the amount of emotional resilience required of a CEO in a situation like this. But people don't come to you when things are working well. And in a turnaround, almost nothing's working well. It's constant firefight mode. And it's just one mess after another is robbing on your desk that needs to be dealt with. You need to both have the intellectual horsepower
14:49 Speaker 00 and the emotional energy to fix it. And you need to also be able to lead and motivate the people you're trying to fix the problems with. And this is where the emotional resilience comes into play. Because it does eventually grind you down. But that's not a formula for successful leadership. You've got to motivate the troops. At the same time, you're trying to solve all these problems. At the same time, you're trying to manage your own emotional state.
15:11 Harry Stebbings? My idea of turnarounds are a bit like Matt Wilper's endurance They're hot, they're long, but at the end you feel pretty good. That's how I equate it. You might need a banana halfway through for some energy. But I want to go to that. You mentioned the emotional resilience there. In terms of your performance, obviously Peloton is a company of performance in its sporting endeavours. When you think about the words high performance in leadership, what do they mean to you, having seen also many different organisations?
15:38 Speaker 00 It was Reed Hastings who taught me the importance of business models. If you don't have the right model, you can't win. It would be enormously difficult for you to extract competitive advantage and sustain those advantages in a way that enable you to be successful in the marketplace. So first and foremost, you have to have the strategic chops that enable you to think about your business model, its inherent weaknesses and strengths, and how you can leverage it for the future success of the business. And secondly, great leaders are all about talent density. It's both the ability to recognise talent for what it is, and then it's the ability to hire it, to recruit it, get people to want to work with you. And lastly, it's the ability to extract from that talent, every ounce of their talent, and getting them to perform at a high level for the benefit of business.
16:22 Harry Stebbings? You mentioned competitive advantage. What would you say is Peloton's biggest competitive advantage today?
16:28 Speaker 00 The brand is golden and the user experience is platinum and always has been. So the many mistakes that it may walk away, but from the get-go, it's had product-market fit. And despite all of the footfalls, it has never once damaged the product-market fit. There is an army of consumers who were pulling for the success of the business because they absolutely adore the user experience. That's the asset, it's the content that we have, one. And two, I would say, Mike Maritz put it best when he was talking about the Instagram business, but it absolutely applies to the Peloton business. Covid was the marketing campaign that Peloton never could have afforded. And the growth that happened during Covid propelled the business to scale to a level that no other company in the space has achieved.
17:12 Speaker 00 And that has afforded the company excess of capital that it wouldn't otherwise have and has made it the dominant player in the connected fitness category.
17:21 Harry Stebbings? This is what I go back and forth on actually in my mind, which obviously Covid is a terrible thing. And obviously terribly sad it happening. But was it like a good thing for the business or not? Because it also placed a huge amount of unnecessary expectations and pressures on a company that maybe wasn't ready for such hypergrowth overnight.
17:37 Speaker 00 Among the things that makes Reed Hastings such a great executive, and I would say Daniel great executive, is that they deal with the world as it is, not as they want it to be. They process data at a bit rate that humbles most of us. They have the capacity to pivot based on the data that they ingest at a pace that would make most people's heads snap. Reed in particular, I would say that the Peloton team didn't exhibit that capacity, that imagined that COVID was going to be the new normal. Now, in 2020 hindsight, kind of hard to see how that was a logical expectation. But when we weren't in their shoes at the time, whereas Reed, at least at Netflix, for the most part, not entirely, but for the most part, and Daniel, when he pivoted into podcasting, hadn't been able to anticipate Reed in streaming, let's say, by web example,
18:21 Speaker 00 you know, reinvent the business model in important ways and anticipate fundamental shifts in consumer behavior. And then they've been able to surf those waves. There is a scenario where you could have scaled it and then anticipated in a post-COVID world, it was going to be the shift and position for the shift. But there aren't many companies, we're talking about a very few ex-truly exceptional CEOs, who could have taken that information on board in an anticipatory way and be positioned in their businesses because of it.
18:45 Harry Stebbings? You mentioned their talent as well. I'm trying to hire, and we both know that the top 1% increase company trajectory tenfold. And I'm trying to hire a top 1%, and there, all human against joining is just loyalty. I've been there for 10 years, my team is there, loyalty. You've acquired some of the best talent over the years. How do you argue against loyalty when that is what you're fighting against in the bid to acquire an incredible talent? For myself here, you're helping me.
19:14 Speaker 00 As I've said to our employee base here, and as we said to the employees at Netflix, we are not a family, we are a special sports team. You will be afforded the opportunity to work with some of the most talented people in the business. And because of their talents, we will all succeed. But if we, as managers, make a mistake of hiring someone who we send down the field to catch a pass and that person keeps Dropping the pass, that that puts entire business at risk. We will swap out that player and put someone in who actually can catch the touchdown. So we can win the game for the benefit of the entire employee base in spite of the loyalty. So I was at Netflix for 12 years, on to God. It wouldn't have surprised me in the least if on any particular day that I'd walked into work, Reid had walked up to me and said, I think it's time to make a change.
19:59 Speaker 00 Now, that's not for everybody. Many people said they want to be a gunslinger, but you know, once people start getting shot and at everybody thinks that's such a good idea. So did I worry about it every day? I didn't worry about it on any day. You just learn to accept it and move on, be confident in what you do and do it to the best of your ability. And it is what it is. If you're good at it, you get to play another day. And if you're not, you go someplace else.
20:20 Harry Stebbings? What's your framework for problem solving? You said about emotional resilience earlier. When the problems come, what's your framework for problem solving?
20:27 Speaker 00 It depends on the nature of the problem. It depends on whether I have functional expertise or not. That makes me competent. My experience is that oftentimes the way that people articulate the problem and the solution is relatively uninformed because they have misinterpreted or they haven't done the data analytics rigorously enough to understand the full scope of the problem. I just start pulling on strings and trying to have a basic understanding of the root cause. And I try to understand the data that informs us about why we think the nature of the problem is what it is. I just follow the data and see where it leads, which I take.
21:05 Harry Stebbings? How do you think about the trade off between speed and quality when making decisions? It's always something that I struggle with.
21:11 Speaker 00 Jeff Bezos at Amazon provided us both a really helpful framework for how to think about the answer to that. It begins with this concept, whether it's a one way or a two way door. If you can make a decision and you can undo it, then you can afford to move a lot faster with that decision than you can if it's an irreversible decision that you're going to make, which you described as a one way door. And if it's one way door, then you really want to make sure that you know, you got all your ducks right. You fully understand the scope, what it is that you're deciding and what trade offs you are making in the process of that decision. And if it's a two way door, you could move faster, you can afford to be. Let's take by web example, the expansion of our business into third parties with exporting goods and with Amazon. It's a good thing or a bad thing for the business. The only way to know that is to actually do it. And if it doesn't work out, then you stop partnering with them.
21:56 Speaker 00 We can all agree, raising from first principle, it seems like it's kind of a no brainer, but you could be wrong. And you just got to get started.
22:02 Harry Stebbings? The thing that most founders get wrong is they don't have milestones or signposts for what is wrong. And so they just let it continue and continue. The only way you know with Amazon is to try it. What is the sign of success versus failure when you look at that in particular as a guiding post?
22:17 Speaker 00 I will say by way of answering the question that it's super helpful before you start down a path to try to define for yourself what success looks like. So when you get there, you know it, or when you're falling short, you know it. Just like if you're going to buy a company, you're thinking about buying a company, it's really helpful before you start the bidding process and the emotions kick in to decide where you're going to draw the line from a rising perspective. What's your walk away? We definitely had some very specific goalposts in mind when we thought about direct listing and what success would look like by web example before we start.
22:46 Harry Stebbings? What's the signpost of success with Amazon?
22:49 Speaker 00 It's a decent margin. We bring in an incremental subscriber, a user that we from, let's say, a demo that we hadn't previously been able to access. If they would otherwise have purchased directly from us at a higher price on our own website, that's probably not success. But if because of the Amazon name and the reach of Amazon's website, we're able to access a consumer that we wouldn't have otherwise, then probably it's additive to the value of the enterprise.
23:13 Harry Stebbings? When you're making a decision, there's always lots of different opinions. And we mentioned potential weaknesses earlier, and you very humbly mentioned it. When I spoke to some, they said that you have zero tolerance for BS. When you think about hearing lots of different opinions, how do you manage and deal with BS as a leader, Barry?
23:31 Speaker 00 I could do that better, not well.
23:33 Harry Stebbings? So how do you deal with it? Because right now I just get bluntly frustrated and visibly angry. That isn't productive, actually.
23:40 Speaker 00 I agree. And I'm susceptible to that in I pressure situations, and particularly when I'm being surprised with negative news that is inconsistent with the mental model that I'm bringing to the conversation, or with people who are advocating for a position that I think is not well Reason and don't have the data to support the position they're advocating for. I can get frustrated pretty quick. And as you're saying, it can be really demotivating for the team. If that's frequently your MO, people don't want to work for you and the good people will leave. So you try to strike the balance between being inclusive and listening. People want to be heard. It's not important that we all agree, but it's important that people feel like they've been given the opportunity to voice their point of view. And then I think it's important, if you disagree, Daniel was particularly good at this,
24:23 Speaker 00 at articulating the reasons why you are deciding to do whatever it is you decided the business should be doing at that particular point in time. So people can at least understand what you're disagreeing about. It has caused you to reach a different conclusion perhaps than they've recommended. If you can do that in a balanced and a matter of fact tone of voice and take the emotion out of it, it's pretty successful and I'm less good at that.
24:46 Harry Stebbings? I might have heard.
24:48 Speaker 00 Yeah, I mean, I recite with a lot of passion and there's a place for that.
24:52 Harry Stebbings? You said about disagree there a couple of times. I think Gustav before said on the show with me, you know, about disagree and commit. And I don't know if I really agree, to be honest. I don't know if people can really commit when they really disagree. How do you feel about the disagree and commit as a management philosophy in action?
25:09 Speaker 00 I think we do pretty well. The decision-making process in a Swedish culture and at Spotify can at times to an American feel a little bit like watching the paint dry. I mean, the amount of time that Daniel invests in allowing the organization to work its way through the decision-making process, when in fact, he's already made the decision, he's just waiting for everybody else to catch up to the decision he's already made. It just seems to an American like a complete waste of freaking time. They certainly don't move in Silicon Valley time. And this would be like, I'll give you an example. There was a point in time, very early in, before the world had discovered AWS and its progeny. That's where the world was moving. He decided overnight, literally, that we were moving to the cloud. And there was no discussion, there was no debate, had no interest in tolerating any discussion or debate on the subject. And so if you were an engineer and you disagreed, you could leave.
25:54 Speaker 00 Those are your choices. Get with the program or leave. Okay. That kind of decision would have taken, oh, maybe three or four months at Spotify, even if Daniel had decided overnight that we were moving to the cloud. Would afford the organization the time that needed in order to reach some consensus. Now that Swedish culture would say the benefit is that once the decision is made, people commit and there's none of the passive aggressive kind of behavior that you see from in US companies where people aren't really committed. They're behind the scenes trying to deep six the strategy change because it wasn't really theirs. Where's that leave us? If everybody's playing on the same team for the benefit of the organization, it needs to be absolutely clear who owns its decision. And all the people who don't own it are free to weigh in on the different pros and cons and express their point of view.
26:38 Speaker 00 We're going to hold the person who owns the decision accountable for the results of the decision. And if you have the right people on the team, then more often than not, you'll have a terrific batting average. It won't get everyone, but it'll get most of them. And that's why they're there. I'll share with you an example. Early in the history of Netflix, Ted was running content. Reed was running the business. Periodically, as the quarter progressed, we would assess our performance. And if we were running out of budget, we would scramble to figure it out. We could reallocate it to marketing or content, something else. In this particular quarter, we had around $30 or $50 million to spend. And Reed really wanted Ted to invest in feature film content, which Ted thought was a really stupid idea. And he argued better for weeks. And finally, you know, Reed can be relentless and Ted finally gave in. And so he invested in it. And then it was clear almost from the start that it was a big huge mistake
27:21 Speaker 00 because none of the subscribers were engaging with the content. It's a complete waste. And what we should have invested in was television shows, serialized content instead. Then Reed proceeded to just beat Ted over the head for having invested in the content, which of course everybody on the team thought was incredibly unfair. Reed's point was, look, my job is to advocate for what I think is best for the business. Your job is to keep me from running us into the ditch in your area of expertise. Like you own it, I'll advocate, but you own it, it's your decision. So if you're going to surround yourself with really talented people and ask them to play at a high level, you need to give them permission and authority to actually own their decisions. And maybe once in a blue moon, you might decide that it's time to move to the cloud and the whole company is pivoting and, you know, turning right.
28:04 Speaker 00 But the rest of the time, you can be an advocate, but they get to own it. And that is the approach I've taken in assembling and running the team here. And it does afford you the opportunity then to get buy-in and ownership and drive performance. At least that's been my experience.
28:17 Harry Stebbings? In terms of like decisions and accountability, boards are often at the center of core decisions. You've sat on some of the best boards. What makes an amazing board to you, having seen so many different types?
28:28 Speaker 00 Yeah, I wrestle with this. I would say managers manage and board members don't, and that's important to bear in mind. The best board members tend to be operators who are strategically focused, who can help provide context to the management team and sort of see around corners in anticipation of issues that maybe they're not thinking about and encourage them socratically to steer them towards anticipating issues that they might not otherwise have seen. So that's one model of value add I've seen. Another is they've got a lot of functional expertise. And if you want them to lean in and help you in some particular aspect of your business, that's been true here at the Peloton, by the way, for example, on the supply side. We've had some really valuable help from one of our board members in that regard. That can also be quite value added, but it's from time to time sort of thing.
29:12 Speaker 00 In my experience on sitting on boards and I'm sat on many, no matter how hard you try it, my experience has been you never really know what's going on inside a company. So board members are entirely dependent on the management team and the CEO to assist in their understanding of the business. So as a CEO, you kind of get out as much as you put in. The more informed they are, the more value added they can be and the less context they have and the less visibility they have, the less value. They're going to beat you and you're running this.
29:36 Harry Stebbings? Can I ask, how do the best founders manage their boards? You've seen Reid manage a board, you've seen Daniel manage a board, now you manage the board yourself. How do the best founders manage boards? There's often big voices, big characters. How do you manage a board?
29:50 Speaker 00 I would say that founder-led companies have a different board dynamic than, and companies sort of led by professional managers. I'm the professional hired gun, and that's wholly different than a founder who's, you know, bootstrapped the company, become an iconic leader, picked all of the board members in the room. For the longest time, I think the board members at Netflix didn't want Reid to not think they weren't strategic and value added. God, walk around Silicon Valley and say something bad about one of his board members would have trashed their reputations permanently. Everybody's on their best behavior and then let's take the Apple board. I mean, who is going to get in Steve Jobs? About anything ever. It just wasn't gonna happen. Even when they were running it like a depression era company and they had more cash than the the US Treasury.
30:35 Harry Stebbings? Is that not a failing of the company there when you think about it?
30:37 Speaker 00 Yeah, absolutely it is. But look, I mean, did the shareholders do well? They did fabulously well. They had a brilliant founder and so the board should be enabling of that kind of unique talent. I'm just pointing out that those are uniquely different situations than the situation that most of us find ourselves in. There you need to invest in the relationships and invest in their understanding of the business and know when you need help and be courageous enough to ask for it when you need it. Instead of trying to hide it, be proactive about it as a CEO.
31:06 Harry Stebbings? In terms of being proactive about it as a CEO, photo, one of your board members and they said you have this incredible ability to bring your glasses down and say the hard thing that everyone is thinking. Now, as a board member myself on the investor side, I struggle with this. I like to please people. How do you advise me on the right way to deliver tough news and deliver that feedback in a hard but my fair way?
31:28 Speaker 00 Well, if you had less EQ, you wouldn't wrestle with it as much as perhaps you do. And I'm not blessed with the same degree of EQ as you are, and so I'm less self-aware when I do it. I mean, oftentimes, it's just a question that's top of mind, and I think it's particularly relevant to the discussion. And so I just asked the question. I'm certainly not trying to be confrontational. I don't mean to do it in a confrontational way, for sure. I do think, by the way, to be effective as a board member, if I could liken personalities to radio frequencies. Some people are frequency agile and they can deal with many different kinds of personality types, but some are not. And to be interpersonally effective, you have to find a frequency. You need to find a voice and the way of communicating with the CEO, particularly if they're founder, in way they're able to take it on board, right?
32:14 Speaker 00 If you're raising an issue or you're challenging them or you're trying to get them to see something in a different way than maybe they're thinking about it. You need the same skill set to be an effective employee and thing with your boss. But that's the art of it. So you need to get your, check your ego at the door and your intellect if necessary and find the interpersonal skills required to say it in a way that makes it accessible to the people or the person you're saying it to.
32:37 Harry Stebbings? Before the quick fire and it's I spoke to Daniel before the show as I mentioned, he said the one thing I just had to ask you most of all. He said, ask him about demand creation theory and your ideas about whether the market is efficient. That didn't really mean much to me. So I'd love to hear your thoughts, Barry, on demand creation theory and whether the market is efficient.
32:58 Speaker 00 Let's think back to Netflix. So DVD by mail blockbuster is the gold standard. This retail model that 4,000 things in their store that they rent on an a la carte basis overnight. 90% of what they rent comes from what's called the new release wall. And the core thesis in the marketplace is that what consumers want to watch are new releases. Netflix has this revolutionary view of the home video market that that's not true. What consumers want to watch are movies they like, but they can't remember the names of them. And they rely on their friends to tell them what it is they should be watching. And they walk into the blockbuster store and they use the new release wall to find something to watch. Because the middle of the store, which has thousands of DVDs is too imposing to actually flip through.
33:43 Speaker 00 And plus you don't recognize any of the titles, so they don't mean anything to you. So 90% of what blockbuster rents is new release. 30% of what Netflix rents is new release and 70% is catalog. It actually for the first time ever creates a catalog content in the home video marketplace. In the process of doing that, it developed an understanding of what Ben likes. It's different from what Harry likes, it's different from what Barry likes and Gustav likes and Daniel likes. And when you come to the website, the content that it serves you is what Netflix thinks you like. It's something that Daniel has invested in aggressively at Spotify. Okay, now if it's really true that I know what you like, I can begin to shift demand. So if I have a limited number of suppliers and one of them is charging me a lot for my content.
34:27 Speaker 00 One of them is charging me a little for my content. Let's do Universal and Warner by way of example. Let's make this specific. So Universal thinks that the way it maximizes its profit is by maximizing its profit margin. And so its cost per movie is pretty expensive. But Warner takes a different strategic approach. They think the way they maximize their profit is by. Lowering the cost of their content and making it cheaper for you to buy. And if it's cheaper for you to buy, you will buy disproportionately large percentage of it. And they will punch above their market share, which is in fact what happens now. That strategy only works for someone like Netflix if they're able to demand shift you from a Universal title to a Warner title without sacrificing your satisfaction. And as it turns out, there are a ton of movies that they can demand shift you to
35:12 Speaker 00 because they do know what you like and they can find something that's nearly similar in Warner's catalog to something that you did want in the Universal catalog. And you won't even notice the shift. And as I say, in the process of doing that, they maintain customer set. I think we had 100,000 things to choose from. So owning demand creation becomes super important now. It's infinitely more important in the music biz because Daniel's got 100 million things for people to choose from. And you would love a bunch of them, but you're never going to find them because there's just too much stuff. But because he understands, you know, demand, he understands what your likes and your dislikes. He's able to drive discovery and drive this virtuous cycle. And he's able to demand shift so that when individual suppliers trying to extract margin
35:56 Speaker 00 from him, he can depress demand for their content on his website and shift to lower cost content from other people's. And in the process, he's been able to negotiate economic incentives with various suppliers that reflect his ability to own and shift demand creation. So at a high level, I would say whoever owns demand creation owns the gross margin.
36:16 Harry Stebbings? How do you do demand creation theory without having supplier churn? Because if you do it well, everyone moves to lower cost of content. But then do you not get supplier churn on the higher cost, which then no longer having?
36:27 Speaker 00 Where the supplier is going to go?
36:28 Harry Stebbings? Create their own Disney?
36:29 Speaker 00 Yes. Think how many years it took before Disney underwrote the cost of trying to get there. There are real barriers to entry associated with trying to build out your distribution to end users. And there are many examples, music labels by web example, who tried and failed. So all of the music label, almost all the music labels, let's take Sony, went down this path. And it wasn't until they went down the path and failed that they repositioned themselves on licensed content. Sirius XM tried to do the same thing. Or sorry, Star has tried to do the same thing and then pivoted and licensed. So Disney is one of the few examples of a company with a, that had a brand that was umbrella that was broad enough that consumers saw value in the brand broadly enough that they were willing to license the content of the subscription model, but many companies have
37:14 Speaker 00 tried and failed.
37:15 Harry Stebbings? I think Disney, you're right, probably is one of the only ones who have that consumer brand recognition. I could talk to you all day, Barry, but I do want to move into my favorite, which is a quick fire round. So I say a short statement and you give me your immediate thoughts. Does that sound okay?
37:27 Speaker 00 Absolutely. Let's do it.
37:28 Harry Stebbings? So what books are capturing your heart?
37:30 Speaker 00 I literally am working 24/7. The only thing I'm reading is the New York Times, the Washington Post and the Wall Street Journal every morning. I did find myself in Thanksgiving flipping through a Peter Koffman book about Charlie Munger. It is a long time since I've had the time to sit down and actually read something casually.
37:46 Harry Stebbings? Barry, the amount of times people come on my show and tell me about books and I pretend I've read them. I really don't have time to read either. I'm really marvelous. You've read that many books? Well done. So I totally feel your pain. Tell me, what do you believe that most around you disbelieve?
37:59 Speaker 00 Aside from the viability of the Peloton business, long term, I have no idea.
38:06 Harry Stebbings? What's your biggest strength and your biggest weakness?
38:09 Speaker 00 Maybe at this point, strength is pattern matching skills from all of the various business models and people that I've had the opportunity to work with. In this situation in particular, it has helped me move at speed. And I would say the biggest challenge are my interpersonal skills. I'm not the smartest guy in the room, but unfortunately for me, I have more IQ than I have EQ and I would be a better manager if I had more EQ. So I try to compensate by surrounding myself with people who do have more EQ than I have, but I still have an EQ deficit.
38:36 Harry Stebbings? What's the most painful lesson that you've gone through that you're pleased to have gone through?
38:40 Speaker 00 I'm pleased to have gone through any of the lessons. I was in basic training in Quantico in one manner to an ROTC program in college, in one that Reed Hastings had gone through. So I suppose that experience was very informative, but it was quite painful at the time.
38:56 Harry Stebbings? What would your advice be to current CEOs going through the downturn with you?
39:00 Speaker 00 Honestly, I wouldn't presume to have advice from my peers. I'm still unproven myself. Talent density is job one. That's it. If there was one thing to focus on more than any other, aside from the structure of your business model, and I can't emphasize the importance of that enough, by the way, it's the thing that helped us be successful at Netflix. It's the thing that propelled Daniel to success. It's the thing that's propelling us to success. It can enable real structural, sustainable advantage. It's people. Without it, you can't execute.
39:28 Harry Stebbings? Barry, I can see why you didn't like being a VC, but far too humble. VCs, oh, I'll tell you what to do. I've got the answer for you. Yeah, I can totally see it. Tell me, who's your favorite Peloton coach? And why that?
39:40 Speaker 00 I'm not gonna answer that question because they're all my children and I love them all. I do. I thank God for the content team because it's the reason that we're still here.
39:51 Harry Stebbings? I'll give you a different one. What's your favorite type of ride? Hitting hills? Are we a climber? We are low intensity? What do we go?
39:58 Speaker 00 No, I find myself riding a lot with Matt and Ali Love and a few of the other instructors that kind of in the 30 to 45 minute range and in the zone three, zone four, two, three, four kind of thing.
40:11 Harry Stebbings? Let's not go riding with Barry. That's the problem.
40:13 Speaker 00 No, I'm in the lower 20% just to be clear of both classes.
40:16 Harry Stebbings? Tell me, Barry, what ball member have you been most impressed with over the years?
40:20 Speaker 00 Well, the one I've worked with the most consistently is Jay Hope. I remember when Netflix was actually going down after the dot com bust, we were running out of money, even though we were going, we were doubling every year. But the world was in meltdown. You couldn't get capital from anybody. And he stepped up in a moment of immense bravery to the long-term benefit of his investors. I might add, they made a killing, but it was a moment of great courage. And I have known him, Spotify, through, through a number of really terrific, Netflix and other really lucrative investments. And he was responsible for bringing me here to Peloton. And he's been enormously helpful to me in stabilizing the performance of a business and moving it forward. He would be at the top of my list.
40:58 Harry Stebbings? Penultimate one, how do you reflect on your own relationship to money today, Barry?
41:02 Speaker 00 Company money or personal money? I don't really have one. Never see it. Don't think about it particularly. I do use it to make me more efficient in my job. I'm a little bit embarrassed to admit that almost everything in my life is optimized around my performance at work. If I need to, or if I can use my resources to make myself more efficient, then I do. This was something I saw Reed Hastings do very successfully at Netflix. And I've sort of emulated that behavior.
41:25 Harry Stebbings? What has been a needle mover there? I hired my mother as my chief of life. You made sure food is in the fridge, heating bills are paid, everything's done, cleaners come, everything's there. I never have to worry about anything in life.
41:37 Speaker 00 Yes, I try to use my personal resources so that I don't have to worry about anything in life and I get places quickly. And things are taken care of so that I can remain entirely focused on work and my marriage and nothing else. And now I'm not entirely proud of that. My personal relationships with friends and whatnot suffer as a consequence, but it does help enormously me be successful in my day job.
41:58 Harry Stebbings? Final one for you, Barry. What do the next five years hold for you and what's the plan ahead?
42:03 Speaker 00 I can't see farther than my role here at Penn Peloton. And the immediate challenge is to finish the turnaround. I've said publicly, I think the ship is turning and there are lots of big shoots a bit, which I'm super enthusiastic. I think we're on track to get the business to cash flow breakeven, which enables us to control our own destiny. As Andy Radscliffe would say, cash is oxygen in his life. You got a husband, that's a scarce resource and we're doing that really well. And then the question is, how high is high? How quickly can we grow the business? What will the growth rate be? We still have to solve for all those things. And so I'll be here for a period of time where I figure that out. And then eventually, hopefully, I can plan successfully for my successor and manage through that process well. And then I'll go off and back to California and discover the rest of my life again.
42:44 Harry Stebbings? I love it, Barry. Thank you so much for doing this. As I said, I heard so many wonderful things. I'm thrilled we got the chance to do it. It's a huge thank you for doing it.
42:52 Speaker 00 Including me, it's been fun. I've been a big admirer of your podcast for a while.
42:57 Harry Stebbings? That was such a special show to do with Barry. If you'd like to see more from us behind the scenes, of course, you can find us on YouTube by searching for 20VC and you can also go to 20vc.com to find out more. But before we leave you today, 20VC is supported by First Republic Bank. When private equity and venture capital firms are funding the innovations of tomorrow, speed is of the essence. That's why at First Republic, you'll be paired with your own banker, who will remain dedicated to helping your team through all market cycles and will be ready to respond quickly to your requests. As a First Republic client myself, having a direct relationship with a personal banker, who I can really depend on to help me make the right decision, matters a lot. In fact, your banker will serve as your single point of contact by phone, email or First Republic's secure app.
43:42 Harry Stebbings? Visit firstrepublic.com today to learn more. That's firstrepublic.com.
43:47 Speaker 02 Member FDIC and equal housing lender. And speaking of amazing partners with First Republic there, if you are a venture capitalist or corporate strategist, I want to tell you about Tegus. Tegus is the only company in the world that aggregates qualitative information on private companies from seed stage to pre-IPO. With Tegus, you can access other VCs and founders' expert call transcripts from previous rounds to help source fast-growing companies, create compelling emails to really get a founder to respond and be excited to speak, and to diligence companies when a round is moving fast. Tegus also provides the most flexible and highest-quality way to run your own expert calls with no upfront fees or call minimums. The ability to do a 30-minute call
44:29 Speaker 02 and simply pay the expert rate at an average of $300, Tegus makes expert calls easy. Find out why a majority of the top venture funds are using Tegus on a daily basis. Head over to tegus.co/growth for your free trial. And speaking of incredible resources like Tegus there, I've always been a massive history fan, and so I want to talk about Cooley, the global law firm built around startups and venture capital. Since forming the first venture fund in Silicon Valley, Cooley is one of the most active law firms representing both early-stage and late-stage financings, handling more than 1,300 private financings every year with an equal split of investor and company clients. So to learn more about the number one most active law firm representing VC-backed companies going public,
45:13 Speaker 02 head over to Cooley.com and also check out CooleyGo.com. Cooley's award-winning free legal resource for entrepreneurs.
45:20 Harry Stebbings? As always, I so appreciate all your support and I can't wait to bring you a very different episode on Wednesday. Stay tuned, it will be a special one.
Previous 20VC: Leadership Lessons from Bill Gates and Steve Ballmer, The Early Days of TheFacebook Advising Mark Zuckerberg and Why Now is Not the Right Time For Startups to Stockpile Cash with Hadi Partovi, CEO @ Code.org Next 20VC Special: How To Fundraise Like a Pro: How to Size and Price a Round, How to Create FOMO and Urgency in a Fundraise, How to Structure Angel Allocations, The 7 Deadly Sins of Fundraising Decks, The 3 Signs a Potential Investor is Bad News Page updated September 29, 2026 · transcript and summary are machine-generated
