New Peleton CEO, management philosophy

Peleton as a stock (and on certain financialmetrics) have had a very tough 12 months culminating in a CEO change.

Peleton as a stock (and on certain financial metrics) have had a very tough 12 months culminating in a CEO change. The new CEO Barry McCarthy does point to very high Net Promoter Scores (a somewhat contested measure of customer satisfaction) of 88+ as evidence of what VCs and start-up operators call “product market fit” (when [target] customers want/buy your product and [ideally] tell others).

As an aside, many in VC think you can find PMF via an iterative process and testable theories, especially if you have a good market  (eg What are you going to build, who is desperate for it, and what is the business model you are going to use to deliver it?)* 

In any event, McCarthy was CFO at Spotify, Netflix. And both, but Netflix in particular had a very specific culture with several off-mainstream management process ideas (and still does today eg one line expense policy, always act in Netflix’s best interest).

So McCarthy has written a memo about what he is thinking. I am undecided as to if this is mere corporate waffle or has some intriguing and sound management and culture behind it, but it is intriguing enough as a a basis for a turn around strategy that I note it here and let’s see how he does.

…In the last 20 years, I’ve had the opportunity to partner with two visionary founders, Reed Hastings of Netflix and Daniel Ek of Spotify. Now I’m partnering with John to create the same kind of magic. If you thought today’s news meant John will be scaling back his involvement with Peloton, then let me assure you……I plan on leveraging every ounce of John’s superpowers as a product, content, and marketing visionary to help make Peloton a success as my partner.


I know today’s restructuring news has been difficult. There’s no sugar-coating it. It’s a bitter pill and, in my experience, the sting has a long half-life. But the hard truth is either revenue had to grow, or spending had to shrink. The math simply didn’t work otherwise, and the status quo was unsustainable. One of my core management principles is about getting real. We have to be willing to confront the world as it is, not as we want it to be if we’re going to be successful. We have to be honest with ourselves and each other in order to make that happen, even when the truth is uncomfortable or inconvenient to deal with.


And now that the reset button has been pushed, the challenge ahead of us is this…..do we squander the opportunity in front of us or do we engineer the great comeback story of the post-COVID era?


I’m here for the comeback story, and here’s why I think we can pull it off. The love of our Members, and tons of it. Over the past 12 months in the US, our net promoter scores have hit [88] and [89] for the bike and Tread, respectively, which is ridiculously great. And our subscriber churn numbers are the best I’ve ever seen, which means our customer lifetime value is truly exceptional.


Finding product/market fit is incredibly hard to do. It’s extremely rare. And I believe we have it (remember those shoulders I said we were standing on?). The challenge for us now is to figure out the rest of the business model so we can win in the marketplace and on Wall Street. Take care of the business and the stock price will take care of itself. Don’t do that and you’re roadkill.


Winning, in my experience, starts with accountability. Me to you, you to me, and you to each other. We sink or we swim as a team. Today’s restructuring reminds us that results matter. It’s never been more important that we get real about what we can accomplish and accomplish what we commit ourselves to. It’s about accountability and expectations management.


I’ve tried to summarize what that means in terms of my management style below. If you’re wondering whether these reflect my Netflix and Spotify experience, they do. but I also think they transcend corporate cultures, or at least the ones that choose to embrace radical transparency, which I do (and to be clear, many successful companies don’t); meaning I think they’re as applicable to Peloton as they were at Netflix and Spotify, but probably not Apple or Snapchat, by way of example. That’s not a knock on either of these great companies, BTW. It’s simply an observation of corporate culture and reflects my preferred approach to building a high-performance culture. To the best of my ability, you’ll find these “values” reflected in my day-to-day interaction with you, and I hope you’ll consider embracing some or all of them as you develop and refine your own management philosophy. In any event, you’ll hear me talking more about these in the months and years to come.

1. Be stubborn on vision, flexible on details

2. Fast is as slow as we go

3. Intuition drives testing. Data drives decision making

4. Your comfort zone is your own worst enemy

5. Talent density is foundational

6. Stress context not control, freedom and responsibility

7. Understand in order to be understood

8. Get Real

9. Think from first principles

10. Put first things first

In the months ahead, you can expect to hear from me about our strategy and the choices we’re planning to make to drive our success. For the avoidance of doubt, we’re in the business of driving growth. And that will require us to take risks, be willing to fail quickly, to learn quickly, to adapt and evolve quickly, rinse and repeat.


I promise the journey won’t be dull.

• Tren Griffin on PMF.

Psychology of Money, Morgan Housel

• Short, readable advice book by Morgan Housel

• Covers financial thinking, room for errors

• Unusually, covers spending within means, understandable “tail risk” stories

• Plenty of insights backed up by stories

• A focus on the power of stories and narratives

• Recommended

Background

I follow Morgan Housel as he writes a readable blog covering investments and wider life and world thinking. He’s also a partner of the Collaborative Fund which is a type of Impact Investment fund (“tech for good”), which readers will know I have a keen interest. So I was intrigued to read what he had to say in longer form.

What I liked

The book is short (I read it in 2 hours). This is a good quality.

While a number of the ideas are already available in some form on his blog, the additional information, anecdotes and further detail are worth it.

Housel covers a few areas of “non-standard advice”. Concepts of:

• -“having enough” - setting your own goal (not getting too greedy?!)

• -The value of time (although I’d have liked more on the non-financial assets given how he links the two)

• -Knowing the Game you are playing 

• -Room for errors

• -”Barbells” in how you might think about money and investing

• -That advice is always individual (like an architect or a doctor) so he can’t give you individual advice (I am always saying this too!) even though some principles hold

Morgan’s own investing strategy

He has about 80% in low cost index tracking funds and about 20% in cash. This works for him. The cash part gives his household more flexibility. (This might NOT work for you).

(This excludes his house and I assume investments in his own fund. As an aside, he mentions most money managers don’t have money in their own fund, which I find strange. Most of my wealth is tied up in my own fund and money manager should be expected to have a good amount in their funds).

Interestingly, this turns out to be very similar to what Warren Buffet consistently says to typical savers/investors. Buffet often suggests 90% in a low cost tracking fund (typically S&P500 he mentions, as Buffet bets on America) and 10% in cash. 

What I learned 

• Figure out what “enough” is and stick to it.

• Appreciate outliers/tail risks may well drive most of your returns 

• Be or aspire to be time rich

• Spend less than you accumulate/earn to be wealth

• Humility, kindness and empathy (over being flash)

• Power of stories (both positive and misleading)

• Know the game you are playing

• Do not risk what you have, for what you do not need

Figure out what “enough” is and stick to it.

(This might move a bit through time) But many people go wrong getting greedy for more (eg ex CEO of Mckinsey) at some point true wealth comes from sticking to your goal.

Appreciate outliers/tail risks may well drive most of your returns 

This is very true in venture capital investing or any portfolio idea. A very few unexpected events might drive most of your return (or loss). You should expect this. Also, be OK with being wrong a lot of the time.

In a crossover with arts learnings, he shows that comedians thoroughly test their jokes in small audiences first and only their best jokes survive to their main sets. Although, I’m not sure this says too much about tail risks but more about trial and error and practice in the real world. (It rings a lot with Nassim Taleb who is quoted on several occasions).

Be or aspire to be time rich

TIme wealth is valuable. Housel argues this is under appreciated as both a life goal and a wealth goal. 

I would comment, I would have like further detail here on other “non-financial” aspects of wealth. This might not have been the book for it. But as I have written about, I like the idea of offsetting “risk” with what you have in your life in other assets like social, intellectual assets and hedging against your career risk. A very stable career might definitely want equities. A very risky career might want that cash.

Spend less than you accumulate/earn to be wealthy

Giving many stories, he shows that wealth is spending less than your household earns. And that a rich household can then do what it likes if it is earning/spending within its means.

Humility, kindness and empathy (over being flash)

He was a valet and never impressed with the drivers of flash cars even he might have been impressed with the cars.

Power of stories (both positive and misleading)

There is a cross-over in arts and creativity, but we make up stories to explain the past.

Know the game you are playing

Don’t play someone else’s game. No point competing for money for the sake of it or in someone’s other game. Although, there is a point in simply saving.

Do not risk what you have, for what you do not need

In a similar vein, don’t risk for more stuff. Especially if you don’t need that more “stuff” and even more especially if you are risking money you don’t really have (borrowings, leverage etc).

Overall I will end in Morgan’s words and then Buffet.

“…Go out of your way to find humility when things are going right and forgiveness/compassion when they go wrong. Because it’s never as good or as bad as it looks.

Less ego, more wealth. Saving money is the gap between your ego and your income, and wealth is what you don’t see. 

...the foundation of, “does this help me sleep at night?” is the best universal guidepost for all financial decisions. 

If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon. Time is the most powerful force in investing. 

Become OK with a lot of things going wrong... 

Use money to gain control over your time...

Be nicer and less flashy….

...Save. Just save. You don’t need a specific reason to save….

...Define the cost of success and be ready to pay it. Because nothing worthwhile is free.

...Worship room for error.

 ….Avoid the extreme ends of financial decisions. 

….You should like risk because it pays off over time. But you should be paranoid of ruinous risk because it prevents you from taking future risks that will pay off over time. …

Define the game you’re playing, and make sure your actions are not being influenced by people playing a different game.

 Respect the mess. Smart, informed, and reasonable people can disagree in finance, because people have vastly different goals and desires. There is no single right answer; just the answer that works for you. ….”

And

“Someone's sitting in the shade today because someone planted a tree a long time ago.”

Warren Buffet

---

Link to book on Amazon UK and link to Amazon US

Link to Morgan Housel’s blog

Some of my thoughts on non-standard (non)financial advice

And my blog on life career advice

Elon Musk on dynastic wealth (against)

"Elon Musk: “…(Laughs.) Ah, oh, man. (Laughs some more.) Ehhh, Mark Zuckerberg has some issues, we all have some issues. My concern with Facebook is that he just has absolute control over Facebook with the way the voting shares are structured. And it’s also structured such that the Zuckerberg dynasty will have control over Facebook and his great-grandkids will control the thing. So I think we ought to be careful of creating dynastic wealth in the U.S. Just generally, an aristocracy of wealth is a cause for concern…”

From NYT interview (2020).

What mindsets for investing markets can help with COVID thinking

What Markets can teach us

Markets are humbling.

As an intelligent - even extremely intelligent - young analyst. No matter how good she is. There will be decisions she misjudges. 

There are many uncertainties in markets and as I’ve referred to in my aphorisms - and others - one of the only certainties are the uncertainties.

The mental mindset to deal with those uncertainties and still make decisions - that have great weight as measures in millions or billions of dollars - takes training. By the time a young person forms into an adult much of that mindset may already be settled although more can be trained and the mindset can be continually worked upon.

This resilience or even antifragility (where you thrive on the uncertainty)  to deal with this in typical financial markets turns out to be useful for COVID.

There are uncertainties with COVID, tail (small but with large effects) risks, but decisions have to be made and may turn out to be wrong. Yet, you will have to make them.

Many analysts turn out not to be cut out for markets and investing as the strain on the mental mindset is too much. Unsurprisingly, COVID has caused strain on the mental health of many I know but there are lessons to be learnt for dealing with such risks.

• Rely and assess the data. (see previous thoughts on forecasting and decision making).

• Change mind if needed and reassess.

• Don’t let the weight of the decision damage you.

• You can control, what you can control.

• What you can not control - you have to make peace with - as it is out of your control.

The same can be said for living with many aspects of special needs (disability) or other circumstances…

Here’s a piece on finding insights in the ordinary or even “boring” from travels with autism: Mindfulness and trains and here on what do you “see” when travelling on trains and buses

My book of aphorisms

Previous blogs on forecasting and decision making

Climate, cognitive strengths of Greta, Bill Gates, Chris Hohn

What do the cognitive strengths of Bill Gates, billionaire hedge fund manager, Chris Hohn and Greta Thunberg have in common? You may know they are all in their various ways committing to climate change solutions - they also bear many of the positive cognitive strengths of the autistic spectrum. Those positives are worth noting in the narrative about what autism can be.

This Bloomberg article looks at the climate activism Hohn’s hedge fund is now engaging in.

Thinking about the framework that intellectual and economist Albert Hirschman suggested

Voice, Exit and Loyalty

And the on-going debates between divestment and engagement (and I do both, but think engagement can be more effective), I am glad all three are using Voice too.

Bloomberg article on Chris Hohn here being a “climate radical” (IMHO, he has been involved here for ages (as you can see through his foundation), although maybe only more recently stepped up stronger actions).

My observations on the Bill documentary, which support views that Bill Gates has autistic thinking strengths.

The wiki on Exit, Voice, Loyalty

Dealing with email

Prof Alex Edmans (currently of LBS) writes this on dealing with email.

Excerpt from his recent Gresham Lecture series on modern day business skills, Links end .

Dealing with Email 

A McKinsey study found that the average interaction worker spends 28% of his day reading and responding to email.

This is likely a significant underestimate of the true cost of email for several reasons. First, interrupting a task to check email and then resuming the task leads to major inefficiencies, because it takes a while to get back into the swing of things. A study found that it takes 23 minutes and 15 seconds to resume a task after interrupting it (and that workers stay on a task for only 3 minutes and 5 seconds). Rather than checking email each time a new one is received, it’s much more efficient to “batch-process” email. Close Outlook, and potentially put on an internet blocker for a finite set of time. Once the time is up, you can then check email and deal with several all in one go.

Note that it’s better to put the internet blocker on for a finite amount of time (say half an hour), rather than keeping it on as long as it takes for you to complete your current task. Tasks often take much longer than you think, and the mind focuses better when there’s a clear end point. If you’re 25 minutes in and craving distraction, but know that the internet blocker will expire in 5 minutes, most people can hold out for those extra 5 minutes. If you’re taking a 30-minute spinning class and there’s 5 minutes left, you’ll push yourself until the end. But if your personal trainer asked you to ride an exercise bike until she says stop, you’ll put in far less effort.

Second, constant checking of email causes addiction and makes it difficult to focus even during “work” time. Checking email is similar to gambling. At slot machines, you usually lose money. But people get addicted to slot machines since there’s the rare possibility of a jackpot. Similarly, most emails are undesirable – a boss or client asking you to do a task. But we’re addicted to email because, once in a while we hit the jackpot – an email conveying good news, or from a friend we’d lost contact with. Thus, incessantly checking email makes us more addicted to “gambling” and requires us to keep feeding our habit, rather than being able to concentrate. I know of people who can’t even go to the toilet without using their phone at the same time, or have a drink or dinner with friends without constantly checking email. They think they’re saving the odd few seconds by dealing with email when the conversation gets boring, but this is far outweighed by the effect on their brains. Studies have shown that a constant craving for distraction changes the neuroplasticity of the brain – certain neural pathways form and others get closed down, which means that the same people find it difficult to focus when they get down to actually doing work. When you do a plank, you build up your core muscles which allow you to hold the plank for longer. Similarly, when you concentrate, you build up your mental “muscle” which allows you to concentrate for longer.

One solution is to take email completely off your phone. This might seem an unrealistic solution, because email is so essential to 21st century life. Yet I did this several years ago and have had no adverse consequences. But doesn’t this mean that emails pile up – don’t I end up wasting time on a subway ride when I could use it to deal with several emails? No. Because I still have email on my iPad, and so can deal with email when commuting or between meetings. The crux is that I can’t suddenly whip out my iPad if I’m having a drink and the conversation turns to a topic I’m not interested in, whereas I could with my iPhone. Having email only on my iPad and not my iPhone prevents me from “mindless” email checking while still allowing me to check email during downtime. If you can’t go without email on your phone, at least remove the buzz when you get a new email, and the notification “badge” which tells you how many emails are unread. If you go on your phone to use Google Maps, but see that there’s 5 unread emails, this begs you to check email – to see if you’ve won the lottery.”

This chimes a lot with what I have had to say on email – blog post here and here.

And it’s from Alex’s talk on time management – complete talk available here – write up here.

His series on businesses serving society also available through Gresham worth watching.

Leadership / WeWork

Leadership at WeWork

-A reflection on WeWork

-On what it means to lead

-The problems of charismatic leaders

-The value of the S-1

[Update, ofc, the CEO has resigned now]

Much is being written on WeWork and the debate around its valuation as it has tried to list on Public markets. Scrutiny of the business, governance and the like. A friend mentioned in passing the other day how the regulation behind the S-1 filing document was one of the most-value adding pieces of financial regulation law of history. This episode seems to back this up, as the transparency that the S-1 filing has brought has cast a scrutiny  that may have been lacking before.

The law is the 1933 Securities Act - “An act to provide full and fair disclosure of the character of securities sold in interstate and foreign commerce and through the mails, and to prevent frauds in the sale thereof, and for other purposes.”

There’s plenty of analysis of the business model and valuation. I’m interested in an assessment of the CEO as a person from what we can tell.

There has been analysis about its CEO and his “self-dealing” taking his trademark on “We” and selling it back to the company. Plus the side ventures WeWork has invested in, which closely align with the CEO’s personal interests, but seem further away from WeWork’s core business.

Namely a private school, a surfing/wave pool business, a natural food and an energy drink business. Plus WeWork has bought a private jet at $60m.

As a fundamental investor looking at company fundamentals and management - what it means to be a leader is an important question for me - although I know not for everyone.

When I’ve asked people, especially employees, what they look for - they tell me  they look to their leaders to reach out beyond themselves and beyond their own self-interest to a “wider purpose” to some purpose higher than themselves.

I sense this “purpose” led work - attractive to the younger generations - is becoming ever more important.

It’s one of the problems in the sense of “fairness” for executive pay.

When we see a CEO whose actions seem to have such self-interest to go along with the typical self-belief - typically needed - I don’t think people especially employees are inspired by that.

To me, that goes to the heart of the challenge with WeWork (and previously with the former Uber CEO) - it’s a challenge of leadership.

I know a multi-millionaire biotech CEOs who still travel economy as this means there is more money left to pursue the mission - save people’s lives.

So When Wework says this of its mission:

“When we started WeWork in 2010, we wanted to build more than beautiful, shared office spaces. We wanted to build a community. A place you join as an individual, 'me', but where you become part of a greater 'we'. A place where we’re redefining success measured by personal fulfillment, not just the bottom line. Community is our catalyst.”

And

“Create a world where people work to make a life, not just a living.”

I’m unsurprised that some have found jarring the CEO’s interconnection with what many view as his personal interests.

I am surprised neither the board nor a good friend/adviser has taken him aside and offered him other advice (or in the case of the investments sanctioned them).  

This twitter story by an early WeWork employee (number 17)  is also telling about how she wasn’t given options/stock. https://twitter.com/tristajaye/status/1162471350851817472?lang=en

Update: WeWork CEO has now gone. He’s still a billionaire though. 

Besos' Amazon shareowner letters, excerpt thoughts

The culture and processes are somewhat unique at Amazon and its rise to the top of the global corporate ladder has been astonishing.

An understanding of why that might be, where it is heading and some of the broadly libertarian philosophical worldview comes across in the annual Amazon shareholder letters.

Besos has not been as accessible to the wider public as a Warren Buffet or Bill Gates, or even accessible to most other Amazon shareholders.

Debates on tax, technology, workforce labour, globalisation, inequality, sustainability and consumerism can all be filtered through an Amazon lens.

A careful reading of the letters can tell you an awful lot, I think. If you simply want three highlights I suggest looking at (1) the 6 page memo decision making technique used at Amazon and (2) the articulation of type 1/type 2 decisions (crucial big decisions hard to change vs nimble decisions that can easily be reversed or course changed) and (3) a reflection on corporate culture.

Here are some exceprts with link to the letters below:

Jeff Besos and Nassim Taleb both agree on the danger of surveys and proxies. This is Besos in the 2016 Shareholder letter:

“A common example is process as proxy. Good process serves you so you can serve customers. But if you’re not watchful, the process can become the thing. This can happen very easily in large organizations. The process becomes the proxy for the result you want. You stop looking at outcomes and just make sure you’re doing the process right. Gulp. It’s not that rare to hear a junior leader defend a bad outcome with something like, “Well, we followed the process.” A more experienced leader will use it as an opportunity to investigate and improve the process. The process is not the thing. It’s always worth asking, do we own the process or does the process own us? In a Day 2 company, you might find it’s the second. Another example: market research and customer surveys can become proxies for customers–something that’s especially dangerous when you’re inventing and designing products. “Fifty-five percent of beta testers report being satisfied with this feature. That is up from 47% in the first survey.” That’s hard to interpret and could unintentionally mislead. Good inventors and designers deeply understand their customer. They spend tremendous energy developing that intuition. They study and understand many anecdotes rather than only the averages you’ll find on surveys. They live with the design. I’m not against beta testing or surveys. But you, the product or service owner, must understand the customer, have a vision, and love the offering. Then, beta testing and research can help you find your blind spots. A remarkable customer experience starts with heart, intuition, curiosity, play, guts, taste. You won’t find any of it in a survey.”

Besos on corporate culture:

“A word about corporate cultures: for better or for worse, they are enduring, stable, hard to change. They can be a source of advantage or disadvantage. You can write down your corporate culture, but when you do so, you’re discovering it, uncovering it–not creating it. It is created slowly over time by the people and by events–by the stories of past success and failure that become a deep part of the company lore. If it’s a distinctive culture, it will fit certain people like a custom-made glove. The reason cultures are so stable in time is because people self-select. Someone energized by competitive zeal may select and be happy in one culture, while someone who loves to pioneer and invent may choose another. The world, thankfully, is full of many high-performing, highly distinctive corporate cultures. We never claim that our approach is the right one–just that it’s ours–and over the last two decades, we’ve collected a large group of like-minded people. Folks who find our approach energizing and meaningful.”

On decision making:

“One common pitfall for large organizations–one that hurts speed and inventiveness–is “one-size-fits-all” decision making. Some decisions are consequential and irreversible or nearly irreversible–one-way doors–and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these Type 1 decisions. But most decisions aren’t like that–they are changeable, reversible–they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups. As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision-making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention.1 We’ll have to figure out how to fight that tendency. And one-size-fits-all thinking will turn out to be only one of the pitfalls. We’ll work hard to avoid it… and any other large organization maladies we can identify.”

“Six-Page Narratives

We don’t do PowerPoint (or any other slide-oriented) presentations at Amazon. Instead, we write narratively structured six-page memos. We silently read one at the beginning of each meeting in a kind of “study hall.” Not surprisingly, the quality of these memos varies widely. Some have the clarity of angels singing. They are brilliant and thoughtful and set up the meeting for high-quality discussion. Sometimes they come in at the other end of the spectrum.

..Here’s what we’ve figured out. Often, when a memo isn’t great, it’s not the writer’s inability to recognize the high standard, but instead a wrong expectation on scope: they mistakenly believe a high-standards, six-page memo can be written in one or two days or even a few hours, when really it might take a week or more! They’re trying to perfect a handstand in just two weeks, and we’re not coaching them right. The great memos are written and re-written, shared with colleagues who are asked to improve the work, set aside for a couple of days, and then edited again with a fresh mind. They simply can’t be done in a day or two. The key point here is that you can improve results through the simple act of teaching scope – that a great memo probably should take a week or more.”

The Amazon site with Reports and letters here: https://ir.aboutamazon.com/annual-reports

All Amazon Besos letters 1997 to 2017 in PDF form here.