Should Peloton Bring Back Founder John Foley?

Peloton's latest CEO is pedaling off into the sunset. On Thursday, the New York City-based exercise bike company said it would lay off 400 workers, and that CEO Barry McCarthy was stepping down, a little over two years after he took over the top spot from co-founder and CEO John Foley.

Peloton rolled out its first bike in 2014, which sold for about $2,000. By the time the company listed on Nasdaq in September 2019, the bikes were a hit, instructors were minor celebrities, and subscriptions for on-demand classes provided a steady source of recurring revenue.

The company shifted into high-gear during the coronavirus pandemic, when people were stuck at home and looking for ways to stay in shape. But that growth proved unsustainable. In February 2022, the company laid off 20 percent of its workforce and Foley stepped down. He left the company's board later that year.

Peloton's troubles continued under McCarthy, and it was hit by a bike recall and customer backlash to users being locked into subscriptions in 2023. A softer than expected earnings report this week may have been the final straw for McCarthy.

Foley and Peloton co-founders Hsiao Kushi and Yony Feng have since launched direct-to-consumer rug startup Ernesta, and so Foley may not be interested in cycling back to the company he helped start. Last year, he told Fast Company he would not run a publicly traded company again.

But there's a mythical quality to stories of founders swooping in to save the companies they created. "It's the only job title that doesn't change after you leave," says Eric Koester, a serial entrepreneur and adjunct professor at Georgetown University's McDonough School of Business. "There's a power to it, and that myth has been cultivated in a big way by Silicon Valley."

After all, Adam Neumann recently made a credible bid to buy back WeWork. Under Armour brought back Kevin Plank to revive sales for the clothing brand he founded in 1996. And MoviePass co-founder Stacy Spikes recently bought the company out of bankruptcy and made it profitable for the first time.

A returning CEO can "hit the ground running," says Kalin D. Kolev, an associate professor of management at Marquette University, because they're likely already intimately familiar with the company's operations. In the case of founder-CEOs, they might be especially motivated to ensure the ongoing success of the companies they built.

A founder also may be uniquely suited to rebuilding a company's culture or acting as "wartime CEO who can rally the troops and fight against something," Koester adds. Charismatic founders like Steve Jobs could also convince talented people to follow them anywhere, or remake a once powerful team. If a company is flailing, a returning founder or a former CEO may be able to "push out the trolls on the doorstep" long enough for the company to get back on track, Koester says.

Time can be critical for tapping into other elements Koester says are key: a change in market forces or the introduction of an innovation that will allow the company to recover lost ground. Steve Jobs's 1997 return to Apple is held up as the gold standard for boomerang founders. It was four years later, with the 2001 introduction of the iPod, that Jobs "unlocked" Apple's path forward, Koester says. Howard Schultz, who has had three stints as Starbucks CEO since the late 1980s, returned in 2022 with a promise to bring the company back to its roots. But what really saved the coffeeshop company was the rollout of mobile ordering, Koester says.

Panera co-founder Ron Shaich, who stepped down as CEO in 2010, returned three years later amid sluggish sales. Shaich set to work overhauling the customer experience, rolling out a healthier menu, and introducing ordering kiosks and a loyalty program. "He was able to 'read' and analyze the surrounding context effectively and adjust accordingly," says Kolev.

Not all boomerang founders are success stories. In 2015, Jack Dorsey returned to Twitter as a part-time CEO (he was also working on Square at the time). He was generally liked by employees, but the platform was seen as being slow to grow and innovate. In a note announcing his second departure, Dorsey wrote, "There's a lot of talk about the importance of a company being founder-led. Ultimately I believe that's severely limiting and a single point of failure."

In fact, successful returns don't appear to be the norm. In 2020, Kolev and several colleagues analyzed the stock performance of 167 companies led by boomerang CEOs from 1992 to 2017, and found that on average the companies' annual stock performance was 10 percent lower than that of companies with CEOs holding the position for the first time. That's usually because in the interim, business conditions have changed and the "returning CEO has become obsolete," says Kolev.

Koester says great founders are a bit like televangelists. "They can get people to believe in something that doesn't exist yet," says Koester. "Once a company goes public, that kind of persuasion doesn't work for the market. You have numbers and data and things like that behind it."