In this episode of "20 VC," host Harry Stebbings interviews Barry McCarthy, the seasoned CEO and President of Peloton, who previously served as CFO at both Spotify and Netflix. Barry discusses his journey from investment banking to the world of startups, his strategic approach to business models, and the importance of product-market fit and talent density in driving company success. He also touches on his role in pioneering direct listings, his belief in demand creation theory, and the challenges of leading a company through a turnaround, emphasizing emotional resilience and data-driven decision-making. Additionally, Barry reflects on the nuances of board dynamics, particularly in founder-led companies, and the delicate balance of managing tough conversations with empathy and directness. His future plans involve completing Peloton's turnaround and eventually returning to California to explore life beyond the corporate world.
"The brand is golden and the user experience is platinum and always has been. So there are 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."
This quote highlights Peloton's success in creating and maintaining a product that resonates with its market, emphasizing the quality of both the brand and the user experience despite obstacles.
"Barry served as CFO of Spotify from 2015 to 2020 and CFO of Netflix for an incredible eleven years from 1999 to 2010."
This quote outlines Barry McCarthy's significant experience as a CFO in leading tech companies, which underscores his financial and strategic expertise.
"I was comfortably retired and an avid Peloton fan user and had many years of successful association with TCP."
This quote explains McCarthy's personal affinity for Peloton and his professional connections that led to his leadership role, highlighting the alignment between his interests and the company's direction.
"Once we stumbled into the subscription model, the business literally started doubling each year."
This quote emphasizes the turning point for Netflix when it adopted the subscription model, which resulted in significant growth for the company.
"Running from boredom. And whatever the antidote for boredom admit is what I'm running, too."
This quote captures McCarthy's motivation for staying active and engaged in dynamic business environments, reflecting his personal drive and passion for teamwork.
"Daniel was using my pattern recognition skills as exceptional in his own way, as Reed was exceptional in his way."
This quote highlights the synergy between McCarthy and Daniel Ek at Spotify, with McCarthy's financial acumen complementing Ek's product vision.
"We actually like to be with each other. And interestingly enough, most of the success I've had in my career has come after we met."
This quote reflects on the importance of personal relationships and shared life experiences in contributing to professional success and personal fulfillment.
"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."
This quote compares direct listings to a precise medication, effective for specific situations, indicating that this approach was carefully chosen for Spotify's unique circumstances.
"So how do you solve that problem? That's what got me thinking about the direct listing as an alternative."
This quote explains Barry McCarthy's rationale for considering direct listing as a solution to avoid unnecessary dilution of ownership when there is no need for additional capital.
"A 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."
This quote clarifies the operational similarity in how stocks begin trading in direct listings and traditional IPOs, emphasizing the functional equivalence of the opening process.
"Well, not in the current capital environment."
This quote indicates that the current financial climate is not conducive to direct listings, which suggests a reliance on traditional IPOs for companies going public.
"I wasn't entirely sure that I had the chops to actually step up and lead it."
Barry McCarthy expresses self-doubt about his ability to lead as CEO, which is a common concern for individuals considering executive roles for the first time.
"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."
This quote emphasizes the need for decision-making authority in leadership roles, especially in the context of a company turnaround where swift and decisive action is critical.
"The biggest surprise to me is the amount of emotional resilience required of a CEO in a situation like this."
This quote highlights the unexpected emotional demands placed on a CEO during challenging times and the necessity of resilience in leadership.
"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."
This quote underscores the importance of strategic insight into the business model for effective leadership and competitive advantage.
"Great leaders are all about talent density."
This quote reflects Barry McCarthy's belief that recognizing and maximizing talent is essential for leadership success.
"The brand is golden and the user experience is platinum and always has been."
This quote signifies the strong brand and user experience as key factors in Peloton's success.
"Covid was the marketing campaign that Peloton never could have afforded."
Barry McCarthy points out the impact of the pandemic on Peloton's growth, suggesting that it acted as an unprecedented and unaffordable marketing boost.
"They deal with the world as it is, not as they want it to be."
This quote emphasizes the importance of pragmatism and adaptability in leadership, particularly during unpredictable events like the COVID-19 pandemic.
"We are not a family. We are a special sports team."
This quote illustrates Barry McCarthy's view on the professional environment, where the focus is on performance and success rather than familial loyalty.
"I just start pulling on strings and trying to a basic understanding of the root cause."
This quote describes Barry McCarthy's methodical approach to problem-solving, which involves a deep dive into the underlying issues.
"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."
This quote explains the concept of assessing the reversibility of decisions to determine the appropriate speed of decision-making.
"It's super helpful, sort of before you start down a path to try to define for yourself what success looks like."
This quote highlights the necessity of defining success criteria upfront to guide business decisions and measure outcomes effectively.
"I'm susceptible of that in eye 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 reasoned and don't have the data to support the position they're advocating for."
This quote highlights the challenge leaders face when unexpected negative news arises or when they encounter poorly supported opinions. It emphasizes the need for critical thinking and data-backed reasoning in decision-making.
"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."
The importance of inclusivity in leadership is stressed here, noting that while consensus is not always necessary, the opportunity for team members to express their opinions is vital.
"I think we do it pretty well. The decision making process in a swedish culture and that Spotify can, at times, to an american, feel a little bit like watching the paint dry."
Barry McCarthy discusses the cultural differences in decision-making processes, contrasting the more deliberative approach at Spotify with the faster pace of Silicon Valley.
"We're going to hold the person who owns the decision accountable for the results of the decision."
This quote emphasizes the importance of accountability in leadership, where decision-makers are responsible for the outcomes of their choices.
"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."
The quote underlines the need for leaders to empower their team members by entrusting them with decision-making authority.
"Managers manage and board members don't."
This quote delineates the distinct roles of managers and board members, highlighting that board members should not be involved in the day-to-day management of a company.
"I think the board members at Netflix didn't want Reed to not think they weren't strategic and value added."
Barry McCarthy reflects on the dynamic at Netflix's board, where members were motivated to contribute strategically to avoid disappointing the CEO.
"You need to find a voice and a way of communicating with the CEO, particularly if they're a founder, in way they're able to take it on board."
The quote suggests that communication with a CEO, especially a founder, requires a tailored approach to ensure that feedback is effectively received and considered.
"Netflix has this revolutionary view of the home video market. 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."
This quote challenges the traditional market assumption about consumer preferences and illustrates Netflix's innovative approach to demand creation by focusing on personalized recommendations rather than just new releases.
"So if I have a limited number of suppliers, one of them is charging me a lot for my content, one of them is charging me a little for my content. Let's do universal and Warner. By way of an example, let's make this specific."
This quote explains the premise of content cost strategies, using Universal and Warner as examples of suppliers with different pricing approaches.
"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."
The quote emphasizes the importance of maintaining customer satisfaction while shifting demand from higher-cost to lower-cost content.
"So at a high level, I would say whoever owns demand creation owns the gross margin."
This quote encapsulates the central idea that control over demand creation allows a company to influence its profit margins significantly.
"There are real barriers to entry associated with trying to build out your distribution to end users."
This quote highlights the difficulties suppliers face in creating their own distribution channels, which is a significant barrier to entry in the content industry.
"Disney's one of the few examples of a company 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 subscription model."
The quote points out Disney's unique position as a brand with enough consumer recognition to successfully build its own distribution platform.
"The only thing I'm reading is New York Times, the Washington Post, and the Wall Street Journal every morning."
This quote reflects McCarthy's focus on staying informed through news sources, given his demanding work schedule.
"I have more iq than I have EQ and I would be a better manager if I had more EQ."
McCarthy openly admits his EQ is lower than his IQ, and it's an area he recognizes as a weakness.
"I try to use my personal resources so that I don't have to worry about anything in life."
The quote shows how McCarthy uses his personal resources to eliminate distractions and remain focused on his professional and personal priorities.
"I can't see farther than my role here at Peloton, and the immediate challenge is to finish the turnaround."
This quote outlines McCarthy's immediate priority, which is to stabilize and improve Peloton's financial situation.
"Cash is oxygen in his life. He got a husband that scarce resource, and we're doing that really well."
McCarthy compares cash to oxygen, highlighting its critical importance in sustaining a business.
"I'll go off and be back to California and discover the rest of my life again."
The quote suggests that while his current focus is on Peloton, McCarthy looks forward to exploring life beyond his current role in the future.