industry insider | Nov 7, 2022 |
Peloton co-founders are launching a DTC rug brand

Off the bike and onto the floor. Three Peloton co-founders—including former CEO John Foley—are uniting for a new venture, Ernesta, a direct-to-consumer custom rug brand. Along for the ride are Hisao Kushi, Peloton’s former chief legal officer, and Yony Feng, former chief technology officer. Ernesta, set to launch next spring, is backed by a $25 million Series A round of funding led by Addition.

“We plan to educate the marketplace on why a custom rug matters, and we plan to do it at such scale and efficiency that we can bring it to the market for an affordable price—call it the same as a store-bought rug,” Foley tells Business of Home. “We’re excited to really explode this space and help people live in better-designed spaces.”

The move from a disruptive, multibillion dollar exercise brand to the world of floorcoverings may seem like a strange pivot. But Foley has long nurtured a passion for architecture and design, clipping pages from shelter magazines before the days of Pinterest and Houzz. While working with a designer to create a home on Long Island, he was introduced to a “world of incredible custom-cut rugs that were big and grand and beautiful, and when you walk in, subconsciously they just say ‘incredible design.’” The name “Ernesta” is a reference to Ernest Hemingway, whose “smart, efficient, understated” prose style Foley hopes to emulate with the venture.

The brand may have arisen from personal interest, but Ernesta is far from a pet project. With $25 million at its disposal, the company will have the resources of a buzzy tech startup before selling a single rug. It already has a murderer’s row of talent on staff, including COO Jamie Beck, another Peloton veteran who recently served as The Shade Store’s executive vice president of operations.

Foley’s aim is to come out of the gate strong and make a significant play for a market that is crowded but fragmented. “It feels like everyone in the world sells rugs,” he says. “The problem is, so few people focus on just rugs and bringing to market what the consumer wants, which is speed and quality and value and focus. … I think Ernesta has the opportunity to be a category of one.”

Ernesta will follow what is by now a familiar direct-to-consumer playbook. The brand is developing relationships with U.S.–based mills to manufacture its rugs, but will forgo store locations and wholesale partners. By selling online and bypassing retailers, Foley aims to offer a premium product at an affordable price. His goal is to get shipping times down to one or two weeks.

Some of the strategies that Foley’s team refined at Peloton will make an appearance, including an emphasis on community and gamification. Much as the exercise platform benefited from its users competing to stack up miles, Ernesta will launch with a platform that seeks to unite design obsessives around tips, discussion and “before-and-after” challenges. “When you can catch lightning in a bottle with community and engagement, it’s great for your brand and it’s great for consumers,” says Foley.

Ernesta will be launching into some headwinds. As online advertising has gotten more expensive in recent years (and Apple’s privacy restrictions have made it less efficient), the DTC model itself has been showing signs of wear and tear. In a recent interview with BOH, Pattern co-founder Nick Ling—who cut his teeth building the go-to DTC marketing firm Gin Lane—made it clear that he’s pivoted to working with omnichannel brands. Another DTC avatar, Outdoor Voices founder Ty Haney, recently made news by saying the business model simply doesn’t work anymore.

Foley believes Ernesta can beat the DTC slump by focusing on good unit economics and TV advertising. “[With TV advertising] we can avoid the ‘Apple tax’ or ‘Facebook tax,’” he says. “At Peloton we thought about lifetime value a lot. This time we’re going to be much more conservative and think about first transaction profitability even against the cost of acquisition. There’s enough margin in the rug category that we think we’re going to have a margin for ourselves and great prices for consumers.”

Then there’s the matter of a looming—or perhaps already here—recession. There too, Foley is optimistic. “One of our foundational tenets is value. If we were trying to launch a luxury brand, I’d be nervous,” he says. “But in recessions, value-conscious brands rise up. … I know it’s a little cavalier to say, but I think it’s a great time to launch this business.”

Foley, who left Peloton’s board only two months ago, sounds like he means it. The company he co-founded a decade ago experienced both global fame and rocket-fueled economic growth, but in recent years has struggled with a post-pandemic comedown and a stock price collapse—not to mention some high-profile PR mishaps. In light of all that, Foley is clearly relishing the excitement of something new.

“A small team can sometimes do more than a big team,” he says. “We’re moving fast and slapping high fives in the hall; there’s nothing in our way. … It’s super energizing, it’s efficient, and it’s more fun. I’m really feeling like I’m back in my power alley.”

Homepage photo: Ernesta’s leadership team includes (L to R) Jamie Beck, COO; Marissa Vivori, VP, Product; Yong Feng, Chief Technology Officer; Hisao Kushi, Chief Legal Officer; John Foley, CEO; Kristy Foss, VP, People & Business Operations; Alan Smith, CMO; Eric Hwang, Head of Design | Courtesy of Ernesta

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