Scaling your Startup... with Soul

After nearly twenty years of covering the tech world, I’ve been able to interview most of the great entrepreneurs of our time. Maybe you’d be star struck by Elon Musk or squeal at the site of Mark Zuckerberg’s hoodie. I had to throttle those feelings back when I interviewed, Julie Rice and Elizabeth Cutler in 2015.

Rice and Cutler founded SoulCycle, which is not only an urban cult-like sensation in places like New York, LA, San Francisco, Chicago and dozens of other cities, it started the boutique fitness craze.

It didn’t seem smart or obvious in 2006: To charge a whopping $30 a class, for something that was already bundled into most gym memberships. But it worked. SoulCycle did well enough, it sold almost all of its shares to Equinox, starting in 2011, reportedly netting each founder some $90 million.

Not bad for two new moms who had never built a company before, weren’t fitness instructors themselves, and didn’t raise a dime of traditional venture capital.

This interview took place after that sale and just before the company filed to spin off into an IPO. Rice and Cutler left the company soon after this interview, remaining on the board.

And today that potential IPO is in a“holding pattern” according to current CEO Melanie Whelan. Meantime, SoulCycle still hasn’t debuted an at home product to compete with the surging–  and much more affordable– Peloton.

I have been a power user of both SoulCycle and Peloton. During a particularly stressful time in my life as a mother and a founder, I would SoulCycle north of five times a week, and now I have a Peloton and I do the same amount at home.

I love the flexibility of a Peloton– hopping on it quickly while my kids are asleep or if I’ve got a 30 minute pocket in between meetings in the afternoon. And even considering the cost of buying the bike, I’ve saved thousands of dollars.

But there is absolutely no substitute for the experience of SoulCycle. Rice and Cutler explain below how the cult was formed, the thought that went into each and every part of the SoulCycle experience, how they feel about knock-offs, and why mothers make amazing entrepreneurs.

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Sarah Lacy: Where were you before and what was your relationship like to fitness?

Julie Rice: I lived in Los Angeles. I worked in the movie business. I worked with actors. I had lived on the East Coast my whole life, and I moved there for my career. Fitness on the West Coast at the time was really different than anything I had experienced in New York City. People exercised as part of their social lives. It was something you did instead of getting drinks. It was really a valued part of a lifestyle. And when I moved back to New York, there was just nothing that existed like that. I tried all different gyms and fitness propositions, and there were a lot of ways to burn calories, but not a lot of ways to have an experience. To have something social. To find a little bit of a community. So I was really a user looking for that kind of experience.

Elizabeth Cutler: I lived in Telluride for a long time; I accidentally ended up there. I thought I was going to live in a big city. We used to hike and talk and get our exercise while we were hanging out with our friends. And then when I moved to New York City, I ended up having kids, and I gained a lot of weight when I was pregnant.

My girlfriend sat me down and said, “Honey, you are never going to lose that 65 pounds if you don’t get cardio.” And she took me to a class, and I had such a revelation in that class. I wasn’t a person who could do anything other than a yoga class. I couldn’t access fitness at all, and having lost my access to the mountains, I felt like I lost my access to fitness. Getting on that bike, it was like: I could do something for myself, that was also really good for me, and great because I got my body back.

Sarah Lacy: Largely due to SoulCycle, I’m in better shape now than before I had two kids.

Julie Rice: ….and you like it. And you look forward to going.

Sarah Lacy: I do! I want to get into the business model. Everyone bitches about how expensive it is, but the thing is you will go, if you book a class because it is so expensive. You will get out of bed at seven in the morning, because you’ve paid for it, and you’ll lose that money otherwise.

Julie Rice: Well it’s interesting. When we started the business Elizabeth and I went back and forth with “How much should we charge?” We knew what we wanted to deliver in terms of an experience, and we knew what it cost to deliver something like that. And I will never forget Elizabeth looked at me and said “People really value what they pay for.” And there’s just something about the entire experience. [So we went with] a pay per class model…

Sarah Lacy: …Which is amazing the whole gym and fitness industry appeals to this aspirational image of ourselves where we buy an annual membership pretending we’ll use it. In a way, it’s bold to say we will only make money if people work out.

Julie Rice: Big box gyms actually count on people not coming…. absolutely. When we started the business, there was no boutique fitness in New York City, there were a few yoga classes, but that was about it. When we told people what we were doing, people would say “Why are you doing that? People can already get that for free in their gym?”

So for us, in the beginning, it was not even about creating the best indoor cycling class. It was about creating the marketplace to put our product into. And that took a lot longer than actually figuring out how to get the product right, conditioning people to pay for something that was already on the buffet.

Sarah Lacy: Interesting. So getting back how you met… you were both New York City transplants and longing for something else… I understand a friend set you up on sort of a co-founder blind date?

Elizabeth Cutler: I never [actually] went on one, but we joke it was the best blind date either one of us has ever been on…

Julie Rice: I’ve been on quite a few…

Elizabeth Cutler: …because really when you have that kind of connection with someone and can almost hear what they are going to say before they say it, and you are really connecting to that message… I mean, it was just fantastic. And we immediately started finishing each other’s sentences. What about this? What about that? What about this? What about that?

The conversations continued on for these eight years, and it’s been an incredible experience.

Sarah Lacy: How quickly after meeting did you know you were going to do this?

Elizabeth Cutler: It was immediate.

Sarah Lacy: Like that day?

Elizabeth Cutler: Yes. I remember when I met my husband, my best friend’s aunt was like “Well it’s ok if you haven’t known him that long, because when you find a good handbag, you don’t have to go shopping for another handbag. You know you have a good handbag.” So it was kinda like, we found a good handbag in each other.

Julie Rice: I remember we left lunch, and before the door of my cab had even closed, my cell phone rang, and it was Elizabeth. And she said, “Here’s the thing. I’m going to look at real estate, and you research towels, and we’ll meet on Thursday.” And I thought, “OK, well I better…” and I went back to my desk, and I Googled towels.

Sarah Lacy: I feel like you had the easier job…

Julie Rice: Actually not, it turns out you rent them in the beginning, because you don’t have laundry. Sure enough, she called me on Wednesday night and said “I found something on Craigslist, let’s meet on the Upper West Side tomorrow. Literally, three-and-a-half days later we found our first space. We always say everything about SoulCycle… the world really wanted it to be born.

It was an old dance studio, so it was zoned for our usage. It was a five year sublet, so we didn’t choke on the fact that if it didn’t work out…. We figured out all the different things we could do with the space, if it didn’t work out.

And it’s interesting, because when we went to open our second studio, it was actually so difficult to find a space that we always say, if it had been that way the first time, around at a certain point, we would have said, “You know, this isn’t meant to happen.” “It’s too hard to open a business in New York City.”

But sure enough, there was this dance studio, and we built the front desk out of Ikea cabinetry. Elizabeth had a little Audi station wagon at the time. It took us like six trips to get all the cabinetry in the car. Our first studio was in the rear lobby of a building on West 72nd street. It wasn’t until after we signed the lease, that we realized we weren’t going to get a sign on the front of the building which… you know…

Sarah Lacy: So how similar was it to a SoulCycle today? Because you guys are really religious about wanting that experience to be that experience, even when you’ve done pop ups at conferences. You’ve got the lockers, the front desk… did that evolve or was it there in the beginning?

Elizabeth Cutler: You know what’s amazing about our first studio? If you walked into it today, you’d be like “This is such a dump.” [Once] our lease had expired, it was such an emotional day our last day in that studio. We were all crying. I mean, really and truly, it was so moving.

Julie Rice: We had a “wreck the studio” party, and everybody came, and we gave everybody spray paint, and we took pieces of the wall with us.

After five years, they basically said to us, they wouldn’t let us renew the lease because we thought we were going to see 75 people a day, and before we left there it was 300 to 400 people a day.

Elizabeth Cutler: It was too many…

Julie Rice: …people were changing on the streets. This place was not equipped for the business.

So when we went to renew the lease, they were like “no way.” And we assured all of our really loyal customers that we were going to build them something better, but the same place that was such a dump in the beginning that we could barely convince people to come to, people thought it was tragic to leave. I mean, we were weeping on the bikes that day.

Elizabeth Cutler: We really were. It was very sad, but then I looked up at the ceiling, and it was super gross, so I was psyched to leave.

But the great thing about that studio is it informed so much of what SoulCycle became, and that’s something we’ll always be grateful for. So as you walked into the studio, there was this long hallway that doubled as the locker room. You would naturally bump into people if you rode on Tuesdays and Thursdays. Eventually you’d end up seeing these people, and you’d say “hi” or “I liked that song,” and then people started having further conversations. And then people started having friendships outside the studio. And then people would have their SoulCycle friends, [they] were like a different subset of friends. They have really deep, true relationships. So it was an unintended consequence, but we’re really proud.

Then, by the time, you got to the hallway, and we saw you at the front desk, we were so almost freaked out and super excited you were there. We just really loved people so much. We’d never want them to leave.

Julie Rice: We had to fight for every customer, because we had no sign, because there was no boutique fitness in NYC, because we were charging $27 a class.

Sarah Lacy: And also spinning was a thing that was a thing ten years ago. The first time I heard about SoulCycle, I was like, wasn’t that something people did in the 80s?

Elizabeth Cutler: Everybody. I mean, good friends of mine who are super smart were like, “What are you doing? That is dead. That is from the 80s.” Exactly.

Sarah Lacy: So how did you get your first customers? Were they friends of yours?

Julie Rice: So it’s funny. We had no sign on the door, so we really went door-to-door practically flyer-ing. Someone would key into a building, and we’d kick our foot in and flyer bomb the mailroom. We were PR and marketing in the beginning… we were everything. We made great packages. Oh God, we spent two weeks trying to deliver these swag bags to all health and beauty editors in New York.

Elizabeth Cutler: It was post 9/11, so you couldn’t get into any of the buildings.

Julie Rice: Oh, it was crazy. You get an address for a magazine, and then it turns out they never let you deliver a package to the front lobby. I mean, we spent more time in midtown trying to figure out how to get these bags delivered.

Elizabeth Cutler: I think we thought we were going to be able to actually go in and meet people. And they were like “You can drop it there.”

Julie Rice: The truth was: We really went at it guerilla style, and we really felt like if we could deliver an experience to three people in a day that made them feel excited and was authentic and we could turn them into evangelists, then they would go and tell two more people. And they would go and tell someone else. And to be totally honest with you, it’s really still our marketing strategy.

We really rely on our customer service, and what we are giving you in the room so you don’t just come out and go “Oh that was a good workout.” You come out and say “If I am going to dinner with somebody tonight, I am telling them and I am going to spend most my dinner tonight talking about what I did at SoulCycle.” Today when you talk about the pay per class model, we strive to deliver that every single time.

As we move into new markets, we all call our five best friends that have some connection to, say, Nashville and say “Who are your five friends you’d like to send ten SoulCycle classes to?”  To get them starting to talk about the brand and get the party started.

We find our best marketing efforts are when someone like you calls someone in another city and says, “You are never going to believe what’s coming.” I think that’s what most brands are looking for these days. [It’s] authenticity. And that’s what we really count on.

Sarah Lacy: You also had a lot of celebrities who were fans of SoulCycle… Was that a plan? Did that happen early?

Elizabeth Cutler: It came pretty early, but I think what we set out to do was intentionally create a sanctuary for everybody. We really cared about every single person. [We wanted them to have] that experience. They not only got their money’s worth, but they got something out of that room that was different.

Julie Rice: It’s the perfect storm. It’s the endorphins. It’s the music. It’s the words the instructors use. There is something really unique about having the support of a community, but not having to interact with people. [It’s] the most amazing way of feeling supported, but still be able to be totally private.

Sarah Lacy: How much of that is intentional?

Elizabeth Cutler: It’s all intentional.

Sarah Lacy: But you guys knew when you were setting up that first studio how to do that?

Elizabeth Cutler: You gotta get lost. I mean that’s one of the things we bonded over at that first lunch. To get lost when you are doing fitness, which most people hate, and to actually find joy in that. Getting swept away by the music, or finding something else where your mind wanders and you solve a problem. Oh my God, I woke up, and I just worked out, and I just burned 500 calories, and I just did this in 45 minutes, and I can just go along with the rest of my day.

It’s just very efficient, and we’re all so time starved. And the other thing we wanted to have from the very beginning is have a place where there was no clock. Where there were no electronics except the sound system. It’s totally digitally free. We’re so plugged in all day long that to really touch your own humanity…I think that is something we hoped would happen, but we never expected it would happen for so many people the way it has.

Sarah Lacy: And that it works in so many different markets.

Elizabeth Cutler: Yes, that is the biggest gift. People ask us: “How did you know?” We’re like regular people who wanted something out there for ourselves that would kick our ass, honestly, and keep us in shape, but to find something different on that bike. We have a really good friend who owns a bunch of restaurants, and we told him we were going to open in LA. He was like “You are dead. I am scared for you. This is never going to scale. No one is ever going to find what they find in that room in New York, because you guys are not there.”

And we were like, “Oh my God, OK we have to make sure we get everyone really trained.” And it was fantastic, because we had been doing this already, but it made the training process that much more intentional.

Because we were so excited to see you at that first studio, there’s a certain level of service that goes into it. You have their shoes, and you have their water, and you know what they like, and you know what they need. You make them feel like they are cared for. You feel elevated.

Sarah Lacy: I once read a Harvard Business Case study about a bank that grew despite having fewer products and higher fees all because it hired people who smiled in a resting face. Do you have a resting smiling face trick?

Julie Rice: We have more than a resting smiling face trick. We really have taken the core principles and our learnings from that first studio and fleshed them out into a full blown hospitality school.

So our employees– aside from a not-resting-bitch-face hiring policy– they go through an incredibly intensive training school. They are actually in school all the time, they are on the road all the time…

Sarah Lacy: So even the people in the front desk, not just the instructors…

Julie Rice: Oh sure, the people at the front desk go through hours and hours of courses. We have about 30 different modules of training, whether it’s history of the brand or how to communicate with a colleague, or “What is customer service?” These modules within our hospitality school are always being delivered over and over, so everybody from our cleaning staff to our vice presidents are in this school all the time.

When you get hired at SoulCycle, everybody works at the front desk. It doesn’t matter what you are hired for. Everybody spends some time working at the front desk, so everyone understands our business.

Little things things [that] you would think are second nature, you have to carefully replicate them. You would think people would know that “Yes is always the answer.” You watch someone and think “How could you tell that person no, there are a million things you could try.” But that’s actually something you have to train people.

[When it comes to instructors] we audition about 120 people for every 25 that we take. The actual training is an 8 week training program, so these guys are in school from 9 to 5, and they ride an additional five or six times a week. The training program is everything to lectures and drills to community rides, where our training teams come in and grade them.

These guys are learning how to create those moments. There is nothing accidental about it. The way you scale an experience like this is making sure you are teaching people how to deliver a specific experience. Everything from constructing the ride, obviously constructing your playlist is a huge part of it. And how you put it all together, so you make sure the moment you lose it in the Taylor Swift ride, it feels totally accidental to you.

I can’t tell you how many times people come up to Elizabeth and I in the lobby of studios and say, “You’re not going to believe it, but I cried on the bike today.”

Sarah Lacy: So “spin crying” is a thing, right? It was written about in Marie Claire. I’ve done it.

Julie Rice: Everyone cries on the bike.

Sarah Lacy: It’s actually a thing where water is running down your face and you don’t know if you are crying or it’s sweat… it sounds like we are describing a cult.

Julie Rice: To your point of the brand and branding, we never knew how big it was going to be or not be, but we were very particular and thoughtful from day one that the brand — whatever that meant —  was always intentional. The words on the wall. Every word is well thought out. The look of our studio. It’s all there intentionally so that before you even click into your bike… you decided a skull was going to make you feel like a badass or you feel like a warrior.

Even when we had a very small business, we constructed the brand in a much bigger way.

Sarah Lacy: I want to get back to the building of the the business. You didn’t raise money. You didn’t have the cushy situation where you could still take a salary and have a soft landing if it didn’t go well.

Tell us about that. It was 2006 right? A couple years before huge recession and, Elizabeth, your husband was working at Lehman, which was about to get rough in 2008. …And didn’t you both have babies?

Elizabeth Cutler: We both had babies. I had two.

Sarah Lacy: How old?

Elizabeth Cutler: I had a three-year-old and five-month-old. I did not expect to have that entrepreneurial urge at that particular time, but I had it and so did Julie, and it’s kinda awesome that we did.

Julie Rice: Mine was five-months-old as well.

Sarah Lacy: I raised money on maternity leave, so I had a similar thing.

Julie Rice: We were thinking, “How do we get out of here?”

Sarah Lacy: Please give me a company! This baby won’t stop crying!

A lot of people think having kids is what takes people out of becoming entrepreneurs. But I am increasingly hearing stories like yours and mine, why do you think that is?

Elizabeth Cutler: Men have babies too. It’s just what you decide as a family. I mean, for me, I just felt this strong urge to do it. If I’m not listening to my own voice, what am i even listening to? Although I never expected– to be totally candid– that it would be this much work. If I had really known that, I probably would have thought about it twice.

With two kids and then the Lehman meltdown, that was really a couple of years, you know. I don’t know, I mean, we work with so many women, and they have little kids, and they bring it everyday. You multitask. I actually am not surprised by the trend, and I’m a little bit proud of the trend.

I was talking to my daughter the other day, she’s 12 now, and I was saying, “What is it like for you just having a mom who works so much? Are you ok with that?” And she was like, “Are you kidding me? I go to school and all the boys say ‘Only boys are CEOs.’” And she’s like, “Uh uh! My mom is a CEO.” And I’m like “OK!” That’s a great message to put out there.

Julie Rice: One thing I think is you have a baby, and all the sudden, I do think what’s important to you changes. And it really gives you a moment to examine: Did I love what I was doing? Was it something that really fed me? Because you have this child now, and now it really becomes a choice. For me anyway, to leave my kids and work the way we work… it had to be for something I was super passionate about. And the one thing I can say that is great about being an entrepreneur and a mom is that you can work 18 hours a day, but you can still go on the class trip. You just may have to work a little later at night.

Sarah Lacy: You have flexibility.

Julie Rice: We have four girls between us, and they’re all sort of close in age… I think what we found was work life integration. And I think it’s been amazing.

Our daughters come with us to open up new cities. They were behind the front desk giving waters to customers when they were three and four and five years old. They’re really proud. They were part of this business in the beginning. We didn’t have a lot of help and a lot of sitters. I remember when I was the publicist, if the reporter called and wanted to write something, and I didn’t have a sitter that kid was coming with me.

It’s been amazing for them. They really understand it. They are in the studio all the time. I do think there’s something powerful about being able to integrate and understand what mommy does. I think the sense of ownership… and to watch something grow like that…

Sarah Lacy: You guys fly in the face of a lot of trends around gamification and quantified self and metrics. Inherent in SoulCycle is there are no numbers on the wheel, and unlike other spinning studios, there aren’t rankings. You don’t know how you are doing in class.

I’m curious what went into that thought process, because a lot of people like to know how well they are doing, how many calories there are burning. Was there any give and take there? Or you just knew that wasn’t SoulCycle?

Elizabeth Cutler: It’s easy to bring that into the room if you want it. Personal accountability is the most important thing, and you know if you are cheating on the bike. So from the very beginning, we felt this could be a cell phone-free zone.

In 2006, when we started, you used to have to go to your gym 90 before your class if you wanted to sign up for one. We [built] the first reservation system in New York City for fitness. How crazy is that? Think about how much has changed. We were always on the early part of being tech-enabled, but we wanted to keep that for outside the room.

Julie Rice: In 2006, people were not really talking about wearables and all of that. To Elizabeth’s point, we see people wear Fuel Bands and Fitbits into the room.

We are currently in the process of working on a bunch of different digital stuff. At some point we may or may not decide to put something underneath the seat [that] you can press. Or something that doesn’t allow you to know the technology is in the room, but you can actually get your data afterwards.

But I will say it definitely was one of the things that was one of the core principles. We always hoped for that in that room you would find your own inner athlete. For me, when I go for a run now, or I do something on my own, I can hear myself saying those words. I can have that moment. I can deliver that to myself now, and it’s because I was present. Listen, you know if you are working hard. Part of the real goal was to train people to be their own coach. When you fundamentally learn that and can feel that in your body, when you can feel what pushing feels like, and what it feels like to go to the next level, I think it’s really different than looking at your wrist.

We have this discussion all the time, but I think for us, one of the greatest gifts of SoulCycle is it is 45 minutes you can escape, and wake up, and have done something good for yourself. Stream of consciousness doesn’t exist anymore. To allow yourself to go down that rabbit hole mentally… I even think there’s a difference when you sit in the front row versus the middle row. I have much more creativity when I allow myself to sit in the middle, because I allow myself to sort of go places in my mind.

Sarah Lacy: There are a lot of stories about not letting rivals into classes; does competition bother you guys?

Elizabeth Cutler: We are fine with rivals, we just don’t like people knocking us off. If you are going to bring people to train, you should actually train them in your own studios, don’t train them in our studios. That’s kinda lame.

Julie Rice: Yeah when people are bringing like ten instructors to take 600 rides each so they can teach them how to teach…

Elizabeth Cutler: …and they weren’t really very forthcoming about it. That’s kinda lame.

Sarah Lacy: How do you feel in general about knock offs? There are shit loads of SoulCycle rips offs, a lot of them in markets where you don’t operate. Does it bother you?

Elizabeth Cutler: To be totally honest, when we look deep in our hearts, of course, we want to be everywhere, and we want everyone to use SoulCycle. But, the thing is, there is a serious problem out there, and if anyone is getting on a bike good for them. These mammal bodies….we need cardio.

We are going to get to a lot of cities and are going to launch a lot of stuff digitally. We think what we have is special, and we want to share it. But as long as people are doing something, that’s the main thing.

Sarah Lacy: You train, invest in and then create these stars…. And then do they have you by the balls? Managing talent is one of the hardest things about creating a business based on voices and personalities. How do you approach that?

Julie Rice: The model that was out there, at the time, was: One diva builds a studio around herself. She can get 30 people in a room one — maybe two — times a day, and that’s the model. And so, we really understood we needed to build a brand that was bigger than a person. That’s why we created a method, that’s why we train very thoroughly. We search high and low to find amazing talent, so we can put them through the process. No doubt people love their instructors, and we love making them stars. We’ve really only lost one or two in nine years of business.

Elizabeth Cutler: No one hates the same person. So it’s about personality and chemistry and someone for everyone.

Julie Rice: We build them into rockstars. We carefully program them to make sure everyone is succeeding, that PR and marketing puts resources behind them. We try to support them and grow them. We try to help them find their audience.

These guys have real careers. They have health insurance, paid vacations. They make real money. They get clothing allowances. We have an on staff physical therapists who treat them on site. It’s a great job.

Sarah Lacy: What is the point you want to get SoulCycle to? Because Equinox bought you guys, so it’s not a just an “exit” anymore.

Elizabeth Cutler: You know what is interesting? My husband always says to me, “You know, I was a banker for 25 years. I did a lot of great deals for people, and no one ever wrote me a Thank You note. And you guys get emails every single day about how much people love SoulCycle and aren’t you so lucky.” And the thing is we are so lucky.

We are really blessed to have this experience, and it goes back to a story I didn’t finish, which was our friend who was like, “We’re scared for you that you are opening in California.” The best thing about that experience was standing in the lobby in the West Hollywood [SoulCycle] on the one year anniversary, and talking to our riders. And the riders saying [things like], “I lost 15 pounds this year, but that’s not what happened. My sister had cancer, and I was in the hospital with her every single day, and the one thing I did for myself was I went to ride. And I found so much strength in that room that I was able to be there for her in a different way.” That happens.

There is so much stuff that happens to people, and we all need a place to go. That, to me, from a personal perspective is so gratifying to have the privilege to put that into the world. And the fact that we built a business on top of that? It’s just pretty awesome.