Left: Fabian Wunderlich (Co-Founder) Right: Felix Wunderlich (Co-Founder), Michael Shangkuan (CEO)
Michael is the current CEO of EdTech startup Lingoda, a Mountain Partners portfolio company. He has been with the company for almost two years. Lingoda is an online language school which offers English, German, French and Spanish lessons with live native teachers. Prior to that journey, he was the CEO of Terra Education and holds an MBA from Harvard. Interestingly, he is also a natural competitive bodybuilder!
MP: About one thing that intrigued us about you as well: We saw that you are a natural competitive bodybuilder. And we were wondering whether you see parallels between bodybuilding to what a leader or an entrepreneur has to be?
MS: Absolutely. You know, in America, we like to use the word “grit”. Whether it’s been in athletics, in learning and mastering a language or in leading a company, the long-term power to endure and to make something happen is incredibly important. Particularly when running a startup. The same things that were important to being a competitive natural bodybuilder, such as training for five to six years, having failures and setbacks and making sure to stay on my training schedule, come from grit. These same things make our business successful and allow us to continue to grow.
MP: How long have you been a natural bodybuilder?
MS: For six years.
MP: Next to building a startup?
MS: I am more focused on Lingoda right now, and you can only have one priority. When I was living in California, towards the finish of my last startup, we had a very clear strategy of going forward. I thus had more time, which allowed me to put that in a higher priority. Right now, I still keep fit, but my grit is shifted towards building Lingoda.
MP: Everybody has several goals and can't do everything at once. How do you prioritize your goals?
MS: That’s a good question and a hard one, too. I think it is a combination of grit and realizing what your long-term dream is. If you want to build a multi-billion-dollar business, you also have to enjoy the journey. You need to like the long-term goal, but also the daily wins. For me, the combination of both is crucial. It also depends on what you plan on doing when you reach that goal. For me with the natural bodybuilding, I had reached the goal of getting to the natural Olympia after failing several times. I then thought to myself, okay, and I achieved my goals and can step back try something else in life.
“In America, we like to use the word “grit”. Whether it’s been in athletics, whether it’s been in learning and mastering a language or whether it’s been in leading a company, the long-term power to endure and to make something happen is incredibly important”
MP: How did you experience the transition from a traditional educational company, Terra Education, to an EdTech business model at Lingoda?
MS: Surprisingly, smoothly. I think that Lingoda is an incredibly international organization. We've got people from more than 30 countries and we speak more than 20 languages. So, we're incredibly diverse although based in Berlin, Germany and we are officially a German GmbH. It's an incredibly international rich and rewarding environment. So when you say that, you've got a Chinese American a Californian coming over to Berlin it was for me eye-opening to be able to work with people from all over the world. That's actually enriched our work environment and helped us be more effective.
MP: And regarding the transition from a more traditional to an online, did you observe any major differences?
MS: One sure is the product IT side. The technology side is incredibly important. So, investing in that and secondly investing in the product. We are not only about growth, we are about changing the world. So, how can you create a product that's new and different and exciting? How can you create something that disrupts the existing players and ultimately provides something completely new and different that your customer loves?
“Having representatives from so many different cultures, allow us to be able to understand those cultures better and serve them better.”
MP: Okay, interesting. Yeah, that's a good transition to my next question which is what is for you specifically Lingoda’s USP and what do you see as the next step to consolidate Lingoda’s current market shares and perhaps even more important: How can you prevent and protect yourself from new people or from companies coming from the traditional Market? How do you see this evolving in the near future we are?
MS: We are an online language school. What we do is disrupt the offline language schools, of which there are thousands in Europe. Our USP is to offer to busy working professionals the opportunity to learn and master a language anytime anywhere in whatever their personal area of interest is. That is huge because the old, traditional language school is very fixed in their approach. You can only take classes at certain times with certain people and on specific subjects. The founders did an excellent job of carving out this niche and building a strong model with barriers to entry. They wanted to offer something 24/7 with thousands of options for students every day. This makes it more difficult for competition – whether it’s other online players or traditional offline players – to come into our space. So, as we continue to extend this competitive advantage over time, our greater choice on the supply and demand side will give us a bigger advantage for both students and teachers that choose to come with us.
MP: And do you think that makes you perhaps more agile as well as able to adapt to the environment the changing environment and of the business and the core?
MS: Absolutely. This is not the first startup that I have scaled up, this is the second one. What’s important here and where my skill set comes in, I have seen the end state of such companies. What we have to do is to be flexible, both culturally and with the product to be able to wiggle left and right to, outdo and outpace the competition.
“Our founders did an excellent job of carving out this niche and building a strong model with little entry barriers. They wanted to offer something 24/7 and in thousands and thousands of classes. That was difficult to do even a few years ago”
MP: My next thoughts would be about what you think about the way EdTech is headed in the next five years as an industry.
MS: Yeah, so first from the standpoint of the industry. Right now, you have to look at it this way: Education technology is a great space to invest in and I think that's why Mountain Partners has invested in us. It is 10 years behind everybody else and language learning is probably another five years behind, which means that the disruption only has just begun. When we say things are going online, it is also because this industry is behind. Also, what we see is that the big trends have been in Asia and in the US first. In Asia and the US you see multi-billion-dollar companies that have built exactly the skill that we have and that were in our place by the 10 years ago. What we are doing is taking those models, adjusting the product and the marketing to fit the demands and needs of the European consumer, which are actually quite different, and building our own multi-billion-dollar education Tech language learning business.
MP: What do you think is the reason for this? Do you think it might be because the education system in Europe is quite good and there was no actual need for online education?
MS: That is one important reason. In addition, it is because language learning and traditional language schools are much more established in Europe, they have been around for 150 years. The world’s first language school, Berlitz, started of course in Europe. So, we have a much more entrenched market. It takes longer for disruption to happen. Whereas in Asia just like with mobile phones and other technologies, the existing infrastructure and old framework were not as developed.
MP: Could you tell, perhaps on a more personal level, how your experience with VCs has been and how you see it evolving with the size of the company? Especially, since you are in a funding round right now and you have experience in banking.
MS: From a profit margin standpoint, take out marketing costs and operating cost (teacher costs), we get to our operating margin line. We are profitable. This is fundamentally a profitable business that if we decided to slow down the growth, we can continue to operate without any problem at all. And that's a great place to be in. The other thing is that it is also not a business in which only the first one wins. This allows us a little bit more time to make sure that we are being wise with capital. We don’t have just to spend it and need to be the first one. We're cautious about that. As a result, we're in a good situation we can say alright, do we want to go into a future, much bigger round, a series B, and raise that money, or do we want to be more prudent about it and make sure that we're generating the best ROI for our shareholders. And we are exactly in this round right now. The great thing is that because of the situation with that we're in and because of our growth rates and because of our economics, when I talk to some of the larger investors, they are happy to entertain the conversation.
MP: It's true. Great. Well Michael, thank you very much for the good interview. And for the personal lessons, you have given us.