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Build the right incentives

cindy_mi

Businesses run on incentives — from attracting customers with great prices, to drawing in talent with great salaries. But incentives aren’t something you set once; you must constantly revisit them to adjust to changing times. Cindy Mi, founder and CEO of the learning platform VIPKid, has leveraged the power of incentives to build a thriving global learning community — and, to shepherd her organization through a black hole-sized disruption.

“Teachers are the creators of the new age.”

— Cindy Mi
About the guest:
cindy_mi

Cindy Mi is the founder and CEO of VIPKid, an education technology company that connects a global community of English-language learners with the world’s best teachers for real-time online English immersion learning. She earned her MBA from CKGSB, and studied at Cornell University’s Johnson Graduate School of Management. Cindy was selected to join the World Economic Forum’s Young Global Leaders Class of 2018. She has spoken at TechCrunch Disrupt, OZY Fest, Y Combinator’s Startup School at Tsinghua University in Beijing, and Y Combinator’s Global Founders Summit, among many others.

About the host:
reid_hoffman

Reid Hoffman is the host of Masters of Scale. A Silicon Valley entrepreneur and investor, he’s known for his spot-on insights on how to scale a startup. He’s a partner at Greylock and co-founder of LinkedIn, and co-author of the best-selling Blitzscaling and The Startup of You.

Also featured in this episode:

Dr. Fabio Pacucci is an astrophysicist at the Center for Astrophysics | Harvard & Smithsonian, where he holds the Clay and BHI Fellowships. Fabio’s …

I believe building the right incentives is key to scaling your business. But you will need to keep balancing, and rebalancing, those incentives, to hold the system together.

— Reid Hoffman
Transcript of Masters of Scale: Build the right incentives

FABIO PACUCCI: If you have two bodies — take the sun and the earth. Since the time of Isaac Newton, we know exactly how these two bodies move together in time.

So we can say, “Okay, where will the earth be in one billion years?” Or, “Where was the earth one billion years ago?”

HOFFMAN: That’s Dr. Fabio Pacucci. He’s an astrophysicist at the Center for Astrophysics at Harvard University. And he’s describing a fact that scientists have known since the 1700s. When you study two celestial bodies in orbit — like the sun and the Earth — you can calculate their movements according to the gravitational pull they exert on each other. But there’s a catch. 

PACUCCI: I stress the fact that this can be done only with two bodies. OK? If you have three bodies or more bodies, this cannot be done. This is not that we are not able to do it yet. It is just impossible to be done. It will never be done. 

HOFFMAN: It’s true. Once you introduce a third body to the mix, the future movements of all three become mathematically impossible to predict. This quandary is known as the “Three-Body Problem,” or “N-Body Problem” if you prefer variables to numbers.

In 2009, two scientists ran a simulation that demonstrated what this means. They altered, just a little, the path of Mercury’s orbit around the sun.

PACUCCI: We’re talking about millimeters, so basically less than an inch. And the outcome is that in some of these simulations, either Mercury was completely ejected by the solar system, or it fell into the sun.

HOFFMAN: That’s right. A few millimeters of shift in one planet’s orbit affected the others, with catastrophic results. Which makes you wonder: What sort of disturbance in the universe might create such a shift? 

PACUCCI: If you have a little perturbation, for example, an asteroid, that’s no problem. The body’s very, very small. But if you have a star or a black hole that passes close by to the solar system, that’s going to completely disrupt the solar system.

HOFFMAN: Luckily, our solar system has (so far) been spared from the disruption of a black hole. But in business, disruptions happen all the time. And their effects on the orbits of customers, suppliers, and employees around your business are difficult to predict. 

But you actually have one advantage in a business three-body problem: you have the tools to adjust how these different orbits interact. And you do that with the power of incentives.

That’s why I believe building the right incentives is key to scaling your business. But you will need to keep balancing, and rebalancing, those incentives, to hold the system together. 

[THEME MUSIC]

The power of incentives

HOFFMAN: I’m Reid Hoffman, co-founder of LinkedIn, partner at Greylock, and your host. And I believe building the right incentives is key to scaling your business. But you will need to keep balancing, and rebalancing, those incentives, to hold the system together.

Charting the future paths of complex systems contains a frustrating number of unknowns, whether you’re talking about planets, or a business ecosystem. Those paths may look stable, but teeny changes to one can have big impacts on the other. And of course, every so often, a stray black hole comes crashing through.

One way to keep these groups moving in harmony is by thinking in terms of incentives. This could mean everything from lowering prices to bring in customers, to raising salaries to attract top talent. When you adjust incentives, you affect the trajectories of every stakeholder that orbits your business. 

But creating incentives isn’t something you do once because incentives change as people do. For example, a three-year-old might be motivated by a balloon, or a toy truck. As an adult, it might be stock options or health insurance. (Try motivating a toddler with the promise of a dental plan!) This natural progression is true of everyone within your ecosystem too. So you must constantly check in and revisit the value propositions driving scale. It’s a journey that lasts as long as your business does. 

I wanted to talk to Cindy Mi about this because as the founder and CEO of the online learning platform VIPKid, Cindy has long expertise in how to create and adjust incentives. VIPKid was founded as an app to connect native Chinese-speaking students, ages 4-12, with native English-speaking teachers from the U.S., Canada, and beyond. The classes immerse young students in English, so the teachers themselves aren’t required to speak Chinese. 

VIPKid didn’t invent immersive language classes, of course, but Cindy helped bring the process online with unique one-on-one video sessions that make it easier for young kids to focus. VIPKid teachers also incentivize their students with games, stories, bright colors, and lots of positive reinforcement. At its height, VIPKid hit a $3.5B valuation with over 100,000 teachers on their platform, delivering 200 million classes as a team. 

These days, VIPKid is in the midst of a massive pivot prompted by a policy change in China, which we’ll get to later in the show. But their scale journey is one of classic entrepreneurial lessons on handcrafting, slashing-and-burning, crisis management, and grit. In Cindy’s case, what ties these lessons together is her masterful use of creating and adjusting incentives to land each pivot.

Intriguingly, Cindy’s origin story of becoming an ed-tech founder starts with her becoming disincentivized in school.

CINDY MI: I moved to a city called Harbin near the Russia border when I was in the seventh grade. And then I met a math teacher who obviously hated me. It’s kind of a, still, nightmare, if I think about that math teacher in a math class when I didn’t do well. I lost a semester of learning because of a change of school. And I lost all my confidence in learning math.

HOFFMAN: The obvious disdain from Cindy’s teacher took a dramatic turn one day. 

MI: I would read science fiction books in math class. And then one day, she tore the book, and then she threw it at me, and she kicked me out the classroom, and she said, “You’re the worst student I ever met, and you don’t belong here.”

HOFFMAN: This would be embarrassing for anyone. But for a student in the Chinese educational system at that time, it was borderline ruinous. In that awful moment, Cindy lost any incentive to push past her obstacles in the class. Instead, she disengaged.

This demotivated feeling is one I actually remember from my own middle-school experience, which I shared with Cindy.

HOFFMAN: When I was in seventh grade, I was taking a French class that was so boring that I read a science fiction book all through class. And when I was asked any questions I said, “Je ne sais pas,” which I don’t know. What is the thing? Out of curiosity, what kinds of science fiction were you reading, if you remember, as the escape from a horrible classroom experience?

MI: It’s a science fiction magazine. And I spend all my lunch money buying those magazines. And then early on had a story of Liu Cixin, who wrote the famous, I think Three Body Problem —

HOFFMAN: Three Body Problem. Yep.

MI: Right? Yes. 

HOFFMAN: As you may have guessed, this exchange with Cindy about Liu Cixin inspired our planetary metaphor at the top of the show. 

Cindy’s love of science fiction was a gateway for her curiosity about the wider world. That curiosity became its own incentive. Even as she tuned out of math class, she tuned in to a different project: teaching herself English. 

MI: The first English song I learned is “Country Roads” by John Denver. So technically he’s my first English teacher. The lyrics said, “Country road, take me home, to the place I belong, West Virginia, mountain mama, country road, take me home.”

So that just got me wonder about this global curiosity. “Where is West Virginia, and why did the singer call it the mountain mama?”

Cindy Mi’s introduction to teaching

HOFFMAN: For Cindy, learning the answers to these tantalizing questions was all the incentive she needed. She started buying herself English lessons on audio cassette, if you remember those. She had another way to accelerate her learning as well. Her uncle was in the tutoring business, teaching English to small children. 

MI: I joined my uncle part-time for his tutoring school in the place where he lived, a two bedroom apartment, where it’s a bedroom at night but classroom during the day. I saw him and his wife, my aunt in-law, teaching all the time, and then I would help them during the weekend.

I saw those three-year-olds, four-year-olds learning English while I learned myself. Then I had so much fun interacting with the kids and see how my uncle attracted their attention by engaging the kids, playing games with them, telling them stories, even cooking for them, or buying a few computers. That’s 1997 in China. That’s very early on kids are so attracted to that. 

HOFFMAN: Cindy watched her uncle teach a master class — not just in English, but in creating the right incentives. Because four-year-olds respond to stories and games, not severe rote memorization. For Cindy, who was not much older than these children herself, something clicked. School didn’t have to be a place of humiliation and shame. It could be a place where learning is fun. 

Cindy enjoyed helping her uncle as a teaching assistant. But she was soon thrust into the role of instructor.

MI: The first class was, I think, a coincidence. My aunt in-law was sick, and my uncle said, “Oh we can’t find any replacement teacher. So why don’t you go?” 

HOFFMAN: Cindy was given the news at 7:00 for a class that would start at 8:00. 

MI: I was totally unprepared. But then he said, “They’re just learning ABC and Ds, why don’t you go have some fun, teach them all these alphabet, and then tell them some stories and that’s three hours.”

It sounded easy. But then I walked in there, 20 students, three-year-olds. One little cousin, a brother and sister, got into a fight. I had to pull them away. And then tell a story to the whole class. Now, thanks to my science fiction stories, they all got attracted to the story and they wanted more. And then I was able to say, “Let’s learn all these letters, and then we’ll be able to enjoy more stories.”

Cindy Mi’s ‘jumping-off-the-clip’ moment

HOFFMAN: As incentive structures go, this one is a classic! “First endure this hardship, for a greater reward right after.”

But there’s a second lesson we can learn from Cindy’s offer to her students. There are often ways for buyer and seller — or in this case, teacher and pupil — to align their incentives. Cindy wanted to share her sci-fi adventure stories with the children, just like the children wanted to hear them. Both were looking forward to the reward! With this fact in place, the children were perfectly happy to take on the ABCs.

Keep this in mind when you think about the relationship between yourself and your customer, or if you have a marketplace product, the relationship between customers and providers. Their incentives may not be totally aligned, but they don’t have to be fully oppositional, either.

Bolstered by her successful trial by fire with the three-year-olds, Cindy leaned into teaching. She helped her uncle with his tutoring business, and in 2000, she helped him move to Beijing to form a brand-new brick and mortar school. They called it ABC English.

MI: I was 17 years old. So I’ve been a student learning English for a few years. And also I’ve been teaching part-time for a couple of years. By then that’s a critical moment of life. Do I go to college, or do I start to teach English full-time with my uncle and build this English thing? So I had a very hard time making that decision.

HOFFMAN: This was a huge risk for Cindy — especially in an environment where higher education was not only valued, but considered the only route to success. But the possibilities entrepreneurship had to offer were a powerful incentive. Cindy decided it was worth a shot. 

MI: So we drove a Volkswagen car from Harbin back to Beijing. So that’s a few days’ drive. When we got there, it’s a time when Beijing just successfully got approved for the 2008 Olympics. I can still remember the night where everyone celebrates in the city, and it feels such a global atmosphere. People are thinking, “Wow, Beijing is going to be an international city, now. Everyone is coming to Beijing.” So, it’s a great time for parents to decide for their kids that they want to learn English.”

HOFFMAN: The Olympics put a clear incentive in front of the parents of Beijing. They had eight years before their city would be on the world stage. Cindy and her uncle were there to help the next generation get ready.

HOFFMAN: What were some of the early lessons in that effort to start ABC English?

MI: You can always dream big, but you got to start small. So the first year trying to get from zero students in Beijing, where nobody knows about us, to a hundred students is such a struggle. There are just a few of us, and then we all need to be both teachers and student recruiters.

HOFFMAN: This is an excellent observation and key to building any network product. You need to get multiple flywheels spinning at once — on the customer side and the provider side — by offering the right incentives. ABC English was a brick-and-mortar education company, but the rules for growth are the same as for online businesses. Cindy needed to recruit teachers and students at the same time, calibrating the incentives for each.

MI: So a typical day, generally we start from 6:30, when we stand in front of the schools and try to send out flyers to the parents and then persuade them that they should come for a trial class. And then parents be like, “Who are you? What do you do? Why would we be there?” And we will be like, “We have all these little books or pencils or even school bags for your kid as a gift. Why don’t you just come for a few lessons and see for yourself whether you would like it?”

HOFFMAN: Giving out little school bags was a modest enticement, but the handcrafted charm worked. Parents did start to enroll in ABC’s learning centers, and the company started to thrive. Soon 100 students became 200, and eventually, many more.

MI: From 2000 to 2012, through that many years of building the company, we had 20,000 students. That’s a very proud number compared to a hundred. 

HOFFMAN: We could spend an entire episode breaking down what helped the company grow their customer base by 200X — like orienting their success around students’ overall engagement, and not just mastery of certain isolated skills. Or like fostering a strong connection between teachers, students, and their families. But instead, we’re going to accelerate to the point where after a dozen years in business, ABC English hit a plateau. 

MI: Two major challenges. Number one is the content problem because the content is basically books. And then it’s never been updated. It’s not interactive enough for the kids. When children are all on portable devices these days or cartoons, gamification, interactive games, nothing can attract them.

HOFFMAN: In the span of time that ABC English had been running, a wandering star called the smartphone had disrupted multiple industries, including education. Of course, China was the center of smartphone manufacturing. It took a little longer for iPhones to start making their way into the hands of Chinese customers. But by 2012, 82% of the Chinese population had a cell phone, and Chinese customers were buying smartphones at a faster rate than in the U.S. 

MI: And then teachers, by then in 2012, sometimes are still using audio cassettes in the classrooms where you’re having all these fancy big TV screens that you can utilize for teaching. So content is such a challenge, but as a brick and mortar company with a small number of students, you don’t have that investment into content.

HOFFMAN: Remember, incentives change over time. What appeals to an infant isn’t what appeals to that same child as a teenager. And what held the attention of kids in the early 2000s wouldn’t cut it for the kids of 2012.

But there was a second incentive problem Cindy was dealing with. And this one couldn’t be solved with a device.

MI: The bigger problem is the teacher supply problem. Because apparently parents all believe it, not only in China but Asia, anywhere people want to learn English, you should learn from teachers from the U.S. or Canada. But then it’s so difficult to get teachers to make it to China.

HOFFMAN: The demand for native-English speaking teachers was fast outpacing Cindy’s ability to recruit them. For some people, moving thousands of miles away to teach English in a place where you don’t speak the language yourself is a daring adventure. For others, it can sound daunting, lonely, or even frightening.  

MI: I tried really hard to bring teachers from the U.S. to China. I even went to Portland, Oregon and rented a place right opposite the city library. I got so many interests, but no one actually went because everyone said, “Oh we’ve got the house, the dog, the family, the kids. Sorry, I cannot make it.” So then I thought, “I should really try to do it online.”

How Cindy Mi thought of the idea behind VIPKid

HOFFMAN: Today, a pivot to online teaching seems like a natural decision. But in the pre-pandemic, pre-Zoom world of 2012, it seemed more like a story from Cindy’s sci-fi magazines.  

Even so, putting classes online would create a much-improved value proposition for teachers. It would allow Cindy to recruit instructors from the West, without asking them to move halfway around the world. It seemed like the right direction. Just one problem…

MI: I tried an online division and failed miserably. I can’t hire tech talent. And also the brick and mortar companies don’t really understand the value of the tech talents. My uncle was like, “Stock option? What do you mean?” So it didn’t really work.

HOFFMAN: In solving one incentives challenge, she had opened up another. Cindy saw she wasn’t going to be able to win the talent she needed. If she was going to get this new idea off the ground, she was going to have to send an asteroid crashing through her current business. 

MI: The idea was to get the online division of the previous company slashed and burned and move on and start anew. So I really fought hard with my family for the idea that now I want to start something by myself again. And they’re like, “Are you crazy out of your mind? There are 20,000 students, and then you want to build from zero again?” But then I said, “There’s no way I can do this. I’ve got to start anew.”

HOFFMAN: This was, clearly, a jump-off-the-cliff moment in Cindy’s entrepreneurial journey. But the incentive for her to make the leap was compelling. She saw that the flywheel at her old company was stuck. And she had a better chance of putting the right incentive structures in place by building something new from scratch.

[AD BREAK]

HOFFMAN: We’re back on how to create — and keep creating — better incentives within your business with Cindy Mi of VIPKid. If you’re enjoying this episode, we hope you’re incentivized to share it with friends. Just hit the share button in your podcast app. 

And to hear my complete conversation with Cindy, become a Masters of Scale member at mastersofscale.com. There, you’ll hear some great moments we didn’t have time for in the episode, like how VIPKid developed a reciprocal program for their English-speaking teachers to learn Mandarin. And, you’ll hear how they navigated the international spotlight after an investment from the late Kobe Bryant. You won’t want to miss it.

When we left off, Cindy had slashed-and-burned the tutoring business she’d tended for a dozen years in order to build something new. 

She started by heading back to school, to pursue her MBA. This included a semester abroad at Cornell University. And it was there that she started observing the real incentives that might drive Western teachers to her mission.

MI: When I traveled, I saw so many amazing people, teachers in K-12, they love to teach. They care so much, and they’re so humble, and they’re so caring and passionate, but then they don’t have part-time jobs.

HOFFMAN: With this observation under her belt, Cindy created a new business plan, finished her semester abroad, then returned home to China to build a brand-new company. She called it VIPKid.

How Cindy Mi built VIPKid

HOFFMAN: So you built on a bunch of stuff you already knew, which is like, “How do we create really good learning experiences? How do we have students having delight in education?” But now you have new elements. You have, “Oh well, it has to be done through technology.” You have to recruit teachers because you have to have this network. 

MI: When I think about this online platform, I describe it as a double-sided impossible trinity at scale. 

HOFFMAN: The “double-sided impossible trinity at scale” may sound more like a killer band name than a classic business term. But when Cindy describes what it means, what it actually resembles most is the three-body problem from the start of the show. 

MI: Student success and teacher success build on a lot of things they want. So I think they all want affordability, flexibility, and stability, but then on different terms. And they’re always conflicting with each other. So for affordability, teachers want higher income, and students want lower cost. And then for stability, teachers want more quantity of classes; students want the quality of the teaching so that they have a great experience. For flexibility, teachers want a more flexible schedule on their own terms. And then parents want more choices to find out the teacher they’re most suitable with.

So if you put these two triangles together, then how do we build on the student success and teacher success? 

HOFFMAN: For her platform to work, Cindy knew she would have to manage those three different incentive drivers: affordability, flexibility, and stability. And how they manifest on the student side versus the teacher side is different.

But which player do you orient around first? For Cindy, the choice was clear. 

MI: We focused on the student for the first one year. We cannot really design for the teacher yet because if we don’t have any student then there’s no story going forward. 

HOFFMAN: Exactly. If VIPKid was going to succeed, it had to put the child’s learning experience at the center of its gravitational universe because in the end, how well the student learns is the measuring stick that matters. VIPKid focused on that goal. Way, way in. 

MI: There came four first students. The four students are children of our first investors, three of them, and one is a friend’s child of my co-founder, Jessie.

HOFFMAN: Teaching the children of her investors, and of her co-founder’s good friend, Cindy definitely had incentive to make the platform work. But in those early days of videoconferencing, VIPKid was navigating questions like how to use colorful backdrops without causing the webcams to blur. Or how to support picture-in-picture animations.  

MI: Every day we’re so nervous. And the online classroom experience for the start was a challenge. How do you build the content online with a shared screen to the kids?

In the beginning there cannot be videos, it’s just photos. But then can you make animated photos so it looks like it’s moving? And then how do you design that big letter B so kids really love it?

We just have to show the parents this works and how it works. So the parents see for themselves. So it’s around that engagement for the student and to build a relationship with the parents so they trust the experience.

HOFFMAN: Orienting around student learning incentives would be the company’s guiding star. The VIPKid team worked for months developing their platform around the four young children of investors and friends. They improved their video software, and helped hone the teachers’ 25-minute lesson plans. When they were satisfied with their learning experience, they made a video promoting VIPKid for social media. It was a much-updated version of standing outside schools with flyers and gift bags of school supplies.

MI: We’re saying, “Oh, this is a second cohort of the pilot program. We’re looking for more kids now. We’re finally open. Limited offering only 10 seats.”

HOFFMAN: It was a bit of manufactured scarcity. But Cindy saw immediately how the perception of exclusivity motivated parents.

MI: We had 50 more inquiries. “Wow.” Everyone tried to call me because they saw this program like, “Oh, so limited. The video experience looked so good.” And they have so many questions. Every parent is, “Can they work online? What is the video conferencing software? How is the content designed? Where’s your teachers? How can I schedule?”

HOFFMAN: Because they were still small, Cindy could take the handcrafted step of calling and meeting one on one with parents considering enrollment to answer those questions. This attention to detail became its own incentive for parents to enroll.

MI: By the end of the year, we have our 100 students.

HOFFMAN: At this point, the VIPKid flywheel was gathering speed. Parents were telling other parents. And in fact, one ended up telling a lot of people.

MI: So there was a parent. She is a key opinion leader on Weibo, the Twitter of China. And one day she just felt happy about her child learning with us on the platform, and she posted a few photos of the kid, very cool, wearing a headset in front of the computer screen with a teacher.

And then all of a sudden her followers thought, “This is also limited supply stuff.” They’re like, “How do I sign up? I want to sign up. We panicked because there were a few thousand registrations on the day. And the parents tried to call us or contact us through all the social media. Some said, “Is it a scam? What’s wrong with your people? Why don’t you pick up your phones?”

So everybody, the co-founders, even our engineers, got on the phone to talk to parents. Engineers are very unhappy. They’re like, “We’re so busy with all the coding, and we don’t want to talk to people. Why do we have to be customer service?” 

HOFFMAN: Note: not every disruption to your planetary system will be negative, like a collapsing star. It could be a delegation of friendly aliens bringing transformative technology! But it will still upend your system of incentives. At VIPKid, suddenly, everyone in the company, including grumbling engineers, was recalibrating their orbit. 

The company-wide scramble to accommodate demand highlighted a larger scale challenge for the company.  

MI: We don’t have enough teachers at all. So every day we start to wrap our heads around, “Where do we find the teachers?”

HOFFMAN: If you’ll remember, this was where Cindy got stuck in her quest to grow her last school. She didn’t have enough native English-speaking teachers living locally and incentivizing teachers to move from the U.S. and Canada had proven a challenge. 

But as an online platform, VIPKid’s potential recruitment pool was every teacher in North America who needed some extra cash. Which basically means every K-12 teacher out there. Cindy knew from her time in the U.S. that many teachers there, unfortunately, don’t earn as much as they deserve. So they often look for supplemental income. 

But here, notice how Cindy made an important choice in how VIPKid calibrated their pitch.

Why you need to get the first 100 stakeholders right

MI: Our head of teacher community, Kevyn Kline, she’s amazing, she always says, “The first hundred people define the community.” For the first hundred teachers, we’re looking to really define who we are.

HOFFMAN: That’s a lesson for every company, and especially any network platform. The first 100 people really do set the tone and shape of the culture. So you need to be intentional about who you attract, and how.

MI: To start recruiting the teachers, we didn’t put out an advertisement, saying: “Teach online; make 20 bucks an hour.” We thought we wouldn’t get the right people. We put out a campaign to our teachers but also on social media online, and we said, “Join the fun; be the inspiration.”

HOFFMAN: Notice: Cindy wasn’t talking about changing the payment incentive itself. She was talking about how it was presented to their teacher market. And when the first applicants came in, she saw they were people incentivized not by money, but by the rewards of the job. 

MI: The first 10 teachers, many of them are Teach for All Fellows. And then they have their network around the world. 

HOFFMAN: We actually talked about that Teach for All network with the organization’s founder, Wendy Kopp. You can find that episode in our show feed.

MI: Those are amazing young people, who love education. That’s why they got into this two-year program, where they barely make little money or no money just to teach.

So I think we really got the first hundred teachers right.

The feedback loops that fuel VIPKid

HOFFMAN: This is a powerful lesson in building incentives into your business. Part of the game design you use to build your platform is about which incentives you highlight, at what time. 

Cindy’s team took this principle to heart as they continued to build out the incentives structure of their platform. VIPKid built a rating system for the teachers, just like Uber, or Taskrabbit, or any other marketplace platform. Instead of 5 stars, the teachers would get rated 5 apples. And with that high grade would come real, tangible benefits. 

MI: So teachers who do great work can have priority in booking because parents tend to choose to work with the ones that have a great apple rating in our system.

HOFFMAN: VIPKid also chose to make parents’ comments visible and left room for teachers to leave comments for parents. This was a way to create feedback loops, to help teachers and students get better results.

MI: In terms of the class experience, we have a designed loop where all these ratings, comments are given to the teachers on their portal. So they’re encouraged to improve by learning more material online, engaging with their mentors. So that’s a loop. 

And then when the students, after learning a class, take assessment, they will then be pushed with more content so that they can improve as well. But then beside the design one’s, there are a lot of natural ones as well. For example, we have the student earning our rewards, and then they can use those for, like, a greeting card for the teachers. So students would be writing a beautiful card to the teacher and building the relationship.

HOFFMAN: You can hear how these feedback loops tie the fates of each player together. The incentive for each person to serve their counterpart well becomes the gravity that keeps customers and providers orbiting around each other, instead of spinning off on their own trajectories. 

VIPKid also used clever incentive tactics to get their existing teachers to recruit new ones. 

MI: To grow from 10 teachers to a hundred teachers is not that bad, but then the problem is how to get it to a hundred thousand? We started by thinking, “Well, it can never work by performance marketing.” You can never get to the right people. It’s just such a closed community.

So then we launched this referral program, where we launched a portal for the teachers for them to check and see the status of their referees. 

HOFFMAN: This referral program let current teachers cultivate high-quality referrals, and check in on their progress. In other words, it both distributed the work of recruitment, and gamified it. 

MI: We did tell the teachers, “If you bring a friend on board to teach, then you would get a hundred U.S. dollars.” So we do have a lot of teacher social media, navigated, hosted by our teacher ambassadors. 

HOFFMAN: This referral system was a massive recruitment and training unlock. Social media channels with names like “Teacher Mike” or “Teacher Stephanie” would get tens of thousands of views, in which current VIPKid teachers would advise new teachers on everything from how to create props and animated backgrounds, to how to work your mic and video camera.

MI: We also build a whole coaching system around it. Because teachers are natural coaches.

HOFFMAN: The referral system had an obvious benefit to VIPKid in accelerating scale. It had an equally obvious financial benefit to the teachers making the referrals. But it also benefited the new teachers in a real way, giving them tools to succeed in their new video classroom environment. 

This story is a great reminder that one way to keep up with evolving conditions is to incent your users to invest in the platform. It’s a way to distribute the work without eroding the quality of returns. 

Eventually, VIPKid was receiving 10,000 to 20,000 teacher applications a month. They started expanding their offerings to subjects like science, math, and history. And they began hosting major conventions for teachers around the United States.

In 2018, they cleared a $500M round of financing, and by 2020 — when the pandemic started introducing everyone to the idea of online school — VIPKid had reached a $3.5 billion valuation. They had around 100,000 teachers in their system, with around a million students throughout their then-eight-year life span. 

And that’s where we might have ended the story, except for the fact that in 2021, a truly seismic policy change in China ripped a hole in the foundation of the VIPKid universe.

How VIPKid is pivoting in the wake of China’s policy change

In August of that year, the Chinese government made two announcements. One, they were banning all for-profit tutoring companies for core school subjects. And two, they were banning the use of foreign-based tutors.

Shares in education funds, including VIPKid, plummeted. And the industry was sent reeling. The company had two months to comply.

HOFFMAN: The policy shift happens, it must feel just like the ground falling out from underneath you, relative to the level of impact on the business. So how did you think about it? How did you start adjusting? What were the lessons from that early adjustment?

MI: Your description of the floor falling right under the feet is such a precise one. It’s almost like an earthquake. So it doesn’t allow live streaming tutoring from any teacher offshore, from China.

It is such an unexpected challenge for everyone on the team, including myself of course. But I think it’s even more disheartening to feel the pain of the teachers when they lose the connection, relationship with their students, the family they’ve known for years. And also the fact that it impacted so much on their income. It just breaks my heart. I know many teachers’ livelihood depends on it.

HOFFMAN: Remember, with any multiplayer system, each trajectory affects the others. When part of the system is disrupted, so are the rest.

MI: The first few months have been so challenging. Then we just share with the teachers acknowledging the fact. So it’s going to get worse before it gets better. 

HOFFMAN: In a moment like this, when a black hole opens up and throws your system into chaos. Remember that you are the central gravitational force keeping your stakeholders together. It means, above all, being human with all your constituent groups. 

That’s what Cindy kept in mind when she recorded a video for all VIPKid instructors in October of 2021.

MI: I think I did the recording, the team and I, we did it over 20 times, just to make sure that we convey the right message.

We assured the teachers that we are there for the long run. So when there is a will, there must be a way. So we are working on it day and night to find that new lighthouse.

HOFFMAN: One unexpected outcome of this moment was the response Cindy received from the teacher community.

MI: One thing I want to mention is I really appreciate our teacher’s support and empathy along the way. They just sent so many emails from LinkedIn saying, “Stay strong. We’re here with you through this hard time.” Or, “VIPKid changed my life. I’m not going to leave.”

HOFFMAN: This incredible support provided Cindy with all the incentive she needed to keep going. Instead of folding VIPKid, she pivoted their base of operations to Singapore. And they’re now expanding their work across Asia.

MI: There is a global need from parents to learn English in Asia. There are 1.5 billion people who want to learn English, and they all want to learn from North American teachers. So it’s just so natural that we work with these parents. And also, I think, now we think about it, there are so many more amazing partners out there. 

HOFFMAN: Those partners include Topica, a Vietnamese learning company that recently created a mashup with VIPKid called Topica Kid. 

Cindy also cited another surprising partner: American school districts, whose student outcomes have suffered due to the pandemic.

MI: We are serving quite many school districts and schools here in the United States. The learning loss needs to be addressed. So many schools, school districts reach out to us and say, “Why don’t you help children reading and math and improve their learning?”

HOFFMAN: But Cindy and her team know it will take time to make all the necessary adjustments to their ecosystem. In the meantime, their teacher community needs tangible incentives to stick around. So VIPKid sent out a huge survey to every teacher in its network, trying to assess what form those incentives might take.

MI: We sent out a questionnaire to 40,000 teachers. And then we got almost 20,000 replies. So that’s really amazing. They took 20 minutes to do the questionnaire, telling us what they’re good at, what they want to do.

HOFFMAN: Once the survey results came back, Cindy and her team designed a new program, based on what their teachers told them might get them to stay. It’s a membership program to help teachers grow their own careers. They call it VIPTeacher. 

MI: We would have our teachers build their own personal brand, and also through the partners, and also the effort of their own, teach on their own terms. We provide them with all the system, the tools, the transaction, everything they need. And also we provide continued education to hone teachers skills in this creator economy, so they can even do more.

HOFFMAN: VIPTeachers also receive tools for growing their networks, and hosting events. It’s all in service of helping teachers build their personal brands. 

MI: Teachers are the creators of the new age. They can teach a lesson. They can build a curriculum. They can build all their Instagram, YouTube, TikTok content. They can coach other teachers. They can be advisors to schools and school districts. They can even start an online school under their own name, under their own brand. Everything is designed for the teacher’s income, for the teacher’s stability, and for the teacher’s flexibility. 

HOFFMAN: If you remember, VIPKid was designed to put the student at the center of the universe. With VIPTeacher, that shifts. 

Time will tell whether the VIPTeacher membership platform will succeed. Remember the teachings of the N-body problem — even small changes, much less seismic ones, have big impacts you can’t predict. But as of now, VIPTeacher has a 4,000-person waitlist.

They’re building, and rebuilding, using the best incentives within their reach. How will these incentives affect the communities of families, students, and teachers in orbit around them? 

We don’t know yet, but that’s the beauty of a challenge that lasts as long as your business does.

I’m Reid Hoffman. Thanks for listening.

Masters of Scale’s mission is to democratize entrepreneurship. Launched in 2017 as a weekly podcast featuring Reid Hoffman, we’re now two weekly podcasts — Masters of Scale with Reid Hoffman, and Masters of Scale: Rapid Response, hosted by Bob Safian — as well as an award-winning daily learning app, a best-selling book, virtual and live events, and more, serving a global community of founders, funders, and leaders looking to innovate at scale.
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