Case Study: Lingumi’s market positioning
How Lingumi found product-market fit by meeting the needs of the local market. Plus, why you should keep focusing on your core product.
“When you crack the first bit of the recipe, just keep working on it,” says Toby Mather, founder of Lingumi and now Product Director at Novakid. “Get the onion and the garlic right for a long time before adding the rest of the ingredients. Obsess about that initial product-market fit loop. Don't get over-excited.”
Toby is reflecting on the rollercoaster ride that was leading the kids English Language Learning app Lingumi who were acquired last year by Novakid, Europe’s biggest online provider of English-as-a-Foreign-Language tutoring.
It’s a story of ups and downs, with plenty of lessons learned from doing business in China, understanding how to tailor products to local markets and the challenges of taking on investment. It’s one that highlights the importance of the market when considering the challenge of finding product-market fit for learning products.
Ready for the ride? Strap in and let’s go.
Beginnings
The story begins with Toby teaching English to kids in Russia and Italy whilst studying for his languages degree.
“I was trying to design more fun ways for kids to learn their vocab,” he remembers. “I started making games on the whiteboard. The kids would come up to the whiteboard and play the vocab game. I'd illustrate them for the class and it’d be really fun.”
He pauses. “At the time, I remember thinking, it'd be really nice to turn this into a real game for language teachers…”
During that year he met Jan Lynn-Matern, founder and general partner at Emerge who offered him the opportunity to intern with the EdTech VC.
“Whilst I was there I was turning my game into a nicely designed tabletop thing where you put it on the kids desk with flash cards,” he says. “Going in I thought I would sell it to teachers. But my key takeaway from working with their portfolio was don't try to sell stuff to schools. That was the spark to make it into a consumer product.”
After finishing his final year at uni, he got accepted onto Entrepreneur First’s programme to build his game to help kids learn English. “The very early version was a hardware product inspired by Osmo. It was like a computer mouse for two-year-olds,” he recalls.
“It didn’t sell. The reason it didn’t sell is because when we showed it to people they would say ‘what is that?’ And we’d find it quite hard to explain. That was the first big lesson: if you can’t explain it, your customers won't get it.”
After these initial forays into hardware, including spending time on factory floors of Shezhen, he decided to pivot to a software-only business.
Launching in Taiwan and Seed round
“The original bet back in 2015 was there are all these families around the world who don't speak English. They want their kids to learn English and the blocker is that there hasn't been good technology to make that possible. And with the growth of mobile and the App Store, in five years time, everyone will be doing online learning,” he explains.
“Looking back, that bet was fundamentally wrong in terms of the scale of the change we expected to see. People play games with some learning side-benefits on mobile, but focused mobile-based learning and tutoring is still a niche activity, except in parts of East Asia.”
Based on his experience in China, he decided that his small UK-based team of five should focus on the Asian markets, where it felt like there was more demand. “People were paying good money to learn online in East Asia, but over here… not really. So we set up our app in the Taiwanese app stores and we just started marketing it with one Taiwanese team member,” he remembers.
They got just enough traction to raise their Seed round and then started to acquire users in China.
Looking to capitalise on these signs of traction, he moved back to China, and - after a nearly disastrous attempt to set up a joint venture (the standard advice at the time) - he managed to set up his own company. “I just stood in loads of queues, which is really the answer to getting into China,” he grins.
Then, after 3-months fruitless of trying, he managed to find a local manager on his last day before heading back to the UK. “Henry who happened to be a customer and really got it.” They were ready to launch in China.
Match the model to the market
In Taiwan, they offered a subscription model. So in June 2019 they launched the same product in China.
“It was a complete disaster. No one bought it. We got hundreds of downloads, but no purchases in the first three days,” grimaces Toby. “And then Henry said, ‘this is what I have been telling you guys: no one in China likes subscriptions.’”
They hadn’t been paying attention to the local dynamics in the market. All of the other language learning apps sold packs of lessons: pay-as-you-go.
“With our western perspective, we thought it was quite weird,” remembers Toby, “but we did the necessary engineering, and about a month later, we relaunched with packs of lessons, and our conversion rate went from 2% to 8% overnight. A huge change in conversion on exactly the same product.”
“While broadly, I'm of the view that good products do tend to just sell, I now believe there are local conditions that make it just impossible to sell without catering to local buying habits,” he says.
Differentiate on one thing
He also believes that to begin with they were just too different to the rest of the market.
“You only want people to make decisions on one axis. Everything else needs to just be ‘normal’,” he says. “If you have a different pricing model and different product, it makes it too confusing for the customer to make a decision.”
They fell into line on pay-per-lesson and focused on differentiating on the quality of their learning product. “Once you are part of a recognised category, you just need to win the comparison battle.”
“A lot of apps in the markets were really just nice cartoons but not very effective learning experiences. We competed on getting kids to speak. We said in our lessons, ‘you’ll get to speak X number of times per lesson.’”
They also realised as one of the only foreign brands, they could charge a slight premium.
Find a painkiller, not a vitamin
Along with finding a business model that made sense in the local market, Toby puts their success in China down to a different kind of cultural factor.
In markets like Germany, parents liked the idea of their child learning English. But for the age group they were targeting (4-6 year olds) it was a nice-to-have: “Not a must-have today buying decision.”
The reason that they found traction in China was that, unlike other markets, there was an existing category to compete within.
“In China, there's this concept called ‘Qǐ Méng’, which means ‘enlightenment’,” Toby explains. It’s a term used widely for early learning. “This means that for middle class parents, early years education is a sort of a luxury necessity in China.”
In China, they weren’t selling a product that was a nice-to-have ‘vitamin’. They were selling a ‘painkiller’ that felt much more like a must-have. Repositioning their product to match the needs and expectations of the Qǐ Méng category, suddenly transformed their uptake.
They started growing fast “It was the only time in my life that I've witnessed that sort of proper hockey stick,” he says. “Every day, money was coming in like crazy. That was a brilliant summer.”
Series A and the challenges of growth
This rapid growth attracted the attention of investors and in January 2020, shortly before Covid made it impossible for him to travel to China, they raised a $5.2m Series A.
By this point, they were doing nearly £3m in annual revenue. “The question should have been how can we get it from £3m to £10m without doing too much more?” he reflects. “But there's this weird thing that happens when you raise your Series A. You go to a board meeting and people are asking, what does the pitch deck look like for Series B? What exec team members do you need? It's crazy.”
Without the benefit of experience, they quickly started to grow the team. “We were doing all the speculative, textbook stuff that you're ‘supposed’ to do when you raise money, rather than improving the core product,” he says regretfully. “Having been doing totally fine with 12 people, we suddenly went from 12 to 60 people overnight. And then we spent a year dealing with internal politics.”
This also had a big impact on him personally. “I had to suddenly go from being a ‘maker’, to a ‘manager’ and not having a clue what I was doing,” he says. “It was incredibly hard to see the wood for the trees.”
Their hockey stick growth began to slow and it reached a point where they had to radically reduce the size of the team.
“It took me far too long to react,” he says ruefully. “Several good people had left already because it had gotten too toxic, political and unfocused. So I cut the team right back down to 20 and refocus everything on China and on the core product. We made the main thing, the main thing again.”
And slowly they started to turn things around. “It takes a long time to rehabilitate after a bad injury,” he says. “Over-hiring is the worst injury for any startup. We rehabilitated slowly. But we had some good people there. We hired some good new people into one or two in critical roles. And the business, just like a plane in a dive, started to level out. And then go back up. And we started to grow again.”
What advice does he have for others who have just taken on investment?
“Just take a breath at the point you raise new money and hire very slowly. Watch how people use the product. If your product is really good, it will be able to scale to quite a significant scale within its existing market. So just make improvements to that same product,” he suggests.
“The most successful thing we did in that time was to add a module to our original foundations course, which we had basically left alone. We’d built three other courses, for different segments. One was a failure. Two did fine. But the usage was still a fraction of the original course.”
With the benefit of hindsight, he says they should have doubled down and fixed all the areas of dissatisfaction on their flagship course before considering new markets.
The challenges of China
By 2022 they were close to profitability. They were growing again, but not super fast. And after a few near misses, they were beginning to worry about being constantly buffeted by the winds of Chinese regulation.
In 2021, they had spent a couple of months out of the App Store after China had banned online tutoring apps. They’d also had to stop using influencers for marketing, an important growth channel for them. “By this point there were three moments where we had nearly gone bust. There were a lot of ups and downs,” says Toby.
“So we said, it probably now makes sense for us to join forces with someone who's got market presence outside Asia. And we began having strategic conversations with possible partners.”
Joining Novakid
Enter Novakid, one of the biggest English tutoring companies in Europe. “It was unexpected because they hadn’t been on our radar, “ remembers Toby. “I had no idea how successful they were. They were operating quietly and not on the conference circuit.”
He met Max, their cofounder, “Max said, ‘Hey, listen, this is really interesting for us, because we started at six years old, and you guys start at two, and you stop at six,” recounts Toby. “‘But our board isn't, isn't very interested in China, and is there anything we could do?’”
They figured out a way to separate the Chinese business, with a management buyout led by Henry, their original Chinese employee number one and Lingumi continues to operate under the brand in China.
Meanwhile Toby and the UK team took all their non Chinese assets and joined Novakid and created Novakid Junior.
Toby is now Product Director across the full portfolio, with a product team of around 40 within a business of 450. “It’s a very well run business, very operationally focused and focused on the bottom line. It's growing, it's profitable. It's a very successful example of a well-run tech business,” he says, contrasting it with his previous small startup journey.
“It's been a very happy onboarding and it’s going very well. It’s been a very positive outcome for both companies. An unusually happy acquisition story after quite an up and down journey,” he smiles.
Lessons
We wrap up by reflecting on what he’s learned that would be useful to others.
“Number one is be really honest about whether it's a vitamin or a painkiller,” he says without hesitation. “I'm not saying don't work on nice-to-have products. But do be really honest about the market size.”
“I'd recommend people to chase areas where there's money already being spent,” he adds. “Solving existing needs is always easier. And the way I size the market, wouldn’t be the projection five years away, but what is the amount of money spent last year by customers on directly comparable services. That's usually not very much, if you're building something new and interesting.”
He reflects on this point further. “The online learning market for kids is extremely small. It's very niche all around the world. Even in the markets where you think it might be really big, like in China, I can tell you firsthand, it's not that big in China. It's the biggest, but it's not that big relative to the types of markets VCs find attractive.”
Here’s the key points:
Recognise whether your product is a vitamin (nice-to-have) or a painkiller. Try and find a market where you can position it as a must-have.
Find an existing market and don’t differentiate on more than one axis. This makes it hard for customers to compare your product to others.
Local dynamics matter. By switching from subscription to selling lesson packs, Lingumi went from a 2% to 8% conversion rate.
Hire slowly after new investment. Over hiring is an injury that is hard to recover from. Don’t do what you’re ‘suppose’ to do.
Don’t explore adjacent markets until you have properly cracked your core product. Keep the main thing, the main thing.
“Be extremely skeptical about whether you've got traction and meaningful engagement,” he says. “Don't add any bells and whistles that cheat you out of seeing your real product-market fit.”
This is a lesson that he’s currently deploying on his new challenge: reinventing Novakid in the age of AI. But that’s another story for an article coming soon. Watch this space.
Toby is currently hiring for great product managers and designers. If you’re interested in high growth products that help kids learn English, drop him a line.
If you’re wrestling with some of the challenges of finding product-market fit or how to respond strategically to new investment, check out my coaching programme.