Mastering the Language of Startup Success

As part of writing the seminal book, Exponential Organizations in 2014, Salim Ismail and a global team of experts had researched a large number of start-ups, scale-ups, and incumbent firms through the lens of the Exponential Organization (ExO) success formula – the 11 attributes of MTP + SCALE + IDEAS.

And this research led to the formalization of a list of the Top100 Exponential Organizations (the most scalable and adaptable) among the large number of firms assessed. One of these Top100 ExOs was DUOLINGO, an educational technology firm offering language learning established in 2012 in Pittsburgh, Pennsylvania, United States.

Since publishing the Top100 ExOs list in 2015, DUOLINGO has grown leaps and bounds, offering us invaluable lessons on mastering the fickle language of start-up success.

To put things into perspective, it has delivered a staggering 89% CAGR (compounded annual growth rate) in terms of shareholders returns driven by tremendous growth in its user base and revenues.

Duolingo is an excellent example of an organization that has embraced the different individual exponential attributes and continuously embedded them to create an exponential performance flywheel.

Driven by the mission to "develop the best education in the world and make it universally available," Duolingo has emerged as one of the most popular methods of studying languages. In fact, Luis von Ahn, the CEO, and Co-Founder, in the 2021 Annual Report, stated:

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"I believe that being a mission-driven company is what has led to our success because rather than spending most of our resources on short-term gains like performance marketing, we take the long view and continually improve our products and our brand.”

Duolingo has been disrupting the language learning market from the outset. Instead of following the conventional model of having to pay per hour or module, Duolingo was launched as a free to all. Or consider the Duolingo English Test (DET) launched in 2017 at a price point of $ 49 per test as opposed to over $ 200 that the incumbent tests were charging.

The fact that its offerings are free or priced nominally is appealing. Still, the mix of intuitive and interactive design elements, a larger portfolio of languages (36 vs. 25 of the closest competitor), and data & analytics-driven continually improving education approaches have truly pivoted the organization to emerge successful.

Duolingo is known for pioneering the gamification concept within the learning industry, providing its users with points for consistent achievement in classes and assessments. Users on Duolingo can follow, share their progress, and send encouraging messages to each other. Nearly 25% of its 10 million daily active users follow at least three other learners!

With over 600 million downloads, Duolingo is the world’s most popular education app. Driven by an active and evangelizing community, its active user base is nearly 50 times larger than the closest competitors like Rosetta Stone and Babbel. In fact, 90% of its userbase growth in 2021 is considered to have come organically through word of mouth. In addition, Duolingo has been committed to abiding by the strictest data protection and privacy standards and does not sell any personal data to outside parties, which has also enabled the building of trust.

Duolingo has been consciously investing heavily, around 40% of the revenues in Research & Development, and one of the key operating principles at Duolingo is “test everything.” The company launches around 30 new experiments per week and typically runs 100s of experiments concurrently.

Any team member — product, engineering, marketing — is empowered to propose and run an experiment by articulating a simple experiment memo. These experiments can be as simple as changing the text or color of a button or as complex as adding a major new feature like ‘Leaderboards. ‘ Experiment results are available through a custom dashboard that shows how a given experiment impacts every important company metric vs. a control group — covering conversion, engagement, and monetization.

An example of this next-generation approach toward experimentation and successful outcomes is Duolingo Plus, an advanced-level premium subscription offering. Since its launch in 2017, Duolingo has consistently increased its paid subscribers from just 0.9 million in 2019 to 2.5 million in 2021 by running thousands of A/B tests that make the paid experience more valuable.

With over half a billion exercises completed daily on their platform, Duolingo leverages this world's largest collection of language-learning data by developing novel algorithms that enable personalization and power new product features that drive engagement and efficacy. One example of this is their machine learning tools that evaluate every learner’s answer to every exercise every day and learn to predict the probability that any learner will answer any given exercise correctly. Then, they use these tools to adaptively construct lessons where each exercise is “just right” in terms of difficulty for each learner.

All Duolingo products share a singular technology infrastructure, allowing them to leverage operational efficiencies in implementing new features for each. With their shared infrastructure, they can innovate at a higher velocity. Further, Duolingo has also been leveraging the crowdsourcing model to launch Incubators, which pull together linguists, native speakers, and book readers to design a fully optimized course. These incubators are responsible for several courses Duolingo offers, including Welsh, Catalan, Latin, and even some fictional languages from Star Trek and George R. R. Martin’s A Song of Ice and Fire.

The organization’s flywheel has been powered over the years by it being recognized as a great place to work – a purpose-driven and fun culture. In 2021, Duolingo had less than a 6% attrition rate, much lower than the industry average, especially in a year marked by high levels of employee transition and resignation in the technology space.

While for many, Duolingo has become synonymous with language learning, the organization plans to seize the opportunity to broaden its horizons across the wider learning arena (including the launch of a Maths app by the end of 2022).

Enabled by the different exponential attributes - Duolingo continues on its growth journey. In fact, as part of the results for the second quarter of 2022 announced recently on the 4th of August 2022, Duolingo reported quarterly revenues of $88.4 million, an increase of 50% from the prior year's quarter. In addition, the paid subscribers increased by 71%, monthly active users (MAUs) by 31%, and daily active users (DAUs) by 44% from the prior-year quarter.

In the shareholder letter, the founder Luis von Ahn said, "We see this growth as a result of our relentless focus on constant product improvement. In addition, through continuous experimentation, we are driving organic growth, deeper user engagement, and stronger free-to-paid user conversion.”

With technology at the core of everything it does, Duolingo has consistently invested in providing learners a fun, engaging, and effective learning experience while remaining committed to its mission to develop the best education in the world and make it universally available.

Having such a purpose-driven start-up spirit is perhaps the true exemplification of an Exponential Organization.

Find out more about ExO Solutions here.