While China often makes headlines in U.S. media these days, the inner workings of its up-and-coming companies and the innovators behind them are still mostly unknown to the West. In this interview series, CapitalWatch lifts the curtain on the Chinese entrepreneurs on track to make a global impact.
Coming off better-than-expected growth for the third quarter, in which China Online Education Group (NYSE: COE), commonly known as 51Talk, booked $79.3 million in revenue, CapitalWatch sat down with founder, chairman, and chief executive Jack Jiajia Huang to discuss what drives him as a successful entrepreneur. In a stellar year for Chinese education stocks, 51Talk's stock has risen over 280%.
Huang is a seasoned entrepreneur with several startups under his belt. Among them are Couponia, a group-buying website for the Japanese market, and TalkChina, an online Chinese-teaching platform for Japanese students. He received his bachelor’s degree in Japanese from Tsinghua University in 2007 and eight years later was named by CYZone among China’s top entrepreneurs under 30. Huang served as operations manager at the Chinese branch of Mitsubishi Corp before founding 51Talk in 2011 with his wife, Sue Ting Shu.
With 51Talk, which means “I wanna talk” in Chinese, Huang hopes to disrupt the traditional way of learning English and help more Chinese students get involved on the international stage.
CapitalWatch: Where were you born? What was it like growing up?
CEO Jack Jiajia Huang: I came from Jiangsu, Nantong. This is a small place where people are outstanding. Zhang Jian, a famous Chinese educator, came out of my hometown. I have always respected his education philosophy. In the early 20th century, Mr. Zhang Jian established schools and developed China's education in his ways; today, in the 21st century, we are developing education through the internet, which is the responsibility and opportunity of today's age.
CW: Who were your parents?
Huang: My parents are common employees in a small town. They are very supportive of my work. My mother gave me the first bucket of gold to start up my business: 100,000 yuan. This was her savings, but she did not hesitate in supporting my work. I have been very grateful to her; without her, I would not be the man I am today.
CW: How did you become interested in the education sector?
Huang: I graduated from the department of foreign languages at Tsinghua University. At that time, I had great interest in language learning and education. At first, my wife Sue (girlfriend at the time) and I established a platform called TalkChina, allowing Japanese people to learn Chinese online. During the process, we found that many Japanese went to Philippines to learn English. It's inexpensive and it works well because English is the native language of Filipinos.
Meanwhile, Chinese has always been the largest market of learning English. So, with the vision of allowing more people to communicate to the world without having to worry about the language barrier, we decided to establish 51Talk.
CW: What is it like to build a company with your wife?
Huang: Very nice, actually. We were classmates, and also see each other as comrades and partners. As a co-founder, Sue played a crucial role in 51Talk’s growth. She single-handedly established the Philippines operation, growing it on her own with one suitcase to become a global operation with more than 29,000 teachers. She is an independent, smart, and strong woman. Without her, there would be no 51Talk.
CW: Who was your idol when you were growing up? Why?
Huang: My idol was Zhang Jian, a patriotic entrepreneur and educator in the late 19th century and early 20th century. I think his life story should be studied by business schools in the modern age. The scholar-turned-businessman has built a manufacturing empire, as well as founded schools and China’s first museum. I believe when private entrepreneurs become successful, they should follow Zhang Jian’s steps and be socially responsible.
CW: Who inspires you in the business world today?
Huang: Well, I can say that I met one businessman that helped me. In 2011, I made up my mind to start 51Talk but was short of funding. To make my dream come true, I was determined to see Xu Xiaoping, co-founder of the Chinese education giant New Oriental School and founder of ZhenFund. Finally, one evening at Peking University, I saw a talent scout and sent the business proposal to Mr. Xu. After the proposal was put forward, it simply remained a dead letter. Luckily, I did not give up. With persistence and wit, I managed to persuade Xu, receiving the first round of investment that allowed us to set up 51Talk in July 2011.
CW: What led you to establish 51Talk?
Huang: When I studied at Tsinghua University, I met some friends who were very eager to learn English but did not have easy access to an English education school. Back then, the only way one could learn the English language was by enrolling in traditional brick and mortar schools which were also very expensive.
English language education is highly valued in China as it opens doors to higher education and better career opportunities. Even the Chinese government has started heavily promoting the study of English language in schools because of its importance in international trade and business.
People from my town couldn't afford English classes. Only well-off families could enroll their children in English language schools. That's when I realized I have to do something to help my fellow Chinese people to speak to the world.
I also noticed that the traditional model had its shortcomings due to its inaccessibility to the great number of potential learners and the fact that students were only able to practice their English skills whenever they were inside the classroom. Proficient English-speaking teachers were also scarce in China, posing a problem for parents who wanted to hire cost-effective yet competent teachers who would tutor their children.
Challenged by the landscape at that time, I thought of making English learning available anytime, anywhere with the use of technology. Students need not go to a physical school to learn; they could learn anytime, anywhere through a computer, with a live teacher facilitating the lesson remotely.
CW: How did the team of 51Talk form?
Huang: At first, there were only three people in 51Talk’s office. Me, my wife Sue, and CTO Caijian Jia. At that time, if you intended to run an internet company in China, finding a technical expert was absolutely necessary. After interviewing many experts, we decided Caijian would make a great partner. He could explain the complicated technical problems in easily-understood works, and his vision of future was not only focus on technology but also on creativity.
At that time, Caijian and I were working in Beijing, while me wife Sue was in the Philippines to develop the market.
She rented a small office in the slum area by herself, it was a hard time for all of us. Sue didn't even have time to buy a bed and was sleeping on the floor in her apartment. The most terrible were the typhoons; every time typhoon arrived, water and electricity were out for days. Her clothes and shoes were always wet, she could even squeeze water from her shoes. However, Sue did an amazing job setting up teachers’ operation and curriculum development, two cornerstones of 51Talk’s success. I am very grateful to her.
So, from a startup company with only three people, 51Talk grew to China’s No.1 online English platform with over 4,000 employees.
CW: How has the mission of 51Talk evolved over time?
Huang: In fact, I don’t think our original intention or original vision has ever changed. But the path to achieve the vision evolved. Our mission has always been to give everyone the ability to talk to the world. In order to achieve this goal, we have offered many services and finally focused on K-12 online English.
Before starting 51Talk, I investigated almost all English teaching institutions in Beijing and found that the cost of foreign teachers was extremely high. The price of each one-hour class is more than 200 yuan. In English learning, training is very important. High frequency training is necessary to achieve fluency in English.
We hope to teach Chinese children English from childhood, so that they have the ability to communicate with the world and benefit. We help them pay less, but gain more. We hope not only students from big cities could afford 51Talk’s products, but also the students from the countryside.
CW: What is most important in a startup: The team, the product, or the market?
Huang: It’s not any of them. What I want to say is a kind of quality: You should unite your knowledge and practice (知行合一); and actions speak louder than words（行胜于言）. I graduated from Tsinghua University, and this quality I talked above is Tsinghua’s academic spirit. The ability to connect the dots and execute determine the probability of a startup’s survival.
We focus on how to finish the down-to-earth work rather than spotlighting single part. In my view, it is more important to complete every task step by step.
CW: What’s your leadership philosophy?
Huang: “Actions speak louder than words” will always be my doctrine.
In management, I pay more attention to the executive ability and creativity of employees, rather than the ability to package their own work or eloquence.
We are a down-to-earth education company, products and services are developed and disseminated little by little. Different from our peers, we have developed our own curriculum platform and education content, not just using third party content or outsourcing.
Although we are now profitable, our goal is never to just make money, but to provide better teaching quality to students.
CW: What do you think are the three most important qualities every innovator should have?
Huang: I think an innovator should have several qualities, regardless of rank.
The first priority is vision. Vision is not equal to a short-term goal. You need to see where you and your business will grow in the future, making money is just lucky. For us, I want to make 51Talk a 100-year-old company.
The second is the sense of mission. You have social responsibility, not personal interests.
Finally, courage. If I didn't have the courage to find investors, I would not have come to this day.
CW: Looking back at the first few years of building 51Talk, what would you do differently now, if anything?
Huang: From the business point of view, I think we have done a good job, there is no special regret. But if I can do it again, I hope I can raise more funds in the early stage, in this way, we would be able to focus on our K-12 1x1 mass market core business as well as lower tier city market and stimulate much faster growth, allowing more students to talk to the world.
CW: What are you most proud of looking back at your years of leading 51Talk?
Huang: What I'm most proud of is that our vision has not changed.
We hope that with the help of internet technology, people can have more convenient access to higher quality education resources with lower price.
Since its establishment nine years ago, 51Talk has been continuously seeking high cost-effective educational resources, establishing distinct competitive advantages and the ability to adapt quickly evolving environment. With all the efforts made by our employees, 51Talk is gradually achieving the mission of "let everyone have the ability to talk to the world."
CW: Who supports you the most in your work?
Huang: Well, if it is a “Thanksgiving-day speech”, I have many words to say to my family, friends, investors, employees, etc. But my wife Shu Ting (Sue) has given me the greatest support over the past decades. You know, starting an undertaking is not an easy task, and operating it smoothly is challenging. We have shared both happiness and frustration together, and those days were the best in my life.
In China, there is a romantic saying, if it is translated in English, it should be “Grow old along with me, the best is yet to be.”
CW: Now you are a father, has your philosophy on education changed in any way?
Huang: Not really. As an entrepreneur, I have been committed to empowering every child in China to talk to the world. My education philosophy is based on the idea that each kid’s mind is not empty vessels waiting to be filled. Each one of them brings their own particular brand of genius to the world, and my most important task is to discover and empower that genius.
CW: What do you think is the biggest difference between education in the U.S. and China, both operationally and philosophically?
Huang: American education sets out to teach students to find questions, ask questions, and solve questions while Chinese usually show a child how to do something, or teach by holding their hands and give great priority to train skills at their early age.
American education can be more “quality-oriented” which tells the students that studying is their own matter, cares more about how students use knowledge in the society and they give students a chance to decide what they want to learn, so the students in America show more initiative. The Chinese style of education can be more exam-oriented which means that educators formulate many kinds of rules to impose restrictions on what to do, how much one should learn, when to learn, and so on.
Chinese education and American education have their own strong points and are both very influential internationally—as are their students.
CW: Will you send your kid to study abroad in the future?
Huang: Well…It depends. My daughter is still too young. When she grows up, I hope she can develop her own judgment. If she wants to discuss the issue with me or my wife, then we will offer some advice to her. But she will be the decisionmaker in the end. If she longs to enrich her vision by studying abroad, then it’s fine. I will fully support her choice.
CW: Is 51Talk looking to raise capital currently?
Huang: We cannot comment on anything related to capital raise.
CW: Tell us, in your view, what analysts should focus on when scrutinizing 51Talk to get a real sense of the company’s long-term prospects?
Huang: Analysts should focus on gross billing contribution and gross billing contribution rate.
The gross billing contribution rate better reflects the capability of generating profit for education companies who receive prepaid tuition. 51Talk currently has industry-leading 20%+ gross billing contribution rate, which is the starting point for a strong operating cash flow and a solid non-GAAP net margin.
CW: How will technology change your business? The industry in general?
Huang: While the Covid-19 pandemic spreading around the world has led to travel restrictions and social distancing, the ties between Filipino tutors and their Chinese students have grown closer. Due to the robust demand for online courses in China during the pandemic, online English-tutoring platforms are experiencing a heyday, creating opportunities in China. We can see that many teachers have continued to work through these difficult times, while many of them have received support from their Chinese students.
According to a report released by iMedia Research, a China-based consulting agency in the mobile internet industry, the market scale of online English teaching targeting children aging from 4 to 12 in China is expected to exceed 26 billion yuan ($3.98 billion) in 2020.
While the market has seen many emerging players, it has gradually consolidated around several giants. Another report released by the Chinese Academy of Social Sciences in March on China's online English-tutoring platforms targeting children in 2020 showed that the platform 51Talk ranks first in the industry with a market share of up to 46%, followed by other brands such as VIPKid, DaDa, and Qkids.
The Covid-19 pandemic has brought hundreds of millions of students to online education and it has only accelerated the need for emerging technologies that benefit everyone, rather than widening inequalities. New technologies such as artificial intelligence and big data have increasingly important roles to play in bridging the education gap between urban and rural areas and realizing personalized education.
CW: What makes 51Talk distinct from its competitors?
Huang: Let’s go back to the one metric we believe analysts should focus on, which is the gross billing contribution rate. We are currently one of the very few online education companies who can consistently achieve ~20% gross billing contribution rate. That is the key reason that 51Talk can achieve sustainable growth with positive net margin and strong operating cash flow. The lesson we learn from many Chinese internet companies is that if there is no profitable unit economics, the growth driven by cash burning is not going to be sustainable. We firmly believe our K-12 1x1 mass market product has a proven unit economics and our focus on lower tier city market will fuel 51Talk’s growth.
CW: What else do investors need to know about 51Talk, you, and the team?
Huang: Our team believes education is a life-long marathon and online education technologies provide a new set of engine and unlimited possibilities. We will always put our students’ interest in front of everything else and be patient with where the market is leading us to. We will not dash for any near-term interest because we do not believe that would be a sustainable way to lead in a 100-year plus marathon. We feel lucky we have an amazing opportunity to change the way people learn and enable people to talk to the world.