FROM FASTCO WORKS AND SAP - Growth Agents: Duolingo’s CFO on how the company took over the language learning space
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Hey, this is Yaz, host of Most Innovative Companies. Here's a special custom mini-series from FastCo Works and SAP. Enjoy. Welcome to Growth Agents, a special mini-series in partnership with SAP. I'm Matt Robertson with FastCo and Inc. Studios. Our guest today is Matt Scarupa, CFO of Duolingo.

Let's just jump in. Matt, could you give us the elevator pitch for Duolingo for those who might not be familiar with it? If you meet somebody at a party, what would you say? What happens here? Duolingo is the world's largest language learning app. We have about 75 million monthly active users, over 20 million daily active users, and we teach over 30 languages on the app. We're the category defining

way you would learn a language on your phone. While we're doing all that, we've created a beloved brand, a brand that is quirky and fun and engaging. We've created a product that keeps you coming back day after day, which is the core way or the key way to learn a language.

And so we think of ourselves as doing something that is really good for the world and trying to do it in an excellent way. Could you expand a little bit on like what your overall kind of mission is here, what this company is trying to achieve and sort of how you are able to execute that? Our mission's a really powerful one. It's actually one that drew me to Duolingo and I think a lot of folks to Duolingo. The mission is to create the best education in the world and make it universally available.

So we want to make not just language but education more broadly more accessible across income spectrums and globally. One of the things we're proudest of is the fact that recently displaced people around the world use Duolingo to learn a language.

and some of the richest people in the world. So our mission is really broad and encompassing and one that we're very proud of. Could you tell me a little bit more about this idea of this global footprint, I guess, and feel free to expand on this multi-tier level of people that you're able to reach. Yeah. So our app is used around the world. Almost every country in the world has users of Duolingo. Part of the reason for that is because we're a freemium subscription product. So that means that

you can use our app for free forever. And so a lot of folks around the world, whether you have money to spend on a subscription or to learn a language at school or wherever you want to learn language, you don't have to pay us. You can just use our app for free forever.

Now, a lot of folks do end up paying us, but that's why we've been able to grow to such a global reach with so many users around the world, is that it's a free, fun, and effective learning product that is also free. There's no paywall to it. So that leads to folks in refugee camps. We have users who are trying to learn a language there when the war in Europe started in 2022.

Folks use language to greet new refugees, etc. And we have really famous people all the time telling us that they're using Duolingo to learn a language. So it really can appeal across the income spectrum and provide just a great fun way to learn a language. How do you sustain this freemium model?

So when you first download the app and you start using it, you don't have to pay us anything. What happens is it's very much like a game. So there's an element of life to it. So if you get questions right or wrong, if you get them wrong, you give up a heart and you only have five hearts per lesson. Now, if you run out of hearts, you can still use the app, you just can't progress.

down your learning journey. So, a lot of folks decide that they want the convenience of being able to go as their own pace as fast as they want no matter what mistakes they make. We also show folks who don't pay us ads and some people don't want the ads. Those are the two main reasons people subscribe. So, they subscribe and they pay us a subscription fee, usually an annual fee, and that revenue is what enables us to grow and invest in our business so that we can

create new fun and effective features and continue that cycle of attracting new users and then converting some of them to paid subscribers. Let's go into the kind of a little bit more personal side. You want to share kind of what drew you into this type of work? Yeah, absolutely. So, I've always been

attracted to math and systems type things. That's why I was an undergrad in chemical engineering of all things. It was very math and systems heavy and so there was a compulsion to understand the world and understand it through math when I was a kid.

After college, I went to Bain & Company, which was a defining career moment for me because that's a business strategy consultancy firm. And it really taught me how to think about businesses, how do they work, and just quite frankly, taught me how to think a bit clearer than I had ever thought before. Then I went to KKR, which is a private equity firm. They think about capital allocation, like how you decide where to invest or not.

in a distinctive way and I picked up some of that. Then I went to Goldman Sachs, which is all about option value and risk and how you put those things together to make money. From all of those experiences, now looking back, I can tell you that that came from this compulsion to understand the world and do it through a quantitative and mathematical way. As I was thinking about careers, that meant that a CFO role was going to be

pretty interesting and pretty aligned with those interests and compulsions. So that's how I got into the CFO game. What was, I guess, the launching point from, I guess, if you were at Goldman Sachs or wherever you were before that made you get involved with coming to Duolingo? It's pure luck, to be honest. I'd love to tell you this grand

strategy and plan I had, but like I think a lot of things in life, it came down to a very lucky stroke. So I had wanted to go into a business after business school. So for about 10 years, I've been looking for a business that I wanted to go be a part of. I'd never found anything that just grabbed me. There was no business that I was like, I have to be a part of that.

And I was at Goldman Sachs and a friend of mine whose name is Layla Sturdy, she now runs Capital G, the growth investing arm of Google. She called me and said that she was on the board of a really interesting company called Duolingo that was looking for a CFO. Would I want to talk to the team? I was like, absolutely, Layla. I trust you. I love your judgment. You and I kind of see the world the same way. I'd love to meet the team. So I came to Pittsburgh.

Met Luis, our co-founder and CEO, met Severin and was blown away. I'd never seen a combination like Duolingo. It was truly mission-driven organization. The mission was one that I'd be proud to tell my mom where I worked. She would both know what it was and be proud of me as well. The business itself had created an amazing product, had a beloved brand, and had so much potential. It was just incredible.

So I had never seen anything like it. It was the one that grabbed me and I was lucky enough that they decided that I was a good fit as well. But that was pretty fortuitous and not the result of some grand design. Would you like to share any more about how your background and your passion for mathematics has had an influence on what you do here?

The way that my background comes into work at Duolingo, it has enabled me to be a bit more strategic as a CFO versus a finance-oriented CFO. And what I mean by that is,

The number one job of any CFO, including me, is manage the cash. That's like the core business of being a CFO. Then you have to allocate capital. But there's an element of just how do you think strategically about what the business should be, what it could be, and where it could go? And I think because I started professional life as a strategy consultant,

and then layered on the capital allocation and finance side. It's given me a chance to really start usually most conversations, most processes, most things I do around here from that strategic lens, not necessarily from the finance lens. So what does being a strategic CFO mean to me when I'm talking to you about it?

All the normal things people say you have to be a great business partner to the other executives And you have to start with kind of the big picture in mind, but to me it's more about having a good strategy is linking unlimited aspirations Really infinite aspirations that a company like Duolingo they can think of any number of things to do and they do So there's really infinite things they want to go do but we have limited resources every company has limited resources

And so when you link those two things together with a plan, that's really where a strategic CFO can operate really effectively. What would you say are some of the biggest challenges and complexities for you as a CFO? I think every CFO faces the core challenge of transforming the future

and all its uncertainties and risks back into action that you have to take today. That's the core, that's the central contradiction of being a CFO is you have to make decisions right now, you have to take action right now, but you have to base those decisions as best you can on an unforeseen, unknowable future. And, you know, that's part of life and that's part of any company, but as a CFO, that's tough. That's the tough part.

That's where the challenges and complexities come in. So how are you able to think about the external world and its challenges and forecast how that's going to evolve? And then even internally, how are the things you're investing in today, how long are they going to take to come to fruition? How big are they going to be when they do come to fruition? That is the core challenge.

challenge and complexity of being in this role. That's why it's so exciting and so fun to do it at a place like Duolingo. Are there any successes that you can share of having been a part of that you're proud of? As a CFO, most of the successes that I see most days, day in and day out, are really small and pretty detail-oriented. So for example, with my team,

watching my team come to a really nice, thoughtful, strategic decision on a PO system. They're not terribly exciting to talk about, but they add up. You got to do that every day and you get to a good spot. I think the most public thing that we succeeded at that I'm really proud of is the IPO. When I joined Duolingo in February of 2020, it was right before the pandemic started, and the company wanted to go public in general in a couple of years.

And over the course of the next 18 months, working from home during a global pandemic, building a team and getting the entire company ready to go face the public markets, we were able to do that and really successfully execute on a nice public offering in July of 2021.

The entire company was able to rally around that goal, get excited about it and execute on it, and then celebrate the success of it. I think that was the biggest public facing goal that we've had while I've been here in the finance and accounting organization, and I'm really proud of how it went. Part of what's cool about this series is we're talking to CFOs, we're traditionally talking to CEOs and founders and those types of people. So I'd be curious, anything you could share from

your unique perspective doing what you do that might surprise our viewers and listeners? When we were going public, I talked to a lot of CFOs, CEOs, members of the boards of directors who had taken companies public before and asked for their advice. What would you do differently? What would you do the same? What are your big learnings? They gave me a lot of really great advice. They recommended books, they did their thing.

They didn't have one piece of advice that I would love to give to other folks from the CFO seat who are even contemplating potential public offering, which is that type of event is such a big goal. It can be such a company unifying goal. You can get the entire company involved in it. Sometimes folks don't. A lot of the folks that gave me advice said keep the group small who's working on this.

We chose to go a different path. We chose to make it a big company event pretty early, even when it was risky to tell everyone because it might not have worked out. We took that risk and we said we're going to bring in the entire company to this process. The benefit that I didn't know at the time that I now like to talk about is,

That goal is so exciting for so many people and it's so clarifying that the management team can really use it to drive alignment on big topics throughout the organization in a way that's otherwise hard to do in the day-to-day. So for example, if you wanted to talk about why you're even doing what you're doing, where you're doing what you're doing, what your market is, why you think you're going to win, why are you as a company distinctive and going to win the market,

How are you going to do that and what things are we willing to trade off? You have a forum of a bunch of people and you have all of their attention.

And if you wrap that all together in the achievement of that big, huge goal that they're very excited about, that's really aspirational, you can get a lot of alignment where you might otherwise take years or may never get that alignment by linking those things together. What's it like leading a company like this that's clearly very innovative and pushing boundaries and also really effective, I think, at doing good?

It's a lot of fun. I mean, the first thing that comes to mind is just how much fun, I mean, everyone at the company, but me and the leadership team have. Like we are trying to solve problems that have real meaning to a lot of us and hopefully to the world. So that just gives you a bit of energy that might not otherwise be present when you come to work.

And so when you're in that situation, some of the challenges, there's days where you're like, oh, this is tough. But having that bedrock of like, oh, if we actually figure this out in a way that nobody else has figured out, more people around the world are going to be able to learn something for free that they didn't know before is a nice motivating factor. It goes back to the definition of strategy that I mentioned, which is

linking your unlimited aspirations with your finite resources. At Duolingo, we really do have big aspirations and we have an engineering team which is the majority of our investment is in R&D. So it's a bunch of engineers, product managers, and designers who make the product better every day. The bottom-up idea generation is enormous.

and that's super fun and it's exciting and it's honestly surprising in a lot of ways. I mean, there are ideas that come up that I think to myself, "I don't know about that idea," and then it becomes this enormous thing, which is why I'm the CFO and not running product. But when you're in that context, the problem is not creating ideas like how are we going to win, what are we going to go do? The interesting thing then is how do you prioritize and invest? Where do you put the chips on the table?

And I think Duolingo has found just a really, I don't know if it's unique, but they execute in a way that's special, which is you have that bottoms-up idea generation. And then kind of a collective understanding that we invest behind things that are going really well. And we define really well through a very rigorous A-B testing and experiment framework.

So it's not really up to me or even Luis to some extent or others to say, "Oh, this is going well." We are running experiments where we're putting something out into the world, and it's small size, seeing what happens and then investing behind things that are doing great.

And so having that clarity around this is what the definition of something doing well is and then having the kind of general framework that we put money behind things that are working and we don't try to fix everything that's not working has been a really interesting way to energize the company around the growth that we think will hopefully achieve for a long period of time. Is there anything you could share that people typically get wrong or misunderstand about what

the role is of a CFO? The things I think most people get wrong, it happened to me in the hall today. Someone was surprised I was in a meeting and I suggested that we spend more money on something. And they said, "I was shocked that you suggested we spend more money. You're the CFO." I think the misperception is that CFOs don't want to spend money. I don't know a single CFO that thinks that way. If you bring me an idea,

that will have a nice benefit relative to its cost and is scalable, meaning I can kind of keep spending money against it over time, I will go get you all of the money I can hoard up and give it to you because that's great. That's what we're in the business of doing. It's creating a high return on our investment at scale. The perception comes when CFOs are approached with the dreaded, the benefits are hard to comprehend here, but I want to spend money.

That's where I think we get that misperception maybe gets ingrained in folks is because that's where we're skeptical and we push back. But no, if there is an investment idea with a high ROI that's scalable, I will go run around the world gathering money to go put behind that.

Yeah. So as a CFO, how do you balance keeping that lid on cost versus funding growth strategies that you're excited about? At Duolingo, we have a great way to allocate resources to the winners of our experiments. Our experiments are what determine where we invest our resources.

That is a non-emotional, apolitical type way to allocate capital because it's not my opinion versus your opinion. We have data on what's working and what's not, and so we get to make those choices. Now, there's always choices on the margin where maybe the data is a little bit less clear or you can't get all the data you want.

But it's just a really refreshing way to not have to engage in, well, I like this thing or I don't. We're allocating money to it or not. What did the experiment show? When it comes to costs, Duolingo has always had this culture and it really is a cultural element of not going nuts. Now, that might sound colloquial, but that's what Louis said on an earnings call was, we've never gone nuts on hiring.

It's because that's the language internally that's used. That's the cultural zeitgeist is just don't go nuts. You don't need to hire 100 more people. We want to bet on technology. You don't need to have 10 offices around the world. We have a couple. It came from early on in the company's life, they weren't making any money. They weren't monetizing their users. It was just free. Now we're a freemium product where you can use the product for free and eventually pay us for a subscription.

When it first started and for the first several years, five, six years, there was no and pay as a subscription. So the company was founded on this ethos of we're not bringing in money from users, so let's not spend like crazy. That has enabled us now that we are making a good amount of revenue to still maintain that culture of don't go nuts. Could you share an example of some of the growing pains you've been able to maybe help Duolingo overcome? So the business grows really well organically.

people like it and they tell their friends and family about it. Or they see it in a cultural moment on social media or somewhere and they learn about it that way and they come to it naturally. We don't have to pay a lot of money to get people to come experience us. It's a very organic, because we don't have to pay people to come engage with our product, we're able then to invest

a lot more money in engineers, product managers, designers to then make the product better, more fun, more engaging, which then hopefully makes people tell their friends about it and makes us

able to become a more beloved brand, quirky, a reverent brand that draws again more people and you have a virtuous cycle where the product gets better, more people come, you get more money from those folks who do come, you can invest it back in the product, it gets better, and you just repeat the cycle. That's our core growth model and how we've grown historically.

That enables someone who's in the CFO seat to be a growth agent by simply amplifying the things that are working and leading to more of that growth over time, more of that cycle. So the way I do that is that I try to, again, just look to the data as the CFO.

where we are running a ton of experiments every quarter. We run hundreds of these tests where we change little things in the app to see what they do. Again, I have to sometimes check my disbelief on some of the things and see if they're going to work or not and just rely on the data. Part of the role as a CFO is to amplify the things in our virtuous cycle that lead to growth and get out of the way a lot so that you can just let these things work because it's such a nice and powerful model by itself.

So some of those examples are, we recently became a lot more profitable than we've been in the past. And we did that because we can. Our business model never spent all that much money

We had a very prudent founding team and management team that didn't go crazy on spending and hiring and these type of things. And so the business could just naturally inflect up as we grew. But the other thing that I think I was able to help the company see is that there's a lot of reward in the marketplace from investors for becoming more profitable more rapidly. And so we, this year, have shown we've become much more profitable.

Now, how does that tie back to growth? Well, the answer is internally we talk about controlling our own destiny. We have a great model that already works. It's a flywheel. It's what I described before. And so what you want is you want to get rewarded for that and get money to invest in that flywheel. So my job is to make sure that we are

Seeing that clearly, that like a nice growth with nice profitability will be rewarded with investor dollars and then invest those dollars behind that nice flywheel that we already have. That's my key job is matching those two things together over time and then

Again, getting out of the way because the business runs so well, the engineers and designers and product managers are amazing. Just don't mess that up because it's working so well. It must be nice to have this organic thing happening. My wife sent me an article. It seemed almost like a case study about your social media and how you guys, you're not selling, you're just there and people poke around and then they're onboarded quickly because you're not ramming it down people's throats. That's exactly right. We call it social first marketing.

which is when we're creating marketing events and campaigns, the lens that we start with is how is this going to look to folks who don't know our brand on social media or in the social context. That allows us to have this really truly beloved owl. Everyone loves the owl.

But it's a bit irreverent, it's a bit quirky. It will check up on you. Like, did you do your lesson? It will ask you that. But that leads to a reach that maybe other brands haven't been able to achieve. SNL has used Duolingo 4 a couple times, or we were most recently in the Barbie movie. And these type of things happen because we sit in this unique position in the world as this fun but quirky and somewhat irreverent owl that exists.

and it gets sent around, people talk about it. The other point you just made is that we don't actually ever on our social media, you'll never see a "Buy Now" button. That's not how we engage with it. We're showing you fun content that we think you might want to show other people,

And then you'll use our product, you'll probably use it for free for a while and then maybe you'll subscribe, maybe you won't. But it's not a in your face kind of buy now kind of sales process. And if I'm always a non-paying user, are there ads or anything like that or is that how you? Yeah, so our free users see ads.

and they lose hearts. If you're a paying subscriber, you see no ads, you get unlimited hearts and some other benefits as well. I'm curious now, I want to sign up and I'm wondering if it would be better use of my time to go back and relearn some of the Spanish I've lost or just start at the starting line on a new language. I don't know what most of your users do.

Well, the great news for you personally is you don't have to make that choice. You can toggle between languages at your leisure. So a lot of folks are learning more than one language at a time. Luis, our founder and CEO, is learning at least three right now plus math. And he's a PhD in math. So you can always go back and start over and

toggle over if you want. I'd love to hear from your side kind of what goals there are. I know you've kind of covered a bit. Any other goals for the future of the company over the next five years and beyond where you guys are headed? We orient to the long term in terms of our mission. So our mission is to make the best education in the world and make it universally available. And we think that there's always going to be a pretty deep connection around the world

with people getting meaning from learning new things. That's a core belief we have and we think it's going to persist. So our job then is over the next three to five years is to figure out how to help people get more meaning out of their learning. We do that by making our product better. The vision in the nearer term, like the three to five-year term, is Luis has wanted for a very long time to make our app teach as well as a human tutor, a one-on-one tutor.

We now have technology available with generative AI and some other technological advancements that put that within spitting distance. You're able to see a clearer path now to getting to that what was like a longer-term aspiration potentially sooner.

So in the next three to five years, we're really excited to see how that develops. It could be a really nice growth factor for us, but it can also accelerate us on our path, on our mission to achieving that. In your view, in your experience, and maybe in your own philosophy towards it, how is the role of the CFO changing in today's C-suites?

I think the role of the CFO has been changing for a while and it's potentially just accelerating now towards this idea that the CFO has to be a much more strategic and business-oriented executive than potentially in the past they were. If the role of the CEO is always to make sure you have enough cash and you're managing your cash well and then allocating resources, that's not going to change. What's changed is that the pace of the market evolution, the pace of the technological evolution has changed so much.

that the other core function of the CFO, which is projecting things into the future, figuring out what to do about them today, is much harder for just a purely financially oriented person. You're going to have to take a much broader and much more strategic view of what's going on in the world and in your business and how those two things map together to make the decisions you need to make as your core job. So I think that's accelerating. And I don't see any reason why it would slow down in the next couple of years.

That's all for our discussion on growth agents. This custom episode is produced by Fastco and Inc. Studios in partnership with SAP. I'm Matt Robertson. Our producer is Avery Miles and our editor is Nicholas Torres.