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"Profit has increased 5 times in a year" ― how a former banker creates one of the world's largest EdTech startups for preschoolers

Tuesday, June 1, 2021

In 2017, former bank employee Mikhail Kotlov and Ultimate Foundation partner Andrey Kondratyuk launched an app under the brand name IntellectuKids. Now they are among the world’s largest developers of educational children’s apps, which have raised $4M in investment. In the interview, Mikhail shares how his story began, what direction the startup is taking.

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Apps from IntellectoKids are regularly ranked in the Top 10 in the Kids 5 & Under category on the App Store in 40 countries, including the US. The monetization model is based on subscriptions. The company raised $3M at the end of 2020 in a Series A financing. The lead investor was the venture capital fund Allrise Capital, the round was supported by other investors, including VERSHINA CapitalQUONOTA Investments and Genesis Investments. A year earlier, the startup raised $1M from Genesis Investments.

Click on the image to open IntellectoKids' profile on the Rocket DAO platform

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About changing banking career to IT

— Mikhail, your company is already 3 years old, but little is known about you in the public eye. Tell us, what did you do before IntellectoKids?

— From 2007 to 2013, I worked in investment banks in Moscow and London, engaged in M&A and IPO transactions. At some point, I realized that the tasks become monotonous and there is no balance in the working life. In addition, part of my team began to disperse, and the question arose ― whether to move to another bank or do something else.

— How does it feel to leave the bank at all? Stable, profitable work…

— Starting from a certain point, many people don’t like to work in investment banks ― this is a prestigious, highly paid job, but for pleasure and personal development, it is not the most entertaining place. I think they leave banks when their ambition gets limited. Sometimes it is very difficult to do this because the bank gives out a decent bonus once a year, and then it seems that you can continue to work. A year passes, you reach the boiling point again ― and so on in a circle. In the year I left, I was greatly helped by the fact that the bonus amount was significantly less than expected. Of course, it was scary to leave ― I was afraid of the uncertainty and the fact that the money could quickly run out.

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— What did you do next when you quit?

— I began to get interested in IT projects and even started a startup ― something like a mobile messenger for American teenagers. We wanted to do something like WhatsApp, except that it was not just for texting, but also for playing and joking with each other. I developed it from 2013 to 2015, living part of the time in San Francisco. There was good feedback from users, but it was not possible to achieve growth. Largely due to the fact that I did the project for the audience (teenagers) which I was not. I didn’t have an understanding of what American teenagers needed, and I didn’t have the ability to get that understanding either. I have never done custdev — banks do not teach it. And even, on the contrary, other traits that interfere with the IT business are instilled in banks.

We spent a lot of time doing things we didn’t need to do. Therefore, in 2015, I decided to close the project, making an important conclusion: before you hire the first developer, it is better to spend 2 months studying the market and the target audience. So for the first month and a half, when we decided to make a new project, I was engaged in conducting surveys.

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About IntellectoKids creation

— How did the new project start?

— I returned to Moscow, where I met my former colleague at the investment bank and future partner Andrey Kondratyuk. We both had two small children at the time ― and we decided to see what this audience might need. We conducted surveys and realized that we need to go to the global market with a mobile application that combines playing with learning. At that time, all mobile applications for children were divided into two camps ― educational, but not very well-thought-out from the point of view of game mechanics, and high-quality gaming, without an educational component.

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— Now you have 4 apps. What was the first one?

— It was an app with a single game — Safari School. It took about 8 months to develop it. We started to promote this game, but the cost of advertising was much more expensive than we needed. And then we saw that platforms where the user subscribes and receives more content are gaining momentum. Then we decided to make not one game, but many, where some content is available for a fee by subscription. And quickly, in 6 months, we developed 3 or 4 more games.

— What markets did you target?

— We first started promoting in the US, but it was not successful there because we had very little experience, and advertising here was significantly more expensive than our most optimistic forecasts for subscriber Lifetime Value.

Then we did not focus on the US and decided to look at other countries. We made localization into several languages: Swedish, Spanish, and French. It went pretty well, and for the first three years, we mainly grew at the expense of the European market and Latin America.

Currently, the distribution of users by country is as follows: Europe ― 39.77%, the USA and Canada-38.44%, Latin America-11.83%, Asia-6.91%, Africa and India ― 3.04%.

If we talk about local features, there are practically no such features. We use the same creatives for different countries. However, this does not apply to Asian countries. Here it is necessary to localize creatives more carefully in terms of the text and the approach itself.

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About employees and remote working

— Why did you choose London as your place of incorporation?

— The reasons lie in the legal and investment advantages. Once a year, we have the opportunity to reimburse part of the cost of developing innovative projects ― in our case, it is several tens of thousands of dollars. This is also beneficial for investors: if you have invested in a British startup ― it is easier to get an investor visa to the UK. And if you are an investor, live in Britain and paying taxes, you can count on very large tax benefits, which actually reduces the risks for venture investors. For example, if you invested money in a startup, and then it collapsed, you can deduct some lost money from your tax return.

— Where are your employees physically located?

— We do not have an office, we work from different locations around the world. We are not a group of freelancers, but a team that works full time. By the way, this is another insight of my first project: then I had a great team, but the guys did everything in parallel with the main work. At that time, I liked it, because this model allowed us to develop the project without loading it with full-time obligations before the product launch and the start of promotion, and there was also a lot of flexibility in terms of costs. If the project had difficulties, then its closure would not have had a negative impact on the team members (since they had other full-time work). Now I think that this is a mistake, because with such a schedule, the project time was stretched, and in startups, time is the most valuable resource.

— If you do not have offices at all, how do you decide which country to hire a person from?

— We don’t care what country our employee is from, but first, we look at Russia, Belarus and Ukraine. Now we are also starting to select candidates from the US to be closer to the users. Although we understand that this will not be cheap, it is simply necessary in order to develop our products qualitatively ― to understand the local market and even just coordinate in the time zones of customers.

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— What tools do you use to organize your employees’ work? Many managers are afraid of being removed because of the low productivity of the team…

— We have different messengers and communication programs, such as Slack, Zoom, and bots that organize the work. For example, the bot in Slack asks every morning what tasks an employee has, and every evening — what is done.

We used to have two team meetings a week. Now the team has grown, and we have moved to a model where we have one or two main calls and daily “stand-ups” by the departments. At the same time, we do not “track” working hours.

It is very important for us to find interested people who are motivated to do something and develop. We have a fairly thorough recruitment process: many stages, including test tasks and collecting recommendations from 5–7 former colleagues. We try to tell the future team member in as much detail as possible about how we work, what tasks we have to perform, what difficulties may arise so that at the time of accepting the offer, the candidate has a complete idea of what we offer.

The next thing is a question of motivation and atmosphere in the team. At the start, we do onboarding and give a thorough talk about all the products, basic processes and aspects of work. In the beginning, the team leader calls the employee every day for at least 15 minutes. If the person works independently of other team members, we add him/her to related calls which give him/her the feeling of being part of the team.

— What specialists work on outsourcing?

— Our regular freelancers do various tasks related to localization ― such as translation, copywriting, and voice-overing. There are temporary ones — in case someone from the state goes on vacation, and we need to replace him. For example, artists, animators, designers.

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About product development

— How many downloads do you have now?

— We have 37 000 subscribers and 350 000–400 000 monthly users (MAU). Over the entire time of our existence, our apps have been downloaded about two million times.

— How has the project changed over the past year? Was it a crisis for you?

— On the contrary ― last year we grew 5 times in revenue. Two factors contributed to this:

1) in the period from March to May last year, advertising was quite inexpensive;

2) we learned how to sell annual subscriptions, which allowed us to increase the average check.

The quarantine also affected us: while the parents were at home, they began to spend more time with their children and play with them — accordingly, our product became more popular.

— After raising $3M, what new things have you managed to do?

— We have launched the Classroom section in the IntellectoKids Classroom & Learning Games app — these are structured lessons with gamification for preparing for school based on Western methodologies Common Core State Standards (US), the National Curriculum of England (UK). Now we are increasing the amount of content, using a lot of metrics to analyze and improve the product. We also agreed to a partnership with Oxford university press and launched another section based on Progress With Oxford books at the end of April. Also, our educational cartoon Team Mendeleev began to be shown on Amazon Prime. The final stage is the preparation of the launch of our applications in China.

— You have also launched a platform with online lessons. Why has your product become more human interaction in your products? Does this complicate the processes?

— We see IntellectoKids as a company that helps parents prepare their children for school with various digital products and content. Now we are expanding our product line, launching two new directions, one of which is online lessons.

Of course, this complicates the processes, but we need to look at the needs of the audience ― and we see that at the age of 6–7 years, children are especially good at showing perseverance and interest in a program that has live communication.

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— As with all children’s apps, your client is both a child and a parent. After all, the parent pays, and the child will use it. What do you do to please both audiences?

— First of all, the educational component of our products is important to the parent, so we actively invest in the methodology, and learn about other needs of parents through surveys. As for children, we evaluate their interest:

a) based on product analytics;

b) live tests that we regularly conduct in children’s clubs or kindergartens ― we go there, give the children tablets and record on cameras how the children play. This always results in a huge number of improvements.

— What exactly do you usually improve after such tests?

— The interface is most often. We look at which objects in the app are inconvenient for a child to click on, and which buttons a child does not click on at all. Sometimes a child clicks on something bright and attractive, thinking that it is a button ― and it is not. We also look at whether children are interested in playing in general, whether there are enough animations and other interactive content, and whether a tutorial is needed.

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— How have apps changed over the year?

— During the pandemic, we saw a demand for systematic education for preschoolers among parents. Parents don’t just want to give their child a tablet to play with ― they want maximum educational value. So we began to adapt the applications to the educational programs of America and the UK. Our content used to be 70% gaming and 30% educational, but now it’s the opposite.

It used to be like this ― the idea of a game arises, we create gameplay options, and then we attract specialists to understand what kind of educational content we can embed. Now a methodologist has appeared in the team, and we begin development by creating a methodology and tasks for a specific project that meet the educational standards of America and the United Kingdom (Common Core State Standards (US), the National Curriculum of England (UK)), and only after that we start developing game activities.

 

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