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Khan Academy, the online global education nonprofit, launched in 2006 when founder Sal Khan created a few videos to help his cousin Nadia with her math homework. But after a decade of growth brought Khan Academy’s user base to more than 15 million monthly visitors, Khan knew he needed expert help to formulate and lead a sustainable strategy for the organization’s future growth.

To do that, he hired Ginny Lee from Intuit to serve as COO and president. Her mandate was to redefine the organization’s priorities, create a focused strategy for growth, and continue scaling Khan Academy.

Today, we bring you a conversation about how to scale a startup with Harvard Business School professor Bill Sahlman

In this episode, you’ll learn why it’s so important to build a well-balanced leadership team for your growth strategy. You’ll also learn how to create processes for everything from budgeting to giving feedback that enable you to execute your strategy.

This episode originally aired on Cold Call in June 2019. Here it is.

BRIAN KENNY: The name Philemon Pormont may not ring a bell today, but it was he who terrorized three generations of students who attended Boston Latin Academy in the mid-1600s. Boston Latin opened in April of 1635. It was the first public school in the United States and Headmaster Pormont was known to be short on temper and long on corporal punishment. Monday through Saturday, he would take a seat at the head of the classroom and lead his students in lessons of reading, writing, and small amounts of arithmetic. Students who failed to do the lessons up to Pormont’s standards would feel the wrath of his ivory quill on their knuckles.

From these humble beginnings, an educational system emerged that today supports more than 50 million children in the United States. On a global scale, the number of students in elementary and secondary schools is a staggering 1.3 billion. So much has changed since Pormont first called his class to order in 1635. But the way we teach remains relatively the same, minus the corporal punishment. It’s a model that some think is ripe for disruption. Today we’ll hear from professor Bill Sahlman about his case entitled, “Khan Academy 2018.” I’m your host, Brian Kenny, and you’re listening to Cold Call, part of the HBR Presents network.

Bill Sahlman’s research focuses on the investment and financing decisions made in entrepreneurial ventures, at all stages in their development. He has been writing and teaching about entrepreneurship for decades at Harvard Business School, and in 1985, he introduced a new course called Entrepreneurial Finance, which has gone on to become one of the most popular elective courses in the history of HBS. I’d be willing to bet that Sal Khan might have even taken that course. Bill, thanks for joining me today.

BILL SAHLMAN: Thank you so much.

BRIAN KENNY: I loved reading this case. In fact, I actually took it so far as to go onto the Khan Academy site and register as a ninth grader to see if Sal Khan could teach me Algebra one, and I’m pleased to say that I know more about it now than I ever learned freshman year in high school. So it’s one small example of a success with Khan Academy. I think people will really enjoy hearing about this, and many of them may have heard about Khan Academy over the past few years because it’s become increasingly more popular among elementary schools, in particular. But let me ask you by starting, could you just set up the case for us? Who’s the protagonist? And what’s on his mind?

BILL SAHLMAN: Absolutely. There are really several protagonists. So one is Sal Khan. Sal Khan grew up with a single mother in New Orleans, and he was a gifted math student, in particular. I’m sure he was gifted in other dimensions. He went to MIT. He got three degrees in five years. He then worked for a bit and came to Harvard Business School. Unfortunately, the day he showed up was 9/11. That was a searing experience for Sal and all of his classmates. But I think he had always had this interest in trying to make the world a better place to create tools and services that would make education accessible. And he had worked on that at MIT and he continued to work on that throughout his career. Interestingly, he had a cousin, Nadia, the famous Nadia, who was struggling with unit conversions. And Sal would tutor her by phone in the afternoon while working at a hedge fund. Nadia eventually got some of her friends to participate in these phone conversations because Sal was very good at explaining things. So then he had a little troop of people he was trying to work with to help them improve their math skills. And he got the idea that perhaps he could automate this, he could make it accessible over the web. Somebody told him there was a graphics tablet and a program, where he could draw on the graphics tablet, and do a voiceover. And so he tried that a few times with different subjects in math. It turned out that all of his users love that more than actually talking to him. And they loved it in part because it’s not intimidating at all. If you go through some content and you don’t understand what he’s doing, then you can review that material. He has a particularly engaging style, so it’s something that I think worked for many of the kids who were using Khan Academy.

BRIAN KENNY: And he was doing this in a walk-in closet in his house, is that right?

BILL SAHLMAN: Walk-in closet primarily because there was a screaming child in the background. But it did not have grand dimensions to it in the beginning. He backed into the idea of chunking materials, think of videos that are at most 10 minutes, something like that. That happened to be a rule for YouTube at the time. That turned out to be an unbelievably helpful insight. Because there is a limit to how much material you can absorb in a period of time. And so he then went upon this process of trying to understand the pieces, the sort of Lego blocks of any particular subject. It could have been history, it could have been mathematics, and create videos that had this content, where he would show himself working out a problem on the tablet. You would hear his voice, and it wasn’t some forbidding character, staring you in the face saying, “Have you done your …” I mean, your image of Boston Latin scared me.

BRIAN KENNY: All you see is his hand. You don’t even see him.

BILL SAHLMAN: And the second thing you see is his incredible enjoyment at doing these materials. He absolutely has an enthusiasm that is contagious. And he’s on the side of the kid, and I think they get that. And then he created practice tests, where you could go through and show that you, show to yourself, show to others, that you had mastered the material. So, when you talk about education in the U.S. and it’s true elsewhere, we created this lockstep, if it’s Tuesday in November in third grade, you’re supposed to know long division, or whatever it might be. If you don’t understand it on that day or in that week, the class doesn’t stop. The class moves forward. And if that turns out to be a fundamental building block, then you have lost the opportunity, not only to learn that, but all of the materials that build on it.

BRIAN KENNY: That gets into some of the case talks about the troubles with our educational approach these days. This is the second case you’ve written about Khan Academy. First one was in 2012, I think. So you’re coming back six years later, and I would love with all of your expertise in entrepreneurial startups, where do you put them sort of on the scale of brand new company versus mature company?

BILL SAHLMAN: Well, that’s a fascinating question. When I wrote the first case, they were a tiny organization. Maybe a dozen people. And they had a budget and big aspirations from the very beginning. Sal wanted to create a free world-class education, available to anyone, anywhere in the world. That’s a big aspiration when you’re one guy operating out of a closet. But over time, he was able to get some resources and get some publicity. It helped enormously that Bill Gates’ kids were using Khan Academy. And that Bill and others were willing to finance the early experiment. So again, when I think about entrepreneurship, what I think about is a series of structured tests. You have a hypothesis, you get a little human capital, you get a little financial capital, some physical capital, and you run a test, and you see whether or not your hypothesis is true. If you get feedback that says, “It’s a really stupid idea,” then either you change or you abandon. If it’s a good idea, then you step on the gas. And the first case was about, what does he know after the initial test and responses? He’s run some experiments, he’s tried to work with the Los Altos School system. He’s tried a variety of interventions. He discovered this amazing fact, which is people all over the world were using Khan Academy. It’s very much like Amazon was in the first 60 days, where they had orders from 60 countries. Sal had users in 170 countries, and that’s pretty astonishing.

BRIAN KENNY: And they weren’t even promoting it. I mean, this is just happening almost organically.

BILL SAHLMAN: No social marketing, no nothing. This is word of mouth. The question you asked about how is it different in 2018 than 2011 or ’12, it’s really an issue of scale. They’ve run a series of these experiments, each time getting more human capital, more financial capital, bigger offices, real studios. And they’ve tried to expand their footprint. So but they have just a myriad of strategic and tactical issues. So the second case really is about scaling. What do they know? What do they still have to accomplish? How can they get the financial resources? How can they get the people, particularly in a place like Silicon Valley, where you’re competing with Google, and Facebook, and the next startup?

BRIAN KENNY: And that’s where the second protagonist in the case starts to emerge, and that’s Ginny Lee. Tell us about her.

BILL SAHLMAN: Every successful and important company is built by a team. And the team has complementary skills. They have things they’re really good at, and things they are bad at, but they find someone else who can do those. Sal is one of the great content producers in the history of teaching. That is, I don’t know, he’s probably done 6,000, 7,000 of these lessons himself. When I would visit him, he’d have five geometry books open and he would be trying to figure out his particular way of navigating through it, given what he had done before and what he hoped to accomplish ultimately. But it’s one thing to do that and just throw it up on the web and maybe get some practice tests, but there’s an enormous limitation there. First of all, you’re competing for kids’ time. We’ll talk about who the customers are in a bit. So you’re competing with gaming and with not doing Khan Academy or homework. So it’s a really complicated task and over time, he got a core of programmers, who were spectacular, who could build a scalable platform, so you could plug and play different subjects. You could plug and play different ways of assessing your own progress or a teacher could assess the progress of a class. That involved hiring a bunch of people and getting them to function as a team, to have goals and objectives with respect to the code, and with respect to customer response. So how do you get feedback from the marketplace to the engineering team? How do you get other people, who are going to worry about the content and the theory of education that’s embedded in Khan Academy? And over time, they achieved a scale, where it was well beyond the scope of someone like Sal. And so they recruited Ginny Lee who’d had a very successful career at Intuit, leading software teams. She had done so many things within Intuit, she’s just a spectacular person. And she had the characteristic that she had come from the kind of family in which education was the key to success. And so, she was like the best example of what might be possible by offering access to very high-quality education.

BRIAN KENNY: This gets to another, I think, one of the central themes of the case as I was reading it. The handoff, so Sal, this is his passion. He’s created this through his own efforts, and sweat, and tears. And then he has to bring somebody else in to help him figure out how to scale it. What are the tensions that start to emerge in a situation like that?

BILL SAHLMAN: They are the same tensions that exist in any company, which is, in the beginning, you have a band, a troop. And they do things that are very difficult, and they’re willing to do different things. So one time, somebody’s doing the accounting, someone’s doing purchasing, someone’s doing sales, or search engine optimization. And you tend to get these general athletes. They tend to be very flexible and very good, but inexperienced, in terms of great depth. Also, you don’t have a structure. You don’t have processes, you don’t have, “How do we set targets? How do we give feedback? How do we do compensation? How do we decide which of the, just unbelievable range of things we do in what order, for what purpose?” Ginny came in and she found this incredible team. Remarkable people, completely dedicated to the objective of creating a free world-class education for anyone, everywhere. That’s not enough. You have to look at, “What’s your plan?” To get to this glorious future, you actually have to develop products, you have to have a strategy for capturing customers. The user set is very complicated because it could be an individual person in Afghanistan. It could be a parent trying to help their kid. It could be a teacher, who’s adopted the entire curriculum, and then is doing their own thing to make it work for everyone in the class. It could be a school system. So effectively, they’re confronted with so many choices that the role of management is to decide what you’re going to do, in what order, and what you’re not going to do. And Sal wasn’t put on this Earth, remember, he’s done thousands and thousands of videos, that cover everything from politics, to art history, to put call option parody in finance. That is not a mind that is really good at budgeting, and planning, and feedback, and all that stuff. So you need a team that can accomplish everything as you scale and you have more resources, you’re responsible to your investors, and we can talk a lot about that.

BRIAN KENNY: In this situation it worked out that Sal and Ginny had the right chemistry to be able to work with each other, and you even mentioned a line from Sal in the case, where he recognizes what you just pointed out.

BILL SAHLMAN: Yes, the case describes the planning process that Ginny has put in place. And she has this view of the people who work there, that it’s sort of a combination of fairly young, idealistic, and fairly experienced, idealistic, and there was a missing middle. There were people who were product managers, or a layer of responsibility, and commitment, and longevity, that would help Khan Academy succeed. And so she’s brought that thinking, everything that made Intuit an enormously successful company to Khan, trying to accomplish amazing things in a relatively short period of time. But all-mindful of trying to reach billions of people around the world.

BRIAN KENNY: Let me just ask you about that point, because she came from a very large, established company. What’s that transition like for her, now moving into what’s essentially still maybe a mature startup, but still a startup-type company, with a startup mentality?

BILL SAHLMAN: Going back to my interpretation of entrepreneurship, Intuit has always been focused around experiments. So Scott Cook, the founder, has been willing to give people authority and responsibility to find opportunity whether you’re working for Intuit in India, or you’re working in Mountain View. That mentality actually is something that Ginny comes from, comes with. And so I think the cultural fit was better because of the way in which Intuit had evolved over time. At a personal level, you just have to trust each other. Because if you’re going off to do things that I find difficult to do personally, I have to trust you’re going to do them as well as the things I do. And by the way, thank goodness you exist. They have a teaching program, a school actually, on the first floor of the building in which they have their operations. Sal teaches every week. Sal’s trying to experiment, he’s trying to figure out, “How do I motivate kids? How do I get them to teach each other? How do I get them to think about mastery, as opposed to time-based, rote learning, or whatever it might be?”

BRIAN KENNY: What are some of the things that Ginny advised, as she got into this role and had her observations? Where did she want to take Khan Academy?

BILL SAHLMAN: Often, in a company that has a platform, something that’s applicable in many different places and areas, you have to decide where you’re going to focus. Because, by the way, you’re competing. There are competing technology companies, there are competing mainline publishers, there are lots of school systems, charter schools, and the like. So for example, in geography, they had to decide to focus on four different countries, where they had a partnership of someone who was very strong within that particular country, who could help them tailor the materials to the idiosyncratic needs. So the tests that you have to pass in Brazil are different from the tests you have to pass in California. First thing, you’ve got to focus, and you’re not going to translate into every language. You’re going to be supportive, but you’re not going to do it yourself. Second, you have to figure out who your customer is, so you have to segment the market. And they went through an extended exercise in segmentation. One important element was to figure out how they would work with the school system. They’re working with a particular district in Southern California, and the district has 74,000 kids, and a large number of teachers. And they were able to get buy in, by a set of teaches, who adopted Khan Academy for part of their curriculum. And they really embraced it, it wasn’t something they were fighting, it wasn’t something they were trying to mix and match from 50 different vendors. And they had a supportive superintendent, who’d had that job for something like 16 years. So the Long Beach Unified School District is the place. The early results were spectacular because more kids were able to gain mastery, and move through at either the appropriate rate, or at an accelerated rate. So they had tangible evidence about what was possible. And then they had internal champions, who were able to sell it to other people in the district, so it’s not forced down from on top. What Khan Academy has to do, is it has to figure out a way to take over all of the school districts in the U.S., but start in this who are the early adopters, where does it work, where does it not work? And so Ginny is trying to figure out how to do that in a limited way, but which produces information that will help them figure out how to get adopted in other districts. You’ve got a global strategy, you’ve got a strategy for getting closer to schools. The other thing they did was to form a partnership with College Board. Most of our kids take that the PSAT test before they have to go.

BRIAN KENNY: That’s a huge industry.

BILL SAHLMAN: It’s a huge industry. There are tutors out there, who focus on helping your kid get a better score, and then go through the process of taking SAT test, and the Advanced Placement test. “What if we could take your PSAT test and figure out what you did well and what you did badly, and we could give you a curriculum designed to help you figure out how to master more material?” And College Board was eager to do that, to democratize access to all that improving your scores meant, and that’s an example of a partnership that Ginny Lee and Sal Khan have to nurture and make sure it works for both parties. And that they have results, real, tangible results that then drive the needle on who’s willing to give them financial support.

BRIAN KENNY: I was amazed. There’s a quote in the case by the president of the College Board. I was amazed, not just that they were cooperating and partnering. But he actually went as far as to say, “That Khan Academy has the potential to be one of the great learning institutions of the world,” or something along those lines. That’s a demonstrative show of support.

BILL SAHLMAN: Well, he needs a scalable way within the U.S. and potentially beyond to impact kids. To show that this is not just a way to help elite kids with private tutors succeed in life. Because, frankly, education is the key to opportunity. He believes that Sal Khan and his team, which is now a 180 people, this is a significant enterprise, can move the needle. They can really dramatically improve learning, they can improve the degree to which people have self-esteem as they go through the educational process, so they’re not thrown off the track if they’re a little slow. He can improve their skills, so that they’re better able to cope with whatever new environment we confront. And so he has a social mission, in which Khan Academy becomes an integral part of what he’s trying to accomplish.

BRIAN KENNY: I wonder about the vision that Sal has set, which you’ve articulated a couple of times, where he really wants to be able to make education accessible to everyone in the world. Free, high-quality education available everywhere. Is this too broad a vision? Is it almost like, “Let’s boil the ocean,” kind of thing? And I ask that in the context of, a leader has to be visionary and has to be inspirational, particularly in a mission-driven organization like this. But is it important, also, and maybe this is Ginny’s role, to ground that mission in things that are tangible, where you can see evidence of the progress that you’re making?

BILL SAHLMAN: Most of the great companies in the world have a compelling mission that you can’t accomplish. Google’s was to organize all the world’s information and make it universally accessible and useful. I don’t think that’s a process that ends. I think the overall mission of what Khan is trying to do is really empowering. It’s what helps people go to work there, it’s what helps people give money and support, or form partnerships. In order to accomplish that, you have to be mindful of moving the needle and measuring when the needle moves. So one of the great tasks the company is confronted with is, “How do we prove it?” How do you show people that if they adopt these materials, it will have a positive impact on everyone in their community, in their particular class, or their school? There’s a proof-building exercise that they are in the first at-bat of a many inning game. That’s why this is a particularity important point. Because they have a platform, they’ve got a great product. But how do they really go out and impact many, many more people? By the way, if you have one kid succeed and not drop out of school, it’s a huge deal. The societal return on that intervention is very, very high, which is why donors have been willing to support them.

BRIAN KENNY: I can tell just from having looked at the platform myself, they are tracking everything that everybody’s doing on that platform. So they should have lots of data and many more insights going forward.

BILL SAHLMAN: At one level, look at a textbook. It’s written down, it’s republished, maybe every year, maybe three years, but it has no connection to the person who’s reading it. It can’t tell whether you’re bored, it can’t tell anything. So now go to a world, in which I can track all of your responses. For example, I could probably tell within 10 minutes, whether you’re dyslexic. I could tell if you’re better with abstract problems, rather than some other kind of problem. So I can tailor what I present to you to have the highest likelihood of enabling you to achieve mastery. So the best vision of learning, the best vision of adapting and personalizing, is the system in which you have this feedback loop. It decides what problems you ought to tackle in what order. It’s designed not to tear down your ego, but to boost your ego.

Brian Kenny: So important.

BILL SAHLMAN: The potential of a technology-enabled tool like this is almost unlimited. But by the way, I’m competing with Google and Facebook to hire the best engineers who want to work on that problem.

BRIAN KENNY: I know the case is brand new. Have you taught it yet?

BILL SAHLMAN: Well, I taught this case to the Khan Academy team, to their board, and to their donors, and partners.

BRIAN KENNY: Any surprises that emerged out of that? I’m curious what the reaction was.

BILL SAHLMAN: Well, it’s a daunting process. Frankly, when we write cases, we just organize thoughts. We tell a story in a relatively short set of pages, narrative, and exhibits. And the process of developing the case with the company involved 13 or 14 extended interviews. It involved trying to organize what we thought they were doing, so that people could assess what they were doing. There’s no right answer. And then you have a discussion, in which you ask a set of questions that you hope will provoke better understanding and insights into what they should do next. Some of their responses were insightful and different than I thought. I think the things we’ve focused on, which had to do, for example, with proving what you are capable of doing, thinking about word-of-mouth marketing, but also doing marketing. This is a group that has never had to market. Well, guess what? Competing for brain time, you’re competing with all sorts of things. You have to do an effective job. In order to accomplish their long-term mission, there are a lot of things that they have to do. In the particular group I taught it to is invested fully, but still willing to give and take to respond to provocative questions, to listen to alternative interpretations. So it was fabulous.

BRIAN KENNY: So that’s a great feedback loop, talking about feedback loops. For you to write the case and then teach it to the people that you’ve written the case about. Kind of a little nerve wracking, I would think.

BILL SAHLMAN: It was not the easiest teaching assignment I’ve ever had. I’ve now done well over 200 cases. I’ve discovered that each year when I go in, I learn something new. It could be a different way of asking questions, it could be someone has a different experience, and they bring that to bear. So, for me, I learn by interacting, by holding these discussions. And when you have a group of people who trust each other, and who care for each other, and who are bought into the mission, and understand that applauding only gets you so far, it’s spectacular.

BRIAN KENNY: And it’s a great case, and I think people would really enjoy it. Bill, thanks for joining us today.

BILL SAHLMAN: Thank you so much.

HANNAH BATES: That was Harvard Business School professor Bill Sahlman in conversation with Brian Kenny on Cold Call.

We’ll be back next Wednesday with another hand-picked conversation about business strategy from Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review.

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This episode was produced by Anne Saini and me, Hannah Bates. Ian Fox is our editor. Special thanks to Maureen Hoch, Nicole Smith, Erica Truxler, Ramsey Khabbaz, Anne Bartholomew, and you – our listener. See you next week.