Motley Fool Interview With Stride CEO James Rhyu: Disrupting K-12 and Beyond

In this podcast, Motley Fool CEO Tom Gardner and analyst Sanmeet Deo talk with Stride CEO James Rhyu about opportunity, disruption, AI, the future of education, and leadership.

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James Rhyu: The combination of industries that are not producing the outcomes that it needs to and that are ripe for disruption, that haven't yet been disrupted or significantly disrupted. I'm pretty sure K-12 education is either at or near the top of the list. I can't think of that many large scale industries like this.

Mac Greer: That was James Rhyu, CEO of Stride. I'm Motley Fool producer Mac Greer. Now, Stride is a for profit education company that provides online and blended education programs. The programs range from K-12 through career certification and training. Motley Fool CEO Tom Gardner and Motley Fool Analyst Sanmeet Deo recently had a chance to talk with James Rhyu about opportunity, disruption, AI, and leadership.

Sanmeet Deo: Good afternoon, Fools and welcome to a fantastic interview we have lined up here for you. We have James Rhyu of Stride, Inc. It's a emerging online learning platform that I think you're going to find very interesting. James, welcome to the show, and thanks for coming on.

James Rhyu: Thanks for having me.

Sanmeet Deo: Really quickly, just to kick things off, what is Stride's why? How's it evolving beyond just, like, an online K-12 school provider?

James Rhyu: I think the basic premise that I take a look at the company at is from the lens of K-12 education in the US, and we're predominantly a US education provider. The K-12 education space in the US is almost an $800 billion market, so very large market, obviously. But I think, more importantly, if you think about in this country, the combination of industries that are not producing the outcomes that it needs to and that are ripe for disruption, that haven't yet been disrupted or significantly disrupted, I'm pretty sure K-12 education is either at or near the top of the list. I don't know. I can't think of that many large scale industries like this. I think it's no surprise to anybody that our education system has been from a competitive landscape across the world, on a decline. It's been on a multi decade decline.

You combine the factors that it's been on this decline, and there has really not been significant disruption introduced into the system, i.e, it's been basically run the same way for 50, 60, 70 years. Then you look at other systems and you look at how progressive other systems are and the results that other systems are getting, when I say other systems, other countries. Predominantly, those other countries, they embrace technology disruption, other factors that here in the US, we have not. I think we, K-12 Stride is our corporate name, K-12 is more of our brand name. I think we can really play a part in disrupting K-12 education in a very positive way for an industry that I think is really for and needs disruption.

Tom Gardener: Can you talk to us about the numbers for Stride, the number of schools, the number of students, just to give us perspective, the reach across the country in different regions, etc.

James Rhyu: We have this year, we measure ourselves by fall enrollment just because school starts in the fall. We actually grew through this past year. Our fiscal year just ended in June. We grew through the year, but I'll refer just back to the fall numbers because everybody's now anticipating this fall's numbers and sort of what we're going to do this fall. Last fall, we were 222,000 enrollment, so about close to a quarter million enrollments. K-12 school age population in the US, about 55 million kids, so very low penetration. Five years ago, I became the CEO, 4.5 years ago. Five years ago, we did about a little less than half that. Our revenues for this past year about 2.4 billion. We operate in a little over 30, 31 states plus the District of Columbia. We cover about two thirds of the school age kids in the country with our programs. I think we still have some more penetration opportunity. But I think more than that, actually, if we never got into another state, I think what we saw pre pandemic was that for our core business, which is full time virtual programs, I think you referenced earlier, we saw this flattening of the demand curve at about 2%. We opened a program in a state, and over the first 10 years or so, you see an increase in penetration that then sort of flattened out at 2%. Since the pandemic, what we've seen is that we've hit the inflection of the S curve, where that penetration is now in many states, surpassing and increasing well past the 2%.

If you look at a state like California or Texas, huge states that already have penetrations well below that 2%, we think that there is just a tremendous amount of room to run still with our current footprint, even if we didn't expand our footprint. Now, I think that ultimately we will expand our footprint. I think it's one of those things where customer demand just becomes, I think, so overwhelming at some point that state government, state legislators, they can't resist succumbing to the pressure of, if you think about the way that most school districts operate in most municipalities, it operates large as a monopoly. There's really no other option. Again, you know, if you think about disruption, there's not really that many monopoly type situations that aren't in need of some disruption. If you think of the analogy that most school districts operate as a monopoly and monopolies tend not to embrace change technology, etc. There's a long, I think, history in our country and others of monopolies and how they operate and how they think about customers. I think that there's a big opportunity for us to turn the tables a little bit.

Tom Gardener: Three quotations for you to respond to. You'll catch the theme right away. Sal Khan, "AI will transform education by providing every student with a virtual personalized tutor at an affordable cost." The CEO of Duolingo, Luis von Ahn, "Education is going to change. It's just a lot more scalable to teach with AI than with teachers." Bill Gates, perhaps that famous quote that people read a few months ago, "Within 10 years, AI will replace many doctors and teachers. Humans won't be needed for most things." What is James Rhyu's view of the impact of AI on education?

James Rhyu: I think in the short and medium term, I think just our societal norms will dictate that teachers remain at the center of K-12 education. There's a somewhat practical reason for that, which is custodial. What I think people don't realize is that one of the bigger responsibilities that our K-12 education has in our society is actually custodial. We have a lot of families that have where both parents work or single parent, families where the adult in the house has to go to work. The system plays a custodial aspect, and I don't think in the short and medium term that AI will be able to both play the educator as well as the custodian. I don't see that happening in the short to medium term. I am bullish in the longer term that technology can play a much bigger part in our kids' education. I think that almost the easiest way to look at it is if you look at error rates, you guys probably know this a lot better than I do, but if you look across industry, financial services or retail or whatever, they all have some error rate metric, credit loss, inventory shrink. There's some error rate, what I'm calling error rate metric. You guys are more experts at this than I am, probably. But I think if you look across a broad swath of industries, that error rate tends to migrate for some reason or the other to around 2%.

It seems like a natural error rate that a lot of industries find acceptable, if you will. I think that what education will have the benefit of, and I think, by the way, you'll find in education, the same thing. By the way, teachers, as great as they are and as great a services they provide, teachers are not perfect. There's an error rate. If you assume that it's comparable to other industries error rates and it's in the 2% range, I just think technology you're going to find has a much lower error rate. If you look at, self driving cars, we know that the error rate in self driving cars is better than humans, although the bar that we set for allowing self driving cars is higher. I think similarly in education, we will probably set a higher bar, but I think technology ultimately will cross that bar, and it'll have lower error rates, it has more consistency. By the way, it can also have more empathy. See, I think part of the equation that we don't recognize is, if you're a teacher in a classroom of 30, 40 kids, the ability to really deliver a personalized, empathetic relationship to a student is very challenged just because of the diversity of children you're trying to manage at any given moment. Whereas technology is going to be able to say, well, good morning, Tom. How are you feeling? If Tom says, well, geez, I'm a little tired this morning because I was up late studying my balance sheets, the AI or whatever technology, say, well, before we dive into your lesson, why don't you watch this three minute video and get your blood flowing a little bit. We'll do a little stretching, whatever, that will help you get going in the morning, and it can do that individually for each kid. A teacher, and it's not because they don't want to. They don't have the capacity to do those things. I do think I'm very bullish on the longer term outlook of technologies, AI robotics, things like that, to really deliver an educational experience that is, I don't know exactly the time frame, but I think I agree with the first three quotes directionally that over time, technology and AI and robotics will at a minimum, offer a huge compliment to our system and our teachers, if not, be able to replace or help replace them.

Tom Gardener: Please feel free to answer this question as an athlete or celebrity might in the third person singular. It's a few part question. Why did James Rhyu join Stride? What motivates James Rhyu going forward? And what's one leadership or cultural principle that James Rhyu holds dear at Stride?

James Rhyu: I like to tell people I was a C student, so going into education was never going to be my jam. [laughs] I had a very personal situation where both my parents have now passed, but when each of them was diagnosed with some illness, I had an opportunity to relocate to be closer to them and spend some time with them in their last years. That's exactly what happened in this case. My dad was diagnosed with an illness, and my brother lived my brother lives in the Virginia area, and we sort of decided to move him there and spend time. Just as this was happening, I got a call from an old mentor of mine, Nate, who hired me, and he asked me to come on board. It was very serendipitous for me to have joined. It's interesting because I spent most of my career just being ambitious, trying to climb the corporate ladder. Many years ago, my goal was to be the CFO of a public company. I never dreamt or wanted to be the CEO of a company. In fact, when the board approached me, they consider for me the role, I actually said, I'm not interested for quite a while before I threw my hat in through the ring. I was a very happy accountant, I guess, and I really enjoyed that job. But it's turned out, I think, pretty well. The thing that I tell people all the time, I actually have these executive attributes that my management team is sick of probably hearing me talk about them all the time. But there's these 10 attributes that I put up all the time. They're in no particular order except for the first one.

The first one's self awareness. I think that is the attribute that I tend to focus a lot on. I tell people a lot that I'm an early person. I get up early and I do some reflection almost every day, and there's one question I ask myself every morning, which is, how can I be better? You just fill in the blank. How can I be a better husband? How can I be a better father? How can I be a better boss? How can I be a better CEO? Whatever you fill in the blank with? And I think that the only way you can really answer that question well is if you have self awareness. And I think just self awareness is just drives so many of the decisions I make because, there's some things I'm good at, there's a lot of things I stink at. That self awareness helps me hire people. Who am I going to index I'm hiring and what kind of characteristics am I looking to hire? Where do I spend my time? I should spend my time in things where I can add value as opposed to things I stink at. I think that self awareness for me as a leader is what I really encourage everybody. It's hard because people I think people just naturally they don't want to be honest with themselves. It's hard to look yourself in the mirror and really be honest with yourself. I try to do that. I'm sure I'm not doing a good job that I could do. But it's what I really encourage all the leaders around me to really do. When I mentor people, it's the first thing I spend time with them on.

Because a lot of people, you ask them, well, what are their goals? My big thing is, I don't know you, so I don't know what goals and objectives you have. If I'm going to mentor you, we have to do an exercise and figure out what your vote goals and objectives are. People always say, I want to be the CEO. I'm like, do you even know what it is to be the CEO? When I became the CEO, I don't think I had a good idea, and I'm still learning the job almost five years in and all the different pressures that come with the job and things like that. It turns out a lot of people when I go through with them, they end up saying it's not the job I want. I have different goals. My goals are financial in nature. You don't need to be the CEO to reach those financial goals, particularly if maybe you've been a stockholder of LRN for a number of years. I think, really self awareness is a characteristic that I value. Then the other things that I always say is, I think it's always important to operate with some level of humility and gratitude. I think that in today's day and age, it's a little bit in short supply, and I think that it's just an important characteristic to have about life and be grateful for what you've got and try to be humble. CEOs of companies, I think you're always inundated. People are always kissing your ass and they're making you feel good about yourself and stuff like that, so it's just harder to be humble. I think just always reminding yourself that, we all got to start somewhere. There's a lot of capability in that.

Sanmeet Deo: We're running close to the end of our time, but I would love to ask you, do you have a specific student success story that illustrates how someone's gone through your platform and your education system and succeeded and done well? That must be a great feedback loop for you guys.

James Rhyu: You should have started with that question because that would have taken the whole hour, I think, probably.

Sanmeet Deo: [laughs] I didn't leave you enough time for that one, I guess.

James Rhyu: I'll give you one quick one, though, which it's actually the one I tell the most of. It's a very atypical one, but I do think it demonstrates the power of the platform and franchise that we operate. There was a mom of a child. The child was not paralyzed, but from the neck down, was severely disabled, so was wheelchair bound. This child was not able to speak. In addition to the physical disability the child was diagnosed with, the child was also diagnosed with a mental disability. Now the mom didn't believe that. She was adamant that the child didn't have a learning disability. She petitioned the school board and doctors to put the child into the regular classroom, but she was rejected. Every day after school, she picked her child up, brought the child home and sat the child in front of a computer, and supplemented the child's education after school. Now, this is over 10 years ago, by the way. One day, the phone rings and she leaves her child in front of the computer and steps into the kitchen to take the phone call. She was gone for about 10 minutes. In those 10 minutes, the child on the computer painstakingly typed out three words. Those three words, I understand everything.

Now, if you're a mom and you see those three words after petitioning for so long, well, she enrolled her child into one of our programs, and a couple of years ago, I believe that child graduates salutatorian of the class. Again, not typical in the traditional sense, but I think representative of just the range of choices that customers should be able to make for their own children. In our programs, these stories are like a dime a dozen. There's just incredible stories of family resilience and students. It's amazing. You asked me earlier about why I joined and stuff like that. I didn't join for any educational reason. But having now been here after a couple of years, I think the reason I stay, not the reason I joined, is impact. The lives that we're able to impact, I just don't know another job that I'm qualified for where I could go to and make this kind of an impact. It really gets you going every day to know that that's what you're doing.

Mac Greer: That was James Rhyu, CEO of the education company Stride. The stock trades on the New York Stock Exchange under the ticker LRN. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. Don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For the Motley Fool Money team, I'm Mac Greer. Thanks for listening, and we will see you tomorrow.

Mac Greer has no position in any of the stocks mentioned. Sanmeet Deo has no position in any of the stocks mentioned. Tom Gardner has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Stride. The Motley Fool recommends Duolingo. The Motley Fool has a disclosure policy.