Box Cofounder and CEO Aaron Levie provides us with the classic David vs Goliath story.
The company was started by him and his three friends. Here they are, just a few kids in their 20s trying to compete with Goliath players like Microsoft and Oracle.
From the archives: Box's first office 8 years ago, where we slept, worked, fought, pivoted, built. pic.twitter.com/VD1F9VPO2z
— Aaron Levie (@levie) March 15, 2014
Few thought they could pull it off. Levie, the energetic CEO, and his three cofounders (two developers, one finance guy) were told by countless investors that it couldn’t be done. They’d never compete in enterprise.
Fast forward to today, and Box is one of the big players in the enterprise software market. They have over 240,000 businesses using their product, 27 million users, and dominate 99% of the Fortune 500 market. And in January 2015, they became a public company.
Levie, who owns 5.7% of the company, recently gave a talk at Sam Altman’s How to Start a Startup class at Stanford University. There he discussed how Box got started, some challenges along the way, and the patterns he recommends for spotting new opportunities as well advice for building a company.
This blog post serves a synopsis for the talk. We’ll first discuss the background on Box, then get into the eight patterns for opportunities and how you can capitalize on them. Each of the eight tips contain tweets from Levie that are relevant to that specific tip. A link to the video, slides, and recommended reading are at the bottom.
The Startup Days
When they started out in 2005, they didn’t know they would become an enterprise company. They first launched as Box.net, with the goal of making it really easy to share files. They leased server space in Houston to hold all their user’s files.
In September 2005, Mark Cuban provided their initial angel round after Levie sent him a cold email. After they secured the $350k, they dropped out of college and moved to the Bay Area.
They offered 1GB of free storage ($4.99 for 5GB), and soon after were receiving hundreds of thousands of sign ups every month. But they ran into a problem – it was a good product for consumers, but “too insignificant of a product” for enterprise companies. They had over-functionality for the consumer side, and not enough for the enterprise side.
They had to choose – do they focus on the consumer or focus on the enterprise?
The Challenge of Deciding to Build for Consumer or for Enterprise
Consumer looked like fun, while enterprise looked more challenging with some large incumbents already in the space. But on the downside, the consumer product constantly faces the challenges of how to monetize. There’s only two ways to make money – charge customers or provide advertising on the application. Even if you charge customers, larger companies will eventually enter the market and offer the same thing you do, but for free. Google was already rumored to be launching their Drive product.
On the other hand, enterprise presents a much different challenge. These companies don’t care about saving money on IT; they’re trying to increase productivity to get more performance from their company.
Consumers want to conserve their money, and B2C companies have to fight just get a couple dollars from them every month. Enterprise looks at what they can get out of technology, and how valuable it is for them. It also presents it’s own unique challenges. Levie explains:
“The problem was that enterprise software was very unsexy. Very competitive, very hard to build a business. It wasn’t something you shot out of bed in the morning saying, ‘I’m super excited to build an enterprise software company.’ And the reason for that was actually very straight forward at the time. The way that you built software was very slow. You had to be very slow because you couldn’t break anything for customers, the sales process was very slow because customers take a long time to purchase technology. So I think everyone is used to this concept that when you try to sell enterprise software to a company, it could take up to a couple years for them to actually just buy the software. Then it could take even more years for them to implement the technology in the first place. So a lot of companies are around for a few years without having their technology even used in the enterprise, that felt like a huge problem and not like something we wanted to be a part of.”
There were more problems – the technology was complex, making the UI very difficult. And of course, you would have to sell the software to these big companies. This usually required companies to hire salespeople across the globe, and having them go around trying to sell the product to companies.
They didn’t like this sales intermediary. They wanted to use the power of the internet and get their technology out to people directly.
In addition to these challenges, they faced another big hurdle – getting money. Investors told them they’d never make it in the enterprise. They were too young, they’ve never been in the enterprise, and bigger companies (Microsoft, IBM, EMC, Oracle) would crush them. Luckily, the found an investor in Josh Stein who believed in them and provided them with a $1.5 million round. At the time of IPO, Stein and his company Draper Fisher Jurvetson own 25.5% of the company.
They got the money, and decided they needed to take a new approach to enterprise.
Building For The Enterprise
Box built their business model, software, and solution to work in one version of the world. A big decision they made was to prioritize mobile clients. Many businesses use the iPad, but they need a way to manage all their content and coordinate everything. This is where the Box iPad app came in, which was available when the iPad launched. This focus on mobile has helped Box’s sales.
To hear Levie discuss why now is a great time to build for the enterprise, go here and select “Everything has changed for enterprise software”.
1) Spot Technology Disruptions
This goes for any business, whether it’s a consumer or enterprise product.
Levie advises entrepreneurs to look for new enabling technologies that create a wide gap between how things have been done and how they can be done.
With Box, Levie and his co-founders saw three things: storage was getting cheaper, internet was getting faster, and browsers were getting better. Yet despite this, many people were still sharing files through a very archaic system. The technology was ahead of the systems people were using.
So when looking at enterprise, what about the cost of computing dropping so rapidly changes what enterprises can do with their data? What was previously impossible is now possible?
When you can spot a disruption like this, you have spotted an opportunity to build new technology that solves a problem.
Disruption is the art of identifying which parts of the past are no longer relevant to the future, and exploiting that delta at all costs.
— Aaron Levie (@levie) April 13, 2014
Show me a market leader that is compromising on their product and I'll show you a disruption opportunity.
— Aaron Levie (@levie) July 18, 2012
2) Intentionally Start Small
Levie says that this is true in a lot of companies, but particularly true with enterprise.
When you start small, you want to create a wedge that is a natural place to create a product that will slip in between the gaps of other existing products, but is something that overtime expands and becomes a part of enterprise.
Start with a little sliver of a problem, create an amazing user experience, change the business model, and create the technology that makes a previously really difficult problem really simple.
You need to start small because there are incumbents in the market that go for the full solution. Find the gaps in the full solution that are significant enough where a customer is going to want to solve the problem with your discreet technology, but overtime that discreet technology will expand to larger customers and/or more use cases overtime.
When you execute this way, many incumbents will look at your business and see it as a non-threat. What they don’t realize is that it’s just a start, because once you have a wedge in the market and overtime will expand with more services and capabilities. The key is to find that exact wedge where you can start.
The startup conundrum: is your "wedge" the ultimate product and the market will evolve, or does your wedge need to evolve to get the market.
— Aaron Levie (@levie) June 10, 2014
An incumbent will always think a startup's product is just a "feature". But all that matters is what the customer thinks.
— Aaron Levie (@levie) June 19, 2013
3) Find Asymmetries
Do things that the incumbents can’t or won’t do because it’s economically and technically infeasible.
For technically infeasible, Levie gives the example of “suite players”. These are the companies that have everything integrated with itself (known as vertical integration) because there is more value with that vertical. In this case, the disruptive company can become platform agnostic, where technology works on all platforms. This helps you work with many different customers and allows you to become an ally with many different platforms.
We’ve been seeing this recently with Microsoft. Under Nadella’s leadership, Microsoft has made their products on a range of platforms. For example, Office 365 now allows customers their customers to save their documents on a range of platforms, such as Dropbox, Box, Salesforce, etc. In addition to their cloud partners, they also have Office apps available on iOS.
When discussing how some incumbents are stuck to their economics, Levie says:
“You can look at the cost structure of an incumbent company and discover where they are not going to be able to drop their prices, because that business model is fundamental to the company. Or where can you find ways of monetizing the customer that are unusual or unique that no one has discovered before, thus making impractical for anyone else to do.”
The job of the incumbent is to keep the market exactly the same. The job of the underdog is to use every method possible to redefine it.
— Aaron Levie (@levie) April 21, 2014
The easiest software incumbent to disrupt is the one prioritizing the needs of its strategy over the needs of its customer.
— Aaron Levie (@levie) December 12, 2013
4) Find the Crazy, But Somewhat Reasonable Outliers
Find the customers that are at the edge of their business model (they are working in the future, but haven’t lost their minds), find the unique characteristics about them, and utilize them as your early adopters.
Levie recommends an article written by Paul Graham where he discusses living in the future, and building what’s missing when you’re living in the future. This makes it a little easier to spot trends and patterns about disruption that’s playing out.
If you find these types of customers that are living in the future, you’ll be able to work with them and find what’s missing when you’re working in the future. From that, you can figure out how to build new technology that supports all the new use cases that will emerge.
Go look at your market, find the customers that are at the bleeding edge of the market (who use technology to get ahead & for performance advantages), then go work with them to discover how your product can evolve.
Your product should be enough ahead of customers that they need you in the future, but close enough that they can easily get there.
— Aaron Levie (@levie) June 21, 2013
The product that wins is the one that bridges customers to the future, not the one that requires a giant leap.
— Aaron Levie (@levie) April 13, 2013
The best technology is aimed far enough in the future that it stands out, but close enough to the present that it blends in.
— Aaron Levie (@levie) July 3, 2012
5) Listen to Customers, But Don’t Always Build Exactly What They Tell You
Your customers are going to have a large number of requests, your job is to distill those requests down into the ultimate product. This doesn’t mean to build what they tell you to build. Listen to your customers problems, but translate it into the best and simplest solutions to those problems.
You'll learn more in a day talking to customers than a week of brainstorming, a month of watching competitors, or a year of market research.
— Aaron Levie (@levie) October 13, 2014
The gap between good and bad product management is interpreting what the customer needs and just doing what the customer wants
— Aaron Levie (@levie) August 13, 2010
6) Modularize, Don’t Customize
This means building a platform as opposed to building a customized technology. Every customer will want something a little bit different. Don’t make your product suffer because of this. Use openness and APIs as a way of delivering vertical or custom experiences. Don’t build it directly into the product. The APIs and integrations should sit “on top” of the product.
The job of product management is to design *with* the customer in mind, not *what* the customer had in mind.
— Aaron Levie (@levie) April 21, 2013
7) Focus on the User
Keep “consumer” DNA at the core of your enterprise product. This makes adoption easier, gives your product a better chance of going viral, and it makes it easier to sell into the organization because you sold a few employees within that organization on your product. Box has recently done this by offering free 10 GB of file storage to consumers. If they focus on the user and make a great product for them, those users become evangelists for Box in their own company. This is why you need consumer DNA in your product development process. Levie says:
“In an IT world, incumbents generally win because they have the existing relationship with the IT organization, with the CIO, with the spending power of that company. In a user lead model, users are bringing in their own technology. They’re bring it in in the sales team, they are bringing it in in the marketing team, they are brining it in in finance and you can build software around that user. Which means they can bring the enterprise in and you can sell to the enterprise when they want to have better control, better security, better scalability. So you still have the same model as a business software company but the way to get into the company is now through the end user.”
If every customer is using your product "correctly", you'll never learn anything interesting about what to do next.
— Aaron Levie (@levie) April 11, 2014
The most customer-centric organizations can answer any question by deciding what’s best for the customer, without ever having to ask
— Aaron Levie (@levie) October 23, 2011
8) The Product Should Sell Itself
This does not mean you do not need a sales team.
You need to leverage the internet and users to get to customers, and the sales team can help customers navigate the product, the competitive landscape, and the ecosystem. The salesperson should serve in a consultative role, where they help the customer deploy your product in the organization. But you need to keep the product at the center of all of that.
The only "barrier to entry" you can create is to consistently build a great product.
— Aaron Levie (@levie) November 21, 2013
Video, Slides, and Recommended Reading
Aaron Levie featured as Inc Magazine’s 2013 Entrepreneur of the Year
About the Author: Zach Bulygo (Twitter) is a Content Writer for Kissmetrics.