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How to Start a Startup Takeaways: Aaron Levie, Founder, Box, on “Building the Enterprise”

HIPLegal is hosting a brown-bag lunch series for entrepreneurs, to watch and discuss videos of an exciting educational series, “How to Start a Startup.”  Sam Altman, President of Y Combinator, is teaching this series as a class at Stanford this fall and is making the classes available online. Along with guest lecturers like Marissa Mayer, Peter Thiel, and Ben Horowitz, he will be covering the fundamentals: how to come up with ideas and evaluate them, how to get users and grow, how to do sales and marketing, how to hire, how to raise money, company culture, operations and management, business strategy, and more.

HIPLegal is holding a weekly brownbag lunch to view and discuss each session on Wednesdays from 4:00-5:30 pm at our office (20195 Stevens Creek Blvd., Suite 250, Cupertino).  We watch one video per week (50 minutes) and then hold a discussion for about 40 minutes.  We brainstorm ideas, bounce them off each other, and refine them over the course of the series.  This is a 20 session program that should be a great program for anyone who is in the process of starting a company or is thinking about one day diving into entrepreneurship.  The full curriculum and the videos to date are here.

Session 12 – Aaron Levie, Founder, Box, “Building the Enterprise.”

Takeaways:

Quick Background of Box

A choice must be made by startups – whether to focus on consumers or enterprise.  Box had too much functionality for consumers and not enough for enterprise when it started out, so had to make a decision of which to pursue.  Some factors to consider:

  • Monetization favors enterprise: there is a $3.7 Trillion global enterprise software market
  • Compare that to a $35B consumer mobile app business.  Also, focusing on consumers requires small user fees and huge reliance on ads, and advertising is a $135 Billion global market, which is not small but 10% of the Enterprise IT market
  • There is a different value proposition, as enterprise is not looking to save money but to get the most out of tech

Enterprise software has some disadvantages too:

Building software is slow, as is the selling process into the enterprise, because consumers take a long time to buy.  Similarly, implementation within the enterprise is slow.  There is a long delay to actually getting the technology used.   The sales process requires working through an intermediary, and using sales people.  It is a painful, slow process.   Box went around this by using the internet in addition to sales people to speed up the sales process.

When Box started out, they decided that they would have to do enterprise differently – selling directly to users based on technology shifts.  Box leveraged some technology changes:

  • Cost of storage dropped
  • More powerful browsers and networks
  • Need for data storage was growing
  • Most application companies were moving to the cloud
  • The ubiquity of mobile phones (1.75B) has made IT more user-led

The way into a company now is through its users.

What made this transition possible for Box was a series of changes in the world:

  • We’re moving to the cloud
  • We expect computing to be cheap
  • We use standardized software
  • It’s global and every business wants it
  • It’s user lead, not IT lead.

Box sold to the user, which lead them into the enterprise.  IT had no choice but to bring it into the enterprise, when they wanted more control.

Work with bleeding edge companies, to see how working in the future will look, and translate this knowledge into the enterprise business.

Major Changes Affecting Enterprise Startups

There are two moments that drive technological revolution in enterprise: (1) raw materials change (e.g., cost of computing goes down); and (2) the people enterprise goes after need new experiences (e.g., new options like Uber and Lyft require enterprises to find new technology to adapt).  “Enterprises are not going to survive in the future if they do not get good at technology.”  They will get good by working with the tech industry.  There will be more partnerships as enterprise looks to work faster, smarter, and more securely.

Where there is a wide gulf between “What is possible” and “how it is done today,” a new enabling technology has a possibility of success.  You can slip between the gaps of existing products, and expand over time, if you make the user experience in this sliver awesome.  Because existing tech has to refresh the whole thing, you can start small and slip in.

Patterns Relevant to Starting a Startup in Enterprise

  1. Spot tech disruptions – new enabling tech or trends that create a wide gap between how things were done and how they could be done.  For Box, the gap was that storage was getting cheaper, internet was getting faster, browsers where getting better yet file sharing was still complicated and cumbersome.
  2. Intentionally start small – you want to find the “wedge” that can slip between the gaps in existing technology.  It tends to be less noticeable and worrisome to incumbents, so you are less of a threat to be stopped and have less competition as you build and grow.  From there, you can expand into a larger space.  Example: Zen Benefits, which started focused on small businesses who needed a better digital solution.
  3. Find asymmetries – the things incumbents can’t do, won’t do, or can’t feasibly do.  For example, make your product platform agnostic so you can work with many different customers.  Also try to find ways to make your platform economically feasible (things incumbents cannot do), such as Zenefits, which is paid for by insurance companies rather than the startups and small companies that use it.
  4. Find the “mostly crazy, but still reasonable, outliers within the customer ecosystem” – customers at the edge of their business model whom you can leverage as your early adopters.  If you work with customers who are living in the future, you will be able to work with them to find out what is missing in the future.
  5. Listen to your customers, but don’t always build what they want.  It’s your job to listen to their problems and then figure out and build the product that will be the best and simplest solution.  Keeping the users at the core of your focus will help you build a product that will go viral because you’ve brought the user DNA into your product.

Think about monetization; there are many options.

Build a platform, instead of custom verticals for each enterprise customer.  The product should sell itself, but you still need sales people, who are domain-oriented to sell into the enterprise.

Book recommendations:

  • Crossing the Chasm
  • Innovator’s Dilemma
  • Behind the Cloud

Next, we will watch Session 13, Reid Hoffman, Partner, Greylock Ventures and Founder, LinkedIn, “How to be a Great Founder.” Sign up here if you can join us.  Email contact@hiplegal.com if you’d like to participate by phone.