Aaron Levie on How Box Competed with Giants and Won
What began as a crazy idea for a consumer storage product in the cloud has evolved into one of the fastest growing enterprise services on the planet. As CEO Aaron Levie casually puts it, “In 2007, we decided to focus on the enterprise. Five years later, that's what we do. We have a few hundred people down in Los Altos just trying to build a different kind of enterprise start up.” In this First Round Town Hall talk, Levie shares with founders what he has learned while building Box for the enterprise and strategies for winning in competitive marketplaces.
Building Enterprise Software Like a Consumer Product
In 2006, Box began as a consumer product. Levie shares, “It was meant to be a solution that was agnostic to the use case, [and] we wanted to take it everywhere.“ But Levie and his team quickly made the very ‘unsexy’ (remember, this was 2007 when SharePoint was considered innovative) decision to focus on the enterprise. Levie saw that rivals like Windows Live Mesh and Google Drive were going to make competing in the consumer storage market like climbing into the Octagon for a wrestling match with at least two 800-pound primates — a brutal brawl against some of the largest tech companies in the world.
The major competitors could subsidize the growth of their storage business with other, unrelated business lines. He also saw how other storage-related businesses targeted at consumers seemed to falter on their business models and couldn’t deliver the right set of features that were standard in the enterprise.
We started when we were 20 years old. So I didn't really know what an enterprise was.
Like so many founders, Levie had one keen early insight that shaped the company’s strategy. When making this original shift to enterprise, he saw that very few enterprise software companies focused on the end users of their products. Most were only focused on the CIO or Head of IT. The consumerization of IT is now obviously a buzzword, but like so many big ideas, at the time entrenched players largely ridiculed it. Most believed that without a massive sales force selling directly into the office of the CIO, success would be impossible — it was how all-modern enterprise software was sold.
Levie elaborated, “We saw that the big opportunity was to take the exact same concepts that consumer applications use as their advantages and their focal points and bring [those] to the enterprise. We're at a point where the inverse of the traditional enterprise players are companies that build and operate and work like consumer companies but just happen to sell for the enterprise, so we said, instead of having a really, really big sales force early on, we'll use our user base as a way to get into these organizations. Instead of having to go call these companies and ask them to buy more seats, we'll have the end users actually share the service with other people in the company, to make it more viral than normal. [And] we'll make our design much more focused around user experience than about how do we throw in a thousand features into the UI.”
How to Compete With Giants
Enterprise storage is a classic example of an incredibly crowded marketplace with entrenched leaders. To win, Levie turned to a process that Clayton Christensen calls RPV or Resources, Process and Values. If you understand your competitors’ RPVs, then you’ll understand where your company’s advantages lie and where you should compete.
If you think about Oracle, IBM, or Microsoft, their resources are their sales people and their deep R&D methods. These processes involve Levie knew he couldn’t compete with the big guys on the basis of sales force or pure R&D because they all had significantly more resources at their disposal than he ever would. However, he could compete by being more agile (a process innovation) and focusing on what they ignored: user experience (value).
Levie brought up the example of Microsoft SharePoint, a similar product at the time Box was founded, saying, “If you look at SharePoint…has anybody ever had to actually interact with SharePoint? Okay, so your lifespan will be about five years less than everybody else… these products were horrible. No offense to anyone that worked at Microsoft. So we just said we'll build software different from them.”
To beat your competition you need to understand their motivations and approach to the market, and look for opportunities to win by playing in a way they’re not structurally set up to play — engineering methodologies that take multiple years to pay off. They only want to sell their technologies at high price points while earning massive profits.
Read These Next
The Right Way to Grant Equity to Your Employees
Andy Rachleff is President and CEO of Wealthfront, a software-based financial advisor. Prior to Wealthfront, Rachleff co-founded and was general partner of Benchmark Capital. He also teaches courses on technology entrepreneurship at Stanford Graduate School of Business. Follow him on Twitter @arachleff. “The defining difference between Silicon Valley companies and almost every other industry in the U.S. is the virtually universal practice among tech companies of distributing meaningful equity (usually in the form of stock options) to ordinary employees. Before companies like Fairchild and Hewlett-Packard began the practice fifty years ago, distributing stock options to anyone other than top management was virtually unheard of. But the engineering tradition that spawned Silicon Valley was much more egalitarian than traditional corporate culture.” — Steven Johnson, The Peer Society
Fight Like You're Right, Listen Like You're Wrong and Other Keys to Great Management
A psychology study at UC Berkeley broke students into groups of three, with one person chosen to be the leader of a project. At some point, the researchers would bring in a plate of four cookies. "We all know the social norm is not to take the last cookie," says Robert Sutton, management expert at Stanford's School of Engineering. "But the research showed consistently that the person in power would take that fourth cookie. They even tended to eat with their mouths open and leave more crumbs. And this is just in the laboratory. Imagine that you're a CEO and everywhere you go you're empowered, and everyone is kissing your ass. You can start to see why it's so hard to be good." Made famous by his 2005 book The No Asshole Rule, Sutton has spent hours studying the moves made by technology's top leaders, including Steve Jobs, Andy Grove, and others. More recently, though, he's turned his attention from negative qualities to what the best bosses in the world do and understand. A lot of it has to do with an innate sense of human emotions, but the good news is management can be learned. In this Stanford Entrepreneurship Corner Talk, he breaks down what it takes to become a great boss — which, as it turns out, makes a much bigger difference than you might think.
The Secret to Making Board Meetings Suck Less
“When I was a young entrepreneur, board meetings were by far the worst days of my life,” says Jeff Bonforte, the veteran company-builder who just sold his latest, Xobni, to Yahoo. “Board meetings are the height of insecurity for a CEO. Basically it’s a group of people who can both judge you and fire you based on that judgment.” He’s had his fair share of bad experiences. At his first company, iDrive, he'd find himself every quarter standing in front of the room, sweating bullets, struggling to get through his meticulously-prepared slides. “It was a mess,” he says. “They’d just sit there and tell me how insufficient I was, how I needed to bring in someone more senior, or smarter. Then it just hit me. I don't need this. I don't need people to attack me for four straight hours. I need people who can help me.” This shift in philosophy has shaped the way Bonforte has handled his board members and meetings ever since. The core of his new strategy: Your success as a CEO is contingent on your board doing their best to help you — so put them to work. Of course, this is easier said than done.