Lecture 12 - Building for the Enterprise (Aaron Levie)

1. ALAaron Levie0:01

   Can we keep playing the, the... Okay, good. [laughing] Can we turn it up a little bit so it's more pump-up? Let's, uh- Okay, here we go. Okay. Yeah. Woo! Woo. [clapping] All right, guys, we gotta cla- we gotta find the beat, and then we gotta clap to the beat. [clapping] Okay. All right. [clapping] Okay, that, that's pretty good, guys. All right, we're good. We're good. Thank you. Okay, please stop. Okay, stop the music. [laughing] Thank you. Okay, cool. Can you put on the presentation? Thank you. [laughing] Um, that'll be about the most pump-up thing that ever happens in enterprise software. So, um, the rest is sort of downhill from here. [laughing] So, um, thank you for that intro, uh, that well-rehearsed intro. Thank you. [laughing] Um, confirming the facts as you're saying them. Um, very good. So, uh, I'm Aaron Levie, CEO and co-founder of Box. Um, welcome to, um, this edition of, uh, of how to build, uh, an enterprise software company. That's my understanding this is the course that you're taking. Um, right? Is that correct? No, okay. [laughing] So here's, here's my job today. I'm, my job is to try and convince you that everybody else who speaks throughout this sort of whole class is wrong, and that you actually wanna build an enterprise software company. And so, hopefully we'll be able to kind of work through this, and you'll have a good sense of why it's super cool, um, to be in the enterprise. And, um, why a lot of the sort of perceptions of, you know, going into the whole consumer space where it's, you know, so much fun and everything, why that's wrong, and why you wanna do enterprise software. Who wants to build an enterprise software company? Good. All right. Thank you very much. Hopefully we'll do a vote at the end, and, uh, we'll hopefully, uh, that will not have shrunk. So, um- [laughing] ... that's, that's really actually the only goal I have at this point. So, well, we're gonna talk about three things today. Um, the first is the quick background and, and kind of history of Box. 'Cause when we started the company, we didn't know that we wanted to do enterprise software. Um, and so I want to kind of get through a little bit about why we decided to go after the enterprise, uh, and what we do today. And then I wanna talk a little bit about what are the major kind of factors that have changed in enterprise software, um, that, that make it possible to, to do a startup today in this category. And then finally, we'll talk a little about some, some patterns, um, uh, that you can kind of exploit and some ways to recognize, um, and, and ways to actually go and build an enterprise software company yourself. And that's, um, that's, uh, hopefully that'll be some practical, useful advice. Um, just as a forewarning, my, my voice is... I've been speaking a lot the past couple days, so hopefully we'll, I'll be able to get to that third part of the advice, um, uh, and actually be able to talk. Um, so we'll, we'll see how we make it. But, uh, I'm gonna be downing a lot of water, so I apologize, um, for that. So, um, so Building for the Enterprise, uh, this is, uh, what we're gonna talk about. So just quick kind of high-level stats about Box. We have about 240,000 businesses that use the product. There are over 27 million users, um, that, that have brought Box into their organization and use it as individuals. And there's, we're in about 99% of the, uh, the Fortune 500. Unfortunately, that last 1% is really just Microsoft, uh, and they don't seem to wanna- [laughing] They don't seem to wanna buy from us. So, um, uh- [laughing] ... we, we have to, we have to work on that a little bit. Um, but, uh, certainly, um, you know, decent amount of scale, a lot of users that have, uh, brought Box into enterprise environments. These are some of the, the large organizations that are, that are using the product. Um, so, a very wide range of industries, um, everything from manufacturing and consumer products to, uh, companies like General Electric. Um, yeah, Stanford Health Care, uh, uh, actually uses the product for collaboration within the, uh, the hospital environment and some of the research. Um, but, uh, between healthcare, media, uh, manufacturing, these are the, the sort of range of industries that, that we serve. So the question is how did we get here? 'Cause we, we didn't really start the company to try and go build an enterprise software company, even though that is how things ended up happening. So when we, uh, started the product, um, so we launched the company in 2005. We got the idea actually in college back in 2004. And so, um, was anybody using the internet back in 2004? Okay, great. So, um, uh, so basically, I don't know if, uh, if, uh, millennials used the internet, so, um, uh, back then. Uh, sorry. Okay, no more age jokes. All right, here's the point. So back in 2004, you might remember that there wasn't a lot to do on the internet. It was actually kind of boring, right? Um, w- this was before Facebook, this is certainly before Snapchat, um, so not a lot of things that you could go do. You couldn't send people 15-second messages and photos that disappeared because you didn't even have a phone to send them photos. So, um, so in the internet in 2004, there wasn't a lot going on. Um, this was basically what the internet looked like, um, sort of a, a barren, deserted landscape. Um, and this was the internet. And just to clarify, um, the happy camel's Google and the sad camel's Yahoo. Um- [laughing] And that was, that was effectively, this was the internet. And this is accurate. Um, this is the internet in 2004. Yahoo has, has done a lot better since then, but, but back in the middle 2000s, they were tr- certainly trying to find their way and, and Google was sort of, you know, um, uh, kind of taking over the world. But this was the entire, this was the extent of the world. So what we noticed in 2004 in college was that it was, for some reason, um, and this isn't so much the case today, but back in 2004, it was, like, really hard to share files. And as simple of an idea as that is now, um, you, you go back 10 years and, um, and it was either really expensive or it was really hard to move data through different corporate networks. Um, so I, well, I had an internship at the time and, um, uh, and in the internship, most of my job using data was actually just to, to copy, you know, uh, printed out pages and then put them in cabinets. Um, that's a- also, that's what you do a- a- as an intern and, uh, if you're not a, a c- a computer science, uh, student. So, um, so I was, like, really, really good at copying paper. Um, and, uh, unfortunately not a skill that has, um, uh, really been useful today. But, um, uh, it was really hard to share files. And then in classroom environments, you're constantly working with lots of other people, and it was also hard to share files. Um, uh, where, uh, uh, I, I went to USC, and USC gave you 50 megabytes of online storage space, uh, in your email account. 50 megabytes. So you could basically store about one file and, um, and then it would auto-delete every six months. So, um, so basically, I don't know who was running IT at the time, but they d- certainly didn't buy hard drives. Um, so it was just, like, really, really hard to store and share files. And so we said, "Well, why don't we make it really easy to store and share files from anywhere?" And so we got this idea for, um, at the time it was called Box.net.And the, the, what we noticed was there were a bunch of factors that had changed in, uh, the software world. The first was that the cost of storage was sort of dropping dramatically. So, uh, in our business, um, basically every year or two you can double the amount of, uh, data and storage that goes into a hard drive. So, um, what become, what was uneconomical, uh, two or three years ago all of a sudden becomes feasible because the cost of computing and the cost of storage has dropped. Um, we had more powerful browsers and networks, so Firefox was just emerging. People were using, um, uh, uh, the much faster internet in both their homes and in the classroom. And then people had more locations that they wanted to store and share information from. And so we had these sort of three factors that all of a sudden were emerging. And I'm gonna, I'm gonna sort of pull these factors back later when I, when I give some kind of tactical advice, but, but sort of the first point to remember is always sort of look for these changing technology factors, 'cause any market that has a, a, a significant change in the underlying either raw materials or enabling factors is a, an environment that's about to change in a very significant way. And so we were very fortunate that, that basically the need for data in the cloud was, was growing in, in, uh, uh, in importance, and the cost and the feasibility of doing it was also, uh, improving rapidly. And so we decided to put together this really quick version of Box. We launched it as box.net. And the idea was let's make it really easy to share files. And it turned out that the idea clicked. We, um, we got angel funding from this guy named Mark Cuban, um, and, uh, and this was before Shark Tank, but it was very similar. Um, and so we, we got this funding, and we decided that, okay, this is gonna be super exciting. We are going to drop out of college. We're gonna move to the Bay Area, and it's gonna be totally awesome. And, um, and when, you know, when you drop out of college... Anybody drop out of college yet? Okay, good. Stay in school. So, um, when you, when you drop out of college, like, everyone sort of pictures that it's just gonna be, you know, incredible. Like, Bill Gates dropped out of college. It'll be like Bill Gates or, or Michael Dell dropped out of college and, and it'll be, you know, super exciting like Michael Dell, or Steve Jobs dropped out of college, so this is what people imagine. But nobody ever remembers that this guy dropped out of college also.

2. SPSpeaker9:00

   [laughs]

3. ALAaron Levie9:01

   And, and so it's not really a guarantee obviously that, that it's gonna be successful, but, but it's, um, it's what you do. And, uh, actually, funny enough, I don't even know if this guy dropped out of college, but, um, uh-

4. SPSpeaker9:11

   [laughs]

5. ALAaron Levie9:13

   ... [laughs] it just sort of looks like he had to. Um, but...

6. SPSpeaker9:17

   [laughs]

7. ALAaron Levie9:18

   And I don't, I apologize if anybody's related to him. It's just a funny picture on the internet. So, um-

8. SPSpeaker9:22

   [laughs]

9. ALAaron Levie9:22

   So basically we decided we would drop out of college. We moved up to first Berkeley, uh, and then we moved to Palo Alto a little bit thereafter. And we decided that, um, that we were gonna open up the product for free. We got hundreds of thousands of people that would sign up for the product every single month. So we had a free version of the, the product called, uh, the, the, if you go into, went to box.net, you get, got a free, uh, one gigabyte of, uh, of file storage space, which was, again, quite a, quite a bit back in two thousand six at this point. Um, but we were getting so many users, and we were trying to figure out what to do. Um, and what we ran into was a common problem that really any startup runs into, but was really pronounced by our business model, um, which was that for consumers, um, we had built a very robust, a very comprehensive product. And for enterprises, we had actually built too, uh, sort of insignificant of a product. So for consumers, um, what we were running into was we had all these features that you could pay for, but, uh, a lot of the consumers didn't need all of those features. And for enterprises, we didn't really have enough, uh, security and we didn't have enough, um, capabilities around how enterprises wanted to use their data. So we, we basically had more functionality than what a consumer wanted and less than what an enterprise wanted. And so we found ourselves at this juncture, and we found ourselves basically, um, in this, uh, in this period where it was very difficult to figure out what we wanted to go do with the business. So we had to make a choice, right? And so we were at this path where there were, were basically we, we just had to choose. We were at a juncture where we had to choose which path to go down, and this was, um, back in, uh, early mid two thousand six, uh, up to late two thousand six. So, um, I was, I think, 23 at the time. The co-founder was, was 22. Uh, our founding team was, uh, was even younger. Um, we, we'd all dropped out of college. And so what we, back in, back in two thousand six, two thousand seven, we imagined, you know, the- these two paths, um, and, and sort of the, the worlds were very, very different. Like, when you do a consumer startup, it's basically just lots of fun and, you know, there's, you have parties all the time, and it's just super exciting. And then in the enterprise, you basically are battling these just large incumbents. Um, it's a fairly thankless, you know, model because, you know, people just generally hate enterprise software. So that was sort of how we imagined the, the two paths was, was we had to choose, you know, one of these two worlds. And, uh, and so we looked at that and we said, "Okay, well, consumer looks really fun. Enterprise looks really hard, and, and there's a lot of competition." At the same time, in the consumer space, um, you are always fighting this issue of how do you monetize? How do you, how do you actually get people to pay for products? And in the consumer space, there's really only two sort of business models that you can do. You can have people pay for your application, or you can, um, provide advertising on the application. And so just to give you a little bit of perspective, this, these are today's numbers, just to give you a little bit of sense of the scale difference. In the consumer world, um, there's about thirty-five billion dollars spent on mobile apps every year. Pretty big number, right? The thirty-five billion dollars, that's, that's a lot of money being spent on mobile apps today. In, uh, for advertising, the global digital advertising market is a hundred and thirty-five billion dollars. So, you know, basically combined, most consumer companies are going after, if you're not doing e-commerce, going after about a hundred and seventy billion dollars of either sort of purchasing power on applications or, um, global advertising around these kinds of services. So-Big numbers, lot of opportunity there. However, in the enterprise, there's actually $3.7 trillion spent on enterprise IT every single year. So these are the servers, the infrastructure, the software, the networking, the services. All of that stack of technology equates to a few trillion dollars spent every single year. And, um, and so what we realized was, okay, there's a pretty wide delta between these two markets. We are gonna be fighting over trying to get consumers to pay a few dollars a month, and Google and Microsoft and Apple will probably try and, and make this product be free over time, and there were sort of rumors that Google Drive was coming out, and these kind of products that eventually happened were gonna come out. But in the enterprise, um, it's not so much about tr- that, that, that they, um, are trying to always save money on IT, they're actually trying to increase productivity. They're trying to get higher performance from their businesses. So the value equation is very different, right? In a consumer, we have a limited amount of money that we wanna actually, you know, make sure that we conserve, um, for as few things as possible that we're gonna spend. Uh, in the enterprise, y- it's a little bit of a different shift, where you're trying to think about actually, "What can I get out of technology, and how, how much value is that for me?" So, so that was a really important data point. However, the problem was that enterprise software was really, really unsexy, right? So again, very competitive, very difficult to build a business. It wasn't something that really you, you sort of shot out of bed in the morning and said, "Okay, I'm super excited to build an enterprise software company." And the reason for that, um, is actually w- was actually pretty straightforward at the time. The, the way that you built software was very slow. So, um, y- y- the, you had to be very slow because your, 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's sort of used to this concept that, you know, usually when you try and sell enterprise software to a company, it can take up to a couple years for them to actually just buy the software. And then it can take a couple more years for them d- d- uh, for them to even 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, like a huge problem and, and not, like, something we wanted to be a part of. Um, the, the technology itself is fairly complex. So, um, the user experience, I don't know how many people have had to use most enterprise software, but it's generally really complicated. Um, you, you, you find yourself asking why in God's name did a designer sort of put 47 buttons on the page, and you just can't even understand it, and the reason is something we'll get into in a second. But basically, there's just no love or care for the design and the user experience. The software is just really complex. And then finally, if that wasn't bad enough, all of a sudden you had to think about, how do you actually sell the software? And for anybody who loves the power of the internet, this notion of having a sort of sales intermediary to get to your customer seemed, like, really unappealing. Like, you're gonna have to go hire a bunch of people that are, that are gonna be everywhere in the country, and they're gonna be the only interface you have to your customer. You're gonna have to hire these guys named Chuck, and, um, and Chuck's gonna roll in with a briefcase, and he's gonna just try and sell, um, lots of enterprise software to the customer. Just so we're clear, this is what Chuck looks like.

10. SPSpeaker16:05

    [laughs]

11. ALAaron Levie16:05

    Um, and, and that was the, the, the sales process that you, that, that, in the enterprise that w- we at least imagined in our head. Um, and, uh, I mean, Chuck looks like a happy guy, but, but he's still an intermediary, um, to getting your software. And we were saying, "Well, why can't we take the power of the internet and actually get our technology out to people directly? Why, why should we have to go through this sales intermediary, um, as we, uh, as we scale up the business?" Now, I'll get into in a, in a minute why we were wrong about, uh, about the sales process, but this was the sort of fear that we had, um, at the time. And then if that wasn't hard enough, we had investors in 2007 saying basically, "There's no way you're gonna make it in the enterprise. You basically are, again, a founding team of, of early 20-year-olds. Um, you don't have anybody on your team that has been in the enterprise. The, um, Microsoft and Google and all these things are j-" I mean, not Google, but, "Microsoft, EMC, Oracle, IBM, these companies are gonna stomp on you, and it's gonna be very, very hard to actually succeed." And to be fair, they were right on a m- a number of areas, right? So we were a very inexperienced team. Um, this is, uh, this was a, you know, stage, we were just still early in our careers. Um, my co-founder, for instance, looked like he was 13 years old, so, um, just not really, just to be clear, um, this is what he looked like. So, um-

12. SPSpeaker17:20

    [laughs]

13. ALAaron Levie17:21

    So it, it sort of made sense, right? This is, this is him as our CFO at, I think this is him at 29, but, um, uh-

14. SPSpeaker17:28

    [laughs]

15. ALAaron Levie17:29

    Uh, it looked like we were gonna go run off with the money and go to Disneyland. So, um-

16. SPSpeaker17:33

    [laughs]

17. ALAaron Levie17:34

    So I totally can appreciate why they didn't think we would be able to pull it off. Um, I, I can't imagine giving him money. So-

18. SPSpeaker17:41

    [laughs]

19. ALAaron Levie17:43

    So basically, we, um, we decided, okay, well, we still have to go do it. We have to just give this our best shot. We're gonna take the, the sort of scale, the consumer experience, the DNA of our company, and we're gonna see if we can bring this into the enterprise. And we were very fortunate, um, we're actually, we had an investor who was equally early in his career and made a bet on us because, um, sort of with the belief that there was something fundamentally changing with the enterprise that we would be able to take advantage of. And so we decided that if we're gonna do the enterprise, if we're gonna go after the enterprise, that we would have to play by a very different set of rules. So what about the complexity of software can change in this new era? What about the fact that the sales process is very slow can change in this new area, era? How do we move d- and go directly to the user and to the customer, as opposed to having, um, this very sort of indirect process of getting our technology out there? How do we build, uh, and design for that user, as opposed to just for the sale and sort of for the RFP process that a customer is going to go through? And so we looked at all of the factors that were true of the enterprise, and we said, "We're gonna do, um, maybe not in all cases the opposite, but we're gonna find what has changed about the technology world where we can take advantage of that shift and build a, a, a better and a newer enterprise software company." And so-That was the decision that we embarked on, this is the path that we embarked on about eight years ago, um, and that is why, um, we've been focused on the enterprise. And so today, again, we have about 240,000 businesses that use the product, and the reason is, um, we, we architected the, the business model, we architected the software, we architected the solution to work in sort of one specific version of the world, and it turned out that that version ended up being the, the, the, the sort of the one that, that, uh, that happened. And, um, and I'll go into a little bit about what has changed about the world that we sort of built our company around and what, um, I would highly recommend you, um, if you're building an enterprise software company, make sure to, uh, to, to orient your technology and, and solution around. So, so that was sort of why we made the decision, kind of how we started to, to take on the problem. Now I'd talk, like to talk a little bit about what has changed about the enterprise that makes it sort of so possible to enter it today, um, better and more seamlessly than ever before. So everything about the enterprise, and then by definition the software that an enterprise uses, has changed just in the past five years. This is probably the most magical time. If there could have ever been a magical time to build an enterprise software company, now is absolutely that time, just in terms of how much change, um, is, uh, is going on within organizations. So let's just go through a couple of these things. So the first is that most application categories are moving to the cloud, and the big difference is this idea that, that if you were going to start a customer relationship management software company, or a business intelligence software company, or even a content management company 10, 15 years ago, you basically had to go have your technology be implemented in every single customer location, no matter w- how many customers you sold to, no matter what regions they were in. Every single customer had to put that in their data center. And that was the flaw with on-premise computing, was you were repeating all of this work. You were, you were creating so much redundancy, and it was, it was then slowing down the entire process of delivering and building software for the enterprise. And then all of a sudden the cloud came around, things like salesforce.com, things like Amazon Web Services, that basically said, "Why is it that, that every customer that wants to just implement a couple servers has to go procure the servers, put them in their data center, um, uh, put all the security, all the networking around those servers, and then, and then six months later they go live and then a developer can use them in the organization?" Or same thing with an application. The Amazon said, "Why does that make any sense today when we could just put together thousands, tens of thousands, hundreds of thousands of servers and make them available on demand, and you just use what you want when you need that?" And that was, that's obviously the definition of cloud computing. What is happening, though, is finally CIOs and large enterprises are taking advantage of this. So it, it seems obvious for everyone in this room because you would never build a company by buying your own servers. You would start it on Amazon or, or Google, a- um, uh, or, or Azure or whatever. But to an enterprise, there are, uh, decades, literally decades of investment in infrastructure that now has to move to the cloud, and so that's obviously a massive shift, uh, that is finally happening. We are moving to a world of cheaper, low-cost, on-demand computing from a world of expensive computing. The benefit to building a startup is that customers don't have the same kind of friction when they're gonna go adopt new technology, right? As soon as the computing is so much cheaper, it becomes easier to adopt new solutions, which means that their barrier for having a conversation, their barrier for introducing you them into, uh, into their enterprise is a lot lower, which creates a massive opportunity for startups. We're going from a world of customized software to really standardized platforms. So it used to be that you had to build custom integrations and all of the custom experiences on top of the software itself, and now customers are realizing that actually they want open platforms and they can customize at the layer above the, the product. Um, it used to be that when you were building an enterprise software company, you could only really sell to the top 5,000 or 10,000 companies in the world because only those companies had the wherewithal, the talent, the infrastructure, and the budget to deploy your technology into the enterprise. Today, literally a two-person company can sign up for Box, as well as we work with General Electric, which has over 300,000 employees. So the fact that you can now serve a small business anywhere in the world, as well as some of the largest companies on the planet, mean that there's much larger markets that you can go after, which makes it obviously even a better economical, uh, economic proposition to, uh, to go after the enterprise. Um, the platforms themselves are becoming more global, so our customers were international literally within the first couple of weeks of starting the company. It would have been... Usually, if you had done enterprise software the traditional way, that would have taken years to actually be able to go international. And then finally, um, and probably the most profound shift of all, is that because of mobile devices, you know, iPhones, iPads, tablets, um, Android devices, the IT model of the enterprise has become a lot more user-led. And that's fundamentally important because in an IT-led world, incumbents generally win because they have the existing relationship with the IT organization, with the CIO, with the spending power within that company. In a user-led model, users are bringing in their own technology. They're bringing it in at, on the sales team, they're bringing it in in the, uh, marketing team, they're bringing it in in finance, and you can build software then around the user, which means that they can bring the technology in, then you can sell to the enterprise when they wanna have better control, better security, better scalability. So you still have the same business model as a traditional enterprise software company, but the way to get into the company is now through the end user.Okay, so those are qualitative factor changes. Just a couple quantitative factor changes. Um, there's over, uh, nearly two billion smartphones on the planet. Um, that changes, um, every single IT model on the planet, because it used to be 10 years ago, if you were managing technology for an enterprise, you just had to manage the computers and the network that were inside of your building. But now, with, with billions of mobile phones, you fundamentally have to be able to manage the network and the computing that is gonna be anywhere at any time on any network, and that creates a massive opportunity for software companies because no incumbent has built the technology stack... Sorry for my voice breaking again. Um, so, uh, no incumbent has built a technology stack that powers this next generation of, of work and how enterprises are using their data. So that creates a massive startup opportunity. [clears throat] There's nearly three billion people online. What that means is that every single enterprise is equally changing how they're gonna get their own products to their customers, which means that every industry changes. And so there are really only two times, there are only two moments of opportunity where, um, a technology revolution will happen in the enterprise. The first is if the raw materials change. So cost of computing goes down, and then it's better to centralize and then let people use it on demand. Uh, the second major change is that the very customers that these enterprises have to go after need new experiences of working with those enterprises' products. Let me give you an example. If, you know, uh, w- if when, when you go off campus, you probably use something like Uber or Lyft as an example. The, um, the, the... If you are in the transportation business, if you're in the shipping business, if you're in the logistics business, Uber represents a massive change to your industry. So you can't just let Uber exist and do its own thing without understanding what are the implications of Uber, what are the implications of Instacart, what are the implications of Lyft to my business model? And so in a world where enterprises are dealing with that kind of change, they're gonna need new technology to help them evolve their business models and how they adapt to this disruption. And so in every industry, and this is why it's an amazing time to even build vertical software companies for industries, right now, every single industry is going through a major business model and technology, uh, oriented disruption, which means that they're gonna need technology from startups to help them work through this. I'll give you a couple examples. So in the retail industry, um, there's this notion of sort of omni-channel or multi-channel commerce. You're gonna shop online, you're gonna shop on your phone, you're gonna shop in a store, and you want things to be delivered to you as well. So most of the incumbent technology in the retail industry doesn't power multi-channel commerce. No- nobody is prepared for what does it mean when consumers wanna go actually buy g- goods at any time from anywhere with better information and better intelligence. So every retailer in the world is gonna need a new technology stack to power their retail experiences. In the healthcare space, every single healthcare institution is trying to find ways of building more personalized experiences, more predictive experiences. They wanna have medicine be, um, be adapted to the individual. Um, as the business model of healthcare changes from being about, uh, charging for the surgery, charging for the checkup, and instead, um, really where the customer pays for wellness and staying healthy, then all of a sudden, every healthcare institution needs better technology to deliver healthcare experiences. They're gonna wanna deliver telemedicine. They're gonna wanna deliver healthcare in more regional locations as opposed to just in the monolithic hospital environment. There's gonna be new use cases around how do our electronic health records get connected to one another so doctors can make far better decisions. All of these things are gonna require new enterprise software to power, uh, these businesses and these industries. Um, in the media space, as an example, um, you know, you have a world where an industry is going from really linear programming, so whether that's television, whether that's music, or whether that's movies, this sort of very linear supply chain-oriented business model where, uh, a film gets made, it goes to the movie theater for three months, and then afterwards it goes to iTunes and these other platforms, to a world where people want experiences on demand. So that's gonna change how distribution works on the scale of three billion people that are on the internet. And again, no media company has a platform that is gonna be able to actually power how content and data and information moves through the system at scale. We were just, I was just in LA yesterday, uh, meeting with a media company that has basically done, uh, predictive analytics to find, um, their potential, uh, uh, moviegoers in the population of, of three billion internet users. They wanna be hyper-targeted on how do they get to the very, the sort of specific 30 million people that are fans of different kinds of film types. And so all of a sudden, you have a movie company that actually needs, um, big data, and they need, um, business intelligence, and they need marketing automation to go power how they're gonna go market and distribute their movies. So again, totally unpredictable mashup of two industries coming together where all new kinds of software is gonna be necessary. So every industry is going through some form of this change. You can pick any industry you want and, and take, and sort of zoom into it and say, "What are the underlying technology factors that are gonna change the business model of this industry in the next couple of years?" And then there's gonna need to be software that goes and powers those experiences. Cool? Are we all on the same page? Great. I just need to drink water, so if you could say something, that'd be great.

20. SPSpeaker30:30

    [clears throat]

21. ALAaron Levie30:32

    Can we also edit out my water drinking-

22. SPSpeaker30:33

    Mm-hmm

23. ALAaron Levie30:33

    ... so it doesn't make it look like I just have some weird water problem? Okay, cool.

24. SPSpeaker30:37

    [laughs]

25. ALAaron Levie30:40

    I mean, think about the future of water. Who's gonna power that, right?

26. SPSpeaker30:44

    [laughs]

27. ALAaron Levie30:44

    Gonna need, that's gonna need software, I'm sure.

28. SPSpeaker30:48

    [laughs]

29. ALAaron Levie30:50

    So, so basically, every company in the world-Um, we, we think of, we, you know, the, the, the, the good fortune of being in Palo Alto, being at Stanford is, is we are so hyper-focused on technology, and we think of the technology industry as an industry. But in reality, what's happening is every company, every industry is gonna have a technology component of what they do. They're, you won't be able to survive in the future, enterprises will not be able to survive in the future if they don't get good at technology, if they don't have a competency in leveraging data and using these new tools. But they're gonna be- they're gonna do that through working with what we consider the technology industry, as opposed to everybody building out these pockets of expertise themselves. So there's gonna be a lot of partnership over the next five to 10 years, um, where companies are gonna need to use technology to work smarter, to work faster. They're gonna need to do this more securely, and this is gonna change, um, not only how individuals work in these environments, but ultimately change the business models of these companies. So, that was chapter two of this. Um, that's all the things that have changed. Now, some practical advice, um, where, uh, where, where to help, to kind of help you get started. And, uh, to be fair, most of this advice is looking through the sort of lens of retrospect, which means that, that this is not always how things happen, um, but I can look back in time and say, "These are the things that led certain things to be true." So it's hard to be super deterministic about building a company and, and you might not have all of these things totally figured out, um, but these will, this will give you a sense of some of the patterns to recognize, uh, and opportunities to exploit as you're building, um, or thinking about building an enterprise software company. So the first is spot, um, technology disruptions. Uh, and this is gonna be true whether you're building consumer or enterprise. Um, the rest are more enterprise oriented, but this is just fundamentally, this is just fundamental to entrepreneurship if you're gonna build a tech company. So you have to look for new enabling technologies, um, or major, major trends, like fundamental trends, that create a wide gap between how, um, sort of things have been done and how they can be done. And so looking back in time at, at our business, the, the, the gap was basically, uh, storage was getting cheaper, internet was getting faster, browsers were getting better, yet we're still sharing files through this very complicated, very esoteric, very slow and cumbersome means. So any time where the delta between what is possible and how things work today is at its widest, that is an opportunity to go build new technology to go solve a, a problem. And so as you're looking at the enterprise, the question is: What about the cost of computing dropping so rapidly changes what enterprises can do with their data? What does it change about what you can do from a business model standpoint? What was impossible, um, uh, w- because of either economic feasibility, um, or technical feasibility 10 or 15 years ago that now all of a sudden is, is possible? And, and a fun thing you can do sometime is if you go look at articles from, like, the 1990s or even the 1980s, uh, business articles about technology, um, the... All we're really doing is repeating a lot of the technologies that were tried 10, 20, 30 years ago. It's just, it was too expensive, it was too unusable, and we didn't have the enabling technologies to make it possible. So you can kind of see this pattern emerge constantly, where something that was impossible five or 10 years ago all of a sudden becomes very practical. So I'll give you an example. There's a company called PlanGrid. Does anybody know what PlanGrid does? Okay, cool. Are you in the construction industry? You are? Yes, I am. Oh my God. What does that even mean? In terms of PlanGrid or, like, in construction? Construction. Uh, I work at a job site. We build buildings. Holy crap. That's great. Okay. [laughing] So... Thank you. Um, so, um, so basically PlanGrid, um, PlanGrid is a, a, it's a mobile application that lets you manage construction projects, lets you get access to your blueprints, lets you manage all of the data around a construction process. And what this team realized was that, um, $4 billion, I believe, are spent every year printing out blueprints and making all of the prints and updates to those blueprints anytime there's a change, and then that has to ripple and cascade through a very wide network of, um, of contractors and construction people every time that there's even just one slight minute change. And they realized that, you know, with the iPad, all of a sudden we have the perfect form factor to be able to load up blueprints and load up content, and this is something that could ripple through the construction industry, which isn't necessarily notoriously known for kind of high technology, except for on the design side. How could they build technology that would make the, the data access, data collaboration problem really, really seamless and easy to do, um, in a, in a very, you know, traditional industry that hasn't quite changed, um, for, for, uh, for a while. So it was a sort of perfect sort of, uh, discovery of a technology change in a market, and figuring out, w- how do those two things converge. Uh, and then this team built a, a great startup out of it that is, um, that is doing incredibly well, uh, and, uh, and totally taking over the construction industry, as proven by this individual. Thank you. So the next thing is, in the enterprise, you wanna start intentionally small. And what I mean by that is, um, you wanna find, and this is again true of a lot of companies, but even more true in enterprise in a user-led paradigm, you wanna find the wedge-that is sort of the n- very natural place where you can create a product that will slip in between the gaps of other existing products, but is something that you think over time expands to become a more important part of the enterprise architecture. So, um, what you wanna start to do is say, "We're gonna take this sliver of a problem, we're gonna, uh, totally make the user experience on that incredible. We're gonna either change the business model, we're gonna create new technology that makes this previously difficult problem really, really simple," and it might feel small at first. Maybe you're going after small businesses and then you're gonna move up market. Maybe you're starting at just a sliver of the use case and then you're gonna expand out. But you intentionally start small because you will not be able to compete with an incumbent because the incumbent is gonna always go for the full solution. So you have to find what are the gaps in the full solution that are significant enough where a customer is going to want to solve the problem with the discrete technology, but that over time you're gonna be able to expand, again, either to larger customers or, um, to more use cases over time. Great example is ZenPayroll. So, uh, ZenPayroll, started by, uh, a Stanford, uh, graduate or Stanford graduates a couple of years ago, um, basically discovered that the payroll process in small businesses is an incredibly complicated and annoying and cumbersome process, and that's because we use the same vendors that we've been using for decades to do that, and they weren't sort of digitally oriented. You didn't get your, your sort of, you know, you didn't get your payments as a receipt over email. It was very complicated. You didn't really get to see graphs of, of, of, of your salaries. Um, there was no real good data around this. And th- and they said, "We're just gonna take off the slice, um, that is most painful to startups around hiring people, um, and around, uh, paying people, which is just that payroll management process. We're gonna plug into a lot of existing infrastructure, but we're gonna make it dead simple to go do this." And now they're able to move both upmarket over time as well as deliver new services over time. And, and what happens is the, is the incumbents in this market initially look at something like ZenPayroll and they say, "Well, that's small. It's only for small businesses. It's not gonna be very powerful." But that's just the start, because as they get that wedge and as they fit into the market, they're gonna be able to expand again over time, build out more services and more capabilities, but they found just the exact right opening to build a new company and have that emerge. The next is you really wanna find asymmetries. You wanna find... [clears throat] My God. Okay. So can we do some, like, auto, uh, like some tuning of my voice later?

30. SPSpeaker38:58

    [laughs]

Episode duration: 46:19