After cloud storage company Box got its first investments from the likes of Shark Tank‘s Mark Cuban, its founders dropped out of college. All its advisors told them that they had a great product—a way to use the cloud to share large files easily—but there was no way they could compete for big business customers.
“My co-founder looked like he was 13 years old,” Aaron Levie, Box’s CEO and co-founder, told an audience at the startup accelerator Y Combinator. With a photo of his CFO at 29 on the screen, he said “I can’t imagine giving him money.”
Y Combinator just published the lecture last week. The full text can be read on Genius and the slides are available on Box.
When everyone said they couldn’t sell to big businesses, Box saw a future that others didn’t see. They saw shrinking prices for data storage and a future in which companies would no longer need to install technology on servers at each office location. So in 2007, the company began building their file-sharing product in a way that it believed could sell to businesses large and small as the world changed.
It’s now got a market cap of $2.2 billion, with a product used by 240,000 companies, including 99 percent of the Fortune 500. “That last one percent is really just Microsoft,” Levie said, “and they don’t seem to want to buy from us.”
He uses the word “enterprise” throughout his talk (which typically refers to organizations with thousands of employees), but many of the things he said showed that the lines between enterprise companies and smaller firms have really blurred. With cloud technology, tiny firms can take advantage of many of the same tools that companies like General Motors use.
He gave nine tips to young companies for finding an opportunity in the $3.7 trillion enterprise IT market:
- Look for ways technology changes work. Before the cloud, people shared files by paper in the mail or by FedEx’ing disks. The cloud created an opportunity to make sharing large files easier, but someone had to build the architecture.
- Start small on purpose. An incumbent competitor is going to try to offer the full solution, but look for a place that still has a lot of friction and fix that one thing. Yesterday, I wrote about a company that just fixed basic edits on photos. They might be planning to use that as a wedge into Photoshop’s market. Who knows?
- Find asymmetries. Incumbents may refuse to do certain kinds of work or it might work against their larger business model. Look for problems that competitors don’t want to solve. For example, data that’s tough to share when two different companies use two different solutions.
- Find the almost-crazy outliers within the customer ecosystem. This is a sales tip: if you’re going to offer something new and different, look at the companies that are pursuing their businesses in new and different ways.
- Build what customers need (not what they want). Listen to your customers ideas, but find out what the problem is they want to solve rather than the feature they want to add.
- Modularize don’t customize. This relates to the above. Build a platform that stuff can be added to. Don’t strip your product down and rebuild it from scratch for each customer.
- Focus on the user. Old enterprise software had garbage user experience, because it only had to work for IT people who were comfortable with super complex software. Today, your product may well have a mobile version that one sales guy might show another sales guy because he loves it at a conference. That could be the beginning of the sale, but only if the non-technical folks love it.
- Your product should sell itself. That said, companies will still need sales teams, but maybe not the old fashioned sales team. Today’s sales team really knows how to troubleshoot and on-board new clients.
- Binge-read these three books: Crossing the Chasm, by Geoffrey A. Moore; The Innovator’s Dilemma, by Clayton M. Christensen and Behind the Cloud, by Marc Benioff. “If you just read them all, you’ll definitely come out the other end with a massive software company,” he said.
“This is probably the most magical time—if there has ever been a magical time—to build an enterprise software company,” Levie argued. It was 2014 when he said it, but it’s still probably a fairly magical time—at least a little mystical, if nothing else.
