Thinking Outside The Box

Interview with Aaron Levie

The Co-founder of Box talks about lessons learned on the road to IPO, shares his thoughts on the NSA and how he has navigated leading a public company in a volatile market.

April 19th, 2022   |    By: Sarah Lacy    |    Tags: Funding

Historically, the bulk of the Valley’s successful companies haven’t been the rocketship consumer successes like Google and Facebook. They’ve been the steady doubles, base-hits, triples, and home runs of the companies who sell software to businesses.

And in a time when Google and Facebook alone control some 80% of all digital ad budgets, that business model of selling something is starting to look better and better.

One of the few entrepreneurs to bridge these two worlds– selling intuitive, easy to use products to companies– and build a multi-billion public company out of it was Aaron Levie. Unlike a Marc Benioff, Levie didn’t come from the enterprise world. He never worked a day at Oracle or IBM. He came up with the idea in college.

It was hardly your average dorm room startup, and Levie is hardly your typical enterprise founder. He was long seen as a distant #2 to Dropbox, but he took the risk of going public early on, and grinding it out. That risk has paid off, as Dropbox continues to struggle under the weight of an inflated private valuation, and Google, Microsoft and Apple have flooded the market for consumers. That has a lot of pundits saying that Lyft should do the same and go public while Uber continues to struggle through scandal-after-scandal.

As Levie tells us in this interview, an important first test was the time billionaire investor Mark Cuban actually asked for his money back…

Whether you care about enterprise software or not, Levie’s story is that of the last guy you’d expect to shake up an industry persevering amid deep-pocketed giants and sexier, over-funded competitors.

Sarah Lacy: You’re so interesting because you’re clearly not a typical enterprise software guy.

You didn’t work at Oracle. You’re not the elephant hunter type. You’re much more of a consumer guy.

Aaron Levie: I didn’t know all the consumer guys wore suits.

Sarah Lacy: No, I was going to say you’ve changed a bit. You have embraced classic enterprise software more than Atlassian, more than Asana, more than a lot of these other ones. As much as everyone tried to paint you as the wacky consumer guy, every time I see you, you are becoming more enterprise.

What is the real Aaron Levie? You go back and forth between both worlds.

Aaron Levie: Obviously, we are in a world that requires you to balance very different kinds of DNAs and very different kinds of strategies. That’s why it’s really hard to paint the business that we are in as you can be fully consumer or you can be fully enterprise.

The unique thing that’s happening is that, if you think about how much the world has changed around how businesses work with information, how they collaborate, how they share, how they are using technology, the biggest trend and the biggest shift is that you can now have consumer-grade experiences in the enterprise software world.

You have to have, on one hand, the DNA of a consumer company. But, on the other hand, if you can’t get to your customer, if you can’t navigate their organization, if you can’t show up to a GE and be able to work with their 300,000-person company and all of the compliance, regulatory, security, legal and all of the scalability issues they have, then you’re not going to be able to actually close a deal with GE.

Where we’re going is it’s going to require this fusion of the innovative, fast-paced, highly agile pace that we generally ascribe to the consumer companies, but with a way of getting to customers that you would have traditionally seen from the enterprise software world.

It’s that fusion which is making enterprise software so different today, but it needs to be embodied by everybody in our company, including me.

Sarah Lacy: Talk about in the early days how you decided we’re going to do enterprise. You took this direction well before it was considered a cool or sexy thing to do. You didn’t have any experience in it. There was no reason why you should have been the guy building the enterprise version of Dropbox.

Aaron Levie: We did that before even Dropbox existed, so that would be really weird to think about it that way. “In the future, there’s going to be something called Dropbox, and I’d like to be the enterprise version of that.”

What we were trying to do was, we started the company in college. What we did was ran into a lot of problems around how do you share files, how do you access information?

Today, this seems fairly trite and easy to do, but in 2004, when we were in college, our universities gave us 50 megabytes of email space. You couldn’t load up all your data on your email account. We had USB drives. It was really hard to share and collaborate with people.

We built Box, and the original idea was it would be for everything from consumers to small businesses. What we realized was, actually the big opportunity was eventually going to be in the enterprise, where we could get more value for our innovation around security, scalability, and actually change how businesses used information.

Eventually, we felt like companies like Apple, Google, Microsoft, would bring down the cost of the consumer products in this space quite dramatically. It would be very hard to compete as an independent, consumer-oriented company.

All of that ultimately became true, in some cases, eight years later.

Sarah Lacy:  Your hunch may have been too good.

Aaron Levie: Is that such a thing?

Sarah Lacy: Yeah, because everyone saw the same problem. Now, everyone’s solving the problem. Where does that leave you guys?

Aaron Levie: What’s interesting is this, you have two trends that we’re focused on. The first is that things like the cost of storage are going down dramatically, which are massive benefits to our business. We don’t sell storage. We use storage to then sell the thing that we build on top of storage.

We actually benefit from all of the improving economics in the storage industry. Every time that the cost of storage goes down from infrastructure standpoint, we actually generally then give our customers more space so they can use the advantage that was created from an economic standpoint.

Our job, though, is to continue to build more and more value on top of that storage. How do you share in regulated industries? How do you collaborate on a global basis with all of your partners and all of your international customers? How do you build applications and new kinds of services on top of our platform?

Those are the things that we’re entirely focused on. Actually, what we’ve seen is that over time, we’re able to either hold or increase our pricing because the value that we’re offering continues to commensurately increase as we have more engineering, as we have more customers, and as we learn more about the use cases that people want to have around their data.

Sarah Lacy: I want to talk a little bit about your relationship with Mark Cuban, because you had this famed, amazing investor takes a shine to you guys early on, puts his poker money in, or something like that, and then doesn’t like the direction you’re going in, and is like, “No, I want out.”

Aaron Levie: Yeah, that happened.

Sarah Lacy: What was that like? To stare down Mark Cuban and say, “No, this is the direction I want to take the company in, and we’ll cash you out,” was that hard?

Aaron Levie: I more stared down an email from Mark Cuban. You can be way more badass when you’re just like, “No.” Type, type, send. Maybe if I were in front of Cuban, I’d be like, “Yes, we’ll go your direction.” Thank you.

Sarah Lacy:  Tell us in a nutshell what the disagreement was about and why you felt so strongly.

Aaron Levie: This was 2005. We launched our product. Initially, we actually launched the product as a pay-only service. It’s a little-known fact. We did not invent freemium. We launched it as a pay-only service.

We say this company, Flickr, they were giving you the ability to share photos for free, and then monetizing it on up-sell. We were like, “Oh, that’s a pretty neat idea. What if we applied that to more general file sharing, file collaboration?”

We said, “Well, instead of making everybody pay for the storage space upfront, what if we could find a way to give you a gigabyte of free space?” That was a crazy idea. The largest anybody had done at the time was Yahoo briefcase was giving you 25 megabytes so you could store basically a third of a file.

We basically did the math and said, “Well, if we could give people a gigabyte, the cost of storage goes down by about 50 percent or so almost every year at this point.” We would constantly be able to improve the economics of the business, and then we would up-sell people that wanted to have more space.

It was entirely a theory. We had no proof that this would work. There were analogues to what we were trying to do in our direct space. What we did was we pitched to our investors, one of which was Mark Cuban.

We pitched that, and he responded that he had signed up to invest in our business based on the pay-only model, where every incremental customer is profitable on day one. We totally appreciated that perspective.

It was just what we realize was the market realities were going to mean that if that was our go to market strategy, we were going to be obliterated by the competition. We’d have no way to grow at the pace that we needed.

Sarah Lacy:  Isn’t this classic startup? Reality changes once you’re doing it. You pivot, you do different things, and you change strategy. It seems so strange to me that this is a startup guy, and he would be like, “Oh, wait, it’s not going to be exactly what was drawn on this napkin? I’m out.”

Aaron Levie: Basically, to be fair to Mark Cuban, it wasn’t like, “You do this, and I’m out.” It was a little bit more like, “If you find other investors that want to go down this strategy, then I might not be one of those.” It was way more polite.

Sarah Lacy:  I doubt he said it that way.

Aaron Levie: No, it wasn’t like that at all.

Sarah Lacy:  That’s the Aaron way of saying it.

Aaron Levie: Totally. In all seriousness, in the moment, we were 21 and 20 years old. It was obviously scary that a billionaire was asking for his money back. We were like, “Holy shit.”

Sarah Lacy: He has a lot of money, and he still wants it back.

Aaron Levie: It was worse than that. What was really funny is, while we were doing this transaction, he would be fined $250,000 by the NBA for running on the court. It’d be like, “What the fuck? How is this…?” He literally needs his money back here, when if he yells at a referee, he’s going to get fined the exact amount. Maybe he needed to pay it off. I don’t know.

Sarah Lacy:  Maybe that’s why he needed it.

Aaron Levie: In all seriousness, he’s actually an incredibly smart and savvy investor. I actually think probably more often than anybody even realizes, startups often go different directions than what investors either originally signed up for or were originally focused on. We actually just had a fairly amenable way to do that with Mark.

Sarah Lacy: You guys have raised a ton of money, like, what, 300 million, something like that?

Aaron Levie: More or less.

Sarah Lacy: What have you learned about fundraising over the process? If you could go back and be that 20-year-old kid again, what would you do differently?

Aaron Levie: He was a very confused kid.

Actually, I’m not sure that I would change too much. We certainly could have figured out that we were going to be an enterprise company maybe a year earlier than we did.

We meandered a little bit for the first year and a half. We were saying, “Are we consumer? Are we enterprise?” Nine years later, if we had shaved maybe a year off that, I don’t know that things would be dramatically different, mostly because the market that we’re in is only really happening right now.

Getting here sooner wouldn’t have been a tremendous help. The only thing I would say on fundraising just generically is it’s important to just know what is the type of business that you’re trying to build. Ultimately, you work backwards from that.

The market that we’re going after is, we want to serve the largest enterprises in the world, and how they manage, collaborate, and use their information. There’s literally no way that we could do that competitively against the Microsofts and EMCs of the world if we were scrappy about that.

You literally have to build the foundation of a company that can serve incredibly large organizations if you’re going to go after that space. That was the decision that we made a handful of years ago. Then we realized that we had to fund the business in that way to support our goals.

Sarah Lacy: When I talk to analysts in this space who are looking at you guys, looking at Dropbox, and there’s anticipation that both of you are going to be public at some point, people will say, the knock on Dropbox is, are they serious about enterprise? Are they really serious about enterprise? Do they really understand what it entails to do that?

Now, the knock on you guys is, why are they still spending all of this marketing cost giving away free accounts? Why don’t they just focus on enterprise? What do you say to that?

Aaron Levie: I’m going to try and navigate this, because actually, that question is inherently a violation of the quiet period. The only thing I would just say is that, again generically, hypothetically, if you agree that the enterprise is changing dramatically, how people use information, and how people are working.

The space that we serve, you basically have the vast majority of dollars and budget goes into on premise infrastructure, software, technology that hasn’t really changed in the past decade or so. That’s where the tens and up to hundreds of billions of dollars of spend are every years, is on premise infrastructure for managing information, managing data.

That’s the old world, but it’s actually still where most of the money goes. The new world is that you want to be able to work on your mobile device. You want to be able to share and collaborate with your partners outside of your network.

If you’re an employee at Procter and Gamble, and you’re working on a new ad campaign, you want to be able to work your advertising agencies globally. In an organization that maybe isn’t Procter & Gamble — because Procter & Gamble’s a Box customer — then you might be blocked off at the firewall level, and you can’t share your data because you’re using this legacy set of technology.

The way you want to work is over here. The way your current technology stack is from your organization is over here. This entire gap is what needs to be filled.

Our job is to have both an approach where you as a user can sign up for Box for free, and solve that immediately issue of, “I need to share my information,” as well as go work with the individuals responsible for migrating and transitioning this legacy stack of technology.

That means that we want to be able to serve you instantly of the point of when you’re running into a problem with your information. The easiest way to do that is a free product. Then we work with large enterprises to become their sanctioned solution. That’s why we have 35,000 paying customers, and 200-plus thousand businesses that use the product.

Sarah Lacy:  At what point did you make the decision that you didn’t want to sell Box, you wanted to build a big public company? I know that people always say, “I don’t want to sell,” or whatever. “I’m building this.”

Ultimately, this wave, it’s going to consolidate into a few giants, ultimately. Everyone is trying to decide. Yammer obviously decided, “We don’t want to build something for the long term.”

There was this point where you raised enough money at a big enough valuation. There’s certainly rumors about deals that you turned down.

Aaron Levie: It’s a tough process for any entrepreneur when they go through that. It’s easy in advance of that situation to say, “Oh, my god. Wouldn’t it be amazing if we had this amazing exit?” It’s an incredibly exciting experience.

When you actually go and crank through the process of thinking through, do you want to sell your company or not? A lot of other factors begin to emerge. Things like, “Well, what are you going to do after you sell that company?”

Then maybe you quickly say, “Well, I’d probably just go start another company.” Then when you say, “Well, if I just go start another company, would I better off compounding what I’ve already built?” Because I know that this is already working, then going and testing your odds again.

There’s a million factors that you start to look through. For us, probably the most important one was we just realized the industry that we were in, and that we had built a product for five, six years — this is talking about a few years ago — was only at the very beginning stages.

While it felt like we had been spending all of our time doing this for five or six years, that was just to get to the starting line of where industry was going to be going.

When we looked at that and saw how much changes are going to be in the future when every enterprise is going to be connected to each other and need to be able share, when every piece of on premise infrastructure is going to move to the cloud, when everything is done on mobile that used to be done on paper and on the PC.

All of those things produce an outcome that was arbitrarily large. We realized that going after that was going to always be more exciting than just taking the risk off the table.

Sarah Lacy:  Did everyone feel that way? Were you the one driving it?

Aaron Levie: No, I wouldn’t say that I had that conviction instantly as well. It took a lot time. I talked to a lot of mentors, a lot of people that either had sold, hadn’t sold, or hadn’t sold and wish they had sold, and had sold and wish they hadn’t sold.

It turns out that there’s literally no consensus on this kind of situation. It all depends on what happened next in the market for that person, what that person did next.

Maybe the overwhelming feedback that people gave was that when you have an opportunity to continue to grow something, build something, and that you think that you have line of sight for the next many years of how to go do that, then you’re always going to be frustrated if you sell, and you give up on that vision and journey.

That ultimately became true. If we had done this, it would have been totally depressing to see much how this industry had changed. Now, we’re in the middle of it, and it’s incredibly exciting.

Sarah Lacy: What does it look like on a corporate level in another 10 years? Are Oracle, SAP, Microsoft and IBM still the biggest companies, they’ve just gobbled everyone up and used their entrenched position?

Are there companies from this generation that ever get to the size of Oracle, SAP, IBM, Microsoft? Does it consolidate down to a few, like it did in the first wave?

Aaron Levie: There’s now a market for this new disruptive class of enterprise software companies. These are the Workdays. These are the Salesforces of the beginning of this generation. The Workdays, the Zendesks, the Jives, the Boxes of the world. We collectively represent this new model for, you can have highly user-centric experiences that work. Whether it’s life sciences, healthcare, or the government, you can have compliant technology that works in those environments.

We can actually go and deliver new kinds of experiences for customers. What that means is that there’s now this gap. There’s this window where you can actually build a substantive company in new market. Now, obviously, incumbents are going to recognize that, and want to buy up all of these companies.

Sarah Lacy:  They have been. SAP buying SuccessFactors, Oracle buying Taleo, we’ve been seeing it.

Aaron Levie: Yep. Now, in pure economic terms, it is absolutely possible for all of those incumbents to buy or to afford the disruptors. Easily. There’s a lot of money in enterprise software. It’s going to take the discipline and the vigor of this new crop of companies if they want to actually not have that happen, to then go build this next set of platform.

Literally, it might be as simple as does Workday ever sell or not sell. If they never sell, and they continue with the trajectory they’re on, they will be the next Oracle. They’ll be the next SAP in terms of the scale that they’re at. If they sell, then we’ll repeat the cycle. All things considered, I think (Workday’s founders) Aneel Bhusri and David Duffield are not going to sell.

Sarah: This is what I love about coverage Silicon Valley, and I’ve been doing it for 15 years, is that markets are made, broken, or created based on individual stubbornness and decision that they’re actually not going to work in their economic self-interest, and they’re just not going to sell.

The Workday story is amazing. [Facebook co-founder] Dustin Moskovitz doing Asana, he’s already the world’s youngest billionaire. He doesn’t want to sell. It is those irrational decisions that, I agree with you, will make the difference of if Oracle, SAP, IBM are still the biggest, or someone else might be.

Aaron Levie: Although it’s probably very rational that Dustin wouldn’t want to sell, given he’s the world’s youngest billionaire. I think that’s absolutely the situation. What’s great is if you live and work in Palo Alto, as I do, there’s nothing else to do.

It’s not like selling would have done you anything. There’s just nothing else going on, so you might as well build a company.

Sarah Lacy: What have you learned about how you manage that psychology of being the CEO of a publicly traded company?

Aaron Levie: In many senses, maybe Mark Cuban trained us very early on for the volatility of markets.

And for that, we thank him. It just requires complete conviction of what you’re building, and focused on the long term.

Generally, if you are doing something that has an incredible amount of value, you’ve been able to build an incredible culture, and you are able to continue to build in the direction, any kind of near term market fluctuation tends to not be that impactful.

Look at what Facebook went through. The amount of noise about literally, this could be the end of Facebook, and now they’re three times bigger from the point when those conversations were happening is evidence as much as we need around that you’re always going to be dealing with some amount of volatility. There will always be noise around the business.

You stay focused on the long term, you continue to build in the path that you were going on, unless something else changes, and then you continue to pivot around that. It just requires, again, complete conviction, unwavering conviction of what you’re trying to build.

About the Author

Sarah Lacy

Sarah Lacy is the Founder and CEO of Chairman Mom and Pando Media. She's been covering technology for nearly 20 years, previously for BusinessWeek, TechCrunch and many other publications. She's the author of "Once You're Lucky; Twice You're Good: The Rebirth of Silicon Valley and the Rise of Web 2.0" (Gotham, 2008); "Brilliant, Crazy, Cocky: How the Top 1% of Entrepreneurs Profit from Global Chaos" (Wiley, 2011) and the forthcoming "A Uterus Is a Feature Not a Bug" (Harper Business, 2017). She lives in San Francisco.

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