From start-up to
scale: A conversation with Box CEO Aaron Levie PART I
The
cloud-service cofounder and CEO talks about innovation, disruption, and
harnessing the next big thing.
In the McKinsey Podcast, Box CEO Aaron Levie speaks with McKinsey’s Simon
London about scaling the cloud-storage company, driving business growth while
focusing on continuous innovation, and how artificial intelligence (AI) will
factor into the company’s future.
Podcast transcript
Simon London:Hello, and welcome to this edition
of the McKinsey Podcast, with
me, Simon London. Our guest today is in some ways the archetypal Silicon Valley
mogul. Aaron Levie cofounded Box while still an undergraduate and left his
studies behind to focus on building the cloud-storage company. He talks fast,
favors sneakers over highly polished oxfords, and now leads an organization
valued at more than $3 billion. And yet, at college, Aaron was a student of
business, not computer science. He’s an avid reader of business books, thinks
deeply about strategy and organization, and, as we’ll hear, is interested not
only in the future of technology but also in the future of management. So
without further ado, fasten your seat belts for this conversation with Box CEO
Aaron Levie. Aaron, thanks for doing this.
Aaron Levie:Thanks for having me. Really
exciting.
Simon London:If you don’t mind, I’m going to
ask, for people who might not know the company, just give us the story right
from the very beginning. What’s the origin story? And take us through where you
are today.
Aaron Levie:We started Box in 2005. We were
sophomores in college, and we had this idea that it should be really, really
easy to be able to share and access files from anywhere. It was a very basic
idea. We launched this product. Eventually we got really lucky and got some
early venture capital from Mark Cuban. That compelled us to drop out of
college.
So we dropped out of
college. We moved to Silicon Valley. As we thought about what we wanted to
build as a company and as we wanted to scale the business, we decided to focus
100 percent on the enterprise market. Since 2007, we’ve been 100 percent
focused on helping businesses securely manage, share, collaborate, and organize
their critical information in the cloud.
We help companies
manage everything: their financial documents, their media content, their
marketing presentations, collaboration with ad agencies, collaboration with
clients. We work with 85,000 customers globally, including about 70 percent of
the Fortune 500.
Simon London:Employees now?
Aaron Levie:We have about 1,900 employees.
Simon London:And revenue this year is?
Aaron Levie:Last year, we did a little over
$500 million in revenue. And this year, we’ve guided to about a little over
$600 million in revenue.
Simon London:Thank you for that. The obvious
follow-up question is: Along that journey, what have you learned about scaling a software company? Because that has special characteristics—but then
maybe after that, just generalize a little advice to people who are on this
journey.
You have to be nimble
enough, you have to be agile enough, as new information is coming in, to constantly
be evolving.
Aaron Levie:We’ve certainly learned a whole
bunch of things not to do over the years. We’ve made our fair share of
mistakes. The thing that has worked incredibly well is having a long-term
vision for where you’re going.
There are so many
things that have the potential to veer you off course. If you are not really,
really sure of what you’re trying to do over the long run, like a ten-plus year
vision, it is so easy to go off course. We were fortunate. Very early on, we had
this vision, which was, we saw that everybody’s work style was going to be
changing in the future. Every company was going to have to change the way they
collaborated, the way they shared, the way they fundamentally ran their
businesses. That was going to lead people to having to use the cloud to work and manage their data. And we
were building an architecture and a strategy and a technology that could lead
toward that vision of the future.
Simon London:And you were not afraid to pivot
early on, right? So it’s not like you locked in too early.
Aaron Levie:No, we had a lot of flexibility
early on. Probably too much. In the first year and a half of the company, I
would say every 48 hours we’d change our business model. The way it would work
is, we had four founders of the company, including myself, and what would
happen was, if you went to bed too early one night, you were at risk of waking
up and learning that the business model had changed.
There was a lot of
early constant iterating, constant pivoting of the business. That became one of
our core values as a company. We have seven core values that we really live by.
And one of them is take risks, fail fast, and get shit done. The emphasis there
being fail fast. The moment that we get information that we feel is going to be
critical, we will make decisions rapidly on that. That has been built now into
the culture of building an organization where you’re constantly iterating and
you’re constantly testing ideas. You have to make sure that they line up
against the long-term vision. But you have to be nimble enough, you have to be
agile enough, as new information is coming in, to be able to constantly be evolving
and veering the company in just slightly new directions.
That has stuck with us
for a long time. There’s been a lot of near-death decisions and moments as a
company where if we had gone a different direction, we’d be in a very different
spot. One of those was the fundamental business model of focusing on the
enterprise.
Simon London:It feels like you—very successfully
as it turned out—decided to go for growth and to double down on growth. You
wrote quite an interesting HBR piece about
returns to scale. Do you just want to talk about that and the moments when you
had to decide, “Do we double down on growth? Or do we start running the
business for profitability and cash?”
Simon London:That’s it.
Aaron Levie:OK, good. Did I do a good plug just
now?
Simon London:That was perfect.
Aaron Levie:Great. OK. It’s completely true in
the software world where in some cases you have strong network effects. In
other cases, the economies of scale you get by building software are obviously
massive. There’s a premium—an orders-of-magnitude premium—on the companies that
are number one or number two in their market relative to three, four, five, and
so on.
So that means you
really have to make sure you’re building for scale. The moment you believe that
your product has product market fit and it’s working for customers, you’re
pretty incentivized to growing as quickly as humanly possible . We felt that
moment in probably 2009, 2010 where, for the first time ever, large enterprises
were saying, “OK, we’re fine with cloud. We think this is a more secure, safer
way to do our work.”
The moment that we
started seeing and experiencing that, and we saw that there were a bunch of
tail winds that were driving our growth—things like mobile, cloud computing
being adopted in the enterprise—we said, “OK, we’re going to now bet the whole
business on growing as quickly as possible.” That was when we raised a few
hundred million dollars over the subsequent few years because we had to make
sure we were building up the technology team, the sales force, the go-to-market
engine to reach every customer possible. We knew that this was a market that
was going to be defined by the company that could have 90 percent of the large
enterprises on the planet using their technology versus if you only had 10 or
15 percent of the enterprises.
Simon London:Presumably to pursue that strategy,
you need to be very aligned with your investors.
Aaron Levie:Extremely.
Simon London:Because those are big bets. Did you
need to reset with the original investors and say, “OK, maybe you thought you
were going to start seeing some cash positive.”
Aaron Levie:I feel bad for our early investors
because, I think from 2006 to 2012, I’m almost positive we pitched each
subsequent investor on, “This is the round where we get to cash-flow positive.”
We genuinely thought that was what was going to happen, and then what would
happen is, our growth rate would exceed our expectations.
Or you just knew that
with one more concentric circle of investment from where we were, we could grow
even faster. That led everybody to conclude, including our early investors,
that it was time to raise more capital and invest more in growth. Where
start-ups get this wrong a lot is the sequence that is so fundamental. You have
to make sure the product is working and that the customers want the product. Then
you invest. A lot of start-up founders, VCs [venture capitalists], think that
somehow you can buy your way to that, and you almost overfund your product
development to the point where you might spend $10 million, $20 million, $50
million, $100 million just on building product well before the market actually
even is interested in what you’re creating. And that’s where it’s really risky.
We were fortunate. We
started the company with $15,000. We spent a total of $15,000 and proved that
people wanted what we were building. That was in the consumer space. But then
it only took a couple million more to prove that enterprises wanted what we
had. From that point forward, just scaling. It’s really dangerous to start to prematurely scale using venture capital if you haven’t proved that
your product both can scale, but then also the economics of the product
actually make sense at scale.
Simon London:The interesting question is, to
what extent is that specific to software, internet, and cloud businesses? It
sounds quite dangerous, generalizable advice to a company making and selling
shoes.
Aaron Levie:Oh, totally. The massive caveat
should be, only take this advice if you have a recurring-revenue business where
each customer you acquire is likely going to be with you for a long time and
there are network effects. Certainly, if you’re selling a product on a one-off
basis, no amount of scale is going to help if you have bad unit economics.
You’re just now going to have bad unit economics at scale. It’s really hard to
make a profit if each product that you’re selling is unprofitable, so it is
pretty unique to software.
Simon London:The other thing that strikes me is,
there’s a big debate about short term-ism and how providers of capital are too
short term. But you didn’t show positive cash flow until how many years after
the founding?
Aaron Levie:It’s too scary to talk about. But probably
about 11 years.
Simon London:Right. And that’s really
interesting.
Aaron Levie:Our most cash-flow-positive months
were month one and month 137 or something.
CONTINUES IN PART II
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