Lecture 12: Building for the Enterprise

What this lecture covers

Aaron Levie, co-founder and CEO of Box, argues that enterprise software, often dismissed by student founders as unglamorous, is one of the best opportunities in technology right now. He tells the story of how Box started as a consumer file-sharing product and only later pivoted deliberately toward enterprise customers, then explains the structural shifts (cloud computing, standardized platforms, mobile, globalization) that have made it dramatically easier for small teams to sell into large organizations.

The lecture sits among a run of guest talks in the course on go-to-market strategy. After watching, you should be able to name the market forces that have opened up enterprise software to startups and recognize patterns, such as starting with a narrow wedge or exploiting an incumbent's blind spot, that founders can use to break into an enterprise category.

Key ideas

• Enterprise versus consumer economics: consumer spending on apps and advertising is large but capped, while enterprise IT spending measures in the trillions and enterprises optimize for productivity gains rather than minimizing spend.
• The IT-led to user-led shift: mobile devices let individual employees bring in their own tools, so startups can win users directly rather than needing an existing relationship with a company's IT department.
• Cloud computing removes deployment friction: enterprises no longer need to provision their own servers for every new piece of software, lowering the barrier to trying a new vendor.
• Start intentionally small: rather than building a full suite to compete head-on with an incumbent, find a narrow "wedge" problem that a large vendor's product doesn't solve well, then expand from there.
• Exploit asymmetries incumbents can't follow: build things that are technically or economically infeasible for an incumbent, such as being platform-agnostic when a competitor's business model depends on suite lock-in.
• Listen to customers, but design the solution yourself: distill many customer requests into the simplest product that solves the underlying problem, rather than building exactly what each customer asks for.
• Modularize, don't customize: build an open platform with APIs so customers can build their own vertical experiences, instead of hardcoding custom features into the core product.
• Consumer DNA still matters in enterprise products: products designed with consumer-grade usability spread faster inside organizations and are easier to sell, even though enterprise software still typically needs a sales team.

Walkthrough

Why Box exists (0:49)

Levie opens by stating his goal: to convince the class that enterprise software is a better opportunity than it seems, then gives an overview of Box's scale, roughly 240,000 businesses and 27 million users across nearly every Fortune 500 company.

From consumer file sharing to a fork in the road (4:02)

Box started in 2005 as a consumer product for storing and sharing files at a time when doing so was slow and expensive. Levie explains the three enabling shifts he noticed at the time: falling storage costs, faster browsers and networks, and more places people wanted to store data. As the free consumer product grew, the team found their product had too many features for casual consumers and too few for enterprise needs, forcing a choice between the two markets.

Choosing enterprise despite the odds (9:31)

Levie contrasts the two paths as they appeared at the time: consumer felt exciting but crowded, with limited monetization through purchases or ads, while enterprise IT spending dwarfed consumer spending but seemed slow, unglamorous, and dominated by large incumbents. Early investors doubted a young, inexperienced team could compete with the likes of Microsoft, Oracle, and IBM, but Box chose to enter enterprise by deliberately doing things differently from how existing vendors sold and built software.

Structural shifts that opened up the enterprise market (17:47)

Levie walks through what changed in the years after Box's founding: applications moved to the cloud, eliminating the need for each customer to deploy servers on-premise; software shifted from custom-built to standardized, API-driven platforms; and markets expanded from only the largest companies to businesses of any size. He also highlights the shift from an IT-led adoption model, where incumbents with existing CIO relationships had the advantage, to a user-led model where employees bring in tools themselves, which favors new entrants with easy-to-adopt products.

Every industry is being disrupted (25:25)

Because computing costs keep falling and nearly three billion people are online, Levie argues every industry, not just technology companies, is going through a similar disruption and will need new software to adapt. He gives examples across retail (multi-channel commerce), healthcare (personalized and remote care), and media (on-demand distribution), arguing this creates an opening for startups to build both horizontal and vertical enterprise software.

Practical patterns for entering the enterprise (31:27)

Levie lays out tactics for founders: spot technology disruptions where the gap between what's possible and what's actually done is widest (illustrated with PlanGrid's move to replace printed construction blueprints); start with a narrow wedge use case rather than a full suite, as ZenPayroll did with payroll for small businesses; and exploit asymmetries incumbents can't copy, such as building a platform-agnostic product or inventing an unusual business model, as Zenefits did by monetizing through insurance commissions rather than charging customers directly.

Finding early adopters and building the product (41:30)

Levie recommends finding customers at the "bleeding edge" of their industry, workers effectively living in the future of their field, and building with them, citing Skycatch's use of drones in construction and agriculture. He closes with product advice: listen to customer problems but design the simplest solution yourself rather than building exactly what's requested; build an open, modular platform rather than hardcoding custom features; and keep consumer-grade usability at the center of the product even though enterprise sales teams are still usually necessary to help customers navigate deployment.

Before you watch

• Some familiarity with basic startup and business model terms (such as SaaS, monetization, and go-to-market) is helpful.
• This talk pairs well with other course lectures on sales, since Levie assumes some awareness of how enterprise sales cycles typically work.

Check your understanding

1. What forced Box to choose between building for consumers and building for enterprises?
2. Name two structural shifts Levie describes that made enterprise software more accessible to startups since the mid-2000s.
3. What does it mean to "start intentionally small" in enterprise software, and how did ZenPayroll apply this idea?
4. How does Zenefits's business model illustrate finding an economic asymmetry incumbents can't copy?
5. Why does Levie argue that enterprise software still typically needs salespeople, even when the product is designed to sell itself?