20VC Box's Aaron Levie on Why Founders Cannot Hedge Their Bets, The 2 Categories of Wrong Decision and How To Avoid Them & The Biggest Dangers of Being OverFunded as a Startup

In this episode of 20vc, host Harry Stebbings interviews Aaron Levie, the co-founder and CEO of Box, a company that revolutionized secure content collaboration with an intuitive user experience. Levie shares the non-linear journey from a college business class project to leading a company with 1900 employees and substantial revenue, emphasizing that success often stems from a series of events rather than a single epiphany. He discusses the importance of focusing on customer problems rather than being enamored with product ideas and the need for startups to make focused bets and iterate quickly. Levie also touches on the challenges of scaling leadership within a growing company, the balance between trust and autonomy, and the potential impacts of crypto and blockchain on traditional enterprise storage. Throughout the conversation, Levie underscores the criticality of product strategy, a culture that fosters ambitious goal-setting without harsh penalties for failure, and the benefits of organizational design that promotes speed and agility.

• Aaron Levie is the co-founder and CEO of Box, a company that provides secure content collaboration with an intuitive user experience.
• Box was founded in Aaron's dorm room at the University of Southern California.
• The company went public in 2015, with investments from notable figures like Mark Cuban and firms like Andreessen Horowitz, Emergence, CO2, and DFJ.
• As of 2021, Box has grown to 1,900 employees and over $770 million in revenue.

"And I'm just so thrilled to welcome back to the hot seat Aaron Levie, cofounder and CEO at Box incorporating the best of secure content, collaboration with an intuitive user experience suited to the way people work today."

This quote introduces Aaron Levie and Box, highlighting the company's focus on secure content collaboration and user-friendly design.

• Aaron Levie did not have a singular "aha" moment for Box; it was a gradual process.
• The idea developed through a college business study on the online storage market in 2004.
• Difficulty in moving data across devices and locations inspired the concept of cloud storage.
• Initial reactions to the idea were skeptical, but user adoption eventually validated the business.

"And it was simultaneously doing a class in college where we had to study a business. And I chose the online storage market to sort of understand back in 2004."

This quote explains the academic origins of Box, where Aaron's study of the online storage market led to the idea of cloud-based data storage.

• Aaron Levie had attempted other business ideas before Box, which was his first successful venture.
• He does not strictly adhere to the notion of serial entrepreneurship being superior.
• Success in entrepreneurship is attributed to the idea, team, and choosing the right market at the right time, rather than the number of ventures started.

"There's amazing entrepreneurs that have done it once, there's amazing entrepreneurs that have done it five times, and it all comes down to the idea, the team. And do you choose the right market at the right moment?"

This quote emphasizes that the merit of an entrepreneur is not in the quantity of startups they create, but in the quality of their ideas, teams, and market timing.

• Leadership at Box has evolved through different stages of growth.
• A constant element has been the importance of product strategy and user experience.
• Early stages focused on the product and idea, which then expanded to customer service, sales, marketing, and resource allocation.
• Each growth stage required accumulating new operational skills and building a team to execute the strategy.

"So what new products are you going to invest in? What new markets are you going to explore?"

This quote reflects the strategic thinking involved in leadership as the company grows and how leaders must adapt to new challenges and opportunities.

• The most challenging phase was transitioning from directly solving problems to building a team that could scale the company.
• Founders initially do everything themselves, but scaling requires delegating and building a strong, resilient organization.
• The mindset shift from personal problem-solving to enabling others to solve problems is essential for growth.

"And so there's this sort of sudden shift from I can do everything myself to actually, I should do as few things as possible myself."

This quote captures the leadership transition necessary for scaling a company, highlighting the need to delegate and trust others to take on responsibilities.

• Trust is approached adaptively, depending on the maturity of the business function and the individual's role.
• More mature parts of the business can afford a higher degree of trust due to established systems and infrastructure.
• New areas and new team members may require more management to ensure success.

"So I think you have to be adaptive to both the individual you're bringing in and the area of the business in which they're operating within."

This quote discusses the nuanced approach to trust in leadership, emphasizing adaptability to the context of the business and the individuals involved.

• Harry Stebbings discusses the skill of delegation with Aaron Levie, noting that board members commend Aaron's ability to delegate effectively.
• Aaron Levie explains that as a founder, one should focus on areas they are most passionate about and can have the greatest impact on, such as product design, strategy, culture, and customer interactions.
• Delegation is a natural result of focusing on these key areas and allowing other important business aspects to be managed by others.

"For me, the stuff I get most passionate about is product, is the design of our product, is the direction the product's going in, our underlying strategy, certainly our culture, so we can build an organization and a team that everybody wants to be a part of and then working with customers."

The quote highlights the areas where Aaron Levie, as a founder, chooses to focus his energy and attention, which directly influences his approach to delegation.

• Aaron Levie emphasizes the importance of placing a big bet on a focused strategy and iterating until it works.
• He reflects on an early decision in his company's history between two divergent paths: cloud infrastructure and peer-to-peer software.
• Investor Mark Cuban's advice against hedging bets resonated with Aaron, reinforcing the need for startups to focus resources on one path and iterate quickly if necessary.

"You have to make a bet and then you have to use information and then iterate quickly if that bet ends up being wrong."

This quote encapsulates the strategy of committing fully to a chosen path and being prepared to iterate based on new information, rather than diluting efforts across multiple uncertain paths.

• Aaron Levie advises that the approach to go-to-market motion should be sequenced based on the product and potential user base.
• For products with a large potential user base, product-led growth should be prioritized before adding a sales motion.
• In contrast, for products with a small, specific market, the focus should be on a distribution model that aligns with the total addressable market.

"You can always do that particular activity later. And getting that sequence right is just really important as a startup."

Aaron Levie stresses the importance of sequencing go-to-market strategies to build upon a solid foundation, rather than attempting to do everything simultaneously.

• Aaron Levie discusses the nature of making bets that may not go as planned and the importance of focusing on customer problems rather than being enamored with a product idea.
• He also regrets not addressing certain big ideas sooner, which could have accelerated the company's progress.

"So usually there's a tendency where the idea itself is what is so interesting, as opposed to the problem is so important for customers."

The quote reflects on the common pitfall of being more interested in the product idea than the actual customer problems that need solving.

• Aaron Levie talks about the challenge of creating a company culture that encourages ambitious goal-setting while maintaining reasonable accountability.
• He emphasizes the importance of autonomy and setting up a team and strategy that can realistically achieve ambitious goals.
• Levie prefers rewarding success rather than punishing failure, focusing on learning from post-mortems with proper context.

"I generally prefer an approach where when you achieve great things, good things happen, as opposed to, if you don't achieve the goal, bad things happen."

This quote illustrates Aaron Levie's philosophy on encouraging innovation and risk-taking within a company, focusing on positive reinforcement and learning from failures.

• Emphasizes the importance of the right organizational design and technical capabilities to retain speed and agility.
• Mentions Amazon as a company that exemplifies this approach with autonomous teams and independent services.
• Discusses the trade-offs between Amazon's approach and Apple's centralized approach, highlighting the chaotic user experience versus a unified user experience.
• Suggests adopting different methodologies for different aspects of a company, such as centralization for design to ensure a consistent user experience.
• Advocates for independence in engineering teams to develop services with minimal dependencies.

"So the only way I've found to retain speed and agility is through the right organizational design to ensure speed and agility, and the right technical capabilities to allow for that as well." "Now, what you get in an environment like that, of course, is in some cases overlapping technology, sometimes chaotic user experience because you don't have centralization." "Conversely, we want our engineering teams to be ideally as independent, as achievable by our technical architecture, so that way we can go and develop as many services as we can with little dependency where possible."

These quotes explain how organizational design and technical capabilities are fundamental to maintaining speed and agility as a company grows. They also highlight the balance between autonomy and centralization, as seen in the contrasting examples of Amazon and Apple.

• Aaron Levie expresses concern over the inflationary pressure in software due to high valuations of private companies.
• Discusses the potential negative impact of being overfunded, such as building the wrong product or overengineering technology before achieving product-market fit.
• Levie explains that an influx of capital allows investors to underwrite future growth, leading to early, high valuations.
• Acknowledges that while this investment strategy can lead to failures, it can also be offset by the successes.
• Emphasizes the importance for founders to focus on building their business correctly, regardless of capital influx.

"I would say that, first of all, kudos to everybody getting those valuations. You can consider me extremely jealous." "There's actually legitimate real problems that can be caused by having too much capital that are not of the sort of cynical variety." "So ultimately, I'm not as worried on the sort of impact to the capital market. I would be more worried as a founder of how do you make sure that you do the right thing as a business when you have this influx of capital much earlier in the company formation process?"

Aaron Levie acknowledges the impressive valuations some companies achieve but warns of the real problems associated with too much capital. He is less concerned about the impact on capital markets and more focused on the challenges founders face in using capital wisely during early company growth.

• Discusses the human aspect of high company valuations and the potential for employees and founders to lose focus.
• Expresses concern about employees' and founders' behavior changing due to perceived wealth from equity in highly valued companies.
• Predicts a correction in valuations but not a sudden bubble burst, expecting more reasonable valuations in the future.

"Totally agreed. I would say if you're able to avoid the distractions of what that capital can do, then certainly having more capital with lower dilution for a founder or even a company is generally ideal." "But that being said, we will see a correction. I just don't believe it's going to be a sudden correction that will feel like a sort of bubble burst."

Aaron Levie agrees that avoiding the distractions of capital is ideal for retaining equity and cash for the company and founders. He anticipates a market correction in valuations but expects it to be gradual rather than a sudden crash.

• Addresses the challenge of ensuring later participants in a network gain as much or more value than early participants.
• Compares traditional network effects in social networks and marketplaces with the dynamics of crypto networks.
• Explains that traditional networks like Airbnb grow in value for all participants, whereas crypto networks may plateau and lose appeal for new participants.

"Stay with box." "And so at some point in a crypto network, so far, at least, what we've seen, maybe other than bitcoin and ethereum and a few others, is you see a plateau, where once you have that asset reach a certain value, future participants don't perceive as much upside as the earlier participants."

The quotes highlight the importance of designing networks in a way that provides continuous value to new participants, contrasting traditional networks with the challenges faced by newer crypto networks.

• Levie reflects on his changing views on crypto, acknowledging its potential to create more abundance on the web.
• Discusses his initial fascination with bitcoin and concerns about inflation, but notes his lack of participation due to these concerns.

"So I've been on a little bit of a roller coaster on my crypto points of view." "And basically I've always been fascinated intellectually by bitcoin, but not really participated just because it doesn't appeal to many of my concerns on inflation and other things."

Aaron Levie shares his personal journey with cryptocurrency, indicating a balance between intellectual fascination and practical concerns about its impact on the economy and inflation.

• Aaron Levie initially skeptical about Ethereum and blockchain technology.
• After deep diving, found the technology to be valid with interesting use cases.
• Moved to moderate skepticism due to concerns about overpromising capabilities.
• Concerned about the potential for technology bubbles and adverse web outcomes.
• Recognizes use cases such as shared databases for developers, game items, government applications, and money movement.
• Skeptical about the necessity and practicality of decentralizing certain types of information, such as social data or Airbnb host information.

"In the past year, we've had a sort of resurgence of ethereum based, kind of blockchain oriented development. And obviously web three has emerged from that."

Aaron Levie acknowledges the resurgence of Ethereum-based development and the emergence of web three, indicating a period of increased interest and activity in blockchain technology.

"I started out skeptical, and then I did a lot of deep diving on the technology and found that the technology certainly does do what it purports to say it does and has some very, very interesting, relevant use cases."

Aaron Levie transitioned from skepticism to recognizing legitimate and relevant use cases for blockchain technology after researching it in depth.

"I'm probably more now moderate, moderately skeptical, because I think that the technology is being positioned for more than what it actually can do, which ultimately I fear of tends to lead to bubbles, as well as possibly a bad outcome for how the web functions."

Aaron Levie expresses continued skepticism, fearing that overhyping blockchain capabilities could lead to bubbles and negative impacts on web functionality.

• Blockchain technology has minimal impact on traditional enterprise and storage.
• Decentralized systems require significant redundancy, leading to excessive data storage.
• Most web and software use cases don't require censorship resistance or immutability.
• Suitable blockchain use cases include small data records like e-signatures.
• Storing large amounts of data on a blockchain is not cost-effective for customers.

"Realistically, it largely doesn't. The way to think about it is any design of a decentralized system has to have a certain amount of redundancy built in to obviously ensure against censorship, resistance and whatnot."

Aaron Levie explains that blockchain's impact on traditional enterprise is limited due to the inherent redundancy required in decentralized systems, which is not necessary for most enterprise use cases.

"So I think there's a small, narrow fraction of data that could be very relevant on a blockchain, but that data is likely going to be limited in size."

Aaron Levie suggests that only a small fraction of data would benefit from being on a blockchain, emphasizing that such data would be limited in size.

• Aaron Levie's favorite book is "Innovator's Dilemma" for its foundational business disruption principles.
• The hardest part of his role at Box is getting enough sleep.
• Desires his children to adopt kindness, humility, and enjoyment of life.
• Believes Box's brand is sufficiently vague and unlikely to need a rebrand.
• Having children improved his time management due to the added responsibility.

"Innovator's dilemma is my favorite book, and I think it has the most grounded principles of disruption and business theory that sort of works across every ecosystem in whether you're in technology or any other market."

Aaron Levie cites "Innovator's Dilemma" as influential for its universal principles on business disruption.

"Box today, getting enough sleep."

Aaron Levie highlights that getting enough sleep is currently the most challenging aspect of his role at Box.

• Excited about the future of web technology, including increased compute, APIs, real-time collaboration, and multimedia.
• Anticipates more immersive applications and better data utilization.
• Box aims to be a platform that supports content management in this future state.
• Committed to not deviating from Box's strategic focus.

"I personally think we're at one of the most exciting points of the web in its direction going forward that I've ever seen."

Aaron Levie expresses enthusiasm about the current trajectory of web technology and its potential for innovation.

"Our job at box is we just want to be a platform that helps people work with their content in that future state, and we're going to continue to stay focused 100% on that and not deviate from the strategy."

Aaron Levie outlines Box's mission to be a platform that aids in content management, emphasizing a commitment to their strategic focus.

• The episode includes sponsorships from Core Signal, Squarespace, and AngelList.
• Core Signal provides data for VC firms to enhance discovery and analysis.
• Squarespace offers tools for building an online presence and business management.
• AngelList supports fund management for investors and startup creation for founders.

"Our first sponsor for this episode is Core Signal. Core Signal is a data vendor providing fresh, raw data collected from public web sources."

The podcast acknowledges Core Signal as a sponsor, highlighting their service of providing data for venture capital firms.

"From websites and online stores to marketing tools and analytics, Squarespace is the all in one platform to build a beautiful online presence and run your business."

Squarespace is presented as a comprehensive platform for building and managing an online business presence.

"They've been a key partner for me in managing my investments. I love using the angel list platform because it abstracts away all the complexity and operational burden of fund management."

AngelList is recognized for simplifying the complexities of fund management for investors, positioning itself as a valuable partner in the venture capital ecosystem.