Do a search of “Enterprise vs. Consumer Startups” and you’ll get endless, contradictory opinions of what each of these terms mean and which is better. But Aaron Levie, cofounder and CEO of Box, makes a strong case for why it’s the perfect time to start an enterprise software company.
As part of Y Combinator President Sam Altman’s series on How to Start a Startup, Levie began his lecture on “Building the Enterprise” by making his way to the front of the room at Stanford to the tune of “Eye of the Tiger,” and that’s just the kind of pump up an enterprise lecture needs in a room full of students looking for the fame and fortune of, say, Snapchat’s Bobby Murphy.
(For more startup advice, check out How to Start a Startup: The Book. It’s the ultimate reference guide to creating a successful tech startup.)
As Levie puts it, when he and cofounder Dylan Smith were starting their cloud-based storage company Box a decade ago before even finishing school, they had to make a big decision for their company: consumer startup or enterprise?
The idea for Box arose from the simple need to share files in the early days of the Internet becoming a more common tool. As young 20-something college dropouts with a really early version of their product, Levie and Smith viewed their options like this: “When you do a consumer startup, it’s basically lots of fun. You have parties all the time, it’s just super exciting. Then in the enterprise, you are battling these large incumbents; it’s a fairly thankless model because people just generally hate enterprise software.”
Thus is the hard sell for enterprise software. But money talks.
Compared to the $35 billion spent on mobile apps each year (either through paid apps or advertising), there is $3.7 trillion spent on enterprise IT. Levie and Smith had the realization that “[w]e are going to be fighting to get consumers to pay a few dollars a month. And Google, Microsoft, and Apple will try to make this product free over time … But in enterprise, its not about them trying to save money on IT. [Companies] are either trying to increase productivity, or they are trying to increase business. So the value equation is very different.”
Enterprise startups will generally see a more incremental, stable growth rather than a viral boom. It’s a process that builds at a steady pace and demands satisfaction from users and organizations every step of the way. Entire companies build upon the structure of enterprise software and organize their workflows around it.
By taking the enterprise route and getting bigger and bigger clients over the past decade, Box has managed to build an adaptable business model for the enterprise. Today, Box hosts 27 million users at 240,000 businesses small and large. Like, really large: Toyota, GE, Food Network, etc. Their success and the success of future enterprise software companies is all thanks to some key shifts in the technology and software worlds.
The Times They Are A-Changin’
Changes in technology have endless ripple effects that impact any tech company out there, and enterprise software is no exception.
Apps Moving to the Cloud
Before the cloud became common use, business software was a redundant, tedious task being implemented again and again in different places. The transition to the cloud — at least in the enterprise world — was not as swift as in the consumer startup world. Enterprises work with a variety of big businesses and, with so many moving parts, a jump to new technology is a big one. It has to be carefully planned and executed, so Levie and Smith had to make their product worth the leap.
To do that, they played by a “different set of rules” with the help of outspoken investor (also early in his career) Mark Cuban. The Box founders “looked at all of the factors that are true with the enterprise” and decided they were going to do the opposite.
Levie explained, “We are going to find what has changed in the technology world … and build a newer and better software company. That was the decision we embarked on, the path we embarked on eight years ago. And that is why we have been focused on enterprise.”
Cheaper On-Demand Computing
Again, money talks. From a time of all things tech-related carrying the stigma of an extra expense, cheaper computing made what was once extra, mandatory. It became easier to adopt new technology, even for large companies, which means that smaller software companies were finally able to go after those larger markets.
With the price barrier being broken down in the world of on-demand computing, there also needed to be another layer of accessibility for users. Rather than fully customized platforms, the trend was moving to standardized softwares — think of the difference from your MySpace page to your Facebook page. People no longer wanted completely open platforms, but instead a consistent software with a layer of customization built on top.
With people operating much of their online lives from the palms of their hands, software is now user-led. There are more people with smart phones, leading to more people online, which makes changes in technology even more drastic. Enterprises had to react to these disruptions.
Levie offered this example: “In the healthcare space, every single health care institution is trying to find ways of building more personalized experiences, more predictive experiences. They want to have medicine be adapted to the individual. How are our healthcare providers going to get connected to one another so doctors can make better decisions? All of these things are going to require new enterprise software to power these businesses and industries.”
Enterprises are still adapting to these changes and, “… every industry is going to have a technology component of what they do. Enterprises are not going to be able to survive in the future if they do not get good at technology.”
Building an Adaptable Enterprise
How does your enterprise adapt to these changes? Here’s an even better question: How do you start an enterprise that is adaptable? Here’s Levie’s advice:
Start Intentionally Small
By finding tiny gaps in existing products, you can make that small space your niche, learn it inside and out and completely own that wedge of the market.
“What you want to start to do is say, ‘We will take this sliver of a problem and we are going to make the user experience on that incredible,’” said Levie.
This way, when you’re starting out, you’re not even worrying about the big guys until you completely own your space enough to grow and branch out.
Spot Technology Disruptions
“You have to look for new enabling technologies or major trends … that create a wide gap between how things are done and how they can be done,” advised Levie.
This is not only key to finding that little sliver for your business to fit in, it’s also important for realizing new opportunities for your business before the competition catches on. In the tech world, major progress affects all of the players.
There are lots of perks to being the little guy — find them and use them. “You want to do things that incumbents can’t or won’t do because either the economics don’t make sense for them, the economics are so unusual, or because technically they can’t,” explained Levie.
Before you do this, though, do your research and find exactly where your incumbents can’t afford to drop their prices or personalize their UX, then fill in those gaps.
Examining those users around the cusp of your industry can give you just the edge you need to take your next steps. Levie said, “Find the unique characteristics of those customers.”
“If you find customers that are working in the future, you will be able to work with them to find what is missing in the future.” Then ask yourself, “How do we build technology that supports all these new use cases that are going to emerge?”
If you work with those outliers as early adopters you can study them to see how your product can evolve. This will also help you to distill your overall customer needs and narrow down on the best solution, which as Levie says, may be one that they need, not necessarily one that they want.
With your user at the center of your product’s DNA and an eye on the long game, enterprise software is a great place to be right now. With the rapid pace at which new technology is being produced, there are even more gaps to fill with lasting solutions for each of them.
You can read a full transcript of Levie’s lecture here.
Also, if you enjoyed this post, be sure to check out How to Start a Startup: The Book. It’s the ultimate reference guide to creating a successful tech startup.
Featured image of Aaron Levie was taken from the video of this lecture at Stanford University.