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Lecture 12 - How to Start a Startup

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Can we keep playing, wait, okay good. Can we turn it up a little bit, so it's more pumped up? >> That's loud. >> Okay, here we go, okay. >> Okay, so we gotta find the beat and then we gotta clap to the beat. >> Okay. All right. Okay, that's pretty good guys. All right, we're good. We're good. Thank you. Okay, please stop. Okay, stop the music. Thank you. Okay, cool. Can you put on the presentation, thank you. >> That'll be the most pumped up thing that ever happens in enterprise software, so the rest is sort of downhill from here. >> So, thank you for that intro, that well-rehearsed intro, thank you. >> Confirming the facts as you're saying them, very good. So I'm Aaron Levie, CEO and co-founder of Box. Welcome to this edition of how to build an enterprise software company. That's my understanding. This is the course that you're taking, right, is that correct? >> No, okay, so. >> Here's my job today. My job is to try and convince you that everybody else who speaks throughout this whole class is wrong and that you actually wanna build an enterprise software company. And so hopefully we'll be able to kinda work through this, and you'll have a good sense of why it's super cool to be in the enterprise. And why a lot of the perceptions of going into the whole consumer space, where it's, you know, so much fun and everything. Why that's wrong and why you wanna do enterprise software. Who wants to build an enterprise software company? Good, all right. Thank you very much. Hopefully we'll do a vote at the end and hopefully that will not have shrunk. So that's really actually the only goal I have at this point. So, we're gonna talk about three things today. The first is the quick background and history of Box. Cuz when we started the company, we didn't know that we wanted to do enterprise software and so I wanna kind of get through a little bit about why we decided to go after the enterprise and what we do today. And then I'm gonna talk a little bit about what are the major kind of factors that have changed in enterprise software that make it possible to do a start up today in this category. And then finally we'll talk a little about some patterns that you can kind of exploit and some ways to recognize and ways to actually go build an enterprise software company yourself and hopefully that'll be some practical, useful advice. Just as a forewarning, my voice, as I've been speaking a lot the past couple days. So hopefully, I'll be able to get to that third part of the advice and actually be able to talk, so we'll see how we make it but I'm gonna be downing a lot of water so I apologize for that. So building for the enterprise. This is what we're gonna talk about. So just quick kinda high level stats about Box. We've about 240,000 businesses that use the product. There are over 27 million users that have brought Box into their organization and used it as individuals and we're in about 99% of the Fortune 500. Unfortunately that last 1% is really just Microsoft. And they don't seem to wanna buy from us. So. >> We have to work on that a little bit. But certainly, a decent amount of scale, a lot of users that have brought Box into enterprise environments, these are some of the large organizations that are using the product. So, a very wide range of industries, everything from manufacturing and consumer products to companies like General Electric. Stanford Healthcare actually uses the product for collaboration within the hospital environments and the research. But between healthcare, media, manufacturing. These are the sort of the range of industries that we serve. So, the question's how did we get here? Cuz we didn't really start the company to try and go build an enterprise software company even though that is how things ended up happening. So when we started the product, so we launched the company in 2005. We got the idea actually in college back in 2004. And so, was anybody using the internet back in 2004? Okay great. So basically, I don't know if millennials use the internet back then. Sorry. Okay, no more age jokes. All right, here's the point. So, back in 2004, you might remember that there wasn't a lot to do on the internet. It was actually kind of boring right? This is before Facebook. This is certainly before Snapchat. So not a lot of things that you could go to, you couldn't send people 15 second messages and photos that disappeared, cuz you didn't even have a phone to send them photos. So in the internet in 2004, there wasn't a lot going on. This was basically what the internet looked like. Sort of a barren, deserted landscape and this was the internet and just to clarify, the happy camel's Google and the sad camel's Yahoo! >> And that was effectively the internet and this is accurate, this is the internet in 2004. Yahoo has done a lot better since then but, but back in the middle 2000s they were certainly trying to find their way and Google was sort of taking over the world but this was the entire, this was the extent of the world. So, what we noticed in 2004 in college was that it was, for some reason, and this isn't so much the case today but back in 2004 it was like, really hard to share files. And as simple of an idea as that is now, you go back ten years and it was either really expensive or it was really hard to move data through different corporate networks. So I had an internship at the time, and in the internship, most of my job using data was actually just to copy printed out pages and then put them in cabinets. That's what you do as an intern if you're not a computer science student. So I was really, really good at copying paper. And unfortunately not a skill that has really been useful today. But, it was really hard to share files and then in classroom environments you were constantly working with lots of other people and it was also hard to share files. I went to USC. And USC gave you 50 megabytes of online storage space in your email account. 50 megabytes. So you can basically store about one file and then it would auto-delete every six months. I don't know who was running IT at the time but they certainly didn't buy hard drives. So, there was just really, really hard to store and share files. And so we said, well, why don't we make it really easy to store and share files from anywhere? And so we got this idea for, at the time it was called And what we noticed was there were a bunch of factors that had changed in the software world. The first was that the cost of storage was sort of dropping dramatically. So, in our business, basically every year or two, you can double the amount of data and storage that goes in to a hard drive. So, what was uneconomical two or three years ago, all of the sudden becomes feasible because the cost of computing and the cost of storage has dropped. We had more powerful browsers and networks so Firefox was just emerging, people were using the much faster internet in both their homes and in the classroom. And then people had more locations that they wanted to store and share information from. And so we had these sort of three factors that all of a sudden were emerging. And I'm gonna sort of pull these factors back later when I give some sort of tactical advice but sort of the first point to remember is, always look for these changing technology factors. Cuz any market that has a significant change in the underlying, either raw materials or enabling factors is an environment that's about to change in a very significant way. And so we were very fortunate that basically the need for data in the cloud was growing in importance, and the cost and the feasibility of doing it was also improving rapidly. And so we decided to put together this really quick version of Box, we launched it as, and the idea was, let's make it really easy to share files. And it turned out that the idea clicked. We got angel funding from this guy named Mark Cuban. And this was before Shark Tank, but it was very similar. And so, we got this funding, and we decided that, okay. This is gonna be super exciting. We are going to drop out of college. We're gonna move to the Bay Area, and it's gonna be totally awesome. And when you drop out of college. Anybody drop out of college yet? Okay, good, stay in school. So when you drop out of college, like everyone sort of pictures it, it's just gonna be, you know, incredible, like Bill Gates dropped out of college. It will be like Bill Gates, or Michael Dell dropped out of college and it'll be super exciting like Michael Dell, or Steve Jobs dropped out of college, so this is what people imagine. But nobody ever remembers that this guy dropped out of college also. >> And, so it's not really a guarantee obviously that it's gonna be successful. But, it's what you do, and actually, funny, I don't even know if this guy dropped out of college. >> It just sort of looks like he had to. >> I apologize if anyone's related to him, it's just a funny picture on the internet. So. >> So basically we decided we would drop out of college. We moved up to first Berkley and then we moved to Palo Alto a little bit thereafter. And we decided that we were gonna open up the product for free. We got hundreds of thousands of people that would sign up for the product every single month. So, we had a free version of the product called, if you went to, you got a free one gigabyte of file storage space, which was, again, quite a bit back in 2006 at this point. But we were getting so many users and we were trying to figure out what to do. And what we ran into was a common problem that really any startup runs into but was really pronounced by our business model, which was that for consumers, we had built a very robust, a very comprehensive product. And for enterprises, we had actually built too insignificant of a product. So, for consumers, what we were running into was, we had all these features that you could pay for but a lot of the consumers didn't need all of those features. And for enterprises, we didn't really have enough, security. And we didn't have enough capabilities around how enterprises wanted to use their data. So we basically had more functionality than what a consumer wanted and less than what enterprise wanted. And so we found ourselves at this juncture. And we found ourselves basically in this period where it's very difficult to figure out what we wanted to go do with the business, so we had to make a choice, right? And so we were at this path where basically, we're at a juncture where we had to choose which path do go down. And this was back in early, mid 2006, up to late 2006, so I was, I think, 23 at the time. The co-founder was, was 22. Our founding team was even younger. When we all dropped out of college. And so back in 2006, 2007, we imagined these two paths and the worlds were very, very different. Like when you do a consumer start up, it's basically just lots of fun. And, you know? You have parties all the time. And it's just super exciting. And then the enterprise, you basically are battling these just large incumbents. It's a fairly thankless, you know? Model because you know? People just generally hate enterprise software. So that was sort of how we imagined that the two paths was, we had to choose, you know, one of these two worlds. And so we looked at that and we said okay, well consumer looks really fun, enterprise looks really hard and, and there's a lot of competition. At the same time, in the consumer space, you are always fighting this issue of, how do you monetize? How do you, how do you actually get people to pay for products? And in the consumer space, there's really only two sort of business models that you can do. You can have people pay for your application. Or you can provide advertising on the application. And so just to give you a little bit of perspective, these are today's numbers. Just to give you a little bit of a sense of the scale difference, in the consumer world, there's about $35 billion spent on mobile apps every year, pretty big number, right? $35 billion that's, that's a lot of money being spent on mobile apps today. For advertising, the global digital advertising market is $135 billion. So, you know, basically combined most consumer companies are going after, if you're not doing e-commerce, about $170 billion of either sort of purchasing power on applications or global advertising around these kinds of services. So, big numbers, lot of opportunity there, however, in enterprise, there's actually $3.7 trillion spent on enterprise IT every single year. So these are the servers, the infrastructure, the software, the networking, the services. All of that stack of technology equates to a few trillion dollars spent every single year. And so what we realized was, okay, there's a pretty wide delta between these two markets. We are gonna be fighting over trying to get consumers to pay a few dollars a month. And Google and Microsoft and Apple will probably try and make this product be free over time. And there were sort of rumors that Google Drive was coming out and these kind of products that eventually happened were going to come out. But in the enterprise, it's not so much about that they are trying to always save money on IT. They're actually trying to increase productivity. They're trying to get higher performance from their businesses. So the value equation is very different right? In consumer, we have a limited amount of money that we want to actually make sure that we conserve for as few things as possible that we're gonna spend. In the enterprise, it's a little bit of a different shift, where you're trying to think about actually, what can I get out of technology, and how much value is that for me. So, that was a really important data point. However, the problem was that enterprise software was really, really unsexy. Right? So again, very competitive, very difficult to build a business. It wasn't something that really you should have shot out of bed in the morning and said, okay, I'm super excited to build an enterprise software company. And the reason for that was actually pretty straightforward at the time. The way that you built software was very slow. So you had to be very slow because you couldn't break anything for customers. The sales process was very slow because customers take a long time to purchase technology. So I think everyone's sort of used to this concept that usually when you try and sell enterprise software to a company, it can take up to a couple of years for them to actually just buy the software. And then they can take a couple more years for them to even implement the technology in the first place, so a lot of companies are around for a few years without having their technology even used in the enterprise. That felt like a huge problem. And not like something we wanted to be a part of. The technology itself is fairly complex. So the user experience, I don't know how many people have had to use most enterprise software, but it's generally really complicated. You find yourself asking why in God's name did the designer try to put 47 buttons on the page. And you just can't even understand it, and the reason is something we'll get into in a second. But basically, there's just no love or care for the design and user experience, the software's just really complex. And then, finally, if that wasn't bad enough, all of a sudden you had to think about how do actually sell the software. And, for anybody who loves the power of the internet. This notion of having a sorta sales intermediary, to get to your customer, seemed like, really unappealing. Like, you're gonna have to go hire a bunch of people that, that are gonna be everywhere in the country. And they're gonna be the only interface, you have to your customer. You're gonna have to hire these guys named Chuck. And Chuck's gonna roll in with a briefcase, and he's gonna just try and sell, lots of enterprise software to the customer. Just so we're clear, this is what Chuck looks like. And that was the sales process that you, in the enterprise, that we at least imagined in our heads. And I mean, Chuck looks like a happy guy, but he's still an intermediary to getting your software. And we were saying, well, why can't we take the power of the Internet and actually, get our technology out to people directly? Why should we have to go through this sales intermediary as we scale the business? Now, I'll get into, in, in a minute, why we were wrong about, the sales process but this was the sort of fear that we had at the time. And then, if that wasn't hard enough we had investors in 2007 saying basically, there's no way you're gonna make it in the enterprise. You basically are again, a founding team of, of early 20 year olds. You don't have anybody on your team that has been in the enterprise. The Microsoft and Google and all these things are, or not Google, but Microsoft, EMC, Oracle, IBM. These kinds of companies are gonna stomp on you and it's gonna be very, very hard to actually achieve. And to be fair they were right on a number of areas, right? So we were a very inexperienced team. This is this was a, in a stage where it is still early in our careers. My co-founder, for instance, looked like he was 13 years old. So just not really, just to be clear. This is what he looked like. So So it, it sorta made sense. Right? This is, this is him as our CFO at, I think this is him at 29. But it looked like we were gonna go run off with the money and go to Disneyland. So I can totally appreciate why they didn't think we would be able to pull it off. I can't imagine giving him money. So basically, we decided okay well we still have to go do it, we have to just give it our best shot. We're gonna take the sorta scale, the consumer experience, the DNA of our company. We're gonna see if we can bring this, into the enterprise and then we were very fortunate where actually we had an investor who was equally early in his career and made a bet on us. Because sorta with the belief that there was something fundamentally changing about the enterprise that we would be able to take advantage of. And so, we decided that if we're gonna do the enterprise, if we're gonna go after the enterprise. That we would have to play by a very different set of rules. So, what about the complexity of software can change in this new era? What about the fact that the sales process is very slow, can change in this new area, era? How do we move and go directly to the user and to the customer. As opposed to having this very, sorta indirect process of getting our technology out there? How do we build, in design for that user as opposed to, just for the sale and sorta for the RFP process that a customer is going to go through. And so we looked at all of the factors, that were true of the enterprise. And we said, we're gonna do, maybe not in all cases, the opposite, but we're gonna find what is changed about the technology world. Where we can take advantage of that shift and build a, a better and a newer enterprise software company. And so, that was the decision that we embarked on. This is the path that we embarked on about eight years ago. And that is why, we've been focusing on the enterprise. And so today, again, we have about 240,000 businesses that use the product. And the reason is, we architected the business model, we architected the software. We architected the solution, to work in sorta one specific version of the world. And it turned out that that version ended up being, the sort of, the one that happened. And I'll go into a little bit about what has changed about the world. That we sorta built out company around. And what, I would highly recommend you, if your building an enterprise software company, make sure to orient to your technology and solution around. So, that was, sort of, why we made the decision, and kind of how we started to take on the problem. Now I'd talk, like to talk a little bit about. What has changed about the enterprise, that makes it sort of so possible to enter it today, better and more seamlessly than ever before. So, everything about the enterprise and then by definition the software that an enterprise uses, has changed just in the past five years. This is probably the most magical time. If there could have ever been a magical time to build an enterprise software company now is absolutely that time. Just in terms of how much change is going on within organizations. So let's just go through a couple of these things. So, the first is that most application categories are moving to the cloud. And the big difference is this idea that if you were going to start a customer relationship management software company, or a business intelligence software company. Or even a content management company ten, 15 years ago, you basically had to go have your technology be implemented, in every single customer location. No matter how many customers you sold to, no matter what regions they're in, every single customer had to put that in their data center. And that was the flaw with on-premise computing, was you were repeating all of this work. You were, creating so much redundancy. And it was, it was then slowing down the entire process of delivering and building software for the enterprise. And then all of the sudden the cloud came around. Things like, things like Amazon Web Services that basically said. Why is it that, that every customer, that wants to just implement a couple servers, has to go procure the servers. Put them in their data center put all the security, all the networking around those servers. And then, and then, six months later they go live and then a developer can use them in the organization, or same thing with an application. Amazon said why does that make any sense today? When we could just, put together thousands, tens of thousands, hundreds of thousands of servers and make them available on demand. And you just use what you want when you need that. And that was, that's obviously a definition of cloud computing. What is happening, though, is finally CIOs in large enterprises are taking advantage of this. So it's, it seems obvious for everyone in this room because you would never build, a company by buying your own servers. You would start it on Amazon, or, or Google or Azure or whatever. But to an enterprise, there are decades, literally decades of investment in infrastructure, that now has to move to the cloud. And so that's obviously a massive shift that is finally happening. We are moving to a world of cheaper, low cost, on demand computing, from a world of expensive computing. The benefit to building a start up, is that customers don't have the same kinda friction. When they're gonna go adopt new technology, right? As soon as the computing, is so much cheaper, it becomes easier to adopt new solutions. Which means, that their barrier for having a conversation. Their barrier for introducing you then, into their enterprise, is a lot lower, which creates a massive opportunity for start-ups. We're going from a world of customized software, to really standardized platforms. So it used to be that you had to build custom integration's and all of the custom experiences on top of the software itself. And now, customers are realizing that actually they want, open platforms and they can customize at the layer above the, the product. It used to be that when you were building enterprise software company you could only really sell to, the top five or 10,000 companies in the world. Because only those companies, had the where with all, the talent, the infrastructure and the budget to deploy your technology into the enterprise. Today, literally a two person company can sign up for box, as well as we work with General Electric which has over 300,000 employees. So, the fact that you can now serve a small business anywhere in the world. As well as some of the largest companies on the planet, mean that there's much larger markets that you can go after. Which makes it, obviously, even a better economic proposition to go after the enterprise. The platforms themselves are becoming more global. So our customers were international literally within the first couple of weeks, of starting the company. It would have been, usually if you had done enterprise software the traditional way that would have taken years, to actually be able to go international. And then finally and probably the most profound shift of all. Is that because of mobile devices, you know, iPhone's, iPad's, tablets Android devices, the IT model of the enterprise has become a lot more user led. And, that's fundamentally important because, in an IT led world, incumbents generally win. Because, they have the existing relationship with the IT organization, with the CIO, with the spending power within that company. In a user led model, users are bringing in, their own technology. They're bringing it in on the sales team, they're bringing it in, in the marketing team, they're bringing it in in finance. And you can build software then around the user. Which means that they can bring the technology in. Then you can sell to the enterprise when they wanna have better control, better security, better scalability. So you still have the same business model, as a traditional enterprise software company. But the way to get into the company is now, through the end user. Okay, so those are qualitative factor changes. Just a couple quantitative factor changes. There's over, nearly 2 billion smart phones on the planet. That changes, every single IT model, on the planet, because it used to be, ten years ago, if you were managing technology for an enterprise. You just had to manage the computers and the network that were inside of your building. But now with billions of mobile phones, you fundamentally have to be able to manage the network and the computing. That is gonna be anywhere at anytime on a network. And that creates massive opportunity for software companies, because no incumbent has built the technology stack. Sorry for my voice breaking again, so no incumbent has built a technology stack. That powers this next generation of work, and how enterprises are using their data. So that creates a massive start up opportunity. There's nearly 3 billion people online. What that means is that every single enterprise is equally changing how they're gonna get their own products to their customers. Which means, that every industry changes. And so, there are really only two times, there are only two moments of opportunity. Where a technology revolution will happen in the enterprise. The first is if the raw materials change. So, cost of computing goes down and then it's better to centralize, and then let people use it on demand. The second major change is that the very customers that these enterprises have to go after, need new experiences of working with those enterprises' products. Let me give you an example. If, you know, when you go out off campus, you probably use something like Uber or Lyft, as an example. The if you were in the transportation business. If you're in the shipping business, if you're in the logistic business, Uber represents a massive change to your industry. So you can't just let Uber exist and do its own thing without understanding. What are the implications of Uber? What are the implications of InstaCart? What are the implications of Lyft to my business model? And so, in a world where, enterprises are dealing with that kind of change. They're gonna need new technology, to help them evolve their business models, and how they adapt to this disruption. And so in every industry, and this is why it's an amazing time to even build vertical software companies for industries. Right now, every single industry is going through a major business model and technology oriented disruption. Which means that they're going to need technology from startups to help them work through this. I'll give you a couple of examples. So, in the retail industry. There's this notion of sort of omni-channel or multi-channel commerce. You're gonna shop online, you're gonna shop on your phone, you're gonna shop in a store, and you want things to be delivered to you as well. So most of the incumbent technology in the retail industry, doesn't power multi-channel commerce. No, nobody is prepared for what does it mean when consumers wanna go actually buy goods at anytime from anywhere. With better information and better intelligence. So every retailer in the world, is gonna need a new technology stack to power their retail experiences. In the health care space, every single health care institution is trying to find ways of building a more personalized experiences, more predictive experiences. They wanna have medicine be adapted to the individual. As the business model of health care changes from being about charging for the surgery, charging for the checkup. And instead where the customer pays for wellness and staying healthy. Then all the sudden every healthcare institution, needs better technology to deliver health care experiences. They're gonna wanna deliver telemedicine. They're gonna wanna deliver healthcare in more regional locations as opposed to just in the monolithic hospital environment. There's going to be new use cases around. How do our electronic health records get connected to one another so doctors can make far better decisions. All of these things are gonna require new enterprise software to power these businesses and these industries. In the media space as an example. You know, you have a world where an industry is going from really linear programming. So whether that's television, or that's music, or whether that's movies, there's sorta very linear supply chain oriented business model. Where a film gets made, it goes to the movie theater for three months and then afterwards it goes to iTunes and these other platforms. To a world where people want experiences on demand. So that's gonna change, how distribution works on the scale of 3 billion people that are on the internet. And again, no media company has a platform. That is gonna be able to actually power, how content and data and information moves through the system at scale. We were just, I was just in LA yesterday meeting with a media company that has basically done predictive analytics. To find their potential movie goers in the population of 3 billion internet users. They wanna be hyper targeted on how they get to the very, the sorta specific 30 million people that are fans of different kinds of film types. And so all of a sudden, you have a movie company, that actually needs big data. And they need business intelligence and they need marketing automation. To go power how they're gonna go market and distribute their movie. So again. Totally unpredictable mash-up of two industries coming together, where all new kinds of software is gonna be necessary. So, every industry is going through some form of this change. You can pick any industry you want, and take and sort of zoom into it and say, what are the underlying technology factors that are gonna change the business model of this industry in the next couple of years? And then there's gonna need to be software that goes and powers those experiences. Cool, are we all on the same page, great. I just need a drink water, so if you could say something that would be great. >> Can we also edit out my water drinking, so it doesn't make it look like I have some weird water problem? Okay, cool. I mean, think about the future of water. Who's gonna power that, right? >> Gonna need, that's gonna need software, I'm sure, so. >> So basically, every company in the world. We think of, you know, the good fortune of being in Palo Alto, being at Stanford is, is we're so hyper-focused on technology. And we think of the technology industry as an industry, but in reality what is happening is every company, every industry is gonna have a technology component of what they do. You won't be able to survive in the future, enterprises will not be able to survive in the future, if they don't get good at technology. If they don't have a competency in leveraging data and using these new tools. But they're gonna do that through working with what we consider the technology industry, as opposed to everybody building up these pockets of expertise themselves. So there's gonna be a lot of partnership over the next five to ten years, where companies are gonna need to use technology to work smarter, to work faster. They're gonna need to do this more securely, and this is gonna change, not only how individuals work in these environments, but ultimately change the business models of these companies. So that was chapter two of this. That's all the things that have been changed. Now some practical advice, where to kind of help you get started. And to be fair, most of this advice is looking through the sort of lens of retrospect, which means that, that this is not always how things happen. But I can look back in time and say, these are things that led certain things to be true. So it's hard to be super deterministic about building a company, and you might not have all of these things totally figured out. But these will give you a sense of some of the patterns to recognize and opportunities to exploit as you're building, or thinking about building, an enterprise software company. So the first is, spot technology disruptions. And this is gonna be true whether you're building consumer or enterprise. The rest are more enterprise oriented, but this is just fundamental to entrepreneurship, if you're gonna build a tech company. So you have to look for new enabling technologies or major trends, like fundamental trends, that create a wide gap between how things have been done, and how they can be done. And so, looking back in time at our business, the gap was basically, storage is getting cheaper, internet was getting faster, browsers were getting better. Yet we're still sharing files through this very complicated, very esoteric, very slow and cumbersome means. So any time where the delta between what is possible and how things work today is at its widest, that is an opportunity to go build new technology to go solve a problem. And so as you're looking at the enterprise, the question is, what about the cost of computing dropping so rapidly changes what enterprises can do with their data? What does it change about what you can do from a business model standpoint? What was impossible, because of either economic feasibility or technical feasibility 10 or 15 years ago, that now all of a sudden is possible. And a fun thing you can do sometime is, if you go look at articles from like the 1990's or even the 1980's, business articles about technology. All we're really doing is repeating a lot of the technologies that were tried 10, 20, 30 years ago. It's just, it was too expensive, it was too unusable, and we didn't have the enabling technologies to make it possible. So you can kind of see this pattern emerge constantly where something that was impossible five or 10 years ago, all of a sudden becomes very practical. So I'll give you an example. There's a company called PlanGrid. Does anybody know what PlanGrid does? Okay. Cool. Are you in the construction industry? You are? >> Yes, I am. >> Oh, my god. What does that even mean? >> In terms of PlanGrid or like in construction? >> Construction. >> I work at a job site. We build buildings. >> Holy crap, that's great. >> Okay, so. Thank you. So basically PlanGrid is a mobile application that lets you manage construction projects. Lets you get access to your blueprints, lets you manage all of the data around a construction process. And what this team realized was that $4 billion, I believe, are spent every year printing out blueprints and making all of the prints, and updates to those blueprints any time there's a change. And then that has to ripple and cascade through a very wide network of contractors and construction people every time that there's even just one slight, minute change. And they realized that, you know, with the iPad, all of a sudden, we have the perfect form vector to be able to load up blueprints and load up content. And this is something that could ripple through the construction industry, which isn't necessarily notoriously known for high technology, except for on the design side. How could they build technology that would make the data access, the data collaboration problem really, really seamless and easy to do, in a very, you know, traditional industry that hasn't quite changed for a while. So it was a sort of perfect, sort of discovery of a technology change in a market and figuring out how do those two things converge. And then this team built a great startup out of it that is doing incredibly well, and totally taking over the construction industry as proven by this individual. Thank you. >> So the next thing is, in the enterprise you want to start intentionally small. What I mean by that is, you want to find, and this is again, true of a lot of companies, but even more true in enterprise, in a user-led paradigm. You want to find the wedge that is sort of the very natural place where you can create a product that will slip in between the gaps of other existing products. But is something that you think over time expands to become a more important part of the enterprise architecture. So, what you want to start to do is to say, we're gonna take this sliver of a problem, we're going to totally make the user experience on that incredible. We're gonna either change the business model. We're gonna create new technology that makes this previously difficult problem really, really simple. And it might feel small at first. Maybe you're going after small businesses and then you're gonna move upmarket. Maybe you're starting it just a sliver of the use case and then you're gonna expand out. But you intentionally start small because you will not be able to compete with an incumbent. Because the incumbent is gonna always go for the full solution. So you have to find what are the gaps in the full solution that are significant enough where a customer is going to want to solve the problem with a discreet technology. But that over time you're gonna be able to expand, again either to larger customers or to more use cases over time. Great example is zenpayroll. So zenpayroll, started by a Stanford graduate or Stanford graduates, couple of years ago. Basically discovered that the payroll process in small businesses is an incredibly complicated and annoying and cumbersome process. And that's because we use the same vendors that we've been using for decades to do that. And they weren't sort of digitally oriented. You didn't get your payments as a receipt, over email. It was a very complicated. You didn't really get to see graphs of your salaries. There was no real good data around this. And they said, we're just gonna take off the slice that is most painful to startups around hiring people and around paying people, which is just that payroll management process. We're going to plug into a lot of existing infrastructure, but we're going to make it dead simple to go do this. And now they're able to move both up market over time as well as deliver new services over time. And what happens is the incumbents in this market initially look at something like this and payroll and they say, well, that's small. It's only for small businesses. It's not gonna be very powerful. But that's just the start. Because as they get that wedge and as they fit into the market, they're gonna be able to expand again over time, build out more services and more capabilities. But they found just the exact right opening to build a new company and have that emerge. The next is you really want to find asymmetries. You want to find, my God, okay, so can we do like some auto like some tuning of a voice later so at least it'll sound like I'm doing rap. {do things that incumbents can't or won't do because it's economically or technically infeasible} Okay, so you want to be able to, you want to do things that incumbents can't or won't do. Because, either the economics don't make sense for them. Or the economics are so different, or so unusual or because technically they can't. I'll give you two examples. So, if you're gonna build software today for the enterprise that goes after an incumbent category that has more of a sweet oriented approach. Then what you wanna go do, is you wanna build technology that's gonna be platform agnostic. Because what sweet players will do, is they want everything to be integrated with itself and that there's more value with that vertical integration. But you wanna go after a different access, which is, you want your technology to work across all of the platforms. So that way, you can work with so many different kinds of customers, and you can be an ally to so many different kinds of platforms, which a traditional incumbent is not able to do. So that's something that is usually technically infeasible, because of how either something has been architected. Or because the fundamental component of the business model to not do that as the incumbent. But, the other thing is try and do things that are economically infeasible. You can look at the cost structure of an incumbent company and discover where are they not going to be able to drop their prices. Because that business model is fundamental to the existence of the company. Or where can you find ways of monetizing the customer that are unusual or unique, that no one has discovered before. And thus is really not practical for anyone else to do. That's a company called Zenefits, where they have an HR management software company that helps you, as a small startup, manage all of your benefits, all of your HR information. And instead of charging the startup, which might not value that software at the stage that they're at. They realized that they could get commission from the insurance companies. And that basically pays for the ability to use their software. So, the customer itself is not paying for Zenefits, the Zenefits platform is being paid for by the insurance company. And they've thus invented a business model, that no other software company has been able to think of or attack. And they're equally going and disrupting a category that hasn't seen a lot of innovation previously, which is the health and benefit space within small businesses. The next is you wanna find the really crazy but, but sort of still somewhat reasonable outliers within the customer ecosystem. So you need to find the customers that are sort of at the edge of their business, or at their business model, or of their industry. And find the unique characteristics about those customers, and leverage them as your early adopters. So Paul Graham has a great article, where he talks about living in the future and building for what is missing when you're living in the future. So that's a sort of easy way to spot trends and patterns about disruption that's playing out. The same is true in the work place. If you find customers that are working in the future, you will be able to work with them to find what is missing when you're working in the future. And how we build technology that supports all these new use cases that are going to emerge. There's a company called Skycatch, which does enterprise drones. And at first it seems kind of weird, but in the construction space, in farming, in oil and gas, they're using drones now for data capture, and the ability to do modeling of, of different environments. And so, this company is able to find all of the companies that are at the bleeding edge of their industry, what is unique or new about how those organizations operate. And they built and worked with a lot of those early adopters to establish their platform, which is again, really one of the first enterprise drone companies. So the idea is go look at your market. Find the customers that are at the bleeding edge of the market, who use technology to get ahead, and that use technology for performance advantages. And then go work with them to discover how your product can evolve. Two minutes. Okay. Good. Right, so. The next one is. And then there's a part two in five minutes from now, or is that not the case? Okay, so, listen to your customers, but don't always build exactly what they're telling you. This is a really key distinction around building enterprise software. Your customers are gonna have a large number of requests. Your job is to distill those requests down into the ultimate product. That does not mean that you're going to build exactly what they tell you to build. It is your job to listen to their problems, but actually translate those into what is going to build the best and simplest solution to those problems. It's really your job, and Palantir does this, as an example, with very, very complex issues. And then they distill those down into simple solutions for very, very, complex problems that the customer otherwise would not have known how to ask for You want to modularize, not customize. So build a platform, as opposed to building all of the custom technology and custom vertical experiences directly in the software itself. Make sure that you really think about openness in APIs as a way of delivering vertical or custom experiences. Don't build that directly into the product. Focus on the user always. So, again, the magical thing about building an enterprise software company right now. Is you can keep consumer DNA at the center of the product. That will always mean that adoption is easier. Your product has a much higher chance of going viral. It becomes easier to sell into the organization. So always make sure you bring consumer DNA into the product development process. And your product should sell itself, but that does not mean you don't need sales people. So this is a really important distinction. Leverage everything about the internet, leverage everything about users to get to your customers. But you still will likely need sales as a way to help your customers navigate your product. Help your customers navigate the competitive landscape and the ecosystem. So you're going to want consultative, very, very domain-oriented sales individuals, that are gonna be able to be helpful in your customer being deployed and enabled in these organizations. But don't make that be a substitute. Do not make that be a handicap for not building a great product. So you fundamentally have to keep the product at the center of that. Company called Mixed Panel comes in through the developer, and then over time is able to sell to that organization with a more inside sales-led process. Also read these three books. So Crossing the Chasm, Innovators Dilemma, and Behind the Cloud. These three combined, especially if you read, if you binge and you just read them all. You'll definitely come out the other end with a massive software company. And so, in closing today. Right now,when you leave this room, is an amazing time to go start an enterprise software company. So I wish you the best of luck. And of course, if it doesn't work, we are hiring. So, and then the only other caveat is please do not compete with me. Because I have a lot of competition already. So ideally either come work for us, or build your own company. So thank you very much.

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Posted by: pulak on Oct 31, 2014

Lecture 12 - How to Start a Startup

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