Box’s Aaron Levie on his journey from college dropout to public CEO

“Like in all great entrepreneur stories, we had very few friends and weren't invited to any parties in college,” says Aaron Levie, founder and CEO of Box. “So we had an abundance of time to spend on computers.”

Aaron was a sophomore at the University of Southern California when he and his friends started Box. Frustrated by the clunkiness and inconvenience of the prevailing file sharing methods of the time—USB keys, FTP sites, and emailing attachments to yourself—he and his co-founders dreamt up a better way. But almost as soon as they decided to start pitching investors, the rejections started pouring in.

“Nobody thought it was a good idea to invest in two 21-year-olds going up against these big behemoths in enterprise technology,” says Aaron. Their lucky break came when a cold email pitch caught the attention of Mark Cuban, who invested $300,000. By the fall of 2005, the business was gaining so much momentum it overtook Aaron’s ability to stay on top of schoolwork. He decided to drop out and focus on growing the business full time.

Today Box has over 14 million paid users and is worth an estimated $4 billion. He joined us on Cloud Giants to talk about the importance of focus, survival during harsh macro-economic climate, and maturing past adolescent defiance to grow.

Avoid overextending your product in a broad market, rather overdeliver in a narrow market

In 2007, Aaron was faced with a crossroads. Up until this point, the company had been selling to both consumers and businesses. Average folks wanted a place to back up their personal computers, and store photos and mp3s. At the same time, business users looking to upgrade platforms like Lotus Notes and SharePoint that weren’t working for modern business challenges. The team was stretched thin trying to serve these two diametrically-opposed use cases. Aaron had to make a decision.

Don’t try to be everything to everyone.

One of their early investors, Josh Stein from Threshold Ventures, gave him important advice: Don’t try to be everything to everyone. Josh explained that by trying to serve both customer segments, he’d be diluting the experience for both. Instead, he suggested focusing on the enterprise segment because it was the far larger revenue opportunity. Aaron says he had a “come to Jesus moment,” realizing it was the right move to sell to enterprises with hundreds or thousands of users versus focusing on selling individual subscriptions to consumers.

“The hardest part for me personally was cutting off half of the use cases and half of the market, after we’d worked so hard to build both arms of the business,” says Aaron. “But ultimately cutting off the consumer half the business was the best decision we ever made.”

Prioritize survival of the business above all else during turbulent economic times

Box saw dizzying success after pivoting to focus exclusively on the enterprise. But the following year—just after raising a Series B—the 2008 recession hit. Suddenly Aaron was faced with unprecedented obstacles and buyers in the IT department keen on cutting costs. Aaron learned the hard way how to be extremely nimble.

“I’d look back at certain internal strategies that felt sound literally last week, and go, ‘Wow, we were pretty naive about the situation,’” Aaron recalls. “Things change drastically on a daily or weekly basis.”

Aaron advises founders facing similar uncertainty in today’s pandemic to look at their activities and ruthlessly cut anything extraneous—pouring resources only into projects that are proven to drive revenue. “There's nothing like an economic crisis to get you insanely focused,” he says.

“Maybe you were placing a bet on an interesting long term growth idea you thought may bear fruit three years from now. Maybe you have some side projects or multiples of your business model that you're testing. You have to cut all of that.”

Burn capital in proportion to profit margins to build a sustainable business

“This advice may sound very trite and obvious,” says Aaron. “But cashflow really matters.” While a reliable stream of revenue seems rudimentary to running a business, Aaron feels that many in Silicon Valley have lost sight of this over the past decade, since the market for software has become enormous and grown exponentially. Founders who are gunning for an exit or an acquisition may not see cashflow positivity as the endgame, since they may be measured purely on their growth rate or the promise of their technology.

But Aaron believes that founders who always keep one eye on efficient cash generation will ultimately build the stronger businesses. Investors ultimately measure businesses on their long term ability to generate cash—even if your company is generating no cash but is growing rapidly, investors believe you will generate cash in the future based on the underlying strength of your business model.

Aaron urges founders to ask themselves if their business models are strong enough to justify their investment profiles. He’s observed many companies with low gross margin products, in the 10-30% range, invest in the same way that a company with 80% gross margin products would. “The reality is that the dollars that come out the bottom of your profits and losses aren't the same. You need to be thoughtful about this if you care about building a sustainable business.”

Tame your ego to see the validity in critiques that will help you grow

Aaron recalls being fiery and defiant in his early days as a founder, especially in the face of criticism. “I had this reality distortion field that told me, ‘You are 100% correct and the person giving you feedback is wrong,” he says. “But with the benefit of hindsight, I'd say 95% of that feedback that we got from the investors that turned us down was actually correct.”

He believes this outlook is related to the very mindset needed to be an entrepreneur. After all, if he’d taken the early naysayers too seriously, he may have never attempted something as audacious as building an enterprise business as age 21.

“The challenge with whatever DNA strand is in all of us crazy entrepreneurs is we tend to just get overly emotional about things all the time,” says Aaron. “We consider anything that is a knock on our business as a personal slight because we live our businesses all day long.”

Aaron has since cultivated more humility and sees the value in all feedback, even when it’s negative. He advises founders to work on seeing beyond their initial indiganance to parse through what they can learn from even the harshest of criticism. “Take feedback from everybody you can. You can often synthesize bits and pieces of many critiques to uncover insights that are exactly what you need to grow,” says Aaron. “It’s harder than it sounds, but if you master this you will be unstoppable.”