The Exchanges

Q I am indeed, and it's just as wonderful as I thought. Um, but so what was your entrance? Talk to me.

A Yeah, so I joined from the operating side. So coming out of school, I worked at a startup as a product manager back in the early days of the web, doing web development tools, and then went to business school. And coming out of business school, I started a company in the early wireless web tools space with some of my fellow employees from the earlier company, NetObjects. And so we founded the company in 99, and a number of venture firms invested in us, including DFJ, who actually led my Series A round. And so I got to know the DFJ guys through that. We sold the company in 2002. I took a job as a VP of sales for about when I joined about a fifty million company and about 80 when I left a year later. And so had some sales experience as well. And DFJ was looking to add to their team in 2004. And they gave me a call and I came on board as part of the investment team.

AI assessment note: “DFJ was looking to add to their team in 2004. And they gave me a call”

Q You set me up beautifully there, because you mentioned Mamoon there, and you also mentioned their explosive growth, and Mamoon asks, with reference in particular, to Box, where you think Box are heading, and how can Box be 10 X from where they are today?

A So, I think they can absolutely be 10 X. And I think one of the things that people have always underestimated about box is how horizontal it is. So what attracted me to the original investment is that box is the kind of app that everyone can and should have a box. So if you look at our customer base, we have customers in every vertical industry. So it's not just for retail or finance or construction or healthcare. We have customers across all of those industries. And then within the customers were used by almost every functional group. Whether you're talking about marketing, engineering, sales, HR, finance, legal, they all use Box. The TAM is effectively all knowledge workers. If you take, even at our relatively low pricing, that TAM adds up into something in the range of forty billion dollars. And so, Box today has about 66% of the Fortune 500 as our customers, uh, which would say, hey, we're, we're reasonably penetrated into those biggest enterprises. These are paying customers, paying customer deployments. But on a seat basis, we're just small single digit percentage penetrated. So even if we're within our existing customer base, we have a 10 X plus opportunity to upsell within that. And so, and this is, you know, that's before you get into adding new features, adding new functionality that allows us to capture a larger, larger share of value, uh, through higher pricing effe…

AI assessment note: “we have a 10 X plus opportunity to upsell within that”

Q I am indeed, and it's just as wonderful as I thought. Um, but so what was your entrance? Talk to me.

A Yeah, so I joined from the operating side. So coming out of school, I worked at a startup as a product manager back in the early days of the web, doing web development tools, and then went to business school. And coming out of business school, I started a company in the early wireless web tools space with some of my fellow employees from the earlier company, NetObjects. And so we founded the company in 99, and a number of venture firms invested in us, including DFJ, who actually led my Series A round. And so I got to know the DFJ guys through that. We sold the company in 2002. I took a job as a VP of sales for about when I joined about a fifty million company and about 80 when I left a year later. And so had some sales experience as well. And DFJ was looking to add to their team in 2004. And they gave me a call and I came on board as part of the investment team.

AI assessment note: “DFJ was looking to add to their team in 2004. And they gave me a call”

Q And kind of talking about their explosive growth and then applying that to the wider SAS landscape, Jason Lemkin asks, how are companies like Box, talk desk, your Twilio's of the world. Uh, how are they growing faster than ever before in this SaaS landscape that we're inhabiting?

A Yeah. And those, those are two really good examples because they're actually, I would, I would bracket them slightly differently. So, uh, Twilio developer focused, not a traditional sales process to a large degree. So Twilio is very similar to Amazon web services. They want to make it extremely easy for developers to build on their, on their platform. Those developers typically start small, so you have maybe, you know, a thousand or a 100,000 developers a year starting to build applications, and then over time, some of them become Uber, and some of them become Airbnb, and some of them become Box, and you capture, effectively, the growth in those customers. So, or WhatsApp, so some of those customers end up being, you know, tens of millions of dollars a year.

AI assessment note: “you capture, effectively, the growth in those customers.”

Q Do you think there are any pivotal transition moments to Aaron's self-development and growth as a CEO and founder?

A Yeah, uh, two for sure. So the first was about a year after we invested in 2007 company was actually doing great. It had tripled or quadrupled from, you know, when we invested, they were doing a couple 100,000. They were maybe between one and two million of ARR at that point. You know, I had been pushing Aaron saying, Hey, let's really look at our customer base and which ones are the best customers for us. And It's kind of emerged that the best customers in terms of the ones that stuck around the most, that use the product the most, that were paying us the most, were people who are using it for business stuff, not personal stuff, right? So the box started as more of a consumer tool. We realized that businesses were using it for sharing things like PowerPoint, Excel documents, and that was the genesis of this pivot to the enterprise. And Aaron internalized that, thought about it, and basically came back a couple days later and said, okay, we're going to become an enterprise company and just totally burned the boats, right? You know, he was like one of the Spanish Uh, conquistadors. He just said, you know, we're burning all the boats on consumer. This is now an enterprise company just threw himself into it. That was incredibly awesome. The second one was the financial crisis. So now fast forward another year or two companies doing great. It's about a five million dollar run rate.…

AI assessment note: “Yeah, uh, two for sure. So the first was about a year after”

Q Do you have an example of an adaptation, say from your portfolio where you've really altered the way you would traditionally behave in, in return to the behavior of the CEO and the requirements of the CEO or founder?

A Yeah. So I think one example that I would think would be, uh, I tend to be as an operator myself, probably relatively more conservative. And so interestingly, I've gotten some more operational chops myself now that I'm playing a larger role in guiding DFJ itself. Um, but I tend to err on the side of focus and doing a smaller number of things. My belief is that allows you to do them better. And so I'm more of a, you know, let's iterate, make sure something's working and then lean in. Aaron Levy at box is much more of a parallel processor and is much more also about, you know, I think he's more willing to make mistakes along the way because he sees, and I think pretty correctly in the sense of box, you know, a time bounded opportunity where, uh, taking any more conservative path could actually interestingly lead to failure rather than, than a higher chance of success. And so it, as a board member there and, and, you know, the largest shareholder and most tenured board member there, uh, you know, within the case of box, I learned to give Aaron my thoughts and to give him my input. But I think it would have been a tremendous mistake if I had insisted on us taking a more conservative approach. I think his much more aggressive approach is absolutely right. And more importantly, it was his natural way of operating. And I think forcing him to conform to something that he didn't believe…

AI assessment note: “Aaron Levy at box is much more of a parallel processor”

Q And kind of talking about their explosive growth and then applying that to the wider SAS landscape, Jason Lemkin asks, how are companies like Box, talk desk, your Twilio's of the world. Uh, how are they growing faster than ever before in this SaaS landscape that we're inhabiting?

A Yeah. And those, those are two really good examples because they're actually, I would, I would bracket them slightly differently. So, uh, Twilio developer focused, not a traditional sales process to a large degree. So Twilio is very similar to Amazon web services. They want to make it extremely easy for developers to build on their, on their platform. Those developers typically start small, so you have maybe, you know, a thousand or a 100,000 developers a year starting to build applications, and then over time, some of them become Uber, and some of them become Airbnb, and some of them become Box, and you capture, effectively, the growth in those customers. So, or WhatsApp, so some of those customers end up being, you know, tens of millions of dollars a year.

AI assessment note: “you capture, effectively, the growth in those customers.”

Q Can I ask, what was it about DFJ that really inspired you and made them the preference for you when you entered? Because you obviously work with them as an operator. So what was it that made you think they were Brilliant operationally for you and made you want to join them?

A Yeah, I think, you know, DFJ has always been known for kind of the moonshots before that was a popular, uh, term. So they haven't been afraid to buck convention, you know, in the early part of the nineties, when the firm kind of came to prominence, that was, they were really the first firm doing the internet. Uh, and so deals like Hotmail and Skype were really controversial, particularly Hotmail. The idea that you would offer software for free was very counterintuitive back in And so I got to know the people and the two things that stood out for me were they were not afraid to kind of buck orthodoxy and think differently. And also they were very aligned with founders. So it was very much a culture of we're backing people more than ideas or even more than markets and that we want to partner with our entrepreneurs and enable them to be the best that they can be rather than try to run the company for them. If that makes sense. So they were, uh, hands off, uh, to a large degree, but then whenever I needed something, they were very helpful. And so I, that really resonated for me.

AI assessment note: “the two things that stood out for me were they were not afraid to kind of buck orthodoxy”

Q Do you think there are any pivotal transition moments to Aaron's self-development and growth as a CEO and founder?

A Yeah, uh, two for sure. So the first was about a year after we invested in 2007 company was actually doing great. It had tripled or quadrupled from, you know, when we invested, they were doing a couple 100,000. They were maybe between one and two million of ARR at that point. You know, I had been pushing Aaron saying, Hey, let's really look at our customer base and which ones are the best customers for us. And It's kind of emerged that the best customers in terms of the ones that stuck around the most, that use the product the most, that were paying us the most, were people who are using it for business stuff, not personal stuff, right? So the box started as more of a consumer tool. We realized that businesses were using it for sharing things like PowerPoint, Excel documents, and that was the genesis of this pivot to the enterprise. And Aaron internalized that, thought about it, and basically came back a couple days later and said, okay, we're going to become an enterprise company and just totally burned the boats, right? You know, he was like one of the Spanish Uh, conquistadors. He just said, you know, we're burning all the boats on consumer. This is now an enterprise company just threw himself into it. That was incredibly awesome. The second one was the financial crisis. So now fast forward another year or two companies doing great. It's about a five million dollar run rate.…

AI assessment note: “Yeah, uh, two for sure. So the first was about a year after we invested”

Q Do you have an example of an adaptation, say from your portfolio where you've really altered the way you would traditionally behave in, in return to the behavior of the CEO and the requirements of the CEO or founder?

A Yeah. So I think one example that I would think would be, uh, I tend to be as an operator myself, probably relatively more conservative. And so interestingly, I've gotten some more operational chops myself now that I'm playing a larger role in guiding DFJ itself. Um, but I tend to err on the side of focus and doing a smaller number of things. My belief is that allows you to do them better. And so I'm more of a, you know, let's iterate, make sure something's working and then lean in. Aaron Levy at box is much more of a parallel processor and is much more also about, you know, I think he's more willing to make mistakes along the way because he sees, and I think pretty correctly in the sense of box, you know, a time bounded opportunity where, uh, taking any more conservative path could actually interestingly lead to failure rather than, than a higher chance of success. And so it, as a board member there and, and, you know, the largest shareholder and most tenured board member there, uh, you know, within the case of box, I learned to give Aaron my thoughts and to give him my input. But I think it would have been a tremendous mistake if I had insisted on us taking a more conservative approach. I think his much more aggressive approach is absolutely right. And more importantly, it was his natural way of operating. And I think forcing him to conform to something that he didn't believe…

AI assessment note: “I learned to give Aaron my thoughts and to give him my input. But I think it would have been a tremendous mistake if I had insisted”

Q You set me up beautifully there, because you mentioned Mamoon there, and you also mentioned their explosive growth, and Mamoon asks, with reference in particular, to Box, where you think Box are heading, and how can Box be 10 X from where they are today?

A So, I think they can absolutely be 10 X. And I think one of the things that people have always underestimated about box is how horizontal it is. So what attracted me to the original investment is that box is the kind of app that everyone can and should have a box. So if you look at our customer base, we have customers in every vertical industry. So it's not just for retail or finance or construction or healthcare. We have customers across all of those industries. And then within the customers were used by almost every functional group. Whether you're talking about marketing, engineering, sales, HR, finance, legal, they all use Box. The TAM is effectively all knowledge workers. If you take, even at our relatively low pricing, that TAM adds up into something in the range of forty billion dollars. And so, Box today has about 66% of the Fortune 500 as our customers, uh, which would say, hey, we're, we're reasonably penetrated into those biggest enterprises. These are paying customers, paying customer deployments. But on a seat basis, we're just small single digit percentage penetrated. So even if we're within our existing customer base, we have a 10 X plus opportunity to upsell within that. And so, and this is, you know, that's before you get into adding new features, adding new functionality that allows us to capture a larger, larger share of value, uh, through higher pricing effe…

AI assessment note: “within our existing customer base, we have a 10 X plus opportunity to upsell”

Q Can I ask, what was it about DFJ that really inspired you and made them the preference for you when you entered? Because you obviously work with them as an operator. So what was it that made you think they were Brilliant operationally for you and made you want to join them?

A Yeah, I think, you know, DFJ has always been known for kind of the moonshots before that was a popular, uh, term. So they haven't been afraid to buck convention, you know, in the early part of the nineties, when the firm kind of came to prominence, that was, they were really the first firm doing the internet. Uh, and so deals like Hotmail and Skype were really controversial, particularly Hotmail. The idea that you would offer software for free was very counterintuitive back in And so I got to know the people and the two things that stood out for me were they were not afraid to kind of buck orthodoxy and think differently. And also they were very aligned with founders. So it was very much a culture of we're backing people more than ideas or even more than markets and that we want to partner with our entrepreneurs and enable them to be the best that they can be rather than try to run the company for them. If that makes sense. So they were, uh, hands off, uh, to a large degree, but then whenever I needed something, they were very helpful. And so I, that really resonated for me.

AI assessment note: “two things that stood out for me were they were not afraid to kind of buck orthodoxy”

Q Absolutely. We actually had Rory O'Driscoll at scale on the show recently, and I asked him what would happen in terms of if you advise a CEO or a founder on a strategy and they ignore it and then go their own way. How do you react to that when there's kind of a clear, not disabeyance, but a clear refusal to accept an opinion?

A Well, I think disabeyance is a, is not the right word because it's not, I shouldn't, you know, it's really giving us a In order, um, or it shouldn't be. I also think second guessing can be very damaging. My normative expectation for people that I work with in whatever role is that everyone is, everyone, including, including me are going to listen to ideas intently, make sure we understand people's feedback, understand their concerns, do our best attempt to address them. But then also when a decision needs to be made, then whoever the decision maker is, is going to make that decision and everyone needs to get behind it and not second guess it and not point fingers after the fact. So it's, I think it's a It's a listening and making sure you're internalizing, not just sort of blowing concerns away, you know, and then I do think also it's important to not mistake, make the same mistakes repeatedly. The number one reason where we do occasionally say, Hey, this is not the right leader for the company is when you see someone who's not able to learn from their mistakes, right. And, and adapt to them. So mistakes are natural. They're going to happen, but you don't want to be making the same mistakes over and over.

AI assessment note: “whoever the decision maker is, is going to make that decision and everyone needs to get behind it”

Q love SaaS, uh, partly because of Jason's inspiration for me, but people now attribute potentially, I've heard, is SaaS not just spreadsheet investing? You said there about some metrics, you know, MR, ARR. How do you respond to that when you are, uh, investing as we say, seen so heavily in SaaS? And how do you kind of show the artistic and holistic approach to SaaS that there really is?

A One, one thing to keep in mind is that the metrics are, are usually trailing metrics. And so companies, as they evolve, it's, it's more often less about scaling an existing go-to-market movement. And it's more about how do you add more movements over time? So you may have started selling to small, medium businesses with online sales, but to get to hundreds of millions of revenue, like a box, you're going to have to get an enterprise sales force selling, you know, seven and eight figure deals. And so the thing that I'm looking for is obviously it's helpful to have some sense that the product is working, that's go-to-market movement is working, but we spend a lot of time thinking about the Is this a team that is going to reliably figure out how to scale a company over time? Is this a, a TAM that is large enough where you can not just get to two, three, four hundred million in revenue, but then have that 10 X beyond their potential? And then is there a moat also? So I think one of the things that, you know, the flip side of friction of the frictionless from AWS and Twilio and the like is it's much easier for competitors to get started. And so your application has to have something, some, uh, network effect Potentially, or some regulatory barrier. It's, you know, just being ahead and being in first is not enough because it's a lot easier for someone coming from behind to copy what …

AI assessment note: “metrics are, are usually trailing metrics. And so companies, as they evolve, it's”

Q Is it a portfolio approach to clients, almost?

A Very much so. So, so with Twilio, it's very much about, A, making it as frictionless as possible, To get up and running on them. So you can get started on Twilio for a couple bucks on a credit card. They spend a tremendous amount of time in their documentation and in their onboarding process. And then just a really sort of an evangelism of how do you get out there and make sure that you're the default choice for people. So interestingly, that's then the trend that fuels the people like talk desk or box that are more of the application. So if when I was doing startups in, in 99 to two, you know, we had to go buy hundreds of thousands of dollars in software, hundreds of thousands of dollars of servers. We had to get connectivity set up data center and Just to get our application live was, you know, weeks or months of effort and, you know, hundreds of thousands or millions of dollars. Today, a company from a technical perspective can spin up, first of all, the programming frameworks are so much more advanced. From a DevOps standpoint, you can get running on AWS and Twilio and Cloudflare and whatever else in hours. And then from a go-to-market standpoint, the go-to-market channels are so much more robust. So, you know, we would have to hire a salesperson just to get First sale in general. Now, most of the companies are getting started with AdWords, with Facebook ads, with things li…

AI assessment note: “Very much so. So, so with Twilio, it's very much about”

Q Absolutely. We actually had Rory O'Driscoll at scale on the show recently, and I asked him what would happen in terms of if you advise a CEO or a founder on a strategy and they ignore it and then go their own way. How do you react to that when there's kind of a clear, not disabeyance, but a clear refusal to accept an opinion?

A Well, I think disabeyance is a, is not the right word because it's not, I shouldn't, you know, it's really giving us a In order, um, or it shouldn't be. I also think second guessing can be very damaging. My normative expectation for people that I work with in whatever role is that everyone is, everyone, including, including me are going to listen to ideas intently, make sure we understand people's feedback, understand their concerns, do our best attempt to address them. But then also when a decision needs to be made, then whoever the decision maker is, is going to make that decision and everyone needs to get behind it and not second guess it and not point fingers after the fact. So it's, I think it's a It's a listening and making sure you're internalizing, not just sort of blowing concerns away, you know, and then I do think also it's important to not mistake, make the same mistakes repeatedly. The number one reason where we do occasionally say, Hey, this is not the right leader for the company is when you see someone who's not able to learn from their mistakes, right. And, and adapt to them. So mistakes are natural. They're going to happen, but you don't want to be making the same mistakes over and over.

AI assessment note: “whoever the decision maker is, is going to make that decision”

Q Yeah, no, I absolutely agree. And before we dive into a quick fire there, you said about TAM and like most Do you very much adopt the bottoms up market approach? Do you approach it with the top down perspective? Do you approach it in a more holistic way? How do you look at market sizing with regards to, to prospective investments?

A You just nailed it. That's the art and it's the hardest thing because you're also more often than not looking at a TAM that is with a new product doesn't exist yet or is going to be different in the future. I think some of it is bottoms up. I think some of it is top down. Some of it is looking at What the current generation of technology has been, but a lot of it is going to, for me, it all comes back to people. Really smart, driven founders have a way of finding where the money is, right? It's like they can smell it. And so it's, you know, it's not one straight line from the start. It's a thousand little micro pivots along the way. Every time pivoting, where's the money? Where's the money? Where's the money?

AI assessment note: “I think some of it is bottoms up. I think some of it is top down.”