The Exchanges

Q Hey, Ern, a quick question for you. Obviously, there are a lot of software companies in the Valley. Based on what you've been through, if you were advising them on what metrics matter most, What's at the top of the list for them to pay attention to internally?

A The, there's probably a few that are just like literally the underlying business model economics. Um, I, I like, I'm a big believer in gross margin. Um, uh, your, your gross margin will ultimately determine your operating margin. Um, there's almost no way that, that you can, you can kind of make those two, um, you know, kind of get out of sync. Um, and so if you're, if you're subsidizing something or, you know, or, or in just such a commodity business and you're, you know, 40, 50, 60% gross margin, like there's just like, No way you're gonna have an operating margin that looks like a software company. Understanding your gross margin, managing to gross margin, I think is super important. Um, uh, you know, all forms of LTV CAC are, are probably good. I don't know what the latest, you know, make, you know, everybody, every two years is a new term in the industry that, that is used, but like something that just shows that you can acquire a customer profitably and whether the payback is a year or two years or three years, almost doesn't matter as much as, um, as, uh, do, do, you know, ultimately generate a, A long, a long-term, you know, sticky customer. Um, I think cashflow is, is super important. Um, I'm, I've, I've definitely like, I've, I've gotten religion on cashflow. Um, and I think companies, uh, getting the cashflow sooner, um, is a, is a really good move. I think it, it pu…

AI assessment note: “I'm a big believer in gross margin... all forms of LTV CAC... cashflow is, is super important”

Q have to kick off with software, right? Um, you're, you're one of the thought leaders in the space, and certainly we know you well, and most people in Silicon Valley know you well. But maybe just, uh, level set, you know, quick reminder for everybody. What does Box do? What inspired you to get it started? And then, and then how it's evolving, you know, as you guys exit Zerp.

A Um, actually the Zerp thing, um, uh, I, I mean, I, you know, I know there's a lot of, uh, there's a lot of Zerp stuff going on, but we actually never really even had that much of a Zerp benefit. Um, I can certainly get into the different eras. There was, there was about a three-year period where we raised a ton of capital and we burned it. Um, and we did have a little bit of absurd benefit, but it was actually like on paper, exactly the right thing to do at that point. I got diluted a ton in the process as a result, but it was actually like strategically the most important thing to be doing, but, uh, history of the company super quickly, um, and kind of what we do. So we built a platform that helps companies manage their most important data, their financial documents, their marketing materials, their contracts, uh, their strategy, you know, content, anything that can turn into a piece of content we manage and store and secure. Uh, we have about a 115,000 customers, uh, 70% of the fortune, 500. And we started the company with a really simple premise. This was in 2004, 2005. When we got the idea, it was like right at the start where like you could put data in the cloud. It wasn't called the cloud then. And we did like crazy bridge rounds and all this stuff. I think we pitched bill like four times at that point, um, handily got rejected, you know, probably appropriate, probably ap…

AI assessment note: “we built a platform that helps companies manage their most important data”

Q 10 blue links that is just at its core seems somewhat at odds, um, with what perplexity is doing, with what ChatGPT is doing, the age of answers. Um, and so I, I would just love to, you know, kick it around for a second. How, if you're running Google today, right? And you're faced with this innovators dilemma around this, like, like what, what should they be doing here?

A Uh, well above my pay grade. Fortunately, I am just a lowly enterprise software. But, um, but you know, I, so, so as a reminder, obviously for everybody, um, like innovators dilemma is about business model, you know, difficulties. And we always, we always think it's a technology problem. It's always about your business model, um, doesn't make The, the new thing attractive to you. Um, and so you avoid doing it until you get disrupted. You know, I, I, I might take, uh, after, you know, uh, thinking about this a little bit, not, maybe not enough, is I don't think there's a totally, 100% classic innovator dilemma issue with, with, um, the move to AI with Google. Um, I think on the other end of this, uh, the business model could be as good, if not better. And Brad, you think about this a lot of like, Of like, if you, if you actually had Google literally tell you the thing to buy, um, and, and they got a transaction on that, it would actually be a similar business model. Um, they would just get you to that answer even faster and you'd still transact and you'd still do commerce and, and they are still the distribution engine.

AI assessment note: “I don't think there's a totally, 100% classic innovator dilemma issue”

Q ignored Zerp a bit, didn't get caught up in this, but when you looked around, right, Frank Slootman said to me, probably in 20, 21, most software companies in Silicon Valley are walking dead and they don't even know it. Right. When you looked around in 20 and 21 and look around today, How do you think, um, your fellow CEOs and founders are balancing that profitability versus growth tradeoff?

A A lot to unpack here. Um, so, so first of all, I mean, empirically the data is showing that, that most public company CEOs have dealt with this relatively well. Um, they have sort of responded to the crisis. Um, and you know, Brad, especially, obviously you've put out great, great, you know, content that I think has, has catalyzed that across, um, a number of CEOs as well. And I think there, there's been a clear wake up call to, you know, let's just say, you know, My contemporary group of, of, you know, 2010 onward SaaS companies where, you know, we, we benefited from relatively cheap capital, you know, relatively high valuations. We could use that capital to, to again, grow at all costs. Uh, I would, you know, if I, if I represent, you know, probably many of the names on this group, I think that was the exactly right economic decision at the time. There was sort of a market share war. Um, you were, you were acquiring customers that maybe had a, a sort of a five or 10 year You know, kind of lifetime value curve, uh, associated with them, maybe even more. Um, and so of course you want to gobble up as much market share as humanly possible. There's a lot of stickiness to the platform. There's, there's some kind of network effects in some of these enterprise software.

AI assessment note: “empirically the data is showing that, that most public company CEOs have dealt with this relatively well”

Q lose by not increasing that is this future founder thing that you're talking about. And on one hand, it's kind of impossible to numerate, like why that could be so huge. But when you look at the legacy of immigrant founded companies in the Bay area and the headcount that's now under those companies, it's almost impossible not to believe. And, and you, why wouldn't you want that aperture bigger?

A Well, the only thing like, like there, you know, there's also, you know, the argument of, okay, well, this is just a Silicon Valley thing. And I mean, clearly it's not like, so we all know it's not, but like, even if you wanted to prove that it's not Silicon Valley, well, we're going to literally run out of real estate. Okay. So like, and room, um, we know that. So guess what, if I'm a freaking town in anywhere in the country and I could just be like, well, I can create like, 10,000 tech jobs. If I just become, if I, if I'm able to get this amazing talent and they're all going to move here, like, This is totally a countrywide opportunity for us, and we are just, we're just sitting on this and not doing anything about it, and I think it's insane. So, yeah.

AI assessment note: “This is totally a countrywide opportunity for us, and we are just sitting on this”

Q other side. So it actually leads to acceleration because people feel comfortable in doing that and you need to invest ahead of that, right? Um, and, and oftentimes to really get ahead of it, You have to be buying when there is, you know, the proverbial blood in the streets when there is that doom and gloom, and people say it can't ever, you know, it can't ever be different.

A Well, yeah, uh, yes. Uh, I mean, I can only imagine that there is some timing element to that because you have to know when you've reached the bottom of the doom and gloom, but that aside, which I don't, I don't, uh, I don't actually want to like veer this politically at all, but like, as just like a, a bookmark, this is, uh, I get very confused why we are so passionate about changing the government right now. Like they're like, they're nailing it. Like why, like, like, why, like why pull out a Jenga piece out of nowhere and then see what, what changes. Um, but again, you know, different, different podcasts, but, uh, Uh, like, like we, we are so lucky right now that we somehow landed this thing and ensure there's, you know, a bunch of, of incremental issues on the margin, uh, that we're dealing with, but like, wow, we should like be, you know, you know, not, uh, not taking this for granted, um, too much.

AI assessment note: “but that aside, which I don't... want to like veer this politically”