Box CEO: Industrial companies are surprisingly flexible in the age of disruption

Transcript

Alan Murray: Leadership Next is powered by the folks at Deloitte, who, like me, are super focused on how CEOs can lead in the context of disruption and evolving societal expectations. Welcome to Leadership Next, the podcast about the changing rules of business leadership.

I’m Alan Murray and I’m here with the best co-host a podcaster could ever ask for Ellen. Ellen, how are you today?

Ellen McGirt: Oh, Alan, I am great. You just make my heart sore. I so appreciate these introductions and you are absolutely the best co-host and the best boss and the best writer and the best all these things.

Murray: You don’t have to say that but that’s okay. Look, I’m super excited about the interview we’re going to have today and the reason is because the person we’re interviewing is kind of like us. I mean he’s not like us in the sense that he co-founded and runs a $4 billion company. You and I haven’t done that yet. But he is like us in that he’s a serious leadership nerd. And he is Aaron Levie, the CEO of Box. Aaron, thank you so much for being with us.

Aaron Levie: Hey, good to be here. Thanks for having me. And I definitely am a nerd on many topics. So I guess I’m in good company.

Murray: Welcome to the nerd show. And I want to start with that. I mean, we want to talk about Box, what Box is, how it dealt with the pandemic, all of that. But if you’re okay with it, I’d like to start because you a few years ago taught a course at Stanford University on leadership and the changing rules of leadership, which is exactly what we focus on on this podcast. And I wonder what your big takeaways from that experience were? Yeah.

Levie: Yeah, um, well, I don’t know what I got myself into. But basically, a couple friends and I, many years ago, seven, eight years ago were going back and forth on this idea of The Innovator’s Dilemma, which is sort of this foundational concept in in disruption theory, and how innovator’s dilemma was going to apply to more typical industrial companies as digital platforms rippled through their industry. And so got together with an existing Stanford professor and then another individual, who is a leader at SAP who kind of studied under Clayton Christensen for a number of years. And we basically kind of just tried to design this course where we brought in Fortune 500 companies as well as sort of digital disruptors and tried to figure out what was going to happen to the the industrial companies as digital platforms redefine their industry. So the classic example is, if you’re Ford and you’re selling cars, and all of a sudden Uber and Lyft show up and car rental is and on-demand transportation is the future, how do you respond to that dynamic?

Murray: Yeah, yeah. And if I can just interrupt you for a second. I mean, at that time, the time you were starting the course, I knew a lot of people particularly in your part of the world who thought that the disruptors would win everything, right, that the legacy companies would lose and the disruptors would win, and that’s not the way it played out.

McGirt: No.

Levie: Well, so that’s actually putting that as one of our ultimate kind of post mortems. So the class went on, I think five or six years and I was part of a three, four. And the original thesis was that digital would truly redefine every industry. I think we got a good checkmark on that. But the incumbents actually responded extremely well. And so we had an initial set of theses that the incumbents wouldn’t respond this effectively and the digital platforms would really keep those companies on their toes. I think that largely played out except for the fact that, actually if you kind of fast forward to today, most of the incumbents are actually still in a very strong position and digital has enabled many of them to grow even faster or get even bigger, as opposed to just ending up in a very defensive position. So you know, a couple of examples that ultimately played out, you know, think about companies like Disney or Disney Plus, has been an incredible response to the direct-to-consumer media industry and play and one of the initial theses that we had was it’d be very hard for a traditional media company to go digital, because they will be competing with their traditional customers, i.e. different movie theaters, or the distributors that they normally work with. But it actually turned out that they were able to sort of redefine the business model and go direct-to-consumer so that was really exciting.

Murray: Yeah, you know, it’s sort of in a way, Clayton Christensen writing The Innovator’s Dilemma may have helped save legacy companies because they all read it. They all got it. They said, Holy cow, we’ve got to do something.

Levie: That’s exactly right. And so I think people that they saw the writing on the wall. One of the really exciting things was the Fortune 500 companies that we invited the CEOs were actually extremely excited about the class because I think they, you know, many of these CEOs felt like they had learned the lessons of watching Kodak and Blockbuster, and, you know, Barnes and Noble, and they were very, very, you know, hellbent on making sure that didn’t happen to them. And so ultimately, I think we now actually have really good lessons on what do you do when you are one of these incumbents and you have a digital disrupter? How do you evolve your business model? How do you make sure that you’re fundamentally sort of enabling your organization to compete more effectively? How do you become more agile so you can compete with these smaller startups? In some cases, how do you acquire some of the competition or partner with them? So there’s a whole bunch of lessons around how do you have to change the way you work and operate in the digital era? And then ultimately, you know, this whole class is obviously you know, before the pandemic, but what happened was the companies that were well prepared from a digital strategy standpoint, these companies actually grew faster during the pandemic. They were way better off serving their customers in that environment. And so there was a lot of value to being prepared with, you know, understanding how the disruption would disruption play out and how did you have to go digital to compete more effectively?

McGirt: Well, let me ask you a related question, if that’s okay. Just jumping in here, because I think it’s extraordinary just looking back over your career, you started Box when you were really, really young, and you have been through an amazing journey. And I’m curious how you developed your own leadership style and where you were able to apply some of these lessons that you became both a professor, observer and student of as you were going forward, because I mean, you grew up out loud in the world.

Levie: Yeah, I’m going have to modify the professor term. I think technically, I was a guest lecturer so I don’t want any of these resume scandals…so I was definitely a guest lecturer. But my journey is, I think, pretty typical of a sort of product-oriented founder in the tech industry. I mean, it sort of has played out largely as that that model kind of tends to work which is you know, I started the company with a few friends in college We had this original idea back in 2005, that in the future, you’d want to be able to work from anywhere, anytime, and be able to get access to all of your information from anywhere. And it turned out that was a really important idea in the enterprise market, especially it’s been important for consumers, but really the real money has been made in the enterprise. So that was, you know, we kind of walked into the right idea at the right time as the market was moving more to the cloud and moving toward mobile and the Internet was getting faster and infrastructure was getting cheaper. So that was the original idea of the company and my focus on day one in sort of co-founding the company was on the product side. And so a lot of the lessons I’ve learned have been through the lens of product and strategy and really the idea that companies live and die by how effectively they’re they’re serving their customers, how customer-centric their organization is, how innovative their company is. And so I took a lot of those lessons to heart, you know, similar to the innovator’s dilemma conversation around how companies lose their way and so, so much of my job I see as making sure that we can charter a path in the future with the right product, with the right strategy, serving our customers as as effectively as possible. And then try and surround myself with a leadership team that can actually get the job done and deliver on whatever those goals and strategy ends up being. And so ultimately, my success as a leader, quote, unquote, is really just due to the the actual leaders that I get to work with, and then their ability to go build teams and build product and serve customers. And I see my job as trying to do my best to coordinate that and make sure that the team is aligned and that we’re pointed in in an effective direction and learn from the market and you know, what’s happening around us to ensure that we’re on the right path. So that’s kind of the at the highest level what I see my job as being and then, you know, hopefully enabling leaders within the organization to be able to execute and get unblocked and deliver on their goals.

McGirt: So very foundationally, what is Box and how has all of the changes in the world moving to hybrid and remote work impacted you?

Levie: Yeah, so when we started the company, the original sort of business plan that we wrote and like business plan itself is a pretty antiquated concept but we actually literally wrote a document that was our business plan. We like got a template online of like, how do you write a business plan? We have the SWOT analysis. We have the, you know, the the market size. I think we probably sizes the market at like a few 100 million dollars or something. I mean, all the announcements very immature, but but in the original idea, we called out that in the future, you’d want to be able to work from anywhere and be able to get access to your data from anywhere. And this is back in 2005. And the big trends that we were seeing were if you kind of go back to that that era, we had Blackberrys, we were getting on cable modems, Firefox had just emerged. And so the internet was getting a little bit more rich and interactive, because you could build better applications and our theory was that in the future, why would you be lugging around you know, external hard drives and USB thumb drives, you would want to be able to get access to your data from anywhere. And for basically 13 14 years, we had to pitch everybody that we could run into on the idea of cloud computing, digital transformation, being able to work from anywhere, that this would really be what the future looked like.

And then the pandemic hits, and all of a sudden overnight, what was you know, maybe a nice-to-have or a strategic advantage for a customer or an enterprise instantly became a necessity. And so the companies that did the best during the pandemic, especially at the start of the pandemic, were those that had already built the foundation of, you know, working in the cloud and working in a digital-first way and having a supply chain that was, you know, relatively digitized and having consumer and employee experiences that were digital first. Those companies did the best. They responded well to the pandemic. Then, you know, those that that were still running on paper or had legacy processes or were in you know, legacy datacenter systems, they responded less well. They move less quickly. And then ultimately, I think things have markedly converged where everybody recognizes they have to be in the cloud and to be able to go digital and so are our business is, we are in the business of helping enterprises be able to work in this modern way where you’re much more agile, you’re much more collaborative, you can work from anywhere and data is at the center of everything we do.

Murray: Well so so what is this modern way? It feels like we’re still trying to figure it out, right? We know what it was like before the pandemic. We know what we did during the pandemic, and now everybody’s throwing around this word hybrid, but everyone has a different definition of what it means. What is Box’s definition of what hybrid means?

Levie: Well, I think I mean, by definition the word hybrid drive gets you into territory where anybody can define it however they want. But for us, I mean, we see there’s probably, you know, no two companies that are going to be exactly the same, you know, vis-à-vis, you know, how many days in the office do you have to be? How many days can you be remote? Where are you going to be hiring from? But what we know, for a fact, is that everything is going to have to be ultimately mediated by digital platforms. Whether you’re working in the office or remote, all of the work that you’re doing eventually is going to be digitized. And in some cases, going to start digital from the first second that the work is happening. And this is truly the only way that teams are going to be able to work in this distributed fashion.

And so we really have to think about how does our work get digitized? And that’s going to produce just fundamentally new ways of working, new ways of collaborating, the way that teams get aligned and stay aligned is going to be fundamentally different, the way that you ideat, the way that you design new projects, the idea of hopping onto a whiteboard and drawing out that whole strategy—those days are largely over because you’re going to be doing that work inside of a digital interface at the very start of that process. And more and more of that work is going to ultimately be digitized from the very first [inaudible].

Murray: Yeah, but I’m curious I mean, so you’re going to enable people to do this, do whatever mix of in-office out-of-office they want to do. But I’m curious how you and how Box is dealing with this. I get a sense looking at your background there that you’re not at home right now. That’s a very office looking chair and kind of an office looking painting behind you.

Levie: I’ve tried to set my personal office as much up like a regular office. So yeah, so I’m at home at the moment, but…

Murray: Oh, that’s awesome. Okay, I called it wrong.

Levie: It’s almost indistinguishable in the environment that I’m working from.

Murray: So what’s your policy for Box employees?

Levie: So there’s no policy. We have, I don’t even know the number, maybe a dozen offices globally. If you live near an office, you know, generally we see you a couple or a few days a week but ultimately you know, we have a kind of flexible, digital-first oriented way of working. And again, it’s it’s sort of the perfect definition of hybrid. We haven’t forced anybody to come in at a particular rate. But we also have not done away with the idea of offices. I think that people getting together in person is still an important part of a culture for a variety of reasons of just maintaining relationships, the social dynamic of an organization, but we think you can be just as productive on, you know, effectively any device in any location. And so we’re not doing it for productivity reasons. We’re doing it because to hopefully scale a global culture, people getting together as a human thing is really important.

McGirt: So this has been a tough time for command and control kind of leaders who really want to be able to walk into a room and see a bunch of people sweating it out in cubicles in front of them. What are the characteristics of leaders who are going to be successful, building the kind of culture that can thrive in this, this radically changed new world?

Levie: It’s, it’s a very, very different world, from a leadership standpoint, and even if you weren’t a kind of quote unquote, command and control in the way that you just described it, there was a lot of effectively kind of qualitative anecdotal information you can get just by walking around the office and what are people working on? And what are people blocked by? That goes away that sort of casual, sort of sidebar conversation just doesn’t really do as well in the digital space. You have to be much more intentional around how you’re communicating, how you’re aligning, how you’re organizing. But it can come with significant advantages when you actually do exploit the power of digital. So what we’ve seen is you’ve come down a little bit on the axis of the in-person management techniques that Andy Grove wrote about and came up with 30 or 40 years ago, and what you do is if you really can exploit and design your organization to get the benefits of digital, all of a sudden you have some superpowers. So one great example is the ability to convene cross-functional people across an organization that would have just been impractical or impossible before. So instantly, we can actually compress the time that it takes to deliver and disseminate information or get people aligned. Another superpower is that you get to involve people that previously maybe wouldn’t have been able to participate in a conversation because again, either literally was just impractical, like they weren’t in the building where the discussion was happening, or, you know, if you have a 10 person room, and you have a really serious topic then you’re probably going to prioritize the more senior people on that particular topic, and there’s not gonna be a lot of room for other ideas or individuals to participate. Well, now again, you could have a very serious topic and you could have five times the amount of people that wouldn’t normally fit in a room. And you might have somebody who is quote, unquote, more up and coming or junior, that has been contributing, either presenting or coming up with ideas that wouldn’t have been possible before. So the exposure expands massively, and the possible involvement of and participation across the organization expands as well. So that’s a couple of the superpowers that you get for free by going digital and being able to work in this digital first way.

[Music]

Murray: I’m here with Joe Ucuzoglu, who is the CEO of Deloitte US and had the good sense to sponsor this podcast. Thanks for being with us. And thanks for your support.

Joe Ucuzoglu: Thanks, Alan. Pleasure to be here.

Murray: So Joe, this new wave of business technology, artificial intelligence, Internet of Things, the ability to make intelligence out of data, is creating huge opportunities for companies. But a lot of the CEOs I talked to feel daunted by it. It’s like where did they get the imagination to rethink their entire corporation? How did they deal with that?

Ucuzoglu: The opportunities are immense, and particularly when you look at not just any one of these technologies individually, but the convergence of all of them collectively creating the opportunity to truly transform business models. And I know it can seem daunting, but the reality is taking a first step in actually produces huge benefit. Because what we’re finding is that many of the cutting-edge applications are not coming out of the corporate headquarters. They’re coming out of putting the technology in the hands of our people on the front lines. They find new and innovative uses. We then funnel them back up and leverage them across the entire client base.

Murray: It really gets to the importance of a culture of innovation at the company.

Joe Ucuzoglu: It is essential that our people feel empowered to take the latest and greatest and define new and innovative ways to use it for productive purposes.

Murray: Thank you, Joe.

Ucuzoglu: Alan, it’s a real pleasure.

[End music]

Murray: Aaron, my sense is you’re kind of a go-against-the-grain guy.

Levie: Depends on the grain, frankly.

Murray: Well, I say that because you created this enterprise company at a time when all the cool kids in Silicon Valley enterprise was not cool yet. I think Steve Jobs most famously said I don’t give an F dot dot dot about enterprise and you know, everything was focused on consumer and then enterprise did become cool. So you were you were ahead of it. These days, the cool kids are talking about Web3, and you’ve been pouring some cold water on that. Can you tell us why?

Levie: Well, it’s just great timing for, Alan, the magazine cover that you have in the background…

Murray: Yes, Sam Bankman-Fried, for those of you who can’t see it is the cover of Fortune magazine.

Levie: …screens now so so with that with certainly all respect to SPF, I have a slightly different view of of Web3 that maybe is is shared by some of the more crypto bulls. I, first of all, I’m I’m insanely excited about almost all innovation happening on the Internet today. You know, when you think about AI or cloud computing or you know where semiconductors and chips are going. There is so much innovation that is happening right now. So huge optimist on the future of technology.

And Web3 specifically, my issue has been more that I haven’t been able to square the sort of idealism of Web3, and maybe the philosophy of Web3 with the actual technical and economic implementation of how to get there. And there’s a lot of esoteric reasons why I feel that way and so happy to spend as much or as little time on it. But I think the idealism of, you know, being able to own digital assets is super compelling and interesting. The idealism of, of, you know, more open systems is is very interesting. But then to me that often runs in the face of, of, you know, kind of the core economic foundation of Web3 of being a tokenized internet, to me doesn’t actually align with much of that vision where you’d have to actually you know, pay to do more transactions. You have very, you know, dynamic pricing schemes based on people buying and selling the the underlying token or currency and so you know, causing a lot of variability in these networks that to me, I don’t, I don’t see as beneficial to consumers. And even just the underlying sort of database itself as a blockchain is not always well suited for the kind of ideas of the types of appslications [inaudible]…

Murray: So all hype? Half hype? On a scale of one to 10…

McGirt: Hybrid hype.

Levie: I’m going to be very boring because I have to be super nuanced. But I would say that the way that Web3 is described as being possible to me doesn’t align with the technology and economic underpinnings that I’ve seen. And so so in that case, I would say zero in terms of possibility. If it changes or if it evolves, then then maybe it’s possible but I have not seen how Web3 gets created with the technology today that we are looking at and talking about or the underlying business models and value propositions. And I think if you just asked most consumers, most just regular people that don’t pay attention to any of this stuff that we talked about, and you just say, hey, if any given day would you want to pay 30 cents or $10 or $100 to participate in some network based on the buying and selling and marketplace dynamics of what they were doing, most people don’t want to do that. They don’t want to financialize all their life. You know, when they go to a concert, they want to spend 20 bucks for the ticket and they don’t want to have to worry about marketplace dynamics for just everything that’s happening. When they join a web social network, they don’t want to have to pay every time they post a message. And so most of the things that Web3 is sort of, you know, theoretically attacking are actually things that most consumers probably don’t have problems with. You know, all the free services we get online that are ad supported. Those are probably not things that consumers want to have go away. And so I just haven’t really seen a lot of the core value proposition makes sense from a consumer standpoint.

Murray: Back to the industrialist’s dilemma. Ellen and I are in a business that got really pummeled by the move to digital because there was no way to extract, no easy way to extract value for digital content. I mean, the notion of having better ways to extract value from digital content is a compelling idea to those of us who’ve lived through the last 20 years of media.

Levie: Yeah, totally. And then I know it sounds like notions don’t really get you very far. So ultimately, what gets you far is is actual consumer use cases where people want to participate  in a sustainable way. And so I think, maybe the word the operative word to me is sustainable. A lot of times when you have dynamics where a price of an asset can shoot up for no particularly obvious reason, then unfortunately, that’s usually unsustainable. And so the asset eventually has to come back down because because there won’t be a future believer of that asset once you know, that hype reduces. So the challenge even with things like NFTs is is that there’s there’s not an obvious sort of underlying value for any given NFT other than our own belief that in the future somebody will pay more for it. And so if if that starts to evaporate, then very quickly, you have a corresponding sort of reduction in value. And so those are fundamentally unsustainable  value propositions are unsustainable business models. And so that’s why I think it’s very hard to build a sustainable platform with many of the economic underpinnings that currently Web3 is sort of, you know, creating.

McGirt: There’s a greater fool theory joke in here somewhere I’m not going to be able to come up with it in time though.

Levie: Yeah, I mean, it’s, it’s like sounds very boring to talk about but unfortunately, like at an economic principle level, that is what it is. It is somebody buying an asset or only belief that they can sell it to somebody else in the future. And that is that is just not a very sustainable ongoing long-term business model for any asset to have. Eventually, you either are paying for a service or are getting cashflow. And so these are things that have to be at the root of any, any technical, you know, new platform.

McGirt: I want to talk about regulation to you because you you took a public stance criticizing the FTC for suing Meta. You went on Twitter and you said if the government blocks big tech companies from buying small startups in nascent markets, all that will happen is that there will be fewer startups over time because investors can’t underwrite the risk. It’s bad for innovation and ironically, good for the big tech companies. Tell us about why you think that but also, why was it important for you to be public about that?

Levie: I personally don’t think it was important for me to be public. My Twitter, I just see as you know, I sometimes I just need to get some thoughts out onto the internet. So I don’t think it was particularly strategic or whatnot. But what I would say is that, you know, I’ve looked at all the at least public commentary from the FTC to Meta back and forth and the FTC’s argument was, you know, Meta should go and create these games themselves, and they shouldn’t acquire companies to do that. And to me, you know, you’re what you’re doing is, as FTC is now somewhat playing god in the market, where you know, let’s say this startup I don’t know it very well, but but let’s say this startup is struggling or or maybe not, you know, able to be a viable independent company, for whatever reason, because VR is a very nascent market. There’s not a lot of big companies that are paying for VR products right now. Meta probably the primary one who’s willing to shell out large amounts of money for these companies. And so FTC is basically saying, well, we’re sorry, startup, you’re not going be able to get acquired and so they’re really putting their hand on the scale of the market, where they’re, they’re completely altering the market dynamics. And I think, you know, there’s a time and a place for that where you’ve got, you know, truly monopolistic behavior that is extremely bad for consumers. But in a space like VR where maybe there’s tens of millions of users of VR globally and we don’t even really know the use cases yet and Meta is trying their best to try and figure out how to make something out of this, it just it feels like it was more of a political move, as opposed to one that really has anything about consumer protection. And the problem is from the cycle of innovation, is what you want are lots of startups that get backed by, you know, in many cases, venture capital, and for those venture capitalists to ultimately want to invest in startups they have to know that there’s multiple paths to getting return. So if you have the FTC or the government blocking pretty de minimis in terms of impact acquisitions, it really reshapes the landscape, because why would you then invest in a VR startup when Facebook is or Meta as the only likely acquirer right now, and they can’t even acquire you? That just puts you in a really bad position from an innovation standpoint?

Murray: Yeah, totally. Right. I’m not a big fan of Meta, but I think this is a little bit crazy. And assuming that, that Meta fights it I can’t believe that the FTC position would hold up in court, particularly given the fairly conservative makeup of our court system these days. But we’ll find that out years and years from now. I guess the question is whether they cave to the regulator in advance. Hey, Aaron, you’ve proven me right. You are a leadership nerd, and the perfect guest for Leadership Next. Thank you so much for spending time with us.

Leadership Next is edited by Nicole Vergalla, written by me, Alan Murray, along with my amazing colleagues, Ellen McGirt and Megan Arnold. Our theme is by Jason Snell. Executive producers are Mason Cohn and Megan Arnold. Leadership Next is a production of Fortune Media. Leadership Next episodes are produced by Fortune‘s editorial team.

The views and opinions expressed by podcast speakers and guests are solely their own and do not reflect the opinions of Deloitte or its personnel. Nor does Deloitte advocate or endorse any individuals or entities featured on the episodes.