Drew Houston turned a lost USB drive into a $10 billion business and learned a lot about life along the way

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Business Insider

Drew Houston came up with the idea for Dropbox on a bus ride during college, when he really wanted to access some files he’d left on a USB drive somewhere else.

He began building Dropbox for his own personal use, then figured it might solve a problem for other people too.

That was more than nine years ago. Since then, Houston (pronounced “howse-tun” like the street in Manhattan, not the city in Texas) has been thrust into the spotlight as the leader of one of the fastest-growing cloud services in the world, with more than 500 million users, up from 100 million just four years ago.

The company has raised more than $600 million, and was reportedly valued at $10 billion in its last round back in 2014.

The company announced it had become “cash-flow positive” earlier this year, meaning it won’t need to raise any more money, but it took more than 8 years to hit that milestone. Meanwhile, Dropbox was slower than its rivals to add an enterprise component to its business, and none of its projects beyond its core product – online file storage and sharing – have seen anything like 500 million uses.

Moreover, Houston and the company still aren’t talking about an IPO, although he definitely expects Dropbox to remain independent rather than being acquired.

“We’re certainly charting our path to being a thriving public company, but step one is building a thriving company. So we have been focused on just getting all the foundation in place,” he said.

I caught up with Houston this week in a conference room in Dropbox’s offices in San Francisco’s South of Market headquarters. An acoustic guitar leaned up against the back wall, and when I asked, I learned that Houston still occasionally plays in a 90s cover band called Angry Flannel.

This is a transcript of our conversation, lightly edited for length and clarity:

Matt Rosoff: How is Dropbox doing?

Drew Houston: Things are great. 2016 has been a busy year and a lot of achievements we’re proud of: we crossed half a billion users, the business turned free cash flow positive, some really great momentum on the product front and infrastructure front with things like Magic Pocket and moving to our infrastructure in March, and a lot of stuff cooking on the products front like Paper.

Rosoff: I have to ask you the $10 billion question. Does Dropbox stay an independent company? If so, what are your plans in terms of going public?

Houston: That’s certainly the path we’re on. That’s why milestones like becoming cash flow positive are so important because it means we control our destiny and that we can continue to build an enduring independent company. We’re certainly charting our path to being a thriving public company, but step one is building a thriving company. So we have been focused on just getting all the foundation in place. Fortunately we don’t need cash. We like to say we’re funded by our customers not our investors. We have the flexibility to go when the timing is right for us.

Rosoff: Tell us about Dropbox Paper. What’s the goal there?

Houston: It’s a real-time collaborative workspace for your team and it’s completely changed how we run the company and it’s completely changed how our early alpha and beta customers have run their companies because it lets you have all of your team’s knowledge organized into one place. It’s really simple, well designed. We get rid of a lot of the buttons and all the stuff that a lot of the other apps have.

It ends up being kind of the home for the team’s knowledge where if I want to find out the roadmap for Paper, I can just open up the app and search “Paper roadmap” and there it is. Ordinarily I would have have to get invited to some doc or I’d have to send an email to the product manager. It’s much easier for the team to organize their documents in a more public way. It ends up being a hybrid between a Google Docs use case and a Wiki, bringing the best of both worlds.

Rosoff: A lot of the giants of enterprise are converging on this vision of a collaborative shared space. You have Salesforce with Quip. You have Microsoft with Office 365 increasingly about real-time collaboration. How do you compete with them? Or is it a collaboration/partnership?

Houston: Well, it’s a little of both. We certainly work with Microsoft and our products are integrated. Dropbox supports Office and vice versa. We also compete, obviously. I think when you look at Microsoft and Google – a lot of those products were designed a while ago. We really benefit from having enough of blank slate to be able to take a fresh look at a lot of these spaces. But, compared to some of the startups we have a lot bigger scale and we have a lot more firepower to really put a dent in this problem. We have 500 million people on the platform, we’re in millions of businesses, hundreds of thousands of paying customers, the better part of 1,000 people on our product development team. So we can really go after and solve big problems.

We have 500 million people on the platform, we’re in millions of businesses, hundreds of thousands of paying customers, the better part of 1,000 people on our product development team. So we can really go after and solve big problems.

Rosoff: Like what? Why do people use Dropbox?

Houston: I can give you a couple of examples. Even in the file realm one of the things we’re really excited about is Dropbox Infinite which is the ability to have an infinitely-sized Dropbox and not run out of space on your laptop again. That’s been a problem for people since the beginning.

Where Dropbox is evolving is moving from keeping your files in sync to keeping a team in sync. Dropbox has always been a great place for your stuff, but what you really need is a place for people. Where there’s the information, the documents, but then there’s people and you can talk to each other.

Rosoff: Is most of your growth coming from business customers? Consumers? A mix? Where do you see that going?

Houston: It’s always been a mix and we’ve been adding layers over the years. We got to 500 million users, but we then saw those users would bring us into millions of businesses. We have 200,000 paying business customers on Dropbox, which by industry standards is an enormous number. But when you look at 200,000 [paying customers] compared to 8 million companies using Dropbox, we still have a lot of headroom there to grow.

More recently we’ve added an enterprise version of Dropbox that gives even more security, control, integrations. It’s really taken off. I was talking to one of our customers a few months ago and he was said “half the company was already using it so deployment was really easy, but now I have all the security and control features that I need. There’s no support calls so I’m the hero.”

Rosoff: Do you find that it’s still mostly land and expand and then sell, or do you actually go out on active calls and say “I know you’re not using Dropbox today. We want you to be using it and here’s why?”

Houston: It’s both. One thing that’s different from a traditional enterprise company is that 90% of our revenue, actually more than that, is completely self-serve or fairly light touch. Maybe I talk to an individual or a salesperson and just make sure everything is good to go, but that’s very different from hiring armies of salespeople.

We certainly have a great sales team, but they’re able to be much more focused. The conversation is usually about how to do we get the other half of the company up and running. That combined with our scale means that we just have an incredibly powerful and efficient model that is pretty new. There’s not a lot of other examples of that.

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Dropbox

Rosoff: Do you feel like the nature of work is changing and how do you see it evolving?

Houston: For sure. One of the big things that we think about is how technology has given us a lot of benefits, but it’s also brought a lot of new challenges. McKinsey did a study that said 60% of our time is spent managing work, and only 40% of the time is actually doing it.

What that’s really saying is light Wednesday, Thursday, and Friday on fire because it’s just pure overhead. You might as well not have even shown up. And do that for every work week for the rest of your lifetimes, everyone who’s working. That seems to me like a crazy, shocking waste of human potential.

Rosoff: When you say organizing work you mean things like setting up meetings, finding the meeting room, that kind of stuff?

Houston: Just looking for information. Fighting with the tools. A team’s information is now scattered in 10 different places. When I visited my dad at work when I was a kid, in the 90s, if he wanted to find something he would just search his hard drive and it was either there or not. Now we have 10 search boxes and as a result there’s been this crazy inversion where now it’s easier to search all of human knowledge than my company’s knowledge. No one would have expected that. Then there are questions that really should be easy to answer that become really hard. Like what did my team do today? Think of the places you’d have to look to answer that question. All the breadcrumbs you’d have to follow and pieces you’d have to stitch together.

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Dropbox CEO Drew Houston
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Reuters/ Mike Blake

Rosoff: People have been working on this problem for a while. Documentum exists, Microsoft bought a company called FAST back in 2007. How are you going to solve it?

Houston: The first thing is starting with our scale. We are probably the largest repository of documents in the world, many tens of billions of work documents. It’s a tremendous starting point. Computer science, algorithms, machine intelligence will help a lot in helping manage that overwhelm. You have to go all the way up. It’s not just the infrastructure. You have to build a great user experience and everything in between and I don’t think anybody has really put all the pieces together.

Rosoff: So let’s talk about that scale. You moved off of Amazon Web Services and other shared infrastructure to your own infrastructure. That seems like a very huge and somewhat risky bet. How did you make that decision? Where are you now in the process?

Houston: It’s an unusual decision. We looked at the numbers and it was clear, even relatively early on, that we were on our way to building one of the largest cloud services in the world. We have needs that are a little unusual, different from 99.9% of companies out there.

What we really wanted is flexibility in all its forms and to be able to build a better experience by bringing a lot of that in-house. There are a number of other benefits around cost and the ability to control more elements of the stack and really tune everything to the specific problems that we really need to solve.

It’s something we’ve been working on for a few years and we’re really proud of that accomplishment, because many hundreds of petabytes of data, which is many hundreds of millions gigabytes, and [we made] that transition with no one noticing. Our analogy is like we have to change out the engine on the 747 while it’s in flight with none of the passengers detecting that.

Rosoff: You guys have been at this 9 years. How do you feel like the culture at Dropbox has changed during that time?

Houston: We have obsessed over culture since the beginning. A few years ago we really decided to get systematic about what that actually means – write down what’s important to us as a company. When you’re growing so quickly, the company is doubling every year, and when half of the company is new and has a random set of experiences and considers a random set of things important, it’s easy for things to get diluted. Getting explicit about not just writing down our values, but then making sure everybody hears about them on the first day of work through onboarding, how we recognize people, through promotions and how we review people.

We have our five company values, where Arash [Ferdowsi] and I obsessed over every little syllable and worked with a small group, but also opened up input to the entire company.

Rosoff: What are those values?

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This illustration of a happy cupcake is one of Dropbox’s five core values. No words. Just the image.
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Dropbox

Houston: The first is “be worthy of trust” because we are taking care of people’s most important information whether that’s personal information, company information, whatever it is.

That’s a tremendous responsibility that goes along with not just keeping customer’s information safe, but just taking care of our users making sure they have a great experience and that we deliver on all of our promises and that Dropbox actually just works.

Second is “sweat the details” and the element of craft. We love people who really are obsessed with doing their work at the highest level.

Third is “aim higher,” we never want to be complacent. Everything we can do today we can do better tomorrow. We want to do audacious things as a company. The second and third are interesting in that we want to do big things by getting the little things right.

The fourth is “we not I.” If we make the company successful then everybody here will be successful. We really value people working well together and make disproportionate investments in making sure that we all work together as one team.

We think work should be fun and human and you should have great relationships and we try to imbue our tools with that sense.

The fifth we thought about for a little bit because I really loved the first four, but I’m like “Man they are really serious. What if we shake things up a little bit?”

One of our illustrators created this picture of a smiling cupcake. I was like what if we just put that image as the fifth one? Not the word cupcake, not delight, not “don’t take ourselves seriously.” Just that picture of a cupcake, because we felt that was something that was missing from the other four and that’s what we’ve done.

I think that’s really important not just for the culture here, but for a lot of what we’re trying to do in the world. Especially in business software, we believe that just because you’re in a corporate environment doesn’t mean you should be sentenced to having a corporate experience. We think work should be fun and human and you should have great relationships and we try to imbue our tools with that sense.

Rosoff: In Silicon Valley over the last year or so there’s definitely been a cooling of tone, funding is harder to come by, you’re seeing smaller companies not make it to the next level. Then the presidential election took a lot of people by surprise. Has the tenor of conversations between business leaders changed in any significant way?

Houston: The Valley is always gone in cycles. Now that we’re going to be in our tenth year, you see all the oscillations. You have to be able to separate what are the things that change and that don’t change.

When you think about some of the things that don’t change, a lot of the value you create is from building a good fundamental business and making a lot of customers happy and having a business model that works. There are times when in different parts of the cycle you can get kind of separated from that. I think we’ve seen a little bit of a cooling, back to basics, back to fundamentals, solving really important problems, having a business model that’s sustainable, and I think that’s been a healthy thing for the environment.

Rosoff: In regards to some of the angst that’s been circulating recently about the political situation, does that affect you? Do you feel like Silicon Valley or Dropbox has certain responsibilities to society? For example Salesforce CEO Marc Benioff seems very much along those lines. How do you feel about that?

Houston: We’re all part of a broader American community, a community here in our city and a community here in our state, in our country and in the world. I think companies have a lot of potential to be a really positive force in a variety of different ways. We really care about a bunch of things, whether it’s our users and making sure that we’re protecting their privacy and their security.

Rosoff: If you guys get warrants for people’s information, what do you do?

Houston: First, it starts with your values and “be worthy of trust.” Second we have a whole legal team who will scrutinize every request and make sure it adheres to the last little letter of the law. We work alongside the rest of the tech industry to make sure we’re in the discussion as folks in Washington evolve this, but it’s something that’s really important to us.

Rosoff: You’ve been at this for nine years. Was this the first thing you did straight out of university? Has this been your professional life?

Houston: Yeah, I started the company about a year after graduating.

Rosoff: Startups take up all your time. So what do you do when you’re not working? What’s fun?

Houston: I play music. I’ve got a 90s cover band called “Angry Flannel” that I started back in Boston. We’re still going. We played a show in August. Traveling. And I love reading.

Rosoff: What’s the new book that everybody should read that you’ve been into?

Houston: I have an old book that I really like: “High Output Management” by Andy Grove. The longer I run the company the more I recognize that book has most of the answers you’re going to need.

Rosoff: What’s the coolest place you’ve traveled in the last year?

Houston: I went to the Maldives because they have a really great PR thing going on because everybody thinks the Maldives are going to disappear in the next 10 minutes. I did some scuba diving and water skiing. It’s a really beautiful place.