How I Built This with Guy Raz - Dropbox: Drew Houston

Episode Date: November 9, 2020

In 2006, Drew Houston got on a bus from Boston heading to New York. He planned to use the three-hour ride to get some work done, so he opened his laptop, and realized he had left his thumb drive with all of his work files at home. Drew decided he never wanted to have that problem again. On that bus ride, he started writing the code to build a cloud-based file storage and sharing service he called Dropbox. Fourteen years later, Drew and his co-founder, Arash Ferdowsi, have built Dropbox into a public company worth close to $8 billion. Order the How I Built This book at: https://smarturl.it/HowIBuiltThisSee Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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Or by visiting how I built this.com or guy Raz.com. And thanks. I'm trying to work these different leads on co-founders and then I had met this kid Kyle. And so Kyle's like, hey, you should talk to my friend Arash. And what do you know about Arash at that point? virtually nothing. Just a recommendation from somebody else who's like, hey, this guy, he might be a good co-founder.

Yeah. And he's still in school, right? So we get together in the student center and just start hashing it out. And that was what was so crazy. I was just like, you got to drop out of school to do this. Yeah. And I'm like, all right, I'm expecting enough to talk to the parents

and do all this stuff. And he just bounces. A couple days later, he had just dropped out of school. From NPR, it's how I build. this, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on today's show, how Drew Houston came up with the idea for Dropbox on the day he forgot to bring his thumb drive for a weekend in New York, and how that idea grew into a multi-billion dollar business. I probably don't have to explain why

walkie-talkies are sold in multiples. Yes, in practice, you can't. could use just one, I suppose, maybe to scan the frequencies or eavesdrop on other two-way radios, or you could just talk into it and hope someone hears you. But that's no fun and not really what these things were designed to do. To get the most out of a walkie-talkie, ideally you have someone else or even lots of other people talking on the same channel. And this idea is basically what venture capitalists and other investors call the network. effect. And in the past few years, products that grow through networks have become extremely attractive to these investors. And why? Because the network effect allows a product to grow on its own

without a whole lot of marketing. So here's an example. Someone sends you a survey to complete, and a survey was created using SurveyMonkey. You fill it out and send it back. And by doing that, you have seamlessly become a survey monkey user. And the next time you want to create a survey, you are likely to use SurveyMonkey. It's the same story for Callendly. When someone invites you to schedule a meeting, you get an email from Callendly inviting you to use the service as well.

Slack works in a similar way. If one person on a team uses it, the rest of the team will jump on as well. It's a concept called product-led growth. If you use it, your friends have to use it to engage with you. And then you are all users and the product grows and grows and grows. And this early insight back in 2006 is what allowed Dropbox to scale into a multi-billion dollar business in a few short years. Because Drew Houston knew that the product he was building would grow organically and exponentially all at the same time.

Because when one person signs up for a Dropbox account and wants to share a file or document with another person, that second person also has to sign up for a Dropbox account. And most people do because it's free. The vast majority of Dropbox users don't pay a dime for it. Yet the company makes huge profits from the 3 to 5% of its customers who pay, mainly businesses. Now, if you don't already know, Dropbox is basically. a hard drive in the cloud, and you can seamlessly access all of your data from any of your devices. And Drew came up with the idea when he took a weekend trip from Boston to New York and forgot to bring his thumb drive. So after mulling over the idea for a few months, Drew decided

to apply to the now legendary accelerator program, Y Combinator or YC. But before that happened, But before he grew Dropbox into a company with a $7.5 billion market cap, Drew was not surprisingly, the kind of kid who was obsessed with computers from a very early age. He grew up in Acton, Massachusetts. It's a suburbats side of Boston. His mom was the school librarian and his dad was an electrical engineer. And when Drew was just five years old, he wrote his first line of code in basic. I dabbled in programming, but then my dad would bring home computer games from work. So these adventure games like Kings Quest and things like that. King's Quest was great. Yeah. So I played a ton of computer games when I was little, and then was also just interested in figuring out how they worked

and making my own computer games. And I guess like at age 14, you really jumped into computers as a job, like a summer job to work for a gaming company? What's the story? Yeah, when I was in eighth grade, I think, I'd signed up to test this online game. So I started poking around under the hood of the game, and I found all these security vulnerabilities. And I emailed the developer, really is over ICQ. I'm like, hey, you know, you guys need to tighten up a few of these things.

And they're like, okay, got it. You're right. Would you like to fix that for us? It was a startup. So they're like, well, we can't really pay you a salary, but we can give you stock options. Did they know you were 14, by the way? Yeah. And then I'm like, this is all – well, I'm like, is it okay if my dad signs a paperwork?

And they were fine with me working remotely and part-time and everything. Wow. So they gave you equity in the business. And by the way, did that ever – I don't know, did it ever come anything? Absolutely not. No, okay, I got you. It was just like – basically smoke and dust, right? Yeah.

But it was a great experience. I mean, it was awesome. Yeah. I was a game developer. This is my dream. I thought that's what I was going to do in my life. All right. You're working for this company and you're in high school.

And this has become like what you do throughout high school. Like you're not doing car washes. You're working for this company or you go work for other companies doing similar things? Well, it was a really important stepping stone because, you know, my resume before that was babysitting. So having a programming job became a way in to get another. programming job at a different startup that was local. So there was this startup called Soft Servo Systems. And what I did there was they had they were running everything on Windows. I was like, hey, if you if we can move this stuff over from Windows to Linux, which is free,

then you could save even more cost on the hardware. So I'm like figuring out how to move all this stuff. And these were just, it was just kind of one interesting project after another. So you finish high school and you went to MIT. Yeah. And your ambition from what I gather from this conversation was to go on and maybe start a gaming company or make games somehow. Is that right? Well, during high school, because I was a literal game developer. But then these other experiences with startups expand in my horizons a lot.

And so I'm like, all right, in college, I'm like, I definitely want to do engineering, definitely want to be involved in startups. And my first company was an SAT prep company. It's called Accolate. This is why you were at MIT. Yeah, I took a leave of absence in the middle of MIT and teamed up with a teacher at my high school who actually had his own little SAT prep business and that he's running out of his living room.

You know, the SAT is changing because it went from 1,600 points to 2,400. I'm like, now all of those books, like all that material is now obsolete because the test is new. And there's not really a great way to do this online. So what if we teamed up and did that? And we met in a Chili's in Westford and we're, you know, hushing out trying to figure out how do you incorporate a company and all these. And then that really began the entrepreneurial journey.

So I basically took a leave of absence of my junior year. It was important that I'd come back and finish my degree. So I did that. And then I got a job at a network security company. called Bit 9, which, so anyway, I was working during the day at that startup, and I was moonlighting on my, on Ackley. On Ackley at night. So this is important because a lot, because, you know, you hear a lot of people say, oh, you know, this is my fifth startup or my sixth startup. And I think a lot of people have this idea that, oh, you know, all engines are go and you need startup and you raise a lot of money and you come up with a product.

But actually, a startup can just be two people working on their computers and the business might be a file folder. and that might be the startup. By the way, is a company still around? It's not. It's not. Okay. So did the idea just kind of fizzle out? Well, we had constraints.

Right. So he was not going to leave his teaching job. And neither of us were really ready to kind of throw in completely. And we got it reasonably far along. And we had customers. We had income. We had at least the rudiments of a working product. But it was a not.

nice good kind of side income but it's seasonal right so there's only a couple months a year where you're really going and then it's hard to keep momentum and so i started getting really distracted and then another one of my friends uh adam smith his he started um he runs a company called kite now he started a company called zobni but uh he got into yc and it was just this amazing experience and i actually because of the because of the support and the resources of whycom Yeah. And it just felt like they were just getting to escape velocity a lot faster. Just kind of doing it the right way. And as the SAT prep idea kind of started to fizzle out, were you thinking about other things you could do?

Because it doesn't sound like you really wanted to stay as a programmer or a tech person, an engineer for bid nine. Like it doesn't sound like that's really what you wanted to do. You were just kind of, you were biding your time earning a paycheck. Well, I love the work, and I was learning a lot. So what ended up happening was with Accolade is I had to work across a bunch of different computers. It was this huge pain to move around. I'd use a thumb drive, but it was slow, and I kept almost putting it in the washing machine. But I was really frustrated by that problem.

Like, why can't I just have my stuff everywhere? I read that around this time in 2006, you were taking the bus a lot from Boston to New York. Why were you doing that? I had a lot of friends who had moved to New York. Every month or two, I'd try to get out there and see them. So I would take the Funguah, the Chinatown bus that's now defunct. And so on one of those rides, I was like, I have a few hours each way to get work done. So I'm like, okay.

And I opened up my laptop as the bus had pulled out of the station. I realized I left my thumb drive back at home. And I'm like, now I can't do any, like, all right, well, I can't get any work done. and then I'm like, well, now what? I'm just sitting there being like, I just never want to have this problem again. Yeah. And so I started coding.

You started coding where? On the bus. On the bus. Coding code for what? I'm like, I'm just going to have this thing that watches this folder and just keeps everything in sync. Didn't have a name. And by the way, is that easy to do?

Like, just for yourself, is that take, like, can you do that on a three-hour bus ride? You certainly can't finish it, but you can certainly start. The programming is relatively, it's really easy to make something that kind of works. It's very, very hard to make something that works in a bulletproof way. Yeah. And so I just became obsessed with this problem.

All right. So you are, so this is late, I think it's late 2006. Yep. It's around Thanksgiving. Around Thanksgiving. And you start to tinker with this idea. But you're still working. You're still an employee of this cybersecurity company.

Yeah. And I want to get a sense. of where your head was, were you like, this is it? This is the thing that I am going to do? Or did that was a slow burn? Did it take longer for you to get there? Well, I could feel that sense of liftoff in terms of my passion for what it was, because I'm like, this is totally in my strike zone. I'd love to get into Y Combinator. The next application deadline's in April. But I'm like, you know, this is doable. Like I could probably find, at least make it exist. And then maybe it's a bit. business, maybe not. But I wasn't really

thinking about that. I'm like, I just want to build this thing. And I need it. And if I could just not have to carry my thumb drive around and I have one customer or me, like, great. And do you, does it kind of consume you pretty quickly after? Like, do you start to spend nights and weekends just like trying to build this thing for yourself?

Oh, yeah. Totally obsessed. And it came together really quickly. How quickly? If that was kind of around Thanksgiving, then I had a conversation in January with my boss at bit nine and I'm like hey you know I'm really going to go for it and

start a company and get into Y Combinator but it was pretty clear early on that I'm like yeah this is going to get going and I just remember trying to think through the name this was me so that Christmas 2006 I'm just on I am with one of my

high school buddies and we would have these land parties back in high school everybody bring their computers to someone's house and you play video games together on a local network. But anyway, so one thing we would always do is everybody would set up a shared folder called a Dropbox on their computer. So I'm like, maybe I should just call a Dropbox.

And that was usually that I am conversation where I settled on the name and I'm just photoshopping the logo. So basically the logo for Dropbox today is what you kind of designed on your computer? Yep. And since then, the pros have taken over and simplified it a lot. Right. So got a name, and now it's 2007, and you've got a prototype that you kind of, like, created. Yeah.

And you had this goal, which was to get into Y Combinator. Yep. All right. So what'd you do? So I started working it. I had so many friends who had, Adam had shipped out to California at this point. And so I'd gotten to know a lot of the other Y Combinator founder socially. So I'd go out and visit them in San Francisco, where I went to, like, one of the United States.

So I went to one of the social events at Y Combinator, and I'm literally walking around this party with my laptop, like trying to demo Dropbox to anyone who will pay attention. But one thing that was very clear from the Y Combinator guidelines is that you need a co-founder. They don't just fund single founder. They said to you, if you want us to consider you, you need a co-founder. You need a co-founder. And this is like Paul Graham's thing.

Paul Graham is one of the co-founders and partners of the Y Combinator program. Yes. I'm like this is one of the main criteria for investing is a co-founder. Because anyone who listens to this show knows that starting a business can be really tough, right? And there are moments where you want to give up and quit. But the thinking is that with a co-founder, you kind of increase your chances of not giving up because when you might be low, the co-founder might be at a different mental or emotional place. And so I'm assuming that's probably why they wanted you to find a partner.

Yeah, exactly. So then I'm trying to find a co-founder, you know, if it's March, in the application deadlines like April Fool's Day. You know, they've got like a few weeks to get married to someone and I'm not even dating. So I started shaking the trees, but my search hadn't really turned up anyone yet. So my friend Aaron, he was a classmate of mine at MIT. Aaron's like, I love Dropbox. it seems really interesting. If Paul Graham is interested, then I'll do it.

But you needed him to be interested? Yeah. And you couldn't wait to be formally admitted to this thing. No. So I'm like, well, I'm going to drop by the YC office and see what I can do. You know, I'd show up on my laptop, and then I knew Jessica, who was one of the partners. You knew her from where? I had attended a couple Ycombinator dinners and just been kind of in the mix.

So I was like, hey, Jessica, hey, do you mind if I? Is Paul busy? I just want to show him something. And she's like, oh, no, he's not busy. Yeah, go on in. And so I kind of take a deep breath and, like, go walk over and crack the door open a little bit. Like, Paul, hey, you know, I'm really sorry to bother you. So just take a minute.

And he cuts me off. He's like, no. Do not want to see your demo. The whole reason we have an application process is that we don't have, like, random people coming by and pitching us on stuff. So absolutely not. Yeah, and I'm like, oh my God, because I'm just like total failure. Well, and you probably, I mean, because you were pretty young at the time, 25 maybe.

Yeah, 24. Probably thinking I screwed this up. Oh, it was a disaster because I'm like, that failed and now I've like torpedoed my chances of like getting YC funding at all. So what happened next? Like what did you do to like make up for that and eventually get into the program? So I'm like, all right, well, my application needs a hook. Like, I need some way of kind of standing out. So I thought about what might get Paul's attention.

And I figured like, well, what is he doing in his office then? He's probably doing what I do every day, just like browsing Hacker News and just keep hitting refresh on that. What's Hacker News for people who don't know? So Hacker News is basically startup news. It's a startup news site kind of like Reddit. But focused on technology and startups for the most part. So I'm like, I wonder how I could get something on Hacker News that could draw some attention. I'll make a demo video of what I'm doing.

And it wasn't just for Paul. It was really just to see if this is a viable concept. And what was the video? What it looked like? It was called a screencast. So which is just to say, like it's a video of your screen and then I'm narrating. Right. I'm like, here's Dropbox.

If you have multiple computers, da-da-da-da-da. And it's still on YouTube somewhere. But I make this two, three minute video, stay up all night doing it, you know, the night before the application deadline, finish the application. I'm like, yeah, I don't have a co-founder working on it. We'll hopefully get there before interviews. And then I posted my demo video to Hacker News, and it hit the top of Hacker News for like two days. What was so, I'm just curious, what was the thing about it that was such a big deal among that community? Because there were ways to save information and data and the cloud at that point.

Not great stuff, but what was the thing? Why was there so much interest in this video? I think it was just kind of getting your files on multiple computers is kind of a niche problem. Like most people had one computer, right? You didn't have a smartphone. But this audience, a very technical audience, like they're the early adopters, virtually all of those people were carrying around a thumb drive. The title of my post, I think, was like, throw away, you know, Dropbox, throw away your thumb drive.

Yeah. What goes into a clickbait title? That's a good title. Throw away your thumb drive. You know? Yeah. Yeah. And so I think it just, it made sense.

It was just simple. It was in, like, a lot of the community had struggled with the same problem. All right. So you make this video. You get attention on Hacker News. You put your application in, but you still needed the co-founder. Yep. And I get a one-line email from Paul Graham.

Yep. saying they like the idea, certainly liked your software, but you need a co-founder. I'm like, thanks, Paul. Right, okay, that's good. That's a good sign. That's progress. Yep. And so then I'm trying to work these different leads on co-founders, and then I had met this

kid, Kyle, who had been in the Entrepreneurs Club with me at MIT. And so Kyle's like, hey, you should talk to my friend Arash. Arash sent me an email saying, hey, I saw your screencast on Hackern News. looks pretty interesting. And he's still in school, right? So we get together in the student center and just start hashing it out. At MIT?

At MIT. And what do you know about Arash at that point? Virtually nothing. Just a recommendation from somebody else is like, hey, this guy, he might be a good co-founder. Yeah. Like he's smart, he's a good engineer. And he had been the director of the computer science

programming competition at MIT, had been one of the finalists, and I had done that too. So I'm like, okay, that's a pretty good filter. That's a starting filter. And we just hit it off. I mean, as a practical matter, I'm like, yeah, I need a co-founder. You know, usually these co-founder stories start with like, hey, we're on the same

tee ball team, but definitely not here. And we kind of just went for it. That was what was so crazy. I was just like, you got to drop out of school to do this. And he's like, yeah. Wait, this was based on one conversation. No, it was a series of conversation, but not a lot. You know, it was like the equivalent of a few days.

A few days. Okay. If you're, you know, a few coffee dates, basically. And I'm like, all right, I'm expecting enough to talk to the parents and, like, do all this stuff. And he just bounces. A couple days later, he had just dropped out of school. He just says, all right, I'm good. I'm out.

Yeah. And I'm like, respect, okay. All right. So he joins you and Y Combinator gives you the green light. You're in. Yep. And that comes to. with a lot of support and introductions,

but also $15,000, which I imagine was not nothing in 2007, which got you, what, what did $15,000 get you? Some desktop, some IKEA furniture, a couple months of rent. Right. So we get into YC, you know, April, May,

and then the summer program for YC is in Boston. So we spent the summer together. He was living in his dorm, you know, we'd just be in the trenches, like we'd wake up at noon. I'd pick him up from his dorm. We'd code till four, five in the morning. Being pizza and stuff like that.

Do it again. Yeah, I mean, it was kind of very, just very unhealthy. Yeah, an dorm kind of experience, just the prototypical startup experience. We were just like working every day coding. But yeah, at Boston doing my combinator is like we really found our element. There were like 50 other founders, roughly 20 companies. We really got put on the rails. And then we move out to California to get.

into this, you know, two, splitting this two bedroom, a kind of corporate, like, furnished apartment. Anyway, we finish, every company gets, I think we got seven minutes. They're a lot shorter now. You know, they put, they take a room of investors, they take the companies. Yeah. But seven minutes for our demo. YCN's with Demo Day, and then all the investor conversations kind of pick up where that leaves off. So we had to go start raising money. When we come back in just a moment, how Drew and Arash's little business,

started to attract big attention from some of the biggest tech entrepreneurs in the Valley. And how that attention turned drew into an enemy of none other than Steve Jobs. Stay with us. I'm Guy Raz, and you're listening to How I Built This from NPR. And one more thing. The New York Times bestselling book, How I Built This, is now available. It's a great read and a great gift for anyone looking for ideas, inspiration, wisdom, and encouragement. to have the courage to put out an idea into the world. It's filled with tons of stories you haven't heard about how some of the greatest entrepreneurs you know and respect

started out at the very bottom. Check out How I Built This, The Book, available wherever you buy your books. Hey, welcome back to How I Built This from NPR. I'm Guy Raz. So it's mid-2007, and Drew and his co-founder, Arash, finish up at Wycombinator.

They're living in San Francisco and gearing up to raise money and trying to figure out how to convince investors that their idea is a risk worth betting on. When I first talked to investors, particularly in Boston, they were like, no one's really ever made this work before. This is a commodity. Google, Microsoft, you name it,

was going to do this and eat our lunch. And that's what people would say. They'd say, look, these big companies are going to do this. You know, it's just going to make what you're doing. doing irrelevant or obsolete. Yeah, and I totally agreed. I was like, yeah, obviously. So how did you get beyond that feeling of agreeing with the doubters?

Well, the fact remained, though, that no one had really done this properly. And at this point, I hadn't, you only need one or two investors to really be into it. And so by the time we got to, through Demo Day, we had come up with a pretty compelling pitch. Can you explain something to me? What was, I mean, I don't know if it's possible to explain this in a simple way, but let's try it. Sure. The idea here was to enable people to share files seamlessly across different their computer, their laptop, and this is when iPhones just started to come out and smartphone revolution is going to be about to begin. What was so complicated about it? Why was this so hard? Well, people had bitten off little pieces of the problem, but we were trying to do something bigger.

And what was really challenging was how do you basically build a hard drive large enough to be everybody's hard drive? So there's a whole server and infrastructure component of it that's very complicated. There's a algorithmic component, which is hard, meaning how do you make it so that you can verify the correctness of the system? So how do you design something that doesn't stomp on people's baby photos or tax returns? Getting under the hood, it's a pretty hard engineering problem. So for a lot of the same kinds of reasons that, you know, a Google search, it's like your type words and do a text box and you get links to web pages. How hard can it possibly be? It's actually pretty hard.

So it's that kind of problem. And then there was a design element of how do you make this really simple and accessible for normal people? And then we want it to work with all platforms. And when did you have a beta version ready to go? Like, that was up and running. By the fall of 2007, we started opening up the beta a little bit. And so it's around this time where you start to attract potential investors. And you get the attention of Sequoia, which is a huge deal.

And Michael Moritz, I guess, who's a big deal, one of their senior partners. From what I understand, he comes to your apartment in San Francisco a couple days after you meet him. Yeah. basically wanting to make a deal. Do you remember him arriving in your apartment? Yeah, it was a whirlwind because we had just had our first meeting with Sequoia on a Friday. And I wasn't super familiar with how these things work. But, yeah, Mike, we do the pitch.

And then on Saturday morning, yeah, Mike Moritz shows up at our little apartment, Dropbox World HQ. And we walk him through it. It doesn't say a lot. It has a couple questions about competition and Google. then leaves with little fanfare. He's like, come by on Monday to pitch the whole partnership, which is kind of like the final boss.

And during that pitch meeting, were the partners throwing like tough, skeptical questions, or did it seem like they really wanted to do this? I'd say they all had kind of a poker face. I think they were interested, but you do your pitch, you leave, don't get a lot of feedback initially, and then get a happy phone call or a sad phone call. And we got a happy phone call saying, hey, come to dinner. We want to hammer this out. Wow.

And we had a handshake deal that night. So one business day turnaround. Wow. Which we were not expecting. And all of a sudden, you guys have a million bucks in the bank to work with. Yeah. What were some of the things you did at that point? Did you start to hire other engineers?

Did you get office space? Or did you just continue you and a rush working out of your apartment with that million dollars? So there was a lot to do. You know, once you have a deal coming, you need a lawyer. Then you have money in the bank. You need an accountant. Then you have money. You need employees.

So we started recruiting the smartest people we knew from MIT as engineers. And so we would do these recruiting trips out there. Arash and I would go meet people in their dorms and pitched our first few engineers that way. So you start to build it out. And what does that mean? I mean, are you guys, because you and Arash had already been pulling all-nighters for like months and months and months to get it. to this phase. Now, does it slow down a little bit, or does it actually accelerate? It accelerates because at every point you just have this expanding circle of things you need to

take care of because you have, from a product standpoint, you have this prototype, but then you need it to get it ready for prime time. You need users. And so we kept doing all of these unconventional things to try to get attention based on what had already worked before. So the same kind of video that I put together to put on Hacker News, we did another one that was a little more oriented around a broader audience that we put on Reddit and Dig in March 2008. And so we were placing bets on how many people were going to get on here. I think the high watermark was maybe 10,000 people. So one of the things that I guess you've said is that Dropbox actually took longer to launch than other startups at the time.

Like it took you almost a year from the time you moved from San Francisco to launching it. Why did it take so long? Why couldn't you just put something out there in like January of 2008 that was good enough? We knew early on that we would not have a lot of margin for error. And so, you know, move fast and break things, it's not going to work for us. Because if you, once you lose people's trust, it's very hard to get it back. It didn't have to be perfect, but it had to be very good, right? So you can't kind of bait.

It's hard to beta test a pacemaker. And we knew that if there's a spectrum from like little website, you can kind of throw up in a day to PaceMaker. We were much closer to that end of the continuum. And so the other thing is this only became a mainstream need after the iPhone because most people had one computer at home, but then suddenly with a smartphone, everybody's got two. And for the first time, you need to get stuff back and forth very easily. And the only way to do that is through the cloud.

Suddenly this went from a problem that the propeller heads had to a problem that every mainstream iPhone user. And how did people find out about it? Well, I had read this book Crossing the Chasm, which talks about how technology is adopted, starts with early adopters, and then moves to kind of an early mainstream and so on. And so this is technology adoption lifecycle,

and we're like, we started with the early adopters intentionally. We're like, who are the people that are, like, actively looking for something like this? They tend to be the kinds of people that hang out on the Y Combinator startup news site or Reddit, or sites like that. So we ceded the audience with there. And then it was viral because sharing is a really important part of the Dropbox experience.

And then if I share something with you, you have to become a Dropbox user if it's a shared folder. And so the virality was a critical part of our distribution strategy because, and we'd study that because things like Facebook and Facebook platform were exploding and growing super fast. And it's pretty hard to build a big consumer service without. having some kind of viral growth element. I think, you know, within two years or something, you had like 15, 20 million users was a huge number of people. Clearly this was resonating.

I mean, clearly this was something that was working. I mean, it's kind of crazy. Within two and a half years, your valuation were up to $4 billion. Yeah, it was like, we were very careful to get the product right through the beta and then at public launch, we turned on the paid version, and we sort of became accidentally cash flow positive after that because it was just growing so quickly.

I mean, this is what's amazing to me is I think by 2011 you had 50 million users. Yeah. And your revenue was like almost a quarter of a billion dollars. But only 4% of users were paying you. The rest of the 96% were using the free version, which only gave you 2 gigabytes or whatever of storage space. So all that money was just coming from 4% of the users. Yeah. Paying like $10 a month or something.

Yep. And was that, had you modeled that out? Did you know that that's all you needed? You just needed like a tiny percentage of people to pay? Yeah. And there was this new business model that had been popularized around then called Freemian, where you start with a free version and then there's a premium version if you need that. By the way, I should mention I read that Mark Zuckerberg, like sent you a Facebook message in like 2009 saying, hey, I'm interested in learning more about your company. And you thought it was like a prank.

It was wild. I mean, we got on his radar because we were recruiting some of his alumni. Right. And, you know, you'd have Facebook opening a tab all day at work and suddenly you're like, wait, what? So, but was he interested in maybe acquiring you or just wanted to meet? He was interested potentially in acquiring Dropbox. We were still building, so we weren't really interested in that. And then we stayed in touch, and then we became friends. And I guess also that year in 2009, I read that Apple was interested in Dropbox 2. And that you even had a meeting with Steve Jobs? Is that right?

What's the story? Well, it was surreal. We weren't expecting that. And I was meeting with one of the VPs who reported to Steve, and he's like, Steve would like to meet you. And so I was pretty intimidated because then I started talking to my friends and, like, the stories about Steve meetings were very scary. Yeah. Yeah. This guy said Steve wants to meet with you, not today, but at a future time.

Yeah. He's like, well, we'll get something set up. Okay. I'm like, I guess I'm not going to say no. Yeah, sure. I'd say no. Yeah, it's Steve Jobs. Yeah. So get there. We're like, we're here to see Steve Jobs. They're like, okay, have a seat. And then Arash and I are like, oh man, maybe he hasn't seen the product. We have to do our kind of get our demo ritual ready. So we're furiously trying

to set that up. And a few minutes later, Steve comes in. And I think the first thing he said is you guys have built a great product. So, you know, on my little bucket list under the I'm like, okay, check, good. I guess we might be getting a happy Steve story, not an angry Steve story, but we'll see. And he was basically saying, like, you know, you should really throw in with us because we're like a startup with infinite resources. Was it clear to you when you were going to meet him that this is what was going to happen? He was going to make an offer to buy you out? Probably.

I was hoping he wouldn't get into numbers, right? Yeah. I mean, I thought about goals for the meeting before that. I was like, what am I trying to accomplish here? I think the primary goal from my meeting with him was just don't piss him off. Yeah. So he's telling you all the great things about being part of Apple. Yeah.

And then does he throw out a number? No. He's like, we'd love for you to really consider this. It'd be great. And then, you know, sort of like, I'm like, well, look, we admire everything you and Apple do and have done. Love to find a way to work more closely together for sure. but we want to build this company and think it has a bright future, and that's what we're focused on.

And I want to stay independent, I'm sure you understand. And he said, of course I do. I was an entrepreneur myself. Fair enough. Sort of. He was like, all right, well, in so many ways, he's like, well, you guys are a feature, not a product. You know, we're going to have to build our competitor,

and I guess we'll have to get to work on, you know, in so many words, killing you guys. Wait, he was saying to you, hey, if you're not going to work with me, then we're just going to crush you. We're going to build our own thing. We're just going to take you down. Yep. And here are your problems. You don't have the operating system.

You need partnerships for distribution, like all these things. And so, because I was like in my head disagreeing with a bunch of what he was saying. But, you know, and I'm just like, again, don't piss him off. So I'm just like, all right, agree to disagree. But yeah, I mean, that, you know, that part of the conversation was over pretty quickly. And he just kind of stuck around. He's like, so, you know, where are you guys from? And, you know, he started just talking about the history of sort of the second coming of Apple.

And so I think we were lucky in that we got kind of a happy Steve meeting. But, yeah, he stuck around for another, you know, 30, 40 minutes. But that was the last time we talked. Wow. I mean, well, he passed away in 2011. But before he passed away, he did make good on his promise. I think it was his last keynote where he understood. veiled iCloud.

Yeah. And he name checks Dropbox. And you probably saw that keynote. Oh, yeah. And so did my entire team. And was your heart pounding watching that keynote? Yeah, it was. But before that, it was clear that there was definitely kind of a winter is coming

reckoning that was going to happen at some point. For Dropbox. Yeah. And I would say that from the moment we founded the company, we were kind of always living in the shadow of whatever Google's thing would be or Apple's thing or, you know, and then we'd hear a rumor and the tremors of that would kind of reverberate through our psyche. You knew that there were a lot of big businesses in the Bay Area that went down, right? Yahoo! NetScape. Netscape. Myspace. A party you must have been thinking, we're next.

Well, we'd show those like tombstones very literally, you know, on a slide in front of the company. You communicated this idea to your own employees? Yeah, because hey, we need to focus. We need to execute. There are a lot of dead companies that were once great. It wasn't so much about Apple as much as just the whole kind of constellation of competing products. So we use those moments as a galvanizing force to get us to really focus and execute quickly and motivate the team. And how would you do that?

I mean, I guess one of the ways to make sure that you wouldn't be buried would be to build very quickly. build partnerships, like be everywhere, be the go-to, right? Yeah, but it was clear that we were going to be moving into a new, at some point there would be a new act. So we were spreading our wings. We started building new products. We acquired a company called Mailbox, built a photo sharing product called Carousel. And I think we were, you know, all that is to say this was sort of, these are the years

where I kind of had to shift from being like a founder to really being a CEO and getting good at the game. Yeah. So I remember going home for Fourth of July, and I reread the book, Only the Paranoid Survive. And so the book talks about this concept of a strategic inflection point where sort of it, the business is doing well, but things seem off. And everybody has this moment where they recognize that things have really changed. So for us, what that meant was we have to really understand what are we, what's the value are we that we're providing to our customers? and our happiest and most profitable customers

were using Dropbox at work. And so we decided to go all in on, for all intents and purposes, getting out of the consumer business. Being focused on business clients? Yeah, being focused on business clients. And just addressing the work use cases. It did mean that a pretty embarrassing moment

where I'm like, oh my God, all the stuff that was on stage saying is the future of the company like Carousel and mailbox and all these other things, like we're just going to have to shoot. I'm going to have to shoot. shoot all of them. You're just going to shut these things down to focus on. I just shut them down. And like so many things that I had proclaimed were the future of the

company were like not going to be the future of the company. I mean, it is amazing that your product was kind of made for these times. Yeah. I mean, it's designed for people to share and collaborate and they don't have to be there in person. So I have to imagine you're one of these strange positions where COVID, the pandemic has actually been good for your business. Yeah, I mean, folks have been turning to Dropbox for distributed work since the beginning. And in fact, I built it not to back up my photos. I built it to be able to work from anywhere. So, yeah, there's a through line from the beginning here.

But we're thinking about, okay, now we're painting on a much bigger canvas. For example, one of the big problems we all have is that our stuff is everywhere. Yeah. Right? A lot of our work happens in cloud tools of various forms. And our content is scattered in 15 different places. and we live in a world where it's easier to search all of human knowledge than my company's knowledge. Right.

So there are these big opportunities hidden in plain sight that for reasons that are very similar to why the problem for Dropbox in the first place was unsolved. Like there are huge challenges that are right in front of us. The landscape is always shifting, and so there's always new opportunity. Let me shift and ask you a more personal question. Your company is now, the market cap is about $8 billion. Yeah. And you are, not just on paper, but in reality, a billionaire, what does that mean to you? I mean, does it, like...

It's kind of, yeah, it's definitely not what I had in mind when, you know, when I was at any point in my life. Well, that's a thing. Most of the people on the show don't set out to become billionaires. They set out to solve a problem. They know they're going to, if it works out, they'll make money. But the problem you want to solve was how to seamlessly integrate files. from one pressure the next, but you weren't thinking,

oh, you know, I'm going to live in a gilded palace and sit in a vault full of gold coins and throw them up in the air all day. Yeah, I was always, I just remember early on, the idea of like scaling a company was so scary that on the money front,

I was just like, look, as soon as the company's worth a million dollars, that would be unbelievable, then we started getting venture money and things like that. Like, okay, if I have a hundred million dollars after taxes, then I'm good.

I'm done, beach. Happily ever after. And then in the process of talking to some of our angel investors, one of them had a really successful exit. And he's like, the day I sold the company was like one of the unhappiest days of my life. And so getting back in touch with like why you do what you do is a really challenging and important.

important conversation to have with yourself. And for me, it was like, I love reverse engineering things. I love building things. I will never get tired of seeing like a Dropbox icon over someone's shoulder in a coffee shop. Yeah. I know I will always look. Yeah. You know, I never get tired of that. And so that sense of purpose is really important. When you think about your story and your success, do you think that it has to do with how hard you worked and your skill and your intelligence? Or do Do you put more of it in luck, or how do you, what drop box folders do you put all those things into? Well, I think you need both. So I think about it, like surfing, like, that waves will come.

And in our case, like, we had, we caught this tidal wave. You know, we're just sort of sitting there on our board and then, oh, my God, you know, suddenly we're 50 feet off the ground. But inevitably, that wave, like, slows down and then it's like about catching another one and another. another one. So I think there's luck in terms of when and how any given wave shows up and where you are on your board, but then there's a lot of skill in staying on and in finding the right wave. That matters a lot. That's Drew Houston, co-founder and CEO of Dropbox. And by the way, remember how in the early days of Dropbox, Drew got a Facebook message from Mark Zuckerberg who was potentially interested in acquiring the company? Well, while that didn't happen, the two stayed friends

and earlier this year, Drew was invited to become a member of Facebook's board. Hey, thanks so much for listening to the show this week. You can subscribe wherever you get your podcast. You can also write to us at hibt at npr.org. And if you want to set a tweet, it's at how I built this or at Guy Raz. And my Instagram is at guy.org. Our show was produced this week by Casey Herman with music composed by Ramtin Arablui. Thanks also to Julia Carney.

Candice Lim, Neva Grant, Sarah Saracen, and Jeff Rogers. Our intern is Farah Safari. I'm Guy Raz, and you've been listening to How I Built This. This is NPR.