From Private to Public with Drew Houston (Dropbox) | Disrupt SF (Day 1)
10:36PM Sep 5, 2018
One of the pride and joys of the TechCrunch startup battlefield alumni pool, Dropbox is joining us on stage. Please welcome Drew Houston.
Oh, and Matthew Panzarino.
Excellent. Oh yes, packed house. I love it. Okay, excellent. So, Drew, if you don't mind, I've got a little clip. I want to show first of TC 50 when you guys were presenting Dropbox, so if we can roll that.
Ready, let's hear it for Dropbox.
I'm hearing the audio. Oh, there it is.
Alright, thank you. I'm Drew. And this is Arash. We're going to be showing you a quick tour of Dropbox. Alright, it's 2008, it is still such a pain to do even the most basic things like work across multiple computers, or share files across a team or put photos and video up on the web. When we think about the future,
It's kind of hard to imagine Tom Cruise having to carry around a USB drive, having to like log into Gmail sent himself a file or an email attachment.
Excellent. All right. Well, that was, that was 2008. This, 2018 now. So that's you describing Dropbox in 2008. How do you describe Dropbox in 2018? Is it exactly the same is it different?
It has evolved. And so as as you saw there, well, first, it's, it's great to be back here.
And TechCrunch has been very good to us over the years. And, and it's great to see all of you. So yeah, in 2008, I mean, I think first, that, that watching that clip made me like twitch a little bit. Because like when we were about to go on stage at TC 50, I think I was like, on two hours of sleep. What they didn't show there was at the Wi Fi then broke, and the demo went totally off the rails. And
I thought about showing a demo fail.
Yeah, so that's all part of the adventure.
But when we started back then 2008, our mission was to move people's lives into the cloud. And fast forward to several years later and, and to now. And yet, people don't need to carry around a thumb drive anymore. And, and we have helped a lot of people move into cloud and a lot of the internet companies have done that. But along the way, we realized that a lot of people were bringing Dropbox into work, in the millions of businesses, kind of without us doing anything. And when we looked at how people's experience of using technology at work, we saw that there is, it's similar to how it doesn't make sense to be carrying around a thumb drive, there's a lot of experiences of using technology at work that are pretty broken. And so today we talk about our mission is to design a more enlightened way of working
What does that mean?
Talk about. So what does that mean? Well, at first, it means that the way we're working right now isn't terribly enlightened. And what I mean by that is, I just think back to, I visit my dad at work when I was a little kid. And when, and I, as, pretty excited, I look, I look on his computer. I looked at the tools he was using, he's using Office and email.
And Fast Forward 20, 25 years later, and you look on a lot of people screens, and you still see like, a lot of office and a lot of email. And we're still using a lot of the same tools. And we're using a lot of newer tools also. But it's been kind of this avalanche of new stuff. And, and a lot of, it's really distracting, nothing really works well together. And it's kind of crazy because while on the one hand will we all go to the in office in, in the morning to go to work, more and more we're working out of a screen. And we all know how a physical, how our physical environment can make us happier, or more productive or not. But the virtual and it's the same thing is true of our virtual environment, and in many ways it's more important. And you think about how that environment works. It's like we're cobbling together all these different tools from different decades from from like, office and email to then we can have old generations and new tools from the web, and mobile and so on. But I think one thing that's really different from when I visited my dad is, even though we're using a lot of the same tools, he might have gotten like five emails a day. Now, a lot of us get 500 emails a day. And so that's a problem. When, for every, probably most of you in this room, most of your companies, their biggest investment, or the biggest expense is really in people. And so we're hiring people for their minds. And then because of the tools are so distracting. And the experience is so fragmented, we don't then give them space to think.
So you view Dropbox as an opportunity to help with that distraction level?
Yeah. So first, making a more organized experience, kind of reducing some of the fragmentation and then reducing some of the distraction and helping people drive, to help people steer their attention to what's important.
So if you're not, if you're focused on not distracting people with Dropbox, saying, Hey, we're going to take care of business without getting in your way, how do you remind people that you exist, and then grow your user base?
Well, fortunately, Dropbox we have over, we have over 500 million registered users. And we're in millions of com, or the Dropbox is adopted in millions of companies. And so we have a, we have a great head start in terms of solving this problem. And then second, Dropbox is the place where where these people go to work. And so you think every, millions of teams rely on Dropbox to have their most important information in there.
And pretty much anything you touch, or anything you see, or anything that's made, whether it's a table or a chair, or a Juul starts out as an idea and then start often starts out as a file or a piece of content on someone's computer. And more and more Dropbox is the home for that content. So we are starting with a pretty big head start.
So if you're looking at, and let's talk a little bit more about product, and I want to kind of talk about the process of going public, because I think that's, it's kind of in the news and everybody's mind. But the in terms of product, when you're thinking about how you evolve dropbox, how you make it more indispensable to your users. Like 2014, 2015, it seemed like you were headed directly towards a Google Docs or Office competitor. Like we're going to build the full suite end to end. And then that went, kind of that kind of disappeared. But what happened there?
Well I, we're certainly, we're trying to solve new problems. And when we look at the landscape, a lot of the things that we were working on whether storage or photos or collaboration, there are certain problems that were kind of, that were solved well, and so
by the time like, by 2015, a lot of people were not really carrying around thumb drives anymore. And so we kind of could declare victory on that problem, right. But when you look but, still, when you look at the experience of using Office, or even Google suite, or any of the office suites today, they're based on some pretty old metaphors, right? In 2018, you probably wouldn't start out by designing a word processor based on a metaphor of literal sheets of paper, right. And even the spreadsheet and PowerPoint are descended pretty are, pretty direct copies of a ledger or of a slide transparency. And so we have an opportunity because of our relative youth to start with a blank slate and think about, all right, if you were to redesign these things for 2018, we have some pretty powerful building blocks that weren't available back in the mid 90s when a lot of these products were designed. And so Dropbox paper is an example of that where it's familiar. So if you know how to use Word, you know how to use Google Docs, you know how to use Dropbox paper, but instead of just being this static document with based on this metaphor of sheets of paper, it's, becomes a living workspace. And so instead of just being static text and tables, you can stitch together any kind of content and paper, and then you can bring people into the same environment. And so you can have conversations, you can assign people tasks. And so we're trying to think about, all right, how do you bottle up the experience of all being in a conference room together and put that in a screen. And Dropbox paper is an example of something that's familiar, but it makes some pretty different foundational design decisions.
Yeah, so I mean, being, being in a conference room with a bunch of people is like my nightmare, but I see where you're coming from. So if you're, if you like, have 500 million users data, it seems like you you have some information about how they're using their files, and what they're doing with them that could inform those product decisions, right? Get informed how, what you build, what tools you build for them to manipulate those files. Are you doing any of that?
Well, I'd say mean, for the first and foremost, privacy is the most important thing on everyone's mind. But for sure, they're in a broad sense, we can get an idea of patterns of behavior from our users. I mean, and, and I think we look at a bunch of different inputs
What's one surprising pattern you found? Now I know like I'll, I'll skip over this one. So give me a different one. But like photos, for instance, you know, the auto uploader feature came out of like, hey, people are putting a ton of photos and Dropbox. But what's another surprising thing that you kind of drew out of that, that you build something off of?
Well, so we we'll add, so for example, people would, we saw that people were taking,
Or anecdotally, we get requests and be like, Hey, I'm taking photos of these documents. And they're sort of using it like a bootleg scanner. And so we saw it, we hear that from people, we anecdotally observe that and so on. And we're like, okay, these people are not trying to take a picture the way they would be of a vacation. They're trying to scan a document. And so when we watch that pattern of behavior, we're like, okay, now we have some new building blocks here, between machine, machine vision, deep learning. And so we do is we created something called the doc scanner. And when you just take a picture of any piece of paper, it will reorient it and it'll reorient the document for you as if you would put it on a flatbed scanner. And that all happens really seamlessly, one click and then you get a scannable searchable PDF and your Dropbox and so that's example of here's like a hack that our users had found. And then we we watched that and we're like, oh, we can make that a lot better. And then we build in the product and ship to hundreds of millions people.
Okay. Cool. I mean, that's, that speaks to how you're developing products now. I would like to, let's rewind a little bit and talk about the IPO the process of that and we'll talk about how that kind of effected products. So you were, in 2014 was reported that there was like a roughly 10, $10 billion valuation based on the money raised reportedly, I don't know if it's over official doesn't really matter.
Okay. Very good. Heard it here first.
So you had to $10 billion valuation at that point, the IPO was price down to about 7.4 billion. Did you feel some vindication when you kind of recrossed that $10 billion mark?
Yeah, so we when we went public in March, we had our we priced I think at 7.4 sounds roughly right. And then we traded when we opened trading, I think it went up to 11 or so. Of course, yeah, we're really excited to, I think the IPO was symbolic of a lot of hard work that the team had done to build a good and sustainable business and the confidence that investors had. And more importantly, just the understanding that people have about about what we've tried to build, it was it was a reflection, it was a good reflection of that.
And so that's actually interesting, because it leads into the this kind of idea when you were raising, you know, while you were still a private company, raising money, as you knew, hey, we need X to do Y. Did you find there were a lot of headwinds, because Dropbox was uncharacteristic of a lot of the companies of the era, because, you know, 10 years ago, you start out a few years in, you're looking to raise a bigger round, and then you look around, and all the other companies are in this hyperscaler we're not going to charge for anything mode. And Dropbox is like, Hey, we have a product, you know, a little bit of free, but then we expect you to pay for it. Were there headwinds raising because of that?
I don't think there were headwinds raising, if anything, investors would kind of get out in front of a get out in front of us. And there's when you get to the growth stage, investment phase, there aren't that many companies, but there's a lot of capital. And so as a founder, it's important to kind of begin with the end in mind and understand as a private company, given our fundamentals and our revenue, our rate of growth, our level of profitability, what, it's important understand where you would be as a public company. Because as a public company, well as a private company, your scorecard or your report card will be things like, how much momentum do you have? How excited is everyone? How many users do you have? But on the other side, when you're a public company, investors will grade you pretty clinically, in terms of all right, how much money are you making? And how fast are you growing? And
How much money can we expect you to make
Exactly, and so you want to make sure that you bridge that that gap from private to public. And so a lot of the, we realized that
Probably about 2015 was really when we started kind of revving up the engines to go public in a serious way. But we also realized, okay, we need
It's very, even though there are a lot of companies right now, they're kind of in growth at all costs mode. This is not sustainable for them or for us. And we're making something that has a lot of value to our users. And so we have the foundation to build a really healthy business. But we can't, it's not going to make sense for us to keep just spending infinitely to grow. Because that incremental dollar is accomplishes less and less over time. And so what sustainability meant to us is realizing that, okay, here's, here's what here's the problem our customers have, here's the product we're building, here is the business model. And fortunately, we, the majority of our 80% of our users actually, are, are subscribers who use Dropbox for work. And so these are customers who are using Dropbox for work at work. They're used to paying for stuff that's they're actually a little concerned if you're not charging.
And so we had to do a lot of kind of tuning under the hood to make sure that we were building a sustainable business and then we turn cashflow positive in 2016 and then we continued to ramp from there.
So what, there's been some debate I mean, obviously
it's been the whole thing you know, Elon announced that he's taking Tesla private, and he's like, JK, lol. But the, you know, one of the discussions that was had in that gap of time between all those things happening was, what are the disadvantages and advantages of, you know, taking Tesla private or something like that. So, what do you I guess my question for you, what's the biggest disadvantage you found now that you're a public company?
Well, I think there's pros and cons on either side. So the, the, the, the advantages of being private, are that you don't have the quarterly or you have a different level of different investor base, different level of scrutiny and so on. And the orthodoxy in the valley over the last several years has been that being public, is super onerous. You're living kind of hand to mouth, quarter to quarter, you can't invest in anything long term, and so on. And, and that was, and even like, two weeks before we went public, like, I was literally going on the road show next week, I was at a conference and someone was interviewing the head of NASDAQ. And the first question the, the interviewer asked is like, so I've heard from a friend that going public is like, finding a way to live in hell without dying, what do you think? And so I was like, Okay, this is like we are, we were very much already on that path. And so that was a little bit
You know, so, but, but that's why I think it's really important. So I
Step one to being a good public company, or being a good private company, is just be a good company. So build a good business and and as a public company, I've actually been. So we've gone public, we've been public for a couple quarters, I've actually been surprised that there weren't more surprises. And part of that is because we've laid the tracks for being a public company for the last few years. And so the IPO is kind of graduation day. But all the work was in the three years prior. And so the the advantages of being public are that
There are, surprising, there are like, actual advantages of being public, compared to being a late stage private company. Because
Now what everyone, when I think about my, my team, the employees, what they hear from me, and the management team at an all hands and what they read in the press, and what they hear on earnings calls. And what they see in their bank account is all the same thing.
And that's different from kind of the late innings of being a private company, where there's no transparency kind of by design, right. So the business was always doing well, but you know, we had this high valuation, the press was skeptical about us, or competition, and we were kind of holding our cards really close to the vest. And so I think we maybe overdid it on that front. But then people are also like, Hey, you know, I'm holding on to this liquid stock for like, five years now,
Right, people get antsy, yeah.
And so they don't, so, you can't tell them when you're going to be public. And so people really freak out about the uncertainty there. And so there are, there are actually, when I sort of zoom out there, there are pros and cons of being both a public company and being a late stage private company. And I would say that if all that stuff I said about like, kind of building with the end in mind, and investors wanting cash flow and profitability and growth, that matters, because if that's not what you're selling, then you're not going to have a good time as a public company. And so there are a lot of time there, there are times in, in every company's life, no matter how successful, where you go through these strategic changes, and doing those as a public company is much harder than doing them as a private company.
Let's talk about strategy changes for like, preparation for IPO, and that sort of thing. Did you have to change your work ethic? Did you find like, Hey, we're cruising along, everything's going fine. Now we're preparing for IPO. You're like, I gotta get my mud boots on, you know?
I think, well, the first, the biggest challenge, what, I'd say public companies run into problems in one of, one of a couple directions, or one of a few directions. I mean, maybe the first one is, if you don't have the controls, and if you don't have the, the rigor and predictability in your business, and you screw that stuff up, like you're going to have that, then that's, that's, that's like SEC, Feds problems. You do not want that. And so you want to make sure you're building in a solid foundation, so that your business is predictable. And so you don't have problems closing the books and things like that. And that you're not innovating on the accounting or legal front.
Innovating on the accounting. I like that yeah.
But then the more common problems are, are falling too far in one of two directions. So either one, your, your core business is not predictable, or it's not growing. And then investors get freaked out. And then that's when you really do get on a quarterly treadmill, because you're not meeting their expectations in the core business. And so then they really are paying attention to every little cell in their spreadsheet and wondering why. And then you can have these big gyrations that are big crashes, and your stock if you're not meeting expectations in your core business. But then you can also fall too far in the other direction, which is you just optimize your core that you're just sort of harvesting your core business, but not planning for the future, right.
And I think what you have to get right, as a public companies, you have to do both simultaneously. It's not either, or, you have to do both. And so you have to make sure that you're building a machine that or you can run the trains on time with your core business, and that is growing, and it's predictable, and so on, then that can see the air cover to be able to invest and, and, and plant seeds for parts of your business that will become your core business in the future.
I mean, like Q2, for instance, there was a bit of a sell off after the Q2 announcements, which, you know, happens a lot in companies. So it's not specific to Dropbox. But sort of as a new, I mean, it's the second quarter, you got to look at that, how, have you find out how to make hard to make decisions in isolation from how the stock is doing?
Well, the stock is going to be super noisy all the time. And so before it came, before the stock came down, it actually went up 10%, then came down 10%.
And so it's, it is kind of a, it's, it's a weird feeling that people are kind of using your company's stock as like chips in the casino. And so they're making all these speculative bets. And there's all this technical trading, algorithmic trading and all these, your stock looks like an EKG, EKG, even if your business looks totally smooth. And so I think what you have to do is you sort of have to care about the stock price in the long run. But you can't pay too much attention to the little gyrations in the short run.
Yeah, I mean, it seems like that like trading volumes are high, people are definitely interested in the company. And at the same time, the stock is remained relatively steady since launch, which is probably a good thing. But once you decided to go public, and you started to make these decisions about, you know, hey, we got to get this company ready. Did you have to fire anybody you really liked?
Did I have to fire anybody I really liked? No, not really. I was, again, it was over the past few years that we had been getting ready. I would certainly say that the team, the management team has, has evolved a lot every every few years. And that's true for us. And that's true for for, for most companies that scale.
Yeah, because you just, you have some team members who were just perfect for the company during a certain stage
Maybe aren't right for the future.
Yeah, because in the beginning, you need to build. You're, you're writing a playbook. And then when you're at scale, you're running a playbook. And those are two different, very different tasks. And so you think about our who do I need to run engineering or product in the beginning, there's no infrastructure, right? That VP shows up, and there's nothing and they have to build it all from scratch. So the kind of person you want for that job is like a great recruiter, someone who's comfortable in chaos, someone who can build, someone to just figure stuff out. But then after you've built the foundation, then it becomes more of an optimization and scaling exercise. It's like, how do you build the right structure and process and so on. And it's unusual for that the same person to love and be great at both of those things.
Do you view Google as your primary competitor at this point?
What's, so we have a pretty broad competitive landscape. So I certainly, Google Microsoft, the the incumbents, the folks who, who own the, who own the the major office suites, we compete with them. We also partner with them. So competition is kind of interesting for us, it's not a zero sum the way it is, for a lot of other for a lot of other industries, because we find we we know that and it's been true that almost since the beginning, all of our customers will either be office 365 customers or G Suite customers as well. More and more, they turned to Dropbox to tie together all of this to tie together all the different ecosystems. And so we actually partner with Microsoft. And so there's Dropbox support in office, and vice versa. We partner with Google. So there's drop, you'll be able to, we announced in March, you'll be able to store and organize your Google Docs and Sheets and Slides in Dropbox. And more and more when we look at our, we'll talk to our customers. They're like, help us. Like, you look at their phones. They have all the apps from all the companies, they have all the office stuff, they have all the G suite stuff, they have all the dropbox stuff and they have a lot of other tools too. And they're like no one is helping us tie all that together. So we see a big opportunity to do that for our users.
Cool and with a little bit we have left. So we have later on today we have a cadre, our first suite of battlefield companies coming on the stage. Do you have any advice for them to get up there and pitch?
Advice for, so I would say get more than two hours of sleep. But I think it's probably
It's a little late for that.
Well, here's what I'd say. So our, our, our, our launch, that was not our finest moment. Like it's actually kind of hard to imagine how that could have gone worse. So just know that it's a roller coaster. You know, there's there's no button that a founder can press that is just like please just make things go up into the right. And if you think of it more as an adventure more than having to get everything perfect and you just think about progress and keep moving forward, just make sure to enjoy the journey.
Cool. Thank you very much. Appreciate it