AIB Featured Business Leader – Drew Houston
Drew Houston, creator of the now ubiquitous Cloud-based file sharing system Dropbox, has the classic entrepreneur’s story. A moment of frustration, a flash of insight, and the creation of a simple solution to a common problem. Houston was sitting on a bus, going from Boston to New York and intending to spend some of the four-hour journey catching up on work. But when he fished in his pocket, he realised he’d forgotten his thumb drive and couldn’t access any of the files he needed. Frustrated, he decided to ditch his original plans and instead write some of the initial code for a file sharing system – Dropbox.
Coding is Houston’s strength, and it’s a skill set he’s been building for almost his entire life. Born in 1982 to an electrical engineer and a librarian, he was tinkering with an IBM PC by age five. At 14, he volunteered as a beta tester for a new computer game, rooting out so many coding flaws that the company hired him as their networking engineer in exchange for equity. Throughout both high school and college, Houston worked for startups, so that by the time he came to create Dropbox, he had a decade of experience under his modest 25-year-old belt.
Worried that her son was becoming too much of an ‘anti-social geek’, Houston’s mother encouraged him to join a fraternity when he went to MIT to study Computer Science. That frat experience, he says, gave him valuable insight into the world of business. He signed up to be the coordinator of social activities, read business books on the roof and practiced his emotional intelligence skills. By this time, Houston already knew that he wanted to run a company, not work for one when he graduated. Dropbox was created only seven months after he graduated.
As with so many stories of start-ups in the tech sector, Dropbox wasn’t the first file-sharing software on the market, and so investors were reluctant to finance the operation. But Houston had a couple of things those competing companies didn’t have. One was a solid sense of marketing nous, and the other was timing. Houston launched Dropbox in 2007, just when mobile tablets and lighter laptops were starting to become common in the market. That meant that demand for a portable solution was growing. People wanted to be able to work on a project in their office, go home and pick up where they left off, and take the draft on holiday with them without worrying about portable hard drives and print outs.
That doesn’t mean that the journey was without its hiccups. For one, Houston had already worked on several startups before conceptualising Dropbox, including Accolade and HubSpot, none of which made it big within his tenure. Dropbox, too, suffered from roadblocks. Houston approached Paul Graham of Y Combinator for initial funding, only to be snapped at that he needed to find a cofounder and go through the application process before Graham would even consider looking at his product.
After a few false starts, Houston eventually teamed up with Arash Ferdowski, a fellow MIT graduate, in June of 2007. They were rewarded with $15,000 in funding from Y Combinator. Ferdowski, who was still enrolled at college, dropped out to work on the project, and the two spent the next three months building the system around the clock. By September, they moved their operation away from their first cramped office in Cambridge and into San Francisco, seeking start-up funds at the same time. That first round of funding raised $7.2 million – even after Houston’s wifi dropped out at their big demo launch and the presentation flamed out. Houston didn’t let the setbacks deter him: he’s a man known for his willingness to learn, a trait that has gained him much popularity among the coder set.
Dropbox works on a ‘freemium’ model, where the majority of users access the service for free with limits on the amount of data that they can share, and the system is funded through the 3% of premium subscriptions which are paid for by businesses who want larger data limits. It is simpler than its competitors, requiring only that users download a single app which works across all its devices. Today, it has an estimated 400 million users, and at just 32 years old, Houston is personally worth upwards of $US1.2 billion.
But initially, their marketing efforts were stymied by a simple barrier: people didn’t realise that they had a problem with file storage, and they certainly weren’t looking for a solution. Because Houston and Ferdowski wanted to keep things lean, and their ROI on marketing was abysmal, they took a different approach. They turned to their small but loyal fan base, and offered them free data storage in exchange for referrals. The scheme was a wild success, delivering far more new customers than advertising ever had, and within four years that customer base had snowballed into a $4 billion valuation.
Despite pressure from competing businesses, such as Apple’s iCloud and Google’s Drive, Dropbox has sustained its market position on the back of its brand recognition and a reputation for reliability which comes in very large part from the work ethic of its founders. Dropbox manages incredible volume, and must keep up with every software update across the many devices which support the app. It’s a daunting operation, and Houston admits that he would have been intimidated by its scope at the outset. “The good news is that it happens one day at a time”, he tells the BBC, and his history so far demonstrates that he is amply able to keep up with change. With his co-founder, Houston is focused on expanding Dropbox’s range of services to offer integrated email and documenting software, and has even considered expanding into higher education.
Houston doesn’t expect to ever stop learning – as he told the 2013 graduating class at MIT in his commencement speech, “You have to adopt a mindset that says, ‘Okay, in three months I’ll need to know all this stuff, and then in six months there’s going to be a whole other set of things to know — again in a year, in five years.’ The tools will change, the knowledge will change, the worries will change”. And at only 32, Houston’s got plenty of time left to change with it.
This article was written by Tanya Ashworth-Keppel on behalf of the Australian Institute of Business. All opinions are that of the writer and do not necessarily reflect the opinion of AIB. The following sources were used to compile this article: BBC News, Forbes, Pando, Business Insider and CNBC.
Image credit: Niz Journals