Mr. Drew Houston, Dropbox’s co-founder and CEO, talks about his discoveries, lessons and the future.
GLOBIS Top Seminar
"Dropbox: Tech Giant's Birth, Growth and Future"
Drew Houston, Co-Founder and CEO of Dropbox
Yoshito Hori, President, GLOBIS University (Dialogue Partner)
In 2007 Drew Houston co-founded Dropbox with Arash Ferdowsi, his classmate at MIT. He was 24 years old then. Today, with about 300 million users (including 10 million in Japan) and over 100,000 client companies worldwide, Dropbox has quickly become the world's leading cloud storage provider.
In just over seven years Dropbox has gone through two different stages: early startup, and the subsequent fast, wild and continued expansion. Has Dropbox's business developed and grown the way he intended? What are his discoveries and lessons he learned during those stages? And what does he plan for the future?
Date: Thursday, April 9, 2015
Time: 19:00 - 20:30
Venue: GLOBIS Tokyo Campus
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Tech Giant Dropbox CEO to Japan’s Emerging Ventures: “It takes more than a trend.”
by Katrina Vinluan
“Find a hard tech problem from all the things that get you excited,” Dropbox CEO Drew Houston advised during his dialogue with GLOBIS President Yoshito Hori at a recent seminar at the school’s Tokyo campus.
Dropbox was cofounded in 2007 by Houston and Arash Ferdowsi, a fellow from Massachusetts Institute of Technology. Since its inception, Dropbox has already grown from a start-up venture to a fully fledged private company with an estimated annual revenue of over $250 million dollars. Tagged as one of the fastest growing companies, now boasting of at least 300 million users, Dropbox is believed to have higher income productivity per employee than the long-prominent tech company Google. Dropbox’s growth was tracked by Apple’s Steve Jobs, leading Jobs to apparently tempt Houston with a nine-digit acquisition offer.
With the launch of iCloud in October 2011, Jobs did acknowledge one of the biggest tech problems—how to store all photos and files from different devices, into one remote storage. This tech problem was exactly what got Houston to launch Dropbox, after years of exposure to computers and technology. Houston started as a preschooler tinkering with an IBM PC. He already knew at a young age that all he wanted was to work with computers. Houston, at 32, said that Dropbox is his sixth venture.
But when asked about his road to success, Houston countered the popular entrepreneurial advice of “spotting a trend and riding the wave” as a starting point for ventures, declaring “it takes more than a trend.” While everyone tried to take after Apple’s brand storytelling, or join the bandwagon of IT-aided financial services or online selling, Houston chose to do what he knew best—find a new technological solution to an old problem. Not resting on his adeptness in computer science, he also equipped himself as an entrepreneur by reading business books and surrounding himself with people who provided insights on starting a company.
In the dialogue at GLOBIS, attended by participants from the IT industry, start-ups, centuries-old Japanese companies, and universities, Houston shared his insights on what has contributed to the success of Dropbox during its eight years of existence.
“Find things that you can be really obsessed about.”
Houston took on programming jobs at the age of 14. By the time he was preparing for his college SAT, he identified lugging around 800-page books for SAT reviews as a pain-point he could address with computer technology. He set up an online SAT preparation company. It didn’t succeeded as hoped, but Houston continuously exposed himself to dilemmas that could be solved with computer technology, eventually stumbling upon the remote file storage problem that paved the way to Dropbox.
“Surround yourself with people who push you.”
Houston humbly admitted his lack of business exposure, despite his dexterity for technology. So apart from reading books, he would often surround himself with people who pushed him. Having been surrounded by competent classmates at MIT, Houston enjoyed exchanging ideas and feedback for improvement. He also got some start-up confidence through his fraternity brother, Adam Smith, who at one point, was also doing a start-up called Xobni.
“If doing a technology-based business, get a strong technical team.”
When asked whether it is crucial for a founder to be technically adept in order to get a start-up going, he said that it could be advantageous, but finding good partners could work. He said that with the right people in place in Dropbox today, he can confidently delegate the tasks he would normally take charge of, allowing him to spend more time in creating new added values for the business, discovering new innovations, and getting involved in the hiring process.
“Secure the right assets: PEOPLE.”
Early on, potential investors required that Houston secured a co-founder before they would even consider offering funding. Houston jokingly said that asking Arash Ferdowsi just after having met him was like “getting married on the first date.” He knew that apart from being technologically-savvy, Ferdowsi had the same level of guts and determination to make things work after the latter expressed that he was willing to drop out from school in order to get things done in time for the VC presentation. Even now, Houston takes time to personally interview and carefully select people who will be part of Dropbox. Houston looks for passion and trustworthiness, as he handpicks those for key positions. Houston did hire people from leading tech companies such as Google and Symantec to help lead the business expansion and development.
“Just effing do it.”
During the dialogue’s Q&A, Houston was plagued with questions along the lines of “How did you know?” “When did you know?” and “How did you overcome?” Having worked with start-up companies and doing coding jobs since he was a teen, Houston had developed enough muscle to handle challenges, even possible failures and rejections. He said that there would never be the perfect scenario, or enough time, or enough funds, or a flawless prototype, especially in the beginning. So his only advice is for people with start-up ideas, to “just effing do it.”
What does it mean for Japan?
In Japan, where the struggles of manufacturing-centric and once-leading tech companies are well known, the emergence of venture capitalists seems to be a new fuel of growth, especially for sparking innovation and new industries in the country. According to research by Niimi and Okina, Japan is the first nation in Asia to attempt to create a venture capital industry. In 1963, the Japanese government allowed the use of public funds to create firms like the United States’ SBICs (Small Business Investment Company). With this national initiative, firms were established in key business districts in Nagoya, Osaka, and Tokyo. These firms supported some existing small and medium-size enterprises—providing stable, long-term capital. It must be noted, however, that these firms funded only a few start-ups.
In 1972, Kyoto Enterprise Development (KED), which was modelled on the American Research and Development, was established through the investment pooling of 43 notable companies in Kyoto. Unfortunately, KED failed and was liquidated four years later. In 1973, Nomura Securities and 15 other shareholders established Japan Godo Finance—the precursor to the present JAFCO (Japan Associated Finance Company). In a paper titled “Venture Capital Industries,” Kenney, Han, and Tanaka explained that in the 1970s, major financial institutions in Japan including banks like Sumitomo, Mitsubishi, and Daiichi Kangyo, and security firms, such as Yamaichi and Nikko, formed venture capital subsidiaries. This wave of venture capitalism however subsided by the time of the oil crisis in 1973. A new surge came about in the 1980s, although the goal was to build relationships with small and medium-sized enterprises to do cross-selling or to use them as distribution channels, not to fund entrepreneurial start-ups. This meant that rigorous due diligence checks were not in place, since compared to the usual venture capitalist business model that seeks high return on investment, the Japanese venture capital firms sought long-term business partnerships and portfolio management. Thus, they invested in established firms, not emerging firms.
In the 1990s, with the continuous economic stagnation of Japan despite the Internet boom, a change to the venture capital industry took place to initiate new business creation, especially for knowledge-intensive and high-technology start-ups. Softbank, a Japanese software distribution company, served as the pioneer. Owner Masayoshi Son made early investments in some US internet start-ups including Yahoo!, Geocities, and E*Trade. As these firms went public, Softbank reaped capital gains, which it invested in nearly 300 Japanese internet start-ups. By January 2001, Softbank had invested over eight billion US dollars in over 600 start-ups in Japan and around the world. Many other venture capitalists followed suit—investing in internet and IT-related companies. By 2001 however, losses were incurred by venture companies due to the bursting of the internet bubble. Still, in 2002, the Japan Venture Capital Association was set up with the aim of revitalizing the country’s economy, hoping to push up the country’s start-up business ratio by 10%, and further encourage the birth of venture start-ups, which are expected to become the driving force for Japan’s new economic growth.
Dropbox, which started as a venture in Silicon Valley, now boasts of 10 million users in Japan, out of the 300 million total users across the globe. Dropbox recently entered Japan through a partnership with Sony (the Dropbox app comes preinstalled on Sony handsets). With the success story of Dropbox and the need for new business innovations in Japan, Dropbox may just set the precedent for new economic growth, especially as internet-driven businesses in Japan now seem to show that they have been succeeding in adapting to the changing market demand, proving that it takes more than a trend to launch new sustainable businesses that could impact Japan’s national economic growth.