Here’s how Dropbox billionaire Drew Houston hacked viral marketing and user retention to launch a $4 billion company


  • Dropbox cofounders Drew Houston and Arash Ferdowsi entered a saturated cloud-storage house.
  • They differentiated by themselves with the power of their merchandise, which was developed out of their personal frustration with what was on the market place.
  • Houston explained to LinkedIn cofounder Reid Hoffman precisely how he and the crew drove advancement and retention, even devoid of a effective market backer, on an episode of the podcast “Masters of Scale.”
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Now, Dropbox is a $4 billion large. 

It brought in $428.two million in whole profits in the final fiscal quarter, and had a lot more than 500 million buyers and over 2,300 employees.

But it was the moment a scrappy startup in a crowded discipline. 

Right until, as CEO Drew Houston spelled out to LinkedIn founder Reid Hoffman on his “Masters of Scale” podcast, the founding staff figured out a viral-marketing system to force them ahead of the competition. 

It is really a lesson for any individual striving to improve their audience — quick.

The founding story

In 2006, on line storage was a startup cliche and the default digital realm to conquer. The room was littered with the graves of corporations that experienced tried out and failed to put into practice a concrete answer.

Even even though the strategy of cloud storage was not novel, Houston and his cofounder Arash Ferdowsi came at the issue from the perspective of frustrated people. There had been several cloud-storage possibilities on the market, but there had been none that Houston could personally believe in with his files.

Houston and Ferdowsi ran with their approach to located Dropbox. Nowadays, Dropbox has a sector share of 24.10%, outdone only by Google Push at 34.sixty eight%. Much more than five hundred million folks use the support, and having to pay buyers totaled 14 million in the 3rd quarter.

“Element of it was not truly considering about a current market or a organization. I was just wondering, ‘God, I need to have to get to my things from multiple computer systems,’ as an finish consumer,” Houston reported.

Houston understood he could outpace the more compact opponents in the discipline mainly because he experienced firsthand information of where their choices fell short.

“I had some perception into why this looked effortless, but it was actually tough to do, and form of just jumped in,” Houston claimed. “I believed I could outrun the lesser fellas.”

Twelve yrs ago, achievements was not assured. Following getting approved to the renowned Silicon Valley accelerator Y Combinator, Houston and Ferdowsi faced skeptical traders and level of competition from the Goliaths of the tech business, like Apple, Microsoft, and Google. Traders would explain to Houston that Dropbox was “probably heading to get crushed by the big guys.”

Houston would respond: “We most likely will get crushed by the major fellas. That’s Ok. I am going to at minimum not have to have all around a thumb generate any longer.”

Inevitably the enterprise-money fund Sequoia led Dropbox’s $one.twenty five million seed spherical. According to the PitchBook-NVCA Venture Keep track of Report, Sequoia recognized about $2 billion from its original investment when Dropbox went public in March 2018. 

Hoffman characterizes Houston as fearlessly obsessed with his item, with really very little to get rid of. Houston decided not to companion with a significant company, even following an in-individual present from Steve Positions, since the bodyweight of a large companion couldn’t balance the loss of agility Dropbox would put up with. 

Dropbox required end users but wanted to maintain inside agility. 

Houston and Ferdowsi decided to use a system that their competition hadn’t mastered to spur expansion in the Dropbox consumer foundation: referrals. 

Driving growth

The referral technique was not novel: PayPal had performed it with its $5 referral charge. But Houston desired to make matters easy. He supplied extra storage house for referrals, and there was no higher restrict of how much extra space a user could get. 

“There had been a ton of firms that had credible merchandise,” Houston mentioned. “But we have been the one that cracked this viral playbook.”

The final result was exponential growth, to a selected place. Dropbox went from 100,000 users at launch to double that ten days later on. 7 months down the line, the firm was at 1 million consumers, and the variety saved rising. 

Fixing the retention trouble

Retention was an issue, on the other hand. Originally, 60% of individuals who signed up for Dropbox through a referral ended up not working with the service.

Houston needed to know why. He went on Craigslist, offered $forty to anybody who would occur in and perform through making use of the provider, from acquiring a referral website link in their inbox to sharing a file. Houston described this system as “a lousy man’s usability exam.”

The take a look at effects were not excellent — failing, in actuality. Zero of the 5 people today succeeded in using Dropbox productively, and most could not even figure out how to obtain it. Some would get annoyed if the download took far too long, so they’d start out browsing a thing else and then couldn’t determine out exactly where Dropbox downloaded to. 

Houston and his staff pinpointed specifically what tripped people today up and fantastic-tuned user knowledge appropriately. They ended up with eighty-some problems detailed in a shared spreadsheet.

“We nevertheless basically feel about the small business in those terms: How do we get shoppers? How do we activate them? How do we keep them, monetize them? And so on,” Houston said. “I are not able to tension enough how crucial getting that ideal is for a solution in which you want to have scale.”