Take on Goliath — and win, w/Dropbox's Drew Houston

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Hey folks, Jeff Berman here. I am thrilled to share some of the new names who will be joining us at this year's Masters of Scale summit. This may be our biggest stage yet. Reed Hastings, Meredith Whitaker, Van Jones, Amjad Masad, and more. Will be there with us October 20th through 22nd in San Francisco. If you're building something great, or you want to build something great, We want you there with us too.

Join us at masters of scale dot com slash apply twenty six. That's mastersofscom slash apply. Twenty six. We had a number of early traditions. In the beginning years of Dropbox.

Well I've seen at night we've always had a tradition of having musical instruments so guitars and drums in the office. But then during the day we couldn't play the real instruments so we would play rock band. That's true Houston. Dropbox co-founder and CEO. In case you're not familiar with rock bands. It's a video game.

that let you play along to popular songs with virtual instruments. We were pretty competitive. As we were with a lot of things. And so we've routinely found ourselves Playing a song. the four of us and we'd be like number seven globally for that song.

With stats like that. Joe and his team were confident that they could outrock. Anyone. In Silicon Valley.

And then Mose, the backup company gave us a call out on YouTube, like they record a video challenging us to a duel. We're like Oh man. Yeah.

They seem serious. They made like this like cinematic throwdown video unprompted. These little guys Dropbox guys. They can do what they want, they can pick up Rockman if they want, but they're following our shoes. And we're like Do they know what they're getting into? And so we have this polite negotiation where I'm trying to feel them out. Because I'm like, Man, we might just stomp you guys.

The more they hashed out the rules for the coming battle royale, the more serious. Things became a little bit more. Every time I would ask them clarifying question, they'd up the ante. They'd be like, Can we bring our own instruments? Eventually this all culminates in this showdown, which we're gonna be live streaming on Justin TV. That's the Justin TV.

Which went on. to become twitch. Dropbox and their groupies. Rocked up. To the Justin TV offices.

Then Mosey. Made their grand entrance. They come in with this giant duffel bag. And I'm like, what the hell is in the duffel bag? I'm like, is that your custom instrument? He's like no He opened the duffel bag and starts pulling these giant pieces of foam out and assembling them like a jigsaw puzzle. He's like, No, this is my drum set holder.

And we're like Oh my God. What are we getting into? The battle. of the cloud storage bands was on.

It went down to the wire. We won two songs each, but we are still tied. And so it came down to one last song, I think it was a Mega Death song, you know, on Expert, it's like the impossible difficulty kind of thing, and in the last ten seconds of it we've finally jumped ahead by like 8,000 points. On the surface. This is a small funny story.

About a memorable game. but it's also an excellent metaphor. To start this episode. Mosey. seemed like an overwhelming competitor.

But true. and the Dropbox House Band. Didn't flinch. They believe. There's the pure knowledge.

The game's small details would let them emerge victorious. I believe. You can take on Goliath. And win. But only if you know.

Exactly. What your advantage is. Huge push. There are fires burning when you're going out. Can you believe it? Such an idiot. And then you go back to this is totally gonna be amazing. There are so many easy ways. I have no idea what to do. Sorry, we made a mistake. But you have to time it right. Oops. Nutball ten years later and be like, well that's just how you do it. We haven't made just how you do it.

This Is masters of scale. I'm Reed Hoffman. Co founder of LinkedIn. Partner Greylock.

And your host. And I believe You can take on Goliath. And win. But only if you know.

Exactly. What your advantage is. If you're a scrappy startup, Who wants the slay giants. You have a better chance than you think.

But only if you know where your true strength lies. Try to fight the giant on his own terms? He'll crush you where you stand. The best way. Get your fledgling company.

off to a flying start. is to do something. That no one else is doing. That's why I tell people that being contrarian And right.

is a truly winning combination. By going against the grain, and That everyone else has ignored.

Valuable time. To refine your business model. And win users. But what if? The field you're in.

Is already crowded. Or worse. has gained the attention A far larger. And better resourced.

Giants. Does that mean you should pack up and go home? Definitely not. Especially if There is still no clearly dominant player.

in your particular field. I wanted. To talk to Drew House then. Because he isn't afraid to step into a crowded field or take on giants. He always has a supremely clear concept.

Of his advantage. When Drew founded Dropbox, There are already Plenty of cloud storage companies. vying for a place in the market.

To make matters worse. Tech giants. Like Google. Microsoft and Apple. Or turning their attention.

To the space. But Drew saw a need that still wasn't being met. And he believed his singular pursuit of this needed was the defining advantage of Dropbox. The twelve years since Dropbox launched have borne this out.

Seeing it grow to a valuation. of over ten billion dollars We'll get to our own main event. Dropbox versus the software giants. Soon enough. But first

Let's look at a formative skirmish. that launched Drew into the startup world. This corner. MIT student. True House.

In that corner. The well established SAT prep industry. Well that Drew set the stage. in the Valley of Eli.

In the time of King Saul. I started accolade. The Westford Chilies in Westford Mass, two thousand four. Okay. Not exactly the gladiator setting I was picturing. But let's go on.

Acolade is a distinction of merit. So we figure if you're gonna start an SAT prep company Might as well use an S A T word. Drew is twenty one. On leave from MIT. and working with his former high school teacher

Andrew Crick. We're like Okay, we're gonna call it the accolade group LLC because that sounds more impressive than the two guys in the garage that we actually were Kirk had his own SAT prep course.

And true. A die hard coder. had written himself adaptive learning software to study for his own SATs. Just a few years before. I took the SAT, got a perfect score.

The software really helped and I'm like, Man, that was a lot of effort. Is there some way I can monetize this? You know, down the road. Together, they'd carve out a market. By taking on Big test prep. since the beginning the way you studied for the SAT was you buy one of these giant eight hundred page books and you take the test yourself and it's just really cumbersome.

experience and then if you can afford it, you go to these Princeton Review or Kaplan classes where you show up in some classroom at eight in the morning on a Saturday and some person maybe a year or two older than you is reading out of a book explaining how to do sentence completions and things like that. And it's just this really tedious and painful experience. With a lot of inefficiency. It's a classic. David and Goliath situation.

The well funded giants of SAT Prep Get challenged. By tiny. Two person startup with a great idea. And some code.

Drew had written for himself. But if that's All Drew had. This might have been A pretty

Short. Story. accolade. had an advantage. over the competition.

There was a market opportunity opening up. The SAT was changing in two thousand five from being sixteen hundred points to twenty four hundred points, and the opportunity I saw there was every book that had ever been written on the SAT is therefore gonna be at least partially obsolete. So there's a window of opportunity where it's an unexpectedly level playing field because everybody would have to scramble to develop new curriculum. Not only was it a level playing field. It was a level playing field.

populated by slow lumbering giants. Drew recognized that he had a clear advantage. He knew the format of the SAT and Inside out. And he was just a couple years older.

than a test taking audience. Acolade was also in a better position. To adapt to the new SAT. Kaplan and Princeton Review were the undisputed galliests in the field. But revising

Thousands and thousands of textbooks. That takes serious time. Plugging the new test format into Drew software. Considerably faster. Advantage.

Little guy. And in a way it worked. Acolade stayed profitable its entire short life, and Drew learned the basics of how to run a company. He also picked up a habit. He's continued throughout his career.

Drew knew. That inexperience was his serious. Disadvantage. And he countered it.

By reading. I lost count. of the books Drew referenced in the course of our conversation. Competing Against Luck by Clay Christensen and Karen Dillon. The Effective Executive by Peter Drucker. Ben Horowitz has a great book about the hard thing about hard things, becoming Steve Jobs, The Hard Drive, which is a story in Microsoft, Founders at Work by Jessica Livingston is another favorite. High Output Management is a book by Andy Grove. It's from like 1983. It's probably my

Drew isn't just name-dropping titles. He can clearly state What insights he took away from each of these books. and how he's adapted them again and again. As his companies.

And his experience. have scaled. Drew developed his reading habit. During his time. at accolade.

I've always found it incredibly helpful to be systematic about training yourself. Because no one's gonna do it for you. I had everything down when it came to building the product or at least the engineering and getting something basic out to market. But then I realized that I did not know anything about

sales or marketing or financing a company or managing people. And the list gets pretty long pretty quick. And not a lot of time to learn it. It's a feeling. Every founder knows. Drew initially took a brute force approach to learning how to run a company.

Like a student trying to cram for the SATs the night before the exam. I'd go on Amazon. I type in sales, marketing, strategy, all these things. And just buy the top one or two rated books. And just crank through them.

But a reading strategy. isn't the only thing that Drew's time with Acolade gave rise to. As he was developing accolade, Drew kept needing to move files between computers. He initially relied on a USB drive.

You wanted something. That was less likely. To end up in the laundry basket. At the time, online storage Was the new big thing.

Well, this was back in two thousand six. So online storage was the startup cliche back then, the way that photo sharing or mobile apps were for a time, or crypto and bitcoin were for a time. And TechCrunch would have these literal round ups like here's twenty new storage companies that will help you back up your computer or share files or different things. There was a wealth of choice, but nothing. That Drew could entrust with his files. I tried so many of them and was so disappointed by so many of them that I

found this litmus test that was a little faster than downloading the app, I would go visit their user forums. And it was like walking into a battlefield infirmary. I mean people would be like Hey, you destroy all my Excel spreadsheets or like I lost my tax returns or like I really wanted those wedding photos. I don't see them anymore. Can you help me go get them? And just disaster after disaster in these forums. User feedback.

is always valuable. And it doesn't need to be feedback. From your users. Finding out what people dislike. About your competitors.

Can point you. And this will help you focus on what sets you apart. The advantage. that will let you take on a crowded field.

And win. Drew's advantage. was simple. He was frustrated. This frustration.

grew with every cloud storage app he downloaded. Then discarded. And it gave him a clear idea. Just wanted to stop carrying a thumb drive around.

That thumb drive? Held the source code. The accolade. I can't count the number of times I like bent the connector or almost put it in the washing machine or actually it was like one Miss Step Away from total disaster.

I don't even know why no one has created a good solution to this, but No one has. Just because your idea has been done by others, it doesn't mean It has been done well. A single idea.

Can be implemented. in countless ways. And there are millions. Than are.

Good ones. The challenge isn't. to find the approach that appeals to the most people. Rather. You should make something.

That a small group of people. Well love. They will then Become your evangelists. At the beginning.

That small group is often made up of just one person. You. Part of it was not really thinking about a market or a company. I was just thinking like God, I need to get to my stuff for multiple computers as an end user. The more I got into the space, the more I realize that

Maybe this is something that people have overlooked. Drew knew from his courses at MIT that building a good solution Wasn't as easy as it looked. I had some insight. into why this looked easy, but it was actually hard to do.

And kinda just jumped in. I thought I could outrun the smaller guys. It may seem here like Drew is ignoring long-term scale plans. But in doing so

He was giving himself a gift. the gift of never needing to look over his shoulder. He knew exactly. what he wanted from the product he was building. And he was free.

A focus on it. He also knew exactly what his advantage was. First, he knew the product. He himself was a frustrated user. And he knew what he needed.

by reading those forums full of complaints. He knew what other customers wanted too. Second He knew his competition. I thought I could outrun the smaller guys.

Okay. He knew about the small fry. But there were some far bigger fish. Starting to take an interest. Microsoft or Google or

Th there were a bunch of companies back even Yahoo, all these others either had offerings are w almost certainly gonna launch them, Google is kinda the biggest existential threat. In two thousand and seven. Drew and his co-founder. A Rashford Ouse.

One funding from the famed seed accelerator. Why combinator? Even so They still had to face Skeptical investors.

investors would tell me that, hey, you know, this is a really competitive space, there's a lot of dead companies here, you're probably gonna get crushed by the Big guys. As a founder. You were the number one advocate. For your product or service.

When someone tells you you're going to be crushed. You need to come back at them with exactly why they're wrong. Especially If the person interrogating your idea is a potential investor.

Drew's response. was not what you usually hear. From an impassioned founder. whose company's prospects Have just been thrown in a doubt.

And I was like, Yep, I agree with all that. This probably is a graveyard. We probably will get crushed by the big guys. That's okay. I'll at least not have to carry around a thumb drive anymore. Don't be fooled by Drew's glib response. He didn't actually plan on getting crushed.

Despite the odds. He was clear. On his advantage. He was singularly obsessed. With his product.

And he had very little to lose. If we build something useful that has value. Worst case scenario, we build something awesome, we solve this super interesting problem. Google comes out with G Drive. Other people come knocking, we sell the company build something else. That sounds pretty good to a twenty four year old living in an apartment with four dudes.

Drew knew that one of his advantages was his youth. His naivete, his fearlessness, the fact that he had very little to lose. and that even a modest success would be a big win. More experienced entrepreneurs would bring a different set of advantages. The point is

To know what yours are. He initially thought he was at a disadvantage when it came to acquiring users. So we did what many founders try. when breaking into a field. He set out.

To partner. with a Goliath. partner with big companies and we'd go to, you know, big P C manufacturer'cause I'm like, well Maybe Dropbox isn't something that you're gonna go find. Maybe it's something that just is preinstalled on your computer.

Who knows?'Cause we didn't know if continue to be able to acquire a large number of customers for free, or we'd run out of early adopters. But Drew soon realized that strategy Came with a huge cost. They would come in with this cavalcade of middle managers and they spin your wheels for a long time and But at the end of the day, these big companies aren't gonna do you any favors.

And so the idea of a startup partnering with a big company ninety nine point nine percent of the time just ends up in a bunch of wasted effort and can kill the company. If you're really unfortunate you actually get the deal and then you get spun around by this massive machine. the spin cycle of middle management. takes energy that could go into generating ideas, innovation, and forward momentum.

It's something that many large companies Fall foul of. Now if you're currently running a large company. The challenge of middle management is probably all too familiar. So I wanted to share an idea about how to avoid this momentum sapping quandary.

As you grow. It comes from Mark Pincus. Founder of the game company. Zenga. I learned that middle management

doesn't work. Or didn't work for me in in the sense of Y you get to middle management for a lot of reasons. One is you feel like you have to to scale'cause you can't have fifty games reporting directly to one person. So you come up with ways to consolidate into groups and divisions and things. You

Either take your best people off the line and turn them into rear admirals. And someone who was an amazing game maker now isn't making games. They're a bureaucrat. And They're doing something that they've never been trained to do. They're trying to manage and hire and

fill out budgets and plans and and be accurate. Forecasters. Rear admirals can be middle management. Their commanders. Far from the front lines.

Their inputs and outputs are communicated. Through many layers. Making them slow to respond. I realized that especially in a consumer product company and one that has multiple products, not a single product. It's

Crucial. That you have field generals And not rear admirals. Field generals are commanders who are face to face with the action. And can make difficult.

Split second calls in real time. You need to empower people who are in the trenches. Your best people need to be in the trenches. Your Best people need to be close to your consumers and close to your engineers and designers and PMs. Your top managers

The top have to be in the details. They have to know the details as much as the people in the trenches. They have to be connected to your customers. And The greatest job in the company should be running your flagship

Franchise product. not being the general manager of ten products. Drew realized that being sucked into the gravitational pull of a large company would offset a key advantage that Dropbox had. It's agility. Dropbox needed users.

but they would need to find another way to get them. After the break. We'll hear just how true in a Dropbox team. Game the users. And momentum.

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Creative planning where wealth works together. Learn more at creative planning dot com slash masters of scale. Hey listeners, Bob here. If you listen to Rapid Response on Masters of Scale, you may be missing half the show. Because every Friday we release a second rapid response exclusively in the rapid response feed. The guests and topics are just as compelling and timely from Ford CEO to NAS administrator to the lessons from The Devil Wears Prada. It takes about 10 seconds to find, just search rapid response wherever you listen to podcasts and hit follow to make sure you never miss an episode.

I hope to see you there. Humans will never be more intelligent than AI. There's gonna be two types of companies. Those are great at AI and those that went out of business because they weren't. How do we build a future? That is human centered. I'm Rana El Calyubi.

And on my podcast Pioneers of AI, we answer that question and so many more. As an AI scientist, entrepreneur, and investor, I know what it takes to build AI that works for everyone. Every week, I sit down with the pioneers shaping our future. And we take you behind the scenes of the AI that's transforming our lives. Find pioneers of AI wherever you tune in. Before the break. Drew and his team decided the trade off of working with large partners.

Wasn't worth it. They needed users. But they also needed to maintain their agility. So they leaned.

One that none of their many competitors. had mastered. There were a lot of companies that had credible products but we were the one that cracked us viral playbook.

It's really efficient, scalable way of if you get a Dropbox user and they're for two people, then that expands exponentially up to a certain point. You refer someone? You get a reward. It wasn't a new idea.

It's how we rapidly scaled PayPal. And it worked. For Dropbox Two. But it has its drawbacks. Referral programs have been around for a long time and the one the one I remembered was PayPal where you get five bucks if you open a PayPal account.

And then, you know, in high school all my friends and I would try to like figure out ways to refer people's pets and stuff to get the five dollar referral fee or whatever. There was a lot of that on Bay Bal. I wanted to do away with that. I'm like, all right, well just take the complication out of it. If you refer someone or you get referred, you get extra space. There was no upper limit.

of how much extra space you could get by referring people. And so from virality terms The simple math behind that is Really it comes from the study of epidemics where If I cough.

And how many people do I touch? How many people then also get a cough. And then how long does that take for that cycle to continue? We'd be like, All right how many people can you refer? How many people who get an invitation will convert and then how do we get people referring as early as possible, how do you turn the crank as quickly as possible? And that ended up making all the difference because nine months after launch

We went from a a hundred thousand users at launch, two hundred thousand users, ten days later hit a million seven months after that, and then, you know, the numbers just kept going up. Referrals are one thing. But there was another important part of the equation. Retention. And so they're they're two big levers.

One was this Free space. referral program that we came up with. And the second was getting activation to work. And they were both important. The key to virality is actually retention because you need to hang on to these people. There are a lot of examples of the, you know, VIDIS or modern things like a Pokemon Go, where if you don't retain the users, you can get this massive exponential spike, but then a massive exponential plummeting.

And so We looked at our activation rates. What they saw wasn't good. Sixty percent of all people who signed up to Dropbox are Via referral.

This was stressing us out because there's a big drag on the whole engine mathematically. And what we did was we went on Craigslists and we offered like forty bucks to anyone who would come in for a half hour and this was like a poor man's usability test. And then we're like all right, sit down, this is an invitation to Dropbox in like your email, go from here to sharing a file with a C motor. You know, how hard could it possibly be.

The answer is impossible. Like zero of the five people succeeded, zero of five even came close. Most couldn't even figure out how to download it. First this was just stunning because we're like, oh my god, this is the worst product ever created. This is the hardest thing. You know, what kind of rocket scientist? Can figure this out.

They found There wasn't just one stumbling block. That put people off using Dropbox. There were many. Even little things like someone would start the download, but the download would take too long, so they'd like start browsing something else, but then they would click back on the browser, obscure the download progress window, wouldn't figure out where it downloaded, they all this stuff.

Drew and his team leapt. Into triage mode. So we made a list of like eighty things in the Six Spell spreadsheet and just like sanded down all these rough edges and experience and then watched our activation rate climb from the forties to the sixties. That really accelerated our growth. It's a lesson that Drew has kept in mind.

Over the years. We still fundamentally think about the business in those terms. Like how do we acquire customers? How do we activate them? How do we retain them, monetize them, and so on. I can't stress enough how important getting that right is for A product where you want to have scale.

With a viral playbook. Established. Dropbox started to scale rapidly. The Goliaths. We're starting to pay attention.

Ha. It was wild. So when you start a startup and things start moving and you get some press And you're doing something that's relevant to the big companies, then you get little taps on your shoulder. You get summoned. And so we get at various points we're some in the Google, some in the Apple.

There's one particular meeting with Apple that sticks out for Drew. It's when they got called Ultimate Goliath. Steve Jobs.

We got the invitation to see Steve. Mm, I was not expecting that. And so I remember we get in our zip car and I'm like typing in like one infinite loop.

And I'm like oh great, it's already in my iPhone. Shocker. And I remember going to the sign in thing and being like, um, what do we say? Like, okay, we're here to see Steve, okay, have a seat. And we're like, oh god, like maybe he hasn't seen the product, so Arash and I had this elaborate demo ritual and so we're like furiously trying to configure but this of course occurs to us right two minutes before the meeting to like set up our computers for do all the incantations to make the demo thing work. But we get up there.

And we have a seat and then Steve comes in and has a seat and he sort of leans back. And there's like this massive pause. Things like where to begin? You guys have a great product. And I'm like under the table, I'm like, All right, bucket list.

Steve thinks our product is great. And then in so many words he's like, And you should really join us because we are like a startup with infinite resources and You know, goes through his pitch. And before this I was a little bit terrified. I talked among my friends who had had their Steve encounters and they fell squarely into two categories. You get like Chill Steve or

I'll just call him mean Steve. And you never know which one you're gonna get. And so he's finished his his pitch of why we should join Apple and I'm like Oh boy, here we go. Like I Steve, I really

Admire everything. You've done and like If there's any way we could find a work together, I totally would love to But we're really enjoying building this company. And we wanna keep going, I'm sure you understand.

And I didn't know if he's gonna start throwing stuff or you know, s there'll be an explosion or lightning bolts or whatever. Yeah, and then what happened was he just started trolling us a little bit. He's like you know Okay. you guys are feature, not a product and you're not gonna be able to get distribution and you have to pick Partners and that's gonna be really risky and oh god, we got our own thing and I guess we're gonna have to build that and kill you and da da da

So My two goals were like leave a good impression and don't piss'em off. So I'm like, all right, well, you know, agree to disagree. While most founders would take a threat of extinction. From Steve Jobs.

А за шостопінь обстикл. Drew. Took it as a vote of confidence. Unfortunately Pew leaders of large companies are visionaries.

Some of are happy to ignore smaller companies encroaching on their field. Until it's too late. Shelley Archambo former CEO of MetricStream saw this firsthand.

When she joined Blockbuster to head up its online operations. At the time. It was a giant. So here I am at Blockbuster and my job is to build Blockbuster.com. They had started to build website, et cetera, but we had to get a website launched. We had to figure out what were our services gonna be. It was really building a business and building a whole team. So as I'm learning the industry, I'm going to conferences and I meet Reed Hasting. Reed

With a couple others who started Netflix, and at that point it's pretty fledgling. Even though it was early days in the Netflix story. Shelle could see the huge potential. Unfortunately. Her boss could not.

You know, we got to know each other and Reed said, Listen We talked about it. Reed came out to blockbuster. And pitched. Let's take Blockbuster dot com

The brand Let's take Netflix the technology. Put'em together. And spin it out and have Blockbuster.com Inc. And I'll never forget.

My boss, the CEO at the time, a Blockbuster. He just sat back and said Uh. If that ever becomes anything, we'll just buy it. Because Blockbuster was a big business at that time. And I'm sitting there thinking, What?

Are you crazy? And that's what I knew. But This was just not the place for me to stay. They just didn't have the vision. And history's written. Blockbuster is long out of business and Netflix is one of the Top.

Brands in the in the world. Blockbuster. Said. No thanks. To Netflix.

For the wrong reasons. But Drew. Said no to Steve Jobs. and his passive aggressive offer. For the right ones.

But that didn't mean he was complacent about the ever looming threat of being wiped out. By any one of the tech giants. Be it Apple, Amazon, Microsoft, Or Google. From inception, we always lived in the shadow of what became Google Drive, the mysterious

Platypus project. It's actually more painful to compete against a hypothetical product than it is a real product. Because when it's the boogeyman. And it doesn't exist yet, it could be anything. And so all you hear are rumors about how awesome this thing is gonna be. And so we would be terrified every year there would be like a new rumor that this was gonna be the year that G Drive launches.

Many people. would let this stifle them. Indeed, it's probably why many great ideas never get off the ground. That fear that someone will inevitably do it faster and better than you.

But Drew. Is philosophical. About the threat of being crushed. As you get drafted into the NFL and as you make it in the playoffs, every game your reward is a much harder opponent and a much more unlikely victory condition. So you just have to get used to that and know that that's actually success.

If you don't have competition you're Product might not really matter. I think what I learned. that wasn't maybe not as obvious in the beginning, is like press will write about competition Like it's a shotgun to the face.

But it's more like a boa constrictor. If you're sharing a room. With a boa constrictor. You keep an eye on it. As long as you can see where it is.

You can keep out of its way. But if you get distracted. Or doze off. You might suddenly find yourself. And it's suffocating grip.

The hard part is that the competitors will just keep improving, keep coming. It's like the waves of stormtroopers will never stop. Right? And Actually over time they really can It's easy to have a first reaction like, Oh, they launched a product, look at all these bugs, like you can get dismissive or complacent. But Over time these advantages like Oh yeah, it's baked into the platform or whatever.

Those can compound over time against you. If you are complacent. Even if your competitors are Are creating substandard product. They can overwhelm you.

You need to maintain your agility. But you also need to understand Where they're coming from. What if? One of the big players.

Drew refers to them here as incumbents. Target your niche. Well the first thing is you have to think about what is the incumbent playbook. And it's not complicated. The basic response for the incumbent is basically to copy your product. Distribute it with their platform.

And Destroy the economics. I give it away for free. If you know that. Then it's easier to respond. These Goliaths.

have obvious advantages. But they also have A potentially crippling set of weaknesses. So the advantages are pretty clear, but the weaknesses include For a company like Google that's doing a hundred different things, there's like a very long breadline to get the next good engine, right?

And these other projects, you know, project number thirty five. Just probably about where G Drive. was on the list. It's gonna take a long time for that team to get fed with really amazing people. As a smaller.

More focus company. Drop box. Were exactly right. for the task at hand.

The eleven players you put on the field versus your counterpart at the big company, actually you can have a massive talent advantage. Uh, not because Google doesn't have good engineers. They have great engineers. They probably got better engineers than you, but the leader of that project was like, okay, a mid-level PM who is just visiting and this is like the next rung of their ladder. As the founder you're just so much more committed and your team is so much more committed.

And so you do end up with a focus and speed and commitment advantage. But for this tightly focused team to work. You also need A tightly focused playbook. Your playbook should read very differently than your competitors.

Our playbook is very different from Microsoft or Google. Who's our customer? What jobs are we doing for them? How do we design our products? We grow virally, we try to attract users to like a great Yeah. If your playbook is the same as your competitors. you are in trouble'cause they are just gonna play your playbook with a lot more resources.

And it needs. If we're like we're just gonna be faster or better, that rarely works. So what does it mean to have a different playbook? How is our strategy different from the incumbents or from a Microsoft or Google? Well, conventional software is often sold top down. So you talk to CIO

They compare a bunch of different products, they make a purchasing decision, they buy your thing, they deploy it to their employees. Dropbox is bottom up. The employees find out about Dropbox, they start using it organically. eventually you should reach a certain point where it reaches the top, but it's Dropbox already deployed and then it's purchased as opposed to purchased and deployed. That's a one eighty degree difference from the conventional way of doing things. Your advantage will change over time as your product grows and your skills increase.

This is why you need to constantly reassess. What your advantages are. and then to make sure you're always playing to them. This. is how Drew led Dropbox.

To survive the onslaught. of multiple Goliath. Mm. To the point.

Where it is now one itself. with revenues of one point four billion dollars and over twenty three hundred employees. Dropbox expanded. In the phone back ups. Photo sharing and collaborating on documents.

So how did Drew avoid the pitfalls of being a sprawling giant? He didn't. If you're not growing certainly in tech, you're usually dying. At the same time, if you expand into all these unrelated areas You can find yourself

Fighting a battle on many fronts and and winning none of them. But the challenge we had was on the storage front, we're basically competing with the iPhone to back up your iPhone. Like what could possibly go wrong? In in the photo landscape. We were competing against Facebook and Google and Apple and all of these extremely well resourced companies. And then on the collaboration front we were fighting against Microsoft and Google. on their home turf.

It's the classic problem. Of working out how to expand without spreading your talents Too thinly. and losing focus across your organization. It's a danger that even Drew.

was not immune to. Dropbox was becoming Just like the lumber and goliath that Druids scorned in the early days of the company. And he had lost his clear vision of of Dropbox Advantage.

It was like clear that not all this stuff was working. I mean the photo stuff we were launching was promising, but not on a trajectory to reach kind of the exponential path that needed to to be sustainable. Then things like Google Photos came out, which not only incorporate a lot of those ideas totally good, cloud based. photo gallery, but also brought in some of the machine learning elements.

But most importantly, just napalm the business model. So they just were like Everybody can have free unlimited HD video for life. We know we're gonna light billions of dollars on fire doing this. We'll figure it out later. That's a tough Chess game when the other guy has like two rows of queens, you know, and you're supposed to figure that out.

And the answer is if you find yourself in a game like that, you shouldn't play. Drew knew he needed to reassess where Dropbox was going. But times had moved on. They couldn't simply revert. To just being a cloud company.

One of our directors came to me and he was like, Hey, I understand that we're doing collaboration, but how is what we're doing anything better than like a ten percent better G Suite. Um And that sent me for a kind of into an existential tail spin a little bit,'cause I'm like, someone should do that, but I don't know if that's what I wanna do. And then that led me through this kind of multi year process of figuring out

Okay, strategy is also not just something you put on a piece of paper. It has to really fit with a purpose of the company and your purpose as a human being. And I'm like, you know, I I don't want to build a conventional enterprise software company. Cutting those products.

might be best for the business. But what about what's best for him? He has to find a way to stay inspired by the mission of his own company. Because the founder's inspiration is always one of the company's strategic advantages.

Fortunately. Drew had an inspirational encounter. I interviewed someone from SpaceX and I was like, Oh my God, you guys are actually working on the Mars landing. Like what's that like? How do you guys work together? And he's like, What do you mean? I'm like, you know, how do you guys collaborate, what tools do you use, how what's it gonna take to s put someone on Mars?

And in short, his response was a lot of email and a lot of files. And then I thought about that and I'm like, Man Drew realized. That this Was a problem.

Dropbox could fix. If you think about it, like every important human endeavor relies on people being able to work well together and the sort of clock speed of our species is a function of how good are the tools that we're using. And certainly email and files are way better than what came before them, but if that's the end of the line Then we're really gonna limit our potential. And if I want to help.

cure cancer or land on Mars, address climate change, we're gonna need better tools. Curing cancer. Colonizing space. Reversing the damage we've done to the earth. These are all challenges.

of Goliath proportions. They won't. Be overcome by lucky shots. Rather. The key to achieving goals. Huge.

And modest. is to know when not. To quit. Especially when the odds are against us. And as you head into your own entrepreneurial underdog story.

I'll remind you. Of the Biblical story. That inspired this episode. David. An unarm shepherd.

Faces off against Goliath. The heavily favored. heavily armored. Behima. David could never compete.

In hand to hand combat. But He has great aim. He hurls a stone. and lands it in the giant's unprotected eyes.

And let that Be the lesson. David cancel Goliath. If David knows what his advantage is. As you face off.

Against your own armored behemoths. What ideas do you have in your pocket? It can hit your competition. Between the eyes. I'm Reed Hoffman.

Thank you for listening. Masters of Scale is a Wait What original. The show is recorded on site in California and produced at the studio inside SY Partners in New York. Our executive producers are June Cohen and Darren Triff. Our producers.

are Chris McLeod, Adam Skuse, Jenny Cataldo, Jordan McCloud, and Ben Manilla. Our supervising producer is Jay Punjabi. Original music. by Allison Leighton Brown. Sound design, mixing and mastering.

by Brian Pew. Special thanks to Chris Yay, Elisa Schreiber. David Sanford, Saida Sabiaba. Christina Gonzales and Sarah Sandman. Visit masters of scale dot com to find the transcript for this episode.

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