6 Business Lessons You Can Learn from the Rise of Dropbox

dropbox

You can’t go very far without running into Drew Houston’s company Dropbox. It is considered one of the hottest tech companies, and its rise since 2006 can teach you a lot about marketing and business.

Let’s take a look at six lessons you can learn from the rise of Dropbox.

Lesson #1: Create a profitable model

This seems obvious, but in a world where people are used to getting most things for free, running a profitable business isn’t always easy. Just ask Twitter who is still trying to figure out how to make money. Google figured it out; Facebook is on its way; and Dropbox nailed it.

Dropbox gives away 2 GB of storage space. However, enough people are blowing through that storage amount and signing up for monthly subscriptions. You can get 50 GB of storage space for $10 a month. If you want 100 GB of space, then it’s $20 a month.

Dropbox has over 50 million users, and a new user is being added every second. But only 4% of those users pay. Yet, because the number of people exceeding their 2 gigs is always growing, Dropbox could go through 2012 without adding a new user and still be profitable.

Takeaway: The earlier you can figure out how you are going to make money, the better. Is it through advertising? Subscription model? Product sales? Service fees?

Lesson #2: Being smart isn’t enough to run a big company

Before Dropbox, Drew Houston liked his lifestyle of just “him and the code.” But during his years at college, he read Daniel Goleman’s book Emotional Intelligence. The book convinced him that one needs more than intelligence and a degree to run a big company.

Drew then started to spend his time reading business books, learning how to be a CEO. He then volunteered to lead two organizations at college that amounted to a crash course in project management and getting people to do stuff.

Takeaway: Learn how to be a leader by reading books on business leadership, salesmanship and management. Seek out mentors who ran or are running successful businesses. Ask them to help you grow as a leader. Take some classes or seminars on management and leadership at a local college. And then hustle harder than everyone else.

Lesson #3: Answer a frustrating problem

The reason that Dropbox has experienced such explosive growth is that it’s solved the problem of data being spread across multiple devices like phones, tablets and computers. And that problem happens to affect a lot of people.

Here’s how they fixed it.

Download the Dropbox app and store your files in it. Now you can access all of your files, no matter what device you are using. And if you make a change to a file in one location, that file is updated across all devices. You can even invite others to view these files, making the sharing of huge files easy.

The value is so obvious and simple, it’s genius.

Takeaway: Dropbox’s explosive growth is due to its fixing a problem that a giant audience is experiencing. The larger the audience, the easier it will be to grow. Look for opportunities that impact a massive consumer group and present it with a meaningful solution.

Lesson #4: Make people aware of the problem they don’t know they have

The problem that Dropbox solves, however, isn’t exactly intuitive. In other words, people don’t know that they need a central location to store all their files so they can access them from any device.

This means people aren’t exactly searching for a solution. So, Drew and his team had to figure out a way to increase adoption of the product.

To advertise, Houston’s co-founder Ferdowsi insisted that the home page be nothing but a video telling a simple story of a stick figure losing his stuff and travelling to Africa. People understood the solution Dropbox offered immediately.

dropbox video

The other thing they did was turn their customer base into a sales force. Dropbox told its customers that it would give them 250 MB of storage for every referral. The company still gets about 25% of its customers this way.

Takeaway: Use social media, storytelling and your customer base to get the word out about your product. Just because you built it does not mean the people will come. You have to communicate to them the problem they have and how you are fixing it in a clear, concise and compelling way.

Lesson #5: Stay lean

In the early stages of the company, both Houston and Ferdowsi were the sole employees. They did nothing but code day and night, working with contractors on design and development, but never hiring any full-time employees until they got their first injection of VC money of $1.2 million dollars.

In 2008, only after 2 years of starting the company, Dropbox had only 9 employees and 200,000 customers. But this lean mentality allowed them to sail through the economic collapse. By 2010, the number of Dropbox users jumped tenfold while they only added 2 more employees. Today, they have about 70 employees and over 50 million users.

Takeaway: Resist growing too big too fast. Keep salaries low and expenses at a minimum, and hire temporary workers to help you stock away cash to funnel it back into the company. This way you can invest in a solid foundation that can sustain a market meltdown.

Lesson #6: Spend more money staying front and center

The competition surrounding Dropbox is stiff. Not only are big players like Google, Apple, Amazon and Microsoft interested in the cloud storage market, but smaller players are popping up all the time.

The biggest threat to Dropbox is Apple’s iCloud with its network of millions of people who own iPhones, Macs and iPads. Google is threatening too with a rumored product that could be very effective with 185 million plus Android phones out there.

How is Dropbox going to handle this competition?

They have to spend an enormous amount of money remaining in the public’s eye. Houston is also spending his time inking deals with phone companies to make Dropbox an exclusive cloud storage provider. He is also working with PC and television makers to get exclusive deals with them too.

Takeaway: Work to keep your company in the public’s eye. Use social media, publicity stunts, marketing dollars, partnerships with big brands and good old advertising.

Conclusion

Odds are you are not likely to be the next Dropbox. But that doesn’t mean you can’t imitate the strategies the company has used to achieve the sort of success they know today. If you do so, you will increase your odds of succeeding.

So, what other business lessons can you learn from the rise of Dropbox?

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Comments

  1. Hey Niel,

    Great stuff. These are important lessons and a great reminder for everyone. Thanks for writing this fantastic article, Niel.

  2. Wow…Great inspiration..it is interesting to see the company boom by solving problem of peoples…even-though they didn’t know that it exists…That’s a brilliant business.

  3. Neil,

    Totally inspirational stuff!! You should also add your self in this post, its not easy to handle the Big Business like you do!

  4. Neil – Great analysis on a successful company that provides a concise breakdown on how they achieved success.

    The six lessons that you identified were most insightful particularly #4: Make people aware of the problem they don’t know they have.

    When I have told others of the service our company will be providing to its users, many have told me that they believe there is a place in the market for this but it was critical that we make people aware of the problem they don’t know they have.

    You mentioned above that Dropbox solved this solution by storytelling, specifically in the video they produced that was placed on their home page. Would you recommend any other methods for creating awareness?

    • Social media is a must, start and focus your energy there first. If you want to make the public aware of your business and how you can help then it is all about finding a creative way to advertise such as a video. Social media will provide a large market to spread your business to. It is up to you though to find a creative an interesting way to present it.

  5. What a great company and great takeaways. One thing you said without really saying it was “Keep It Simple”

    Dropbox has a super easy to use product. No instruction manuals needed. I love it and other products that keep my life easy!

    Thanks, Neil!

    • fullbreastenlargement :

      When 50 mil people are using a product, it’s absolutely necessary that the product is easy and simple. People are searching for ways to ease their life, especially when it comes to file or information management.. Dropbox found a way to do this and they started to develop one method, even though their road wasn’t easy.

    • Definitely, keeping it simple is always key. Too much information can cause confusion or become overwhelming. Which in turn could cause potential customers to be turned off. People want something it quick, easy and helpful. If you can make that happen you will have a successful business

  6. Another great and inspirational article by you my friend. I am still not sure how i will earn money online. Just trying to figure out how to make it big. You mentioned here read some books on salesmanship and Business. Hope that will figure out my problem. Thanks again Neil for such a wonderful post.

    • Thanks, glad you enjoyed it. Look to find a way to solve a problem or simplify something time consuming. Definitely, read up on business and learn from what worked and especially what didn’t.

      Best of luck!

  7. Great post Neil,

    although I’m not sure if Dropbox is the best example to follow, given that 96% of their users are taking advantage of the free account.

    I actually think they are the worst case of freemium model, because 4% of customers have to pay for the (very high) costs of 96%, which isn’t really a fair deal.

    For example, right now Dropbox is charging $9.99 / mo for 50 GB storage. How much would it cost if they removed the gigantic overhead of free accounts – $1 or less?

    Just a thought.

    • I think Dropbox care more about being the product on everyone’s mind rather than the cheapest product.

      Let’s be honest, the internet is the portal for free stuff; making Dropbox free is a great idea; IMO it gives the app/product much more exposure than if it was “$1 or less”.

      • Myron,

        you’re absolutely right, but my point was not about cheapness,.

        I wanted to point out that in freemium models such as this one, product price needs to be significantly inflated in order to cover the loses generated by free user accounts.

        Is freemium great for exposure? Absolutely. Is it the most cost-effective way to create, promote and sell a product at a reasonable price? Not sure.

    • I would actually disagree, I don’t know what their profit margins are, but they wouldn’t be worth a billion dollars if the economics didn’t work out.

      I would love to be in their shoes. ;-)

  8. There was a similar service at least 3 years ago that never took off. I think they didn’t offer any free service although when I bought a hard drive, I was given a free subscription. I never bothered with the fine print. I assumed they’d want my credit card and charge me after a trial period so I never signed up.

    I think they can be profitable even if only a small percentage of their customers pay because what they’re giving away is cheap and getting cheaper… memory.

    What I like is Dropbox is easy to use and the files load faster than from a flash drive. I do worry about security but I like not having to worry about forgetting or losing my flash drive and having access to the files anywhere.

    UH2L

  9. fullbreastenlargement :

    Let’s be honest! Few years ago when there were no smartphones available, Dropbox was kind of useless. Most of the people had just computers or laptops and most of the time, memory stick did all the trick. Nowadays, memory sticks can’t be attached to a smartphone so, in my opinion this is the boost that Dropbox needed to gain this huge success.

  10. Great post. Dropbox has a tough time ahead as all the biggies are betting in the cloud. The need to stay on their feet and keep innovating and hustling if they want to stay in the race. That will be their true test.

  11. Hello Neil,

    Thanks for sharing this, I have been following Dropbox for sometime now and its amazing really.

    The 6 elements you mention are key in my strategy for the next 3 years or so. Thanks for sharing this.

    Great stuff.

    David

  12. Thanks Neil. Dropbox is definitely a great example. Their product is simple to use, something that makes it inclusive. Also, it is very easy to invite other users and be rewarded for it.

  13. Creating a profit model from the very beginning will reduce a lot of future problems and headaches. It’s true that your revenue might change after you get going but from experience I have learned that it can help an early entrepreneur decide if the venture is even worth pursuing.

    • True having a profit model could help give you a rough idea of what is to be expected in the future. However I have learned every venture is a risk because unforeseen complications will often occur.

  14. Nice post, you seem to be posting a lot lately, I was just wondering how you have so much time to post, seen as you have two businesses? Are they not doing too well at the moment?

    Thanks.

    • Writing blog posts isn’t too time consuming for me… if I am not distracted I can crank out a post within 2 hours. Replying to comments can take up to an hour or so a day as well…

      As for running 2 companies, I only focus on KISSmetrics. We have a team that runs Crazy Egg. We also have a lot of people at KISSmetrics so I can focus on strategy instead of worrying about small details.

  15. Great post their Neil.

    Dropbox is one such company that I always admire.

    It’s not just the problem solving ability they exhibited, but it also shows the economic aspect of running a business while still being in the reach of most people.

    10$ is within reach of most people and that, in my opinion, is what sky rocketed their growth.

    I would say that they would need to face stiff competition if ever Amazon were to make things user friendly. Right not cloudfront, Amazon S3 is a bit difficult to use for the non tech savvy audience.

    • Thanks Adarsh,

      I agree, they were smart to make their product affordable to just about everyone. They definitely have some competitors to watch out for in the future. Hopefully they find a way to keep growing strong.

  16. Its a great stuff. I think there not any competitor in market to dropbox. and they are doing well right now

    • Thank you Rao,

      Dropbox is doing well. However I would say Apple’s iCloud is a strong competitor to Dropbox. Even though the iCloud is limited to Apple products.

  17. Awesome! Loved the part about staying lean. Being the owner of a web design company, I always try to keep things real flexible, so it’s easier to keep track of what’s going on in the company!

  18. The Problem would definitely be in seeing ” How Dropbox faces that Giants.. The Apple.. and The Google…”

    Worth a Business Class on it..

  19. Thanks for this post Neil. I very much liked point #5 about staying lean. Too many times companies (read startups) scale too fast and spend money in hiring employees and getting a posh office setup. Mostly, it leads to the death of that company. But what’s worst is, it damages the credibility of the founders and when employees are asked to leave it creates more unemployment issues.

    • Thanks, it is important that in the beginning you spend your time and money where you need it most. You make some good points. Spending resources on unnecessary accessories such as an extravagant office would ultimately result in loss of money if not the entire business.

  20. There are great stuff we can learn from from companies like Dropbox. Their rise to stardom is very motivating.

  21. Dropbox it’s a great idea with a great product: simple, intuitive and user friendly, I think the company hast a valuable future but they have to deal or join to the big competitors: Apple, Google, Amazon…. A big challenge they will have to face!!

  22. Apple wanted to buy drop box at one time.

  23. This might sound strange, but we are in a era where every “first world pain” can be turned in to a business. Dropbox is such an example. There were similar services like Dropbox before it(Windows Sky Drive, RapidShare). The problem people had with them were, they had to go and upload and retrieving them was a pain. People wanted something easier and there comes dropbox. Same thing with summify, people are lazy to go and read all the news over different sources, they wanted something easier. Similar with listorious, storify

    I have some ideas as well, but honestly I dont really know how to go forward with that.

    This sounds stupid, but following @firstworldpains will give you lot of ideas or how to make existing things better.

  24. You know Neil, I just saw a video of Drew’s talk @MiT’s Startups, and I agree with you that; the simplest of Ideas, if done right, can create the most profitable results.

    Thanks for your insight Neil, I sure would put these points to work for my business back here in Nigeria.

  25. apple’s icloud is a serious challenge to dropbox , but dropbox has established themselves in the market and dropbox works on all platform while icloud works only on apple devices

  26. I have been an user of dropbox for a while now. I have only had used it once, to share some files with a friend. I had no idea about all the other functions the software could have! Thank you for the information!

  27. DropBox is indeed a multiplatform application/service. Personally, I use a handful of devices and this used to be my biggest problem.

  28. sarthak batra :

    yeah , Steve jobs tried to buy dropbox at one time , but drew was not tempted by the offer of being bought by apple , instead he focused on making his company the next apple

  29. Hey Neil awesome stuff. Lesson 2, I liked most because management plays a very vital role and in any company, if management is proper and good then that company definitely going to be succeed. After all in the end, how you positively manage all the things in the company matters a lot, so good management is key to success.

    • Yep, you have got it. Without popper management all thing fall apart. You need a vice to lead the way and if there is no leadership, communication and hard work most likely will be lost.

  30. Thanks for sharing this information! We’re always happy to hear other small business success stories especially when their direct competitors are the big guys.

  31. Hey Neil, once again excellent article. I am currently using Dropbox to share files with my friends but I didn’t know it can really make an impact in many businesses. Thanks for sharing.

  32. Neil, thanks for the great post. Very nice looking site BTW!

  33. Thanks Niel for giving great insights into the rise of DropBox. I myself is a regular user of DropBox.

  34. I absolutely love dropbox. It has made what I do with my co workers so much easier, we can work on the same doc, and restore old docs, in case we messed up. I can also access it on my android, so no matter where I am I can still look at whats going on and help if needed. It truly is a great service.

  35. I’m wondering what will happen to Dropbox if google come into Cloud business… Everything links with gmail, Google+, GoogleCloud etc..

  36. The other great sory about Dropbox is their MVP minimum viable product

    Before the software was working Drew Houston mocked up a video to show how it should work, how seamless it would be.

    This was essential for earliest buzz / funding so they could get it actually working and enlist early adopters

  37. Neil, thanks for posting great articles!
    I am always enjoying your blog from Japan!

  38. Hi Neil,

    I like lesson 2 point its really important for an business person to handle an company

  39. You are right, there is a lot to learn from Dropbox about meeting a need of a lot of people and publicizing the breakthrough solution properly, among other things.

  40. This is great, the one I especially agree with the staying lean. To often people get a business loan and blow it all on fancy stuff.

  41. PRICELESS info. thanks Neil.

    just subscribed to your blog budd :)

  42. Surely dropbox is a great service. And thanks for the nice explanation of it. Whether or not iClod becomes popular, I am not going to use it for sure! I rather prefer products from Google.

  43. Hi Neil, I would like to know apart from dropbox is there any other method/suggestion you would like to share for creating awareness? Honestly speaking I was too ignorant about dropbox until I read your article.

  44. Dropbox is a big aid to our company. Since we are always sharing files with each other.. Whenever they need my file they could use it since it is shared to them. But reading this gives me a lot of ideas and looking at it in a better view. thanks neil

    kimmy

  45. A big lesson I learned is ‘Always Be Trustworthy’. I really can’t count how many people I’ve met who want a Dropbox like product, but won’t use it because Arash trashed their trust with his gross mishandling after a technical mistake.

    The mistake itself was forgivable, but his arrogance and obvious hostility towards customers was not. They did their best to sweep up the pieces, but it seems like until their investors heard the problem, Arash was allowed to denigrate anybody who was upset or concerned. he showed no empathy, and he took forever to take responsibility.

    Dropbox is big, but it would be even bigger if Arash took a few pages from Drew’s book…. or if Drew had realized after earlier outbursts from Arash that Arash simply CANNOT be allowed to talk to customers, because Arash makes it too obvious that he doesn’t give a single fuck about people who are unhappy.

    It’s a shame, because Drew did a great job with everything except his choice of co-founder. He’d probably be at 2x at his current level of success if he hadn’t paired up with an unapologetic asshole.

  46. I came across your website after a link from a post by Seth Godin.

    Fantastic content in all your articles that I have seen so far.

    The article on DropBox is my favourite. I have been following them and find their success inspiring. I know your article will be very valuable for the changes we are implementing in our own company.

    One thing that is amazing about DropBox is that its simplicity has managed to make many users change the folder(s) in which we store our files i.e. we prefer to move our folders then to have to setup up synch pairs and manually start backups as required by competitive products.

    Their differentiation from competitors seems so simple that it is pure genius.

    Regards
    Sanjay

  47. Health & Fitness Blog :

    Well written, Neil. I did read that piece in Forbes about Dropbox and I was surprised. To have turned Jobs down and went all out on their own is awesome.

    You just nailed it down why they did – they had a product that people need, even if the people didn’t realize it yet. Dropbox is now my most important tool yet. I can’t imagine doing without it now, not with all the gadgets I have, :)

  48. I am using dropbox since long but I don’t have too much idea about the other function that the software is providing.

    Thanks for posting such a informative post!!!

  49. I have dropbox installed on my laptop, with the sync dropbox folder. Today I was in another pc and needed a file that had the dropbox, and through the website, i decided to “file” and it worked. In the end I have uploaded.
    My question is: When you connect your laptop and synchronize program dropbox folder, it will sync both ways? That is, the site will send to the new files in the folder and send the new files to the folder of the site? Finally, I wonder if the dropbox folder sync also synchronizes in both directions to have the source folder updated.
    http://hostcarioca.com.br

  50. Rafiul Alom :

    My Favorite file sharing software ever.
    I always use dropbox and it’s recommended.

  51. drop box is one of the reliable solutions for safe storage of data online. If you come up with solutions to peoples problem you can never go out of business.

  52. You can learn alot from dropbox’s path to success. They have an awesome product combined with an awesome team and they executed well

  53. “Keep salaries low, …”

    I remember you saying in an other Post that it doesn’t matter how much you pay as long as they work hard. What about a consistent opinion?

    Neil …

  54. hey neil,
    these are really helpful tips. you have come with a lots of good stuff in this post. incredible analysis of dropbox, i must say.

    Thanks.

    Matt

  55. Hello!,,,,,,
    Hi!Thanks Niel for giving great insights into the rise of DropBox.Its look like very helpful for every one,,,Thank you for sharing this!,,,

  56. People are searching for ways to ease their life, especially when it comes to file or information management.. Dropbox found a way to do this and they started to develop one method, even though their road wasn’t easy.

  57. Excellent article but I moved to Google Drive

  58. I would add one more lesson : work hard, work hard, work hard… and never stop.

    Do not expect money to flow before several years.

  59. I use Dropbox for my clients. Personally, I prefer Google Drive. I like keeping everything under one login. (It seems like Google has a product for everything..)

  60. Just want to say your article is as amazing.
    The clearness in your post is simply nice and i can
    assume you are an expert on this subject. Fine with your permission allow me to
    grab your feed to keep updated with forthcoming post.

    Thanks a million and please continue the
    enjoyable work.

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