Dropbox and why you should invest in people

http://cdixon.posterous.com/dropbox-and-why-you-should-invest-in-people

by aditya • 15 years ago

214 74 15 years ago

cdixon.posterous.com

marcamillion2• 15 years ago

Ahh...so Fred Wilson has started the 'come-to-Jesus' moment for investors.

I guess we can now expect to see many more blog posts about missed opportunities, and lessons learned.

That being said, thanks for the post Chris.

Makes for good reading :)

BerislavLopac2• 15 years ago

Bessemer's "anti-portfolio" page is the first of the kind I've encountered, years ago: http://www.bvp.com/portfolio/antiportfolio.aspx

marcamillion2• 15 years ago

Nah I know. But I predict, just like we are seeing the 'rise of the $1B VC fund', we will likely see the rise of the 'missed opportunities' by high-profile VCs.

Wait for it in 4....3....2....

jijoy• 15 years ago

it started with Fred Wilson and airbnb , I think . Missing the cereal point

fedd2• 15 years ago

it would be great if there was some positive outcome.

because there may be the negative: i passed dropbox, i passed airbnb, i passed mysql and google, and see, i'm fine. what do you want? ;)

(it's not about chris or fred)

latch• 15 years ago

I love dropbox. Dropbox + git is beautiful as is Dropbox + markdown (for writing).

But I don't pay for it. I'm somewhere around 5+ free gigs of which I might use around 30%. Normally if I loved a product this much which I wasn't paying for, but ought to, then I would. But I'm not stealing my account, so I don't really feel like I should pay.

On top of that, I use a different paid service for storing large amounts of files. It ends up being cheaper and I feel both solutions work best how I have them - dropbox for sharing/working and the other for offsite backups that just transparently syncs every night or something.

I guess all that to ask a question...how the heck is dropbox making money? Between the amount of free storage they give and the fact that there are much cheaper remote backup solutions, I just feel like I'm missing something.

ryanpetrich• 15 years ago

Dropbox is selling convenience. For many, Dropbox's featureset and ease of use are worth the price premium over similar services in the space.

aeden• 15 years ago

They make money from subscribers like me. It's just so damn convenient that I had to send them some money - and it just so happens that I exceed the basic amount of space, so it was easily justifiable.

patio11• 15 years ago

Free storage that they allocate but that you don't actually use costs epsilon more than nothing at all at the margin. The part you do actually use costs them about 10 cents a month on Amazon's published pricing, and one could reasonably assume they have a better deal than publicly available. At a buck a year and what I make out to be a viral factor of something like 20, you're approximately the cheapest cost of customer acquisition ever. (If that worked for my business at scale I would be rolling in it, and my LTV is much lower than Dropbox's is.)

How they make money is fairly simple: use you as a customer acquisition channel to get people who have money using the service. Charge those people many, many times what servicing them actually costs. Does it matter if there are cheaper options? Pfft, no. There are cheaper caffeine delivery vehicles than Starbucks coffee, but since people don't choose coffee primarily based on price, if they hook one more weekday latte drinker that gets them a LTV of several thousand bucks at a margin of ZOINKS%. Dropbox isn't Starbucks, but their unit economics can be reasonably assumed to be "quite favorable indeed."

mixmax2• 15 years ago

Try to find a large popular file (a movie or mp3 file downed from the net for instance) and put it in your dropbox folder. Notice that it'll sync almost instantly. When you put a file in your dropbox they calculate a checksum and see if they already have the file somewhere. If they do they just add a pointer instead of having two copies lying around.

Since many large files are saved by a lot of people individually (movies, mp3 files, pdf manuals, etc) this saves them a lot of space. As they get more users this advantage grows.

rokhayakebe2• 15 years ago

Are you sure about this? if so is it good practice?

brk2• 15 years ago

Is this exploitable in some odd way?

What if I wanted to use Dropbox for piracy purposes (I don't, just using an easy to understand model). Could I upload a copy of Avatar.mp4, compute or find the checksum for it, and then distribute just that checksum to other users? Or distribute a file that wasn't Avatar.mp4, but looked like it to the Dropbox client? Would this effectively trick the Dropbox servers into distributing the file for more, so that I could legitimately claim to not be distributing copyrighted material, but just distributing a "magic" file that caused Dropbox to give me a copyrighted file that someone else had uploaded?

modoc2• 15 years ago

It's smart. We did the same thing with MagicWaiter back in the day. Saved a TON of space!

brown9-2• 15 years ago

What is the other backup solution you mention?

dstein• 15 years ago

I've always used less than a gig so I never had to pay. I hope they never do start turning the cranks cause I'd definitely start paying if they forced me to.

vibhavs• 15 years ago

Tangent: So I'll be honest -- I was curious as to who the "jackass VC" was. After a little digging around, I think it's Ted Schlein: http://www.kpcb.com/team/schlein.

ivankirigin• 15 years ago

"Ted was the founding CEO of Fortify Software" doesn't mesh with "lifetime middle manager from Symantec who had never started a company"

callmeed2• 15 years ago

But his winery seems to fit ... http://www.schleinvineyard.com/content/family_2.php

hedgehog• 15 years ago

FWIW when I pitched him at KP in 2004 or 2005 he seemed like a decent guy.

officemonkey• 15 years ago

FWIW I thought the whole aside about the VC guy felt off-topic. It didn't add value to the article and its only purpose was to make the writer look cooler than the strawman he constructed.

Frankly, I was turned off by the distraction and skimmed the rest of the article.

rokhayakebe2• 15 years ago

This is not cool.

brett• 15 years ago

I don't think it's an argument against Dixon's point, but I found this funny because I remember being so impressed with demo of Dropbox at the time. I remember knowing nothing about who Drew was, seeing this on HN: http://news.ycombinator.com/item?id=8863 and thinking something along the lines of, "that's brilliant, I hope he gets funded so I can use it."

vantran• 15 years ago

Investing in people over their ideas is always advisable. But let's not forget how brilliant people can still fail. Tons of bright kids come out of MIT, Harvard, Stanford, etc... Should you blindly invest in all of them?

Instead, I prefer Mark Suster's "invest in lines, not dots" strategy. You really have to spend more time to have a better idea on whether you should invest.

In hindsight, of course Drew Houston would be a good investment.

three14• 15 years ago

I think he's not suggesting investing in "bright kids," but "smart and gets things done." Or "relentlessly resourceful." Smart is just one of the criteria, but he still would invest in people, not in "the idea."

callmeed2• 15 years ago

It's funny, I was reading old Joel on Software posts the other night and stumbled across this one: http://www.joelonsoftware.com/items/2008/05/01.html

From the essay:

"The hallmark of an architecture astronaut is that they don't solve an actual problem ... they solve something that appears to be the template of a lot of problems. Or at least, they try. Since 1988 many prominent architecture astronauts have been convinced that the biggest problem to solve is synchronization.

...

Jeez, we've had that forever. When did the first sync web sites start coming out? 1999? There were a million versions. xdrive, mydrive, idrive, youdrive, wealldrive for ice cream. Nobody cared then and nobody cares now, because synchronizing files is just not a killer application. I'm sorry. It seems like it should be. But it's not."

I immediately thought of dropbox. It appears, to some degree, it is a problem and some people do care. Like Chris said, its the execution and people that made the difference.

jurjenh• 15 years ago

I think it is one of those problems that most people don't run into until they do - for example, you're suddenly having to work from 2 locations on the same code base - then try to find some means of keeping both in sync... The first attempts I had at it ended up pretty much as a "too hard, not worth the effort" solution. I guess the pain threshold was not quite high enough for enough people, but now with a brilliant solution, a lot of people will revisit it, and with the multiplying numbers of web devices, it will become more of an issue - so it was more of an issue of tackling the problem at the right time.

wladimir• 15 years ago

It was one of those problems that everyone was solving in their own way. Either through shared folders, shared gmail accounts, mailing attachments, passing around USB sticks, or putting everything into a version control system.

There was no single solution that was both convenient, compatible across devices and platforms, and useful for all the usecases. Dropbox nailed that.

fedd2• 15 years ago

our school teacher has a mail.ru account the password for which is known by all the parents. if we're ill, we go there and see the homework :) anyone may change the password eventually as many people are not that internet savvy, i am always afraid of it

she should use dropbox, google docs or have a mailing list, but i don't know how to say that. she knows only web mail as it's around for decades...

nadam6• 15 years ago

Yeah, I think Joel was right and wrong.

He was right because there are architecture-astronauts who overdesign things that they don't understand yet.

He was wrong, because the mistake of architecture astronauts is not that they want to solve a template to a lots of problems. Solving a template to a lots of problems can be a huge business. Think of the personal computer. Think of MS Excel. Think of Oracle. It is just very hard to get these things right, because it is very hard to see the market for these generic products in advance. Also generic things are very technology heavy usually, so hard to convince investors. (Maybe I am just defending myself here, because I am also working on a generic application which is about helping businesspeople to access/maintain/query their data intuitively. (Like Excel just with a bit more constraints (with relational db. server backing))).

BerislavLopac2• 15 years ago

I think the main problem with the architecture astronauts is that they are trying to nuke a cockroach.

In other words, they are trying to find an overly wide and generic solution while all they have is a specific instance of a problem in a particular implementation they need to design for.

yesbabyyes• 15 years ago

Maybe I am just defending myself here, because I am also working on a generic application which is about helping businesspeople to access/maintain/query their data intuitively. (Like Excel just with a bit more constraints (with relational db. server backing))

Have you looked at QlikView? Sounds similar.

api4• 15 years ago

"He was wrong, because the mistake of architecture astronauts is not that they want to solve a template to a lots of problems."

YES.

This idea has always bothered me: "don't solve a template of a lot of problems, solve one problem."

Isn't that the essence of innovation? To kill lots of birds with one stone?

The problem with "architecture astronauts" is that they over-think their problem, and they spend too much time over-thinking and over-developing before they really understand the problem space. It's a problem of over-engineering and isolation, not wanting to kill more than one bird.

wisty3• 15 years ago

I don't think dropbox really syncs (i.e. merges documents). It just stores versions, right?

Architecture astronauts tried to build generic diffs and merges, on top of rich documents. Think SVN for Word docs. Then they though about metadata, like bug-reports and other actions. Then you can host the bug report (and the project management system, and the wiki) on top of the synchronization architecture.

Dropbox, at its core, just keeps your files and 30 days of history.

crocowhile• 15 years ago

What do you mean? Dropbox syncs files amongst the computers you own and that is the most used feature I think. It is a sync. (In fact before using Dropbox I was using rsync over ssh.)

joshu• 15 years ago

Ha, I passed on dropbox too, I was asked to invest in the series B and thought the valuation was too high. Learned my lesson - valuations go up for a reason.

stevenj• 15 years ago

Isn't startup investing mostly about picking the big winners and not worrying too much about what valuation you get in at?

If that's the case, wasn't your error not thinking dropbox would be a big winner?

nadam6• 15 years ago

This is a good post, but there is the risk of survivorship bias here. Drew Houston is a brilliant guy, but let's be honest most people only recognized his true brilliance after he became successful. (I think most people thought he is smart, but I doubt most people thought he is brilliant before his success.)

So yes, you should invest into people, but the trick is to recognize brilliance in advance. Which is brutally hard. For example recognizing technical brilliance if someone is not technical is almost impossible. I think where YC shines is not only that they try to invest into people but that they are actually quite good at recognizing brilliance. (I doubt they are perfect in this, but probably the best in the market.)

caustic• 15 years ago

Exactly the same thing I thought immediately after reading the article. Yeah, Drew Houston is a brilliant guy, but we would never know how brilliant were all other founders of failed startups.

revorad2• 15 years ago

Yeah, consider this from another post from Chris in 2010:

Entrepreneurs should always ask themselves “why will I succeed where others failed?” If the answer is simply “I’m doing it right” or “I’m smarter,” you are probably underestimating your antecedents, which were probably run by competent or even great entrepreneurs who did everything possible to succeed. Instead your answer should include an explanation about why the timing is right – about some fundamental changes in the world that enable the idea you are pursuing to finally succeed.

http://cdixon.org/2010/11/07/timing-your-startup/

Here Chris argues that even if he is able to recognize brilliance in advance, he wouldn't necessarily bet on them because of other external factors. So has he changed his mind in the last 5 months?

The more I read about startups, the more I feel like ignoring all advice and jfdi.

hanifvirani• 15 years ago

What I like about Dropbox is that it just works as expected. It's trivial and it's well polished.

Dropbox is a great lesson in how ideas don't matter and how execution is king. They had the guts to compete with a dozen other players who were trying to solve the same problem, solely based on the confidence in their execution. Investing in people having the skills to execute, the guts to compete, and the resilience to persist, clearly makes better sense than investing in just ideas.

hootmon• 15 years ago

The title should have been Name Dropping, why I just can't stop...

nikcub• 15 years ago

Came to read about dropbox, but stayed for the dig at KP. Amazing to think that one of the top VC firms in the world were out of the game for so long.

A new generation of killer startups were created: Facebook, Zynga, GroupOn etc. and KP just watched it all go by. It would be difficult to just quantify how much $ they missed out on, but at least now they are sorta admitting their mistake and getting back into tech investing (greentech didn't really turn out to be the second coming that many thought it would be)

Unfortunately people like 'symantec middle manager' are still around.

adw• 15 years ago

Something related which occurs to me; investing in ideas is basically premature optimisation, because great people can change ideas but average people are unlikely to spontaneously become great.

dami• 15 years ago

Behind every great product is a motivated and driven team ;)

api4• 15 years ago

But what about great people with a really bad idea that they are committed to?

Seems to me that that would be a bad investment.

Also:

Be careful about your metric of great. The metric of great must be "this person is a genius with lots of energy and creativity," not "this person graduated from the right school, knows the right people, comes from the right part of the country, lives in the right zip code, etc." It must be first-hand meritocratic, not based on second-hand derivative indicators.

DropBox's founder went to MIT, but that's not what made him great. MIT is just a good school. The guy may well have been just as great if he'd gone to Ohio State or some other less-prestigious school.

sokoloff3• 15 years ago

I strongly agree with both of your points, at least in theory, but I will also observe that trivially and concretely verifiable derivative indicators (graduated from a "named" school) can be more practically useful than hard/impossible to quickly or concretely verify primary measures ("genuis with lots of creativity"). YC, Sequoia and other VCs are in the business of efficiently finding founders/companies to back; they are not and do not have to be in the business of increasing overall fairness in the world.

There's also the "ambitious and gets shit done" angle. IMO, like it or not, getting into and graduating from a "named" school is one indicator of precisely those two qualities.

There was a study recently that found there was a higher correlation between life outcome and where one APPLIED to college than there was to where one WENT to college. The takeaway for me was that people ambitious enough (and presumably confident enough) to apply to MIT would get similar results in aggregate to those who actually attended. I googled for a few minutes to try to find the study, but failed, so I apologize if I've mis-remembered or mis-stated the conclusions.

Disclaimer: 1993 MIT grad here, but while I greatly value my experience there, I give basically zero "extra credit" for MIT on a candidate's resume over any other school and I'd take "built dropbox" over any schooling, 8 days a week.

api4• 15 years ago

"There was a study recently that found there was a higher correlation between life outcome and where one APPLIED to college than there was to where one WENT to college."

That is very interesting. Thanks.

bfe• 15 years ago

If someone picks and remains committed to a really bad idea, how great are they really?

naiverahim• 15 years ago

Investing in people is the best kind of investment; because a business of people is always profitable. A very powerful philosophy taught by Dale Carnegie.

u48998• 15 years ago

There may have been number of storage sites popping up back in the days but didn't Dropbox provide something new and necessary technology to the PC? As in, don't worry about backing up your files? I don't recall even Box dot net - who was much in the tech news - provide such features.

petenixey• 15 years ago

We were in the same YC round as Dropbox and it was interesting was to observe the discrepancy between our views and the investors' views. While nobody in our class doubted the success (at whatever level) of Dropbox, it never created the same investor heat early on that many of the "trendy investments" did. I wondered about this at the time and put it down to investors' reluctancy (or inability) to spend the days it takes to actually get to know a company.

I was fortunate to get to know Dropbox a bit more than most (and less than many). We were in the same YC class and shared an office for a little while. They was voted top of our class in YC - I don't think anyone doubted they'd be the most successful company.

I don't think anyone felt that even if they were overtaken by Google Platypus or similar that they would fail either - they were doing such hard stuff and had such dedicated users it would still be a great technology acquisition. The company was a really great investment and in fact after Clickpass was acquired I asked Drew if I could invest but unluckily for me they weren't taking on any more (very) small angels.

The interesting thing was that in those very early days (post YC), the investors still weren't fighting their way into it or making the hullabaloo that you see around some of the other valley companies. Drew and Arash were never big-talking sales people, they never focussed on bells and whistles and instead just concentrated on building great product. Day in, day out they just came in, built amazing software and, starting with Aston, they slowly added other amazing developers around them. That relentless progress seemed to be something that most investors really weren't tuned into.

Investors almost never take the time to actually hang out in a company and instead rely on consecutive and very similar meetings. They never actually watch a company work (although Mike Moritz did interestingly come and hung out in their apartment in the Y-Scraper before making his investment). I always therefore feel that statements such as you should invest "in the team", "in the market" or "purely in any other one thing" are all slightly trite because what you really want to invest in is the relentless march of a product towards a market.

You can't learn that in a pitch though or from a founder's personality or even their CV - all of these are single data points and you want to measure the product trajectory. You can however get a very real feel for that by spending real time with a company, in their office. I'm sure you would get some false positives from it but in the long run it would be hard to avoid the true negatives.

Dropbox's office was calm, intelligent, very productive and full of debate and fiercely intelligent employees who believed without hesitation in the product. The developers were constantly interacting with their customers through their forums and they hung out as a team after work. It was totally and utterly different to many other offices I have observed and made it very hard to imagine an outcome that would not be good. They knew the market for their product, they knew it was big and they marched relentlessly towards it.

I know lots of smart, driven, successful people whom I still wouldn't invest in but I would be very interested to know how many such teams with the kernel of a product people like, in a market that is significant and who march relentlessly towards it do not constitute a good investment.

wordchute• 15 years ago

It amazing how quickly the company seems to have developed into something with a recognition beyond the development community. I first cam across it a few years ago while working in England, and that could not have been too long after its launch. What struck me about it at the time, and this has been said more succinctly elsewhere, is how simple and elegant it was to work with - this was confirmed when even the thickest of non-techies in the office could work it out in less than a couple of minutes. Reading the comments here seems to verify my initial thoughts.

I have heard it said before that some of the best ideas are those that take complicated things and make them simple or easily understandable, and their success goes a long way to proving that point.

Dropbox and why you should invest in people

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