6 Business Lessons You Can Learn from the Rise of 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 modelThis 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 companyBefore 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 problemThe 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 haveThe 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.
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 leanIn 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 centerThe 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.
ConclusionOdds 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?