20VC Dropbox's Drew Houston on Leadership; Hiring, Firing, Breakpoints in Company Scaling, The Story of Nearly Getting Acquired by Steve Jobs and Apple, How Founders Should Think Through Potential Investors and Acquisitions

In this episode of "20 VC," host Harry Stebbings interviews Drew Houston, co-founder and CEO of Dropbox, a leading cloud storage platform serving over 700 million users and 600,000 teams. Houston shares his journey from founding Accolade, an online SAT prep company, to creating Dropbox out of personal frustration with forgetting his thumb drive. He discusses the hustle involved in getting into Y Combinator, the importance of trust and respect in a co-founder relationship, and the challenges of transitioning from a product to a company that innovates systematically. Houston also reflects on resisting acquisition offers, including a meeting with Steve Jobs, and emphasizes the significance of talent acquisition, learning from executive coaching, and the Enneagram for personal development. Looking ahead, Houston envisions Dropbox evolving from file synchronization to organizing users' entire working lives, leveraging the potential of machine learning to improve digital work environments.

• Harry Stebbings expresses excitement about having Drew Houston as a guest on the show.
• Drew Houston is the co-founder and CEO of Dropbox, a company that serves over 700 million users and 600,000 teams.
• Prior to Dropbox, Drew founded an SAT prep company, Accolade, during his college years.
• Drew sits on the board of Meta and has invested in several startups.
• Harry thanks Doug Leone and Sujay Jaswa for their contributions to the show.

"I'm thrilled to welcome Drew Houston, co-founder and CEO at Dropbox."

The quote is an introduction to the guest of the podcast, Drew Houston, and highlights his accomplishments and current roles.

• Harry Stebbings describes his initial contact with Drew Houston via Twitter.
• The current episode is a result of Harry's outreach and Drew's response to the invitation.

"I listened to this guest on Tim Ferriss in 2018 and I loved their discussion, but I did not know the best way to get in contact with them to have them on 20 vc."

Harry explains his admiration for Drew after listening to him on another podcast and his subsequent efforts to invite Drew onto his own podcast.

• Harry Stebbings acknowledges the sponsors and partners of the podcast.
• He introduces Tigus, Cooley, and MarketX as resources for venture capitalists, corporate strategists, and investors.
• Each company's services and contributions to the industry are highlighted.

"Tigus is the only company in the world that aggregates qualitative information on private companies from seed stage to pre IPO."

This quote explains the unique service provided by Tigus, emphasizing its value to venture capitalists and strategists.

• Drew Houston shares the frustration of forgetting his thumb drive leading to the idea of Dropbox.
• The idea for Dropbox was born out of personal need to access files across multiple computers.

"Kind of as a user, I kept forgetting my thumb drive... I never want to have this problem again."

Drew Houston explains the personal frustration that led to the creation of Dropbox, highlighting the user-centric origin of the company.

• Drew Houston discusses his journey with Y Combinator, including initial rejection and eventual acceptance.
• The story includes the role of Adam Smith, Drew's best friend, and co-founder Arash Ferdowsi.
• Drew's hustle and unconventional approach to finding a co-founder are detailed.
• The early challenges and serendipitous events that led to Dropbox's acceptance into Y Combinator are shared.

"I got an email from Paul [Graham] saying, hey, like your idea, but you need a co-founder if you're going to get into YC."

Drew recounts the pivotal moment when Paul Graham of Y Combinator expressed interest in Dropbox but insisted on having a co-founder, setting the stage for Drew's search for a business partner.

• Drew Houston advises on the importance of trust and respect in a co-founder relationship.
• He emphasizes the need for alignment on existential company questions and complementarity in skills.

"Trust as in basic things like, are you motivated by the same things? Are you trying to accomplish the same things?"

The quote highlights the foundational qualities of trust and motivation alignment that Drew Houston believes are essential in a successful co-founder partnership.

• Drew Houston reflects on his personal motivations, including ambition instilled by his parents and a competitive nature.
• He discusses the positive and negative motivations that drive him and the impact of technology on human progress.
• Drew is inspired by the ability of a small team to reach millions of people and aims to tackle bigger problems on a larger scale.

"I've always been inspired by the power of technology to reshape our lives in both positive and negative ways."

Drew shares his overarching motivation, which is the transformative power of technology and his desire to contribute positively to that transformation on a grand scale.

• Drew Houston expresses enthusiasm for spotting the Dropbox icon on people's laptops.
• He never tires of talking about Dropbox, indicating a strong personal connection to the brand.

"I will look over your shoulder on your laptop and I'll try to see if there's a Dropbox icon there. And I never get tired of seeing that or people like, oh, you must be really tired of talking about Dropbox. I'm like, no, I can definitely talk about Dropbox a lot more."

The quote shows Drew's pride in his work and the joy he finds in seeing the widespread use of Dropbox, which he co-founded.

• Drew Houston aligns with Andy Grove's management philosophy from "High Output Management."
• Performance is measured by the output of the organization a manager leads.
• The focus is on delivering results, akin to scores in sports.
• While outputs are the goal, inputs are within one's control.

"So I think you start with, do you deliver results right? You start with the outputs for whatever you're doing."

This quote emphasizes the importance of tangible results in assessing performance, whether in business or sports.

• Drew acknowledges Annie Duke's theory of 'resulting,' where outcomes can be misleading.
• He notes that right actions don't always lead to right outcomes, and vice versa.

"Exactly. There's sort of false positive, false negatives in terms of taking the right activities and having the right outcomes."

Drew agrees with the concept that outcomes may not always reflect the quality of the decisions or actions taken.

• Mindset is critical, especially when results or processes are lacking.
• Self-awareness, humility, and curiosity are valued traits.
• Being coachable is essential for improvement.

"And the reason that matters is because when the results aren't good or the process isn't, or you're not performing well, there's always some external factors that are easy to blame, but then you can let yourself off the hook."

Drew highlights the importance of owning up to one's role in performance rather than blaming external factors.

• Drew's first executive coaching experience was a catalyst for mindset change.
• Coaching revealed both Drew's strengths and development areas.
• Awareness of personal traits and their dual nature was key.

"The catalyst was really first just awareness of these things instead of them just being buried under the surface and not being aware of them."

The quote reflects the transformative impact of becoming aware of one's strengths and weaknesses.

• Drew finds the Enneagram system useful for understanding motivations and behaviors.
• He identifies as a Type Seven, the Enthusiast, which informs his personal and professional habits.

"I think of the enneagram as, like Myers Briggs, but useful."

Drew expresses a preference for the Enneagram over other personality typing systems for its practical insights.

• Recognizing the positive intentions behind conflict avoidance is the first step.
• Direct feedback is necessary for others' growth.
• It's important to balance empathy with setting boundaries.

"Over time. When you withhold feedback from people, you realize that you're actually not helping them because they keep making the same mistakes again or keep having the same patterns, and they don't know about it, and so they don't do anything about it."

Drew explains that avoiding conflict can be detrimental to others' development and can lead to frustration.

• Clear communication and empathy are crucial in tough discussions.
• It's important to be direct and allow others to share their experiences.
• Separating feedback about performance from personal criticism helps maintain focus.

"You want to both be direct and definitive and leave room for them to have their experience and share their story and be diplomatic about it."

This quote emphasizes the balance required in delivering difficult news while respecting the other person's feelings.

• Drew reflects on Dropbox's challenges with competition and growth.
• He learned to navigate competition from major tech companies.
• Adapting to changing circumstances was a crucial lesson.

"Yeah, well, I think one of the toughest moments for me was going through the period of hypergrowth and then kind of hitting the peak. Then things start going the other direction."

Drew shares his experience of Dropbox's rapid growth and the subsequent challenges, highlighting the learning opportunities from difficult times.

• Drew Houston discusses the importance of recognizing strategic inflection points and making decisive choices.
• He references Andy Grove's book "Only the Paranoid Survive" and the concept of focusing on one core business.
• Intel's shift from a memory company to a microprocessor company is used as a prime example of a successful strategic pivot.
• CEOs need to avoid the temptation to keep options open and instead concentrate their efforts on the most promising opportunity.

"This is after reading 'Only the Paranoid Survive' by Andy Grove, recognizing that we were at a strategic inflection point that wasn't good for us."

This quote highlights the realization that Dropbox was at a critical juncture, influenced by the insights from Andy Grove's book.

"What you really need to do is put all your eggs in one basket and watch that basket for the Mark Twain quote."

Drew Houston emphasizes the need for focused attention on a single, well-chosen business venture, citing Mark Twain's advice.

"Intel's experience, where we know intel now is like the processor microprocessor company, but they actually started and were known as like a memory company."

The quote explains Intel's successful business transformation, which serves as an inspiration for strategic change.

• Dropbox faced competition from various tech giants in different market segments, including photo sharing, productivity, and storage.
• The challenges led to the shut down of new initiatives that were once considered the future of the company.
• The intense competition and strategic reassessment caused a negative press cycle and public scrutiny for Dropbox.

"Dropbox is fighting all these wars on different fronts."

This quote illustrates the multifaceted competitive challenges Dropbox encountered across its service offerings.

"Very public humiliating failure. We announce all these things that are the future of the company. A year later, I'm shutting them down."

Drew Houston acknowledges the difficulty of publicly retracting from previously announced plans, highlighting the consequences of strategic missteps.

• Drew Houston reflects on his personal motivations and the stress of operating in a competitive environment.
• He finds inspiration in figures like Andy Grove and Bill Campbell, who contributed significantly to guiding others in the tech industry.
• The desire to improve as a CEO and the impact of technology are cited as reasons for continuing despite difficulties.

"Our competitive situation is pretty dire right now, so what am I even doing?"

Houston questions his motivations during a particularly challenging period, showing the personal toll of competitive pressures.

"I want to be able to paint on a bigger canvas, and I believe in the power of technology to make things better."

The quote reveals a broader aspiration to make a significant impact through technology, which drives Houston's leadership at Dropbox.

• Drew Houston discusses the inevitable ups and downs of public perception and the media's role in building and tearing down reputations.
• He advises depersonalizing the experience and viewing challenges as part of the journey, emphasizing the importance of maintaining a balanced perspective.

"This is how it always has been and always will be. It's not really about you."

Houston offers perspective on the nature of the press cycle and the importance of not taking criticism personally.

"Having a sense of equanimity, like, yes, this is all part of the journey."

The quote suggests adopting a calm and composed attitude toward the highs and lows of running a company, recognizing it as a natural part of the process.

• The importance of prioritizing talent recruitment and maintaining high talent density is stressed.
• Early on, Houston and his co-founder Arash Ferdowsi focused on hiring the smartest people they knew from MIT.
• As the company grew, they faced challenges in hiring executives for roles they were less familiar with, and they used consultants and leaned on investor networks to mitigate risks.

"Hire the best people. That was really just like handpicking the smartest people we knew from MIT."

Houston emphasizes the critical importance of hiring top talent, especially in the early stages of a company, and shares their initial approach.

"Both of those things help derisk those early exec hires."

The quote explains the strategies used to minimize the risks associated with hiring executives, such as using consultants and leveraging investor networks for guidance.

• Recognizing when an executive is no longer a fit and providing timely feedback are highlighted as key aspects of effective management.
• Houston admits to making common mistakes, such as being overly optimistic about an executive's ability to grow with the company and avoiding difficult conversations.

"The biggest mistakes that I've made are, I'd say around that they're leaving people enroll too long."

This quote acknowledges the error of not acting swiftly enough when an executive is not meeting the needs of the company.

"You need your execs to do that too. Like what your exec needs to keep their learning curve or what they're providing ahead of the companies of what the company needs."

Houston points out the necessity for executives to continuously evolve and stay ahead of the company's growth demands.

• The story of how Dropbox attracted investment from Sequoia Capital involves an unexpected encounter with an investor who spoke Farsi to co-founder Arash.
• The encounter led to an invitation to visit Sequoia's office, which played a crucial role in securing their investment.

"One of the people who came running up to us was a guy named Pejman... And he's like, you got to come visit."

The quote describes the serendipitous meeting with investor Pejman Nozad that eventually led to a significant investment from Sequoia Capital.

"We get down there and we're like, this is renting another zipcar, getting down there on University Ave. In Palo Alto."

Houston narrates the journey to Sequoia's office, highlighting the unconventional path that led to their partnership with the venture capital firm.

• Drew Houston and his co-founder Raj were introduced to the venture capital scene in Palo Alto.
• They were initially hesitant to meet with venture capitalists due to their early stage.
• Pejman Nozad introduced them to Sameer Gandhi from Sequoia.
• Mike Moritz, a notable figure from Sequoia, visited their apartment and offered a handshake deal quickly.
• Drew and Raj were inexperienced with financial procedures like wiring instructions.

"Pejwan made an introduction to Sameer Gandhi, who's now at Excel, but he's sequoia at the time."

This quote explains that Pejman Nozad facilitated an introduction to Sameer Gandhi, a significant player in the VC industry, which was a pivotal moment for Drew and Raj's company.

"Mike Moritz, kind of the godfather of Sequoia came to our apartment on Saturday morning. We had a handshake deal on Monday, and then money in the bank a week after that."

This quote highlights the rapid pace at which venture deals can occur, especially when influential investors like Mike Moritz are involved.

• The funding round Drew Houston refers to was $1.2 million at a $3.8 million pre-money valuation.
• Drew Houston reflects on the advantages of having a dedicated VC over a "party round" with many investors.
• He emphasizes the importance of investor accountability and the guidance a great VC can provide.

"Yeah, it was a 1.2 million, 3.8 pre. So five post."

This quote provides the specifics of the investment round, which is essential for understanding the early valuation and financial support of the company.

• Drew Houston mentions that successful companies often receive offers to sell.
• He recalls a meeting with Steve Jobs where selling the company was discussed.
• The decision not to sell was based on the belief that the company would continue to grow and perform better independently.

"The reason why we didn't want to sell because we just thought the company was just going to be doing better and better, and maybe that would change, in which case, we probably still have good options."

This quote reveals the strategic thinking behind the decision not to sell the company, focusing on long-term growth and independence.

• Drew Houston sees Dropbox more as a B2B company now, but with a consumer-focused approach to business software.
• The hardest part of his role is transforming the company to consistently produce innovative products.
• Dropbox's future involves organizing users' working lives and integrating machine learning to improve productivity.

"So more a b to b company now, that said, we're applying the consumer playbook to business software."

This quote identifies Dropbox's shift in focus towards business customers while leveraging their experience in consumer software.

"Well, I think where we're headed is shifting from Dropbox, from syncing your files to organizing all of your cloud content and stuff to organizing your whole working life."

This quote outlines the strategic direction for Dropbox, aiming to become an integral part of users' work environments by organizing more than just files.

• Drew Houston has learned the importance of structure and discipline in scaling a company.
• He has worked to become more organized, disciplined, and assertive.
• Houston has changed his mind on the necessity of these qualities for effective leadership.

"Having to model that myself to really be a lot more organized and disciplined and assertive and not conflict avoidant and therefore being direct, I think that's been a thing I've had to change a lot."

This quote reflects Drew Houston's personal development in his leadership style, acknowledging the need for a more structured approach in a growing company.

• Drew Houston values the insights from experienced board members.
• He mentions Condoleezza Rice as a notable board member due to her diverse experience.
• Houston has learned from Mark Zuckerberg about focusing on what is essential and making decisive moves.

"So Condoleeza Rice was on our board for several years. She was great she's seen scale in all its forms."

This quote emphasizes the value of having board members with a broad range of experiences, which can provide unique perspectives and guidance.

"I've learned a lot from mark in terms of how to cut to what is essential and focus and move decisively and kind of be direct and assertive."

This quote highlights the lessons learned from Mark Zuckerberg, stressing the importance of clarity, focus, and assertiveness in decision-making.

• Drew Houston expresses gratitude for the opportunity to share his experiences on the podcast.
• He acknowledges the support from Twitter and the receptiveness of the host.
• The podcast concludes with mentions of various resources for venture capitalists and entrepreneurs.

"I just love doing that show. A huge thanks to Twitter for making it happen."

This quote is a token of appreciation for the platform that facilitated the podcast's reach and engagement.

"If you'd like to see more from us behind the scenes, of course you can on twentyvc.com."

This quote directs listeners to additional content and resources, highlighting the podcast's broader ecosystem for venture capital and startup communities.