Drew Houston on wooing Dropbox’s IPO investors: ‘We don’t fit neatly into any one mold’

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Dropbox went public this morning to great fanfare, with the stock shooting up more than 40% in the initial moments of trading as the enterprise-slash-consumer company looked to convince investors that it could be a viable publicly-traded company.

And for one that Steve Jobs famously called a feature, and not a company, it certainly was an uphill battle to convince the world that it was worth even the $10 billion its last private financing round set. It’s now worth more than that, but that follows a long series of events, including an increased focus on enterprise customers and finding ways to make its business more efficient — like installing their own infrastructure. Dropbox CEO Drew Houston acknowledged a lot of this, as well as the fact that it’s going to continue to face the challenge of ensuring that its users and enterprises will trust Dropbox with some of their most sensitive files.

We spoke with Houston on the day of the IPO to talk a little bit about what it took to get here during the road show and even prior. Here’s a lightly-edited transcript of the conversation:

TC: In light of the problems that Facebook has had surrounding user data and user trust, how has that changed how you think about security and privacy as a priority?

DH: Our business is built on our customers’ trust. Whether we’re private or public, that’s super important to us. I think, to our customers, whether we’re private or public doesn’t change their view. I wouldn’t say that our philosophy changes as we get to bigger and bigger scale. As you can imagine we make big investments here. We have an awesome security team, our first cultural principle is be worthy of trust. This is existential for us.

TC: How’s the vibe now that longtime employees are going to have an opportunity to get rewarded for their work now that you’re a public company?

DH: I think everyone’s just really excited. This is the culmination of a lot of hard work by a lot of people. We’re really proud of the business we’ve built. I mean, building a great company or doing anything important takes time.

TC: Was there something that changed that convinced you to go public after more than a decade of going private, and how do you feel about the pop?

DH: We felt that we were ready. Our business was in great shape. We had a good balance of scale and profitability and growth. As a private company, there are a lot of reasons why it’s been easier to stay private for longer. We’re all proud of the business we’ve built. We see the numbers. We think we’re on to not just a great business, but pioneering a whole new model. We’re taking the best of our consumer roots, combining them with the best parts of software as a service, and it was really gratifying to see investors be excited about it and for the rest of the world to catch on.

TC: As you were on your road show, what were some of the big questions investors were asking?

DH: We don’t fit neatly into any one mold. We’re not a consumer company, and we’re not a traditional enterprise company. We’re basically taking that consumer internet playbook and applying it to business software, combining the virality and scale. Over the last couple years, as we’ve been building that engine, investors are starting to understand that we don’t fit into a traditional mold. The numbers speak to themselves, they can appreciate the unusual combination.

TC: What did you tell them to convince them?

DH: We’re just able to get adoption. Just the fact that we have hundreds of millions of users and we’ve found Dropbox is adopted in millions of companies [was enough evidence]. More than 300,000 of those users are Dropbox Business companies. We spend about half on sales of marketing as a percentage of revenue of a typical software as a service company. Efficiency and scale are the distinctive elements, and investors zero in on that. To be able to acquire customers at that scale and also really efficiently, that’s what makes us stand out. They’ve seen Atlassian be successful with self-serve products, but you can layer on top of that leveraging our freemium and viral elements and our focus on design and building great products.

TC: How do you think about deploying the capital you’ve picked up from the IPO?

DH: So, we’re public because they wanted us to be a public company. But our approach is still the same. First, it’s about getting the best talent in the building and making sure we build the best products, and if you do those things, make sure customers are happy, that’s what works.

TC: What about recruiting?

DH: It’s a big day for dropbox. We’re all really excited about it and hopefully a lot of other people are too.

TC: When you look at your customer acquisition ramp, what does that look like?

DH: I mean, we’ve been making a lot of progress in the past couple of years if you look at growth in subscribers. That will continue. We look at numbers, we have 11 million subscribers, 80% use dropbox for work. But at the same time, we look at the world, there’s 1 billion knowledge workers and growing. We’re not gonna run out of people who need Dropbox.

TC: What about convincing investors about the consumer part of the business? How did you do that?

DH: I think, when you explain that our consumer and cloud storage roots have really become a way for us to efficiently acquire business customers at scale, that helps them understand. Second, it’s easy to focus on how in the consumer realm that the business has been commoditized. There’s all this free space and all this competition. On the other hand, we’ve never lowered prices, we’ve never even given more free space, we know that what our customers really value is the sharing and collaboration, not just the storage. It’s been good to move investors beyond the 2010 understanding of our business.

TC: How did creating your own infrastructure play into your readiness to go public?

DH: When I say that today is the culmination of a lot of events, that’s a great example. We made a many-year investment to migrate off the public cloud. Certainly that was one of the more eye-popping investors watching our gross margins literally double over the last couple of years from burning cash to being cash flow positive. We’ll continue reaching larger and larger scale, and those investments will.

TC: Getting a new guitar any time soon?

DH: I probably should.

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