[0:00:00] Hi, I'm Sam Altman. This is How to Build the Future. Our guest today is Drew Haust. Drew, thank you for taking the time. Thank you for having me. So you were in Y Combinator with Dropbox in the summer of 2007. That's right. How did you come up with the idea and end up at YC in the first place? Well, I had the idea. It was born out of frustration. So I kept forgetting my thumb drive. The sort of origin story of the company was when I was riding the Chinatown bus from Boston to New York and forgot my thumb drive.
[0:00:27] Couldn't get anything done on the trip. And then I had another problem, which is I was working on my first company, which we can talk about. And I had a real pain point around collaborating with my co-founder around the things that we were working on. But it was personal frustration. I had hacked together all these scripts to try to fix it. But then that bus ride was the last straw. You mentioned you had a first company. You had applied to YC before. We were rejected.
[0:00:54] You were rejected. That was either a mistake or a really good call. It was a good call. So my first company was called Accolade, and it was doing online SAT prep because we realized back in the day the SAT was changing and no one had really built a good online course. And so started that company, applied to YC, rejected largely because we were both, my co-founder and I were both part-time on it, a couple other reasons, market size.
[0:01:22] Probably some other stuff. Did you interview or were you rejected without an interview? We were rejected without an interview. Wow. I don't think I knew that. And you came back the next batch? I got a little more feedback about what happened. And some of the concerns were the ones I said about my co-founder and I didn't know each other super well. Neither of us was full time on it. Some market issues. What happened with that co-founder? We kept working on the company until I started Dropbox.
[0:01:52] It sort of drifted apart. You applied to YC as a single founder and then met Arash rightly after, right? Yes. Or quickly after. Can you talk about that story? It's interesting. Usually these co-founder stories start with, oh, we played t-ball together. No, Arash and I probably knew each other for maybe two or three hours before we threw in together. How did you, what gave you the confidence to be okay with doing that? Well, it was funny. So I applied as a single founder.
[0:02:22] To YC. And I got an email from Paul saying, hey, idea seems interesting, but you really need to find a co-founder. Only problem was application deadline was like three weeks away. So that's like saying, oh, you need to get married in the next three weeks. So what happened was Kyle Vogt, who's one of the founders of Justin.TV, which turned into...
[0:02:50] Twitch, and then started Cruise. So far, the only YC funder with $2 billion plus access. Yeah. So Kyle and I knew each other from MIT. And we were both in the Entrepreneurs Club together. And then he knew Arash. They were floor mates in East Campus at MIT. They were both from Kansas. And Arash was having a pretty similar experience to one that I was having, which is we had friends who had dropped out of school, moved from Boston, settled in San Francisco. Suddenly, their companies are raising millions of dollars, taking off.
[0:03:20] And so I think both of us had a little bit of cabin fever. It's frustrating to watch that happen. Yeah, it's motivating. It is. So literally two or three hours you guys spent together. So we got introduced. Kyle sent, or just told, I was complaining to Kyle, is there anyone great that you know who could be a potential co-founder? Because all my friends, or the folks I was closer to, just for whatever reason, timing wasn't right, weren't ready to make the jump, whatever it was.
[0:03:49] Kyle suggested Arash, and so I probably have the email somewhere where Arash just said, hey, let's meet up. And we hung out in the student center for a couple hours, and he dropped out of school the next day. It was pretty wild. I have to add this to Kyle's list of special services to OIC. I didn't even know this. So you guys just started working on it immediately, talked about the equity, and went forward? Pretty much. So we met up in the student center at MIT.
[0:04:17] He was already pretty excited about the concept of starting a company, of doing YC, and we hit it off. And I wish I could say that, oh yeah, here are the 17 things I was looking for, and on this seven-point scale. But no, he's like, this kid's clearly smart, a little quiet, but very thoughtful. And over time, it became clear that this was a really good fit. How did you guys...
[0:04:44] Validate the need for Dropbox. I've heard stories, although maybe apocryphal, that you posted on Reddit to ask people if they wanted something like Dropbox. Well, the first real test was I made a demo video. And it was initially just to get into YC because the whole Y Combinator application process was pretty similar to the world where I came from, which was college admissions and test prep.
[0:05:12] And one of the things you can do to give yourself an edge in admissions is just do something different. So I knew everybody was going to have a demo link in their application or whatever that would be, but I thought this was something that would really, that Dropbox was something that would really appeal to the Packer News audience. And it was really to get into YC where I made this three-minute demo video with some music equipment that I had from my band.
[0:05:41] I put it on Hacker News. It stayed at the top of Hacker News for two days. I got the thing I was looking for, which is the email from Paul. The thing I didn't want was that you also need a co-founder in three weeks, but that was the first. I think we did that at least twice. First, again, to YC, then to build some momentum around the company. There's this infamous comment, either on that poster, a future one you made, probably that one, where someone's like,
[0:06:07] I think this is the stupidest thing I've ever heard of. Like, don't these people know that WGET exists? You can just use that. No one needs a company for this. Right. We send that around to other founders when they get demotivated because people shit on their idea on Hacker News or Reddit or something else. Well, we were getting it from all different directions. So, actually, we can jump to that because I think that's a really interesting point. One of the things I respect most about you is you have just kept doing your thing no matter what noise there is in the ecosystem.
[0:06:36] I think the first thing is you have to recognize that that is always going to happen. And we experienced that from the day we founded the company actually before that and all the way to now.
[0:07:06] And when you zoom out, you realize that a company like Apple, quarter after quarter, can post like the best, the most revenue, most profit of any company in business history. It's over, it's dead. And the next day, it's like, but they're really dead now. So you have to kind of, you have to appreciate that that's human nature and that's just going to happen. I think where it gets a little harder is you have to simultaneously have thick skin and be able to tune things like that out. But you also have kind of thin skin.
[0:07:37] And if your customers are unhappy or your team's unhappy, you have to respond to that. So that's a weird dynamic that you have to handle. But I think it starts just getting some perspective that that's always going to happen. How do you decide when you need to address something with customers or team versus just let it go and it's a normal course? Well, I think maybe more in the fundraising context. So in addition to people on Hacker News, a bunch of the comments were negative.
[0:08:06] Actually, a bunch were positive, too. We got a lot of pushback from investors saying, hey, look, Google's going to do this. It's a commodity. Online storage was kind of the startup cliche of its time, the way that Bitcoin or other things have been. And frankly, I agreed with them. I was like, yeah, Google can probably do this. Yeah, we don't really have a lot of structural advantages. Yeah, we're not really sure how we're going to make money. We don't even have users.
[0:08:34] So that's all true, but you have to realize that's not causal. Just because other folks have done something or done it in a way that you don't think is good doesn't mean it's inherently a bad idea. Or maybe put another way, I would ask investors, yes, there are 50 of these things out there, but do you use any of them? And they would say no. And I'd say, yeah, isn't that interesting?
[0:09:05] Was this the biggest problem that you found in early days was just the level of competition or presumed competition in the market? Competition didn't bother me that much because our sites were also a lot lower in the beginning. And really, I had a target customer of one, which is really myself. And victory would, for me, would be never having to carry on a thumb drive. How long did it take you from the day you had the idea for Dropbox until you had a product where you, until the last time you used a thumb drive?
[0:09:35] Probably about a couple months, maybe six weeks, six to eight weeks. When it's early, you can make massive progress like that. But then it took a long time to make it bulletproof and safe for the world to use. So what were the big initial problems that you faced? As you think back towards the few times Dropbox almost died, what actually went really wrong?
[0:10:04] The early problems, when they're real problems, were just keeping up with growth. So we had this idea to build a prototype. The prototype worked well. We made this video, and we put it on Digg and Reddit, and that just blew up, which I can talk about. But then you need to build a company, because you start a product, and then you're like, OK, we have a product. Now we need users. OK, let's go figure out how to get users. OK.
[0:10:31] They always leave this part out of the movie of startups. Yeah. Well, it's just you're on this treadmill of that you have to every day, you have to do everything you were doing yesterday just as well or better. And then you have a bunch of new stuff to deal with. And so it's like, okay, well, we need to build the product. We need engineers. Okay, wait, before we need engineers, before we can get engineers, we need to pay them. I guess that means we need to fundraise. Okay, we need to fundraise. Then we need a lawyer and an accountant. So just the circle keeps getting bigger. And so you deal with that by...
[0:10:58] Dividing and conquering. You hire people, but then you have a new problem, which is you're hiring people to do something you don't know anything about. Suddenly, everybody's running off in different directions. And so I think the hard things were really keeping up with that. The rate at which things were breaking was faster than we could fix things. And that was a really hard thing to get used to because...
[0:11:26] You're used to, especially if you're kind of the, you know, used to getting good grades in school and things like that. Ben Horowitz said this well. He said the average grade for running a company is like a 22 out of 100. So when you're used to getting A's, it's a humbling thing. And you have to simultaneously keep two things in mind, which is, on the one hand, you really should aim for perfection and try to make things as good as they can be and not, when problems arise, not tolerate them.
[0:11:54] But at the same time, you've got to recognize things. It's like trying to bake a cake in five minutes. There's just going to be stuff on the walls. It's going to be a little screwed up, no matter how good you are. And what you really need to do, and probably even harder, is your job as CEO changes every six months, every year, every couple of years. Just nobody tells you that. And in fact, some of the things that made you good at the prior stage become a hindrance for the next stage.
[0:12:24] Most of the first version of Dropbox, and certainly Rosh and I did together. But there just became too much stuff to do, and I had to stop coding. Any of your codes still running in production? Yes. I think they've done some analysis. There's still stuff in there. And a lot of how the core product works in the protocol has been pretty stable, which has been cool. I think there's, although there's so much advice online about how to...
[0:12:52] Start a product. There's actually very little advice about how to transition to a company. So have anything else that either is particularly good advice that you heard or advice you now give to entrepreneurs who are trying to build the next Dropbox about how to successfully transition from an engineer to someone running a large company? Yeah. So the first thing that would have been helpful to know is just, first of all, nobody's born a CEO. So you learn it.
[0:13:21] And the challenge is you just don't know what your blind spots are. And so you know how to build, at least in my case, I grew up programming. I knew I could make the code work. We knew we could get people on Hacker News excited about it. We knew we could make our early users happy. But if you want to bring a company to scale, there's a lot more, the chessboard is a lot bigger than just building a good product. And you have to be able to make...
[0:13:50] Smart and fast decisions about what markets do we go into, our business models, competition, strategy, how do you build a team, how do you run a team. That's pretty tough when you've never done anything. You don't really have a lot of context on those things. So how did you learn those things? I think the first thing you need is, on the one hand, a healthy paranoia. Probably one of the most useful questions that I like to ask myself and still do is,
[0:14:20] One year from now, two years from now, five years from now, when I look back on today, what will I wish I had been learning? Or what would I wish I had been doing? And so I think really taking it on yourself to be systematic about how do I train myself? What am I going to need to know? They say you go from coder to psychiatrist, which I found is totally true, or politician.
[0:14:43] And then there are a lot of different points in between. And did you mostly figure this out yourself, or did you ask people, like, what am I going to need to be doing? What will I wish I had done in a year? A little of everything. So reading was probably the single most valuable thing that I did. Anything you'd recommend other people read? Yeah. So I think my favorite book on management is High Output Management by Andy Grove, which is kind of the bible of how do you scale an organization.
[0:15:12] I mean, I have a very long list of recommendations, but The Effective Executive by Peter Drucker is really good. But basically what you're talking about is you need to have good judgment about a lot of different things. And so it's like, how do you, what that really is saying is like, how do you gain wisdom very quickly? And last book recommendation, Poor Charlie's Almanac by Charlie Munger is probably the best book on that.
[0:15:40] That I've read, which is really about how do you build a bunch of mental models to sort of break down the complexity of the world and know when to use each. But reading is part of it, but then also having, you sort of think about that one year, two year, five year, having friends that are one step ahead, two steps ahead, five years ahead, and just sort of looking at the deltas between them. And so I remember...
[0:16:07] I had a coffee meeting set up. Sequoia, our first venture investors, were really helpful in connecting me with other entrepreneurs. And so I remember racing out of the office, running down to Starbucks, having a seat, and start peppering them with questions. And I asked, so how do you spend your time? What's important to you? And he's like, well, it's really important that we have a great mission as a company. I'm like, okay.
[0:16:35] And he's like, and it's really important that we have great values and a great culture. And I'm just like, I'm starting to tune out because I'm remembering which bugs I didn't fix. I'm like, did I finish that before I committed the code? And I'm like, what the hell is this guy talking about? None of this has anything to do with our customers getting code out the door. But then you start hearing that five or six or ten times, and you realize, okay, the only one here who's confused is me.
[0:17:05] And then you realize you're going from designing, especially if you're an engineer, you're going from designing a system of code and algorithms, which is very orderly and discrete, to a system of people and things like culture, values, all kinds of other things are the programming that makes that work. I think everyone's confused when they hear that for the first time and they tune in and they think about code. So have you found any way to get entrepreneurs to internalize that earlier? I never have, so I'm curious if you've figured out a way to.
[0:17:34] It may just be something you have to live. Yeah, I think you really need that portfolio of different ways that you can train yourself. So reading is one. Mentorship or getting advice from people at different stages is another. I like to study just the history of business and really excellence. And so learning about, okay, well, it's one thing to know how...
[0:18:01] Google was built or how Facebook was built, but then you can learn a lot by understanding how does a consumer packaged goods company run? How does Swiffer, how do you come up with a Swiffer? How do you think of a competition there? Yeah, I've certainly learned the most from studying business that are not in the technology industry. And I don't think people ever do enough of that. And you want to go beyond business, too. So how would Phil Jackson, with the Bulls, the Lakers,
[0:18:31] How do you build a culture on a team like that? How do governments solve big problems? And then you can also lean on your investors and the board. So, for example, Condoleezza Rice is one of our board members. She's seen scale in all kinds of different environments from running the State Department, being Secretary of State. It's an 85,000-person organization. She's provost at Stanford. It's a 20,000-person organization and so on.
[0:18:59] You want to triangulate from a bunch of different sources, which helps you internalize these lessons more than if you just read a blog post about it. The most interesting meeting I had in terms of thinking about how to build YC in the last year was going to the Vatican and listening to how they talk about, I think, on thousand-year time frames and about a billion people. It's a very different perspective, but it was really good. If you were going to start a new company today, what do you think the biggest opportunities are?
[0:19:30] The whole AI, machine learning, machine intelligence is going to be transformative, especially when you zoom out. And I think things like when paired with things like robotics, machines are going to take on a new role in our lives, which will have a bunch of really interesting positive and negative effects, which we can get into. I'm not as worried about the robots killing everyone and taking over the world, but we can talk about that later. There's a lot of good and bad shit about that that happens, I think.
[0:19:58] But I think it's a really exciting time. Well, in our world, we talk about Dropbox evolving from keeping files in sync to keeping teams in sync, which is a little bit of a departure, because when we started, we were like, all right, our goal is to make it so nobody has to carry a thumb drive around again, and life would be a lot better if your stuff was in the cloud. And today, it's largely solved. Mission accomplished. Yeah, mission accomplished. But along the way, it opened our eyes to a bigger problem.
[0:20:28] For a lot of our happiest customers, it wasn't really the storage that people were buying. It was the sharing. And it was really using Dropbox to get their team on the same page. But that meant a shift, which we can talk about. A couple years ago, we were like, okay, of all the things, we were sort of blessed and cursed with this original product because we struggled in the beginning. People were like, well, what's Dropbox? Or what's Dropbox for?
[0:20:55] And the answer, when you think about it, is, well, what's a computer for? What's a file for? So we ended up really supporting all these different use cases. But at the same time, it was very clear even in the beginning that the role of files in people's lives are going to change. So in the beginning, yeah, maybe you'd have text files and MP3s in your Dropbox. But in the world of iTunes and Evernote and Spotify and Netflix, there's not a file to be seen.
[0:21:25] Tech just moves quickly, and so you always have to keep evolving with the patterns of what's changing. Was this a strategic shift that you consciously made? Did you say to the whole company some day in all hands, like, we used to be a file company, and now files are dead, and we're going to do this other thing? We did expand from... I would say there was an expansion and then a contraction, which I can talk about. So we knew that files were going to...
[0:21:54] The role of files is going to change. Files are never going to go away, but they're going to change. And we thought about, okay, what place do we really occupy in people's lives? There are a couple big use cases. So one was private photo sharing. Another was collaborating with a team on files. And then the third was we had a platform. We do. We have an ecosystem of all these developers. And so we expanded to say, okay, well, we're going to really build a separate thing for photos because that's kind of a different product.
[0:22:24] We're going to do a lot more on collaboration and so on. And then that was when we started to buy. We bought Mailbox. We started building something called Carousel, which is our photo app. Then in 2014, we stopped doing those things. How did you decide to stop doing them? It was tough. I think what we found was, first of all, I think it's easy to make strategies that look great on paper.
[0:22:50] And when you think about your overall market, you want to hold on to as many use cases as possible. And so many of our users are so happy with things like sharing photos and we could do such a better job there. But at the same time, you look at photos and collaboration, it's like very different products, very different ideal business model, very different competition. Everything is different. And so we found ourselves sort of straddling these two worlds, which made it very hard, A, to build the best focused product, and B, it just made it hard for people to understand what we're doing.
[0:23:21] And as much as like, oh, yeah, we were out in front of all this competition sets in. And I think there's just sort of a sense of we're doing a lot of stuff that's not really working and people just getting agitated. And then I reread a book called Only the Paranoid Survive by Andy Grove, which describes how actually Intel wasn't always a microprocessor company. They actually started in memory. And they were getting crushed by the Japanese.
[0:23:51] And he talked about the story of that transition from memory to microprocessors. And as I was reading it, my stomach started churning because I'm like, oh, my God, the strategic inflection point he's talking about, that's what we're in. And there's a part of the book where it says CEOs like to keep their options open. What you really need to do when you're in the middle of one of these inflection points is put all your eggs in one basket and watch that basket, quoting Mark Twain. That is so true.
[0:24:20] I went in the office the next week and we're like, we're not doing Carousel anymore. We're not doing Mailbox anymore. Was there resistance or did the team get behind you quickly on that? A little of both. I think you find that when your company gets bigger, everybody knows. It's not like a secret that some of these things aren't working the way that you want them to. And so in a sense, to one set of people, it's a relief. And frankly, what took you so long? This was obvious. I told you so. It's very disappointing.
[0:24:50] To the people that are working on it, it's disappointing to me. I mean, here are two products that I really loved and it's embarrassing. It's publicly embarrassing. That was something that changed is that a lot of problems in your company, nobody really cares about them except for the people in the company. But when you go on the big upswing, like the one we had, suddenly everything you do has a lot more, the peanut gallery is a lot bigger. And the press and just sort of the folks can be a lot,
[0:25:20] There's a whole machine that will build you up and then they love to tear you down. And again, even if I understand that and can put that in perspective, it's very hard for the team. But yeah, everybody loves the idea of focus. But what focus actually means is like shooting stuff you love and turning down things you know you can make work. But that's part of the cyclical nature of it. There'll be times when you expand and times when you contract.
[0:25:49] Speaking of the expansion, one other thing I remember, I didn't know you really well in the early days of Dropbox, but I remember being impressed by just how much you got done. Sort of like as Dropbox was really taking off and just seemed to ramp up to where everyone was using it in like a one-year period. How did you manage your time? What did your days look like when you went from sort of seven users to seven million? Sure. So we, the team, I'm thinking about seven to seven million, we were probably fewer than, under 50 people.
[0:26:19] And so I think one of the, there's probably a few things that have been long misunderstood or not clearly understood about our space, which is, first of all, Dropbox, part of the reason why we had so little competition for a while was Dropbox looks easy, but it's actually really hard to do. And I knew this because I wanted to just use the other products. Like, if any of them had worked, I wouldn't be here. But it's actually technically hard.
[0:26:50] But that said, there were a lot of competitors who built things that probably were reasonably functional, but they didn't get distribution right, and they didn't get virality right. And I had been paying attention when 2007 was kind of when the Facebook platforms started to take off and a lot of the gaming, and you had these companies which were going from zero to 100 in records. New land speed records were set all the time.
[0:27:19] And a lot of that was through virality. And so there was a great, Dave McClure had a great model called Startup Metrics for Pirates, AARRR. I won't spend too long on it, but basically acquisition, activation, revenue retention, and referral that becomes like this was how we managed the company. Users come in, oh my God, very few of the folks who signed up, like four out of five who sign up
[0:27:49] Put a file in their Dropbox, don't install the client. What is going on? We actually brought people in off of Craigslist and watched them install the product. And we showed the video in real time to our whole team in the other room. We had the person and a PM in one room, the rest of the team in the other room. We're like, hey, just sit down. Here's Dropbox. Go from here to sharing a file. Zero of the five people succeeded. Zero of five even came close.
[0:28:16] But really paying attention to all the activations is just one example, but all the steps and the viral engine, tuning that as much as possible, coming up with things like the referral program, which had this two-sided incentive where if I tell you about Dropbox, you get free space, I get free space. That drove like 30% of our sign-ups for a while. Shared folder is inherently viral, another 20%. So half of our sign-ups are viral.
[0:28:44] And that was something that wasn't well understood before that time. And it was inspired by some of the stuff I'd saw in the late 90s, like PayPal or maybe early 2000s. PayPal had an incentive referral bonus. I had the idea for the Dig and Reddit video based on a book called Guerrilla Marketing, which is like, how do you do marketing and get users when you have no money? And so a lot of these things came together at that time, 2007, 2008.
[0:29:09] Or a lot of the dots were connected from things that I had ran over the last several years. I guess if you were less than 50 people, you didn't spend too much of your time managing and thinking about the organization then. When you're like 20 people, you can just sort of manage by intuition. It's manageable because everybody fits in a room, everybody knows what everybody else is doing. But that transition to now when you say 30, 40, 50 people was very difficult. Okay, last question. I won't ask you when you're going public, but how do you think about...
[0:29:40] What's the decision framework for staying private or going public, and how do you think about that? Well, I think there's nothing that magical about it. It's primarily a financing decision. And so it really depends on do you need capital, your employees and investors need liquidity, there's some other benefits around branding or having a currency for acquisitions and so on. What's happened over the last...
[0:30:06] Five, 10 years is the private markets have found ways to solve most of those problems. And going public is a way to solve all of them. However, then there is operationally, it's tough for a couple of reasons. One is there's a lot of overhead with compliance and regulatory stuff that really where you have a lot of people in your company spending time on things that don't really have anything to do with your customers or your products. So there really is overhead. There are other elements of discipline and so on that are good, but it is a lot of overhead.
[0:30:36] The stock market tends to be manic depressive, so they're either way more enthusiastic than they should be about your company or way less, which has a lot of impact on morale. But I think at scale, most tech companies are public, and that's the path we're charting. Great. Well, thank you very much for taking the time. Thanks for having me.