Entrepreneurship and Innovation for Engineers

Entrepreneurship through Lean Startup in Software Industry: Case study on Dropbox

6/3/2011 Coventry University Name: Davis D Parakal SID: 3357394

Entrepreneurship through Lean Startup in Software Industry: Dropbox

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Table of content SL NO Page 1 2 3 4 5 6 7

Introduction Analyzing Company Background Dropbox - Innovation process Company Culture and Role of Houston Dropbox : A typical example of Lean Startup methodology Recommendation : Strategic changes to improve References

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Introduction The report discusses about the new methodology The lean Startup which can be adapted to any technological entrepreneurs who is building a company with innovative ideas. This report analyse the implementation of lean startup concept in the successful software company Dropbox Inc. Also analysis and cross check the concept and real world application of it. Analysing company background Dropbox is a software based company from Silicon Valley, US started in September 2008. When their innovation of uploading files to a remote server and synchronise that data with your laptop, mobile or tablets over internet. They bring up with a very user-friendly and simple drag and drop functionality along with these applications and made their place in the market very quickly. It has more than 25million users all around the word and going with a high rate of daily sign-ups. This idea of building a application that synchronize data for personal use came from the Entrepreurial mind of co-founder Drew Houston after repeatedly forgetting his memory stick /USB device when he was studying in MIT . Even though there was existing servicing over internet to store your data in a remote server it was always haunted by bugs and issues. So by the end of 2007 he build an application for his personally use and started thinking about utilizing this opportunity to provide service for the people who suffering from this same data storage issues. New startup with an innovative product born in 2007, dropbox Inc. Shortly after its operations, they managed to get seed funding from Y combinatory and Dropbox started growing. Even though it kept the operations silent under its official launch at a technology conference in 2008 - techCrunch50. Dropbox - Innovation process
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Dropbox used some particular business models like, freemium creating business through creating initial free users, Lean startup methodology and marketing strategies. Dropbox success focuses on three main reasons.

Simple and efficient service Entrepreurial drive of founder Houston Leas startup methodology

A product like dropbox is asking user to out the personal data in a remote server for a mobility function. So the initial user count and response of user to this service are very crucial. When we analysis the technical ventures like this will always get an initial users from a particular secretor. They buy and try new products from the innovators and entrepreneurs. Famous economist Amar Bhid names them as venturesome consumers, who try these new tech products. Dropbox also got almost 10,000 users in this category in the beginning. Since its not a consistent user category they bring up Lean Startup method into flourish the user and made it a big success. Ultimately that meant our cost per effective acquisition per paid user was thousands of dollars for a hundred-dollar product. So for a time, Dropbox went to great lengths to hide the free option to users coming in through search, and as a result confused users and felt terrible. So the big lesson there is if you adopt a freemium business model your marketing cost is the free users. The fact was that Dropbox was offering a product that people didnt know they needed until they tried, and search is great for harvesting demand, not creating it, Houston said.(Liz Gannes, 2010[blog]) Company Culture and Role of Houston Dropbox consist of a small team with highly skilled technical personalities. The driving force of this team is the Entrepreurial mind,
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the CEO of the company, Drew Houston. From the innovate idea of throw ways UDB, he made a team to find the solution for the issues and similar issues of user for data mobility. The strong idea and good technical team made the initial kick start for the organization with some seed investment. But the lack of marketing experts in the company made the process dragging in the initial stage. They hired highly experienced and costly expertise in the marketing and PR sector to work for the company. CEO, Houston reviled it as a failure in the case of dropbox. Being a small product price and beginning process the cost of expertise became more when calculating the cost of the product and its profit margin. This made the team to adopt the Lean Startup methodology by avoiding the hired expertise from marketing sectors. Since the team consist of strong technical expertise they used user generated contents and methods to market the product. It showed the difference in the User count very fast and made the success of the dropbox. When we analyse Houstons character and compare with Entrepreurial personality it come closer to two behaviours. Inspector (ISTJ): are careful, thoughtful and systematic. Outwardly composed and matter-of-fact, they can be people of few words. However, they are dependable, loyal and precise, making sure that responsibilities are taken seriously and that work is completed steadily and systematically. Surveyor (ISTP): enjoy roles requiring action and expertise. Socially revered but loving action, they can be highly energetic when their interest is aroused. They work towards tangible goals in a logical and practical way. They deal well with the unexpected but can become impulsive and detached. Dropbox: A typical example of Lean Startup methodology Lean startup is a fairly a new concept of entrepreneurship in the technological engineering companies. Mainly is uses a mix of lean method with entrepreneurial behaviours. Eric Ries is the founder of The Lean Startup and his concept is widely used among entrepreneurs now.
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There are three major aspects in lean startup

Commodity technology stack, highly leveraged (free / opensource, user generated content, search engine marketing) Customer development - find out what the customer wants BEFORE you build it Agile (lean) product development - but tuned to the startup condition

Highly leveraged is the method of utilizing efforts of millions of users and developers in the words. For example using free software and open source concept will reduce the development time of a new product with very cheap amount of cost and investment. Also the utilization of Search engine marketing and social media marketing will bring the user generated content into the process. In the tradition innovation process like Open Innovation uses the external sources for work force and idea mainly by collaborating with other companies. In the case of startup this formulation is not possible. So they use the user generated content as an external source. The second and third aspects of lean startup are parallel processes. Customer development is a concept from serial entrepreneur, Steven Gary Blank where creating customer and developing then with
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interactive

methods.

And

product

development

is

process

adaptable when the problem and solution are unknown. For example in a traditional established company use software development process for a requirement from the customer or known problem which need a solution with technological interference. But in the case of Agile product development is used in the scenario of pure innovation of products. The problem and solution is unknown but we need to learn both and implement to bring up with the product. As the above picture shows this is a continuous process where Observe, Orient, Decide and Act come as parameters in the loop? In the case of dropbox they used this methodology to build the product. Also the existing servicing in remote storage was a big challenge, even though dropbox made the concept different in the marketing slogan Throw away you USB drive. No one aimed a service that is flexible as this concept. Dropbox didnt launch the product till 2008 one year after they started the company Dropbox. All this time the loop we mentioned above was running in this startup. They published unofficial news and content of the service and started interacting with the customers to create the market for the new product and also the requirements for the customers. The process shown in the figure is the working process used to minimise the time. The inner circle with three main components is of a technology based innovation. In lean startup the loop start with a idea then implement it through writing the software code or implementing the technology then collect the data from the customer
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development process we mentioned above and learn about the requirements and then start building the idea to code. Considering each bridges they have unique methods to use to. Build Continuous deployment: For the cost effective and high leverage process the use of open source products used in the conversion of idea into code. Also it used Software development tools like unit testing, Continuous integration, Just-In-Time scalability and Usability tests for faster way to code and deliver the product for next processing. Since its a continuous deployment there is a two advantage, it is easy to implement the new idea and it is also easy to revert back since we are doing it in a continuous deployment platform rather than all at a time. So small batches of larger idea will faster the entire building of the idea. In traditional concept they use modularization instead of this step. in a loop like this. Measure Rapid Slit Testing: This a technique used in software testing to improve the quality of the product. For taking an example of another industry this concept can be used. We test all the smaller continuous deployment in a deep way. This will avoid all the single issues in the final deployment of the application. Testing in the macro level is the base of this level in learns startup. Dropbox use this with continuous beta versions and deployed to the initial customers we mentioned above venturesome customers. Learn Customer interaction: Dropbox deployed the test versions of the application and started digging the customer reviews and suggestions to develop the application. A video published in a famous technical new website But the deployment is a final

process in the traditional companies. In lean startup we do deployment

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bought a customer range of 5000 to 75000 in a day and all interacted with the company about the use and user friendliness of the service.

They discovered the customers from the pool and validate with interactions and found the potential customers. Also the development process of application went in a parallel way when this happened. The lean startup methodology suggesting five why analysis from lean concept to integrate to the learning and customer development process. This will increase the quality of the output of this process. So all together we can make a framework seen in the below picture for bringing up a startup with a innovative idea.

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Recommendation : Strategic changes to improve 1. Even though hiring marketing expertise was a failure for dropbox in the initial stages, it can be introduced in the current stage for boosting the market globally. Calling venture capitalist or seed investment to the company will enable Dropbox to carry the hired experts in the company. 2. Utilizing the large customer base , use recursive customer development and generate added features to the product . References
James Surowiecki, May, 2011, [news] The New Yorker, Financial page, innovation consumption, Eric Ries, Presentaion at oredev conference, 2010, Available online: http://vimeo.com/7849753 Drew Houston, Co-Founder and CEO, Dropbox, Presentation at startup lesson learned, conference, 2010, Available online: http://www.justin.tv/startuplessonslearned/b/262672510 Eric Ries, Talk at Startup lessons learned, 2011, Available online: http://www.justin.tv/startuplessonslearned/b/286532804

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Eric Ries Lean Startup Presentation For Web 2.0 Expo April 1 2009 : A Disciplined Approach To Imagining, Designing, And Building New Products Available online : http://www.slideshare.net/startuplessonslearned/eric-rieslean-startup-presentation-for-web-20-expo-april-1-2009-a-disciplinedapproach-to-imagining-designing-and-building-new-products The New Yorker Magazine, May 16, 2011, Available online: http://www.newyorker.com/talk/financial/2011/05/16/110516ta_talk_surowieck i#ixzz1OBzfzREE Liz Gannes, technological blog, available online http://gigaom.com/2010/03/26/case-studies-in-freemium-pandora-dropboxevernote-automattic-and-mailchimp/

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