The Dropbox Effect: How to Utilize the Lean Startup Methodology

Business.com / Strategy / Last Modified: February 22, 2017

How do big startups like Dropbox manage to climb to the heights they do? It all starts with the Lean Startup methodology.

What is exactly is a lean startup? This approach is based on a methodology developed by Eric Ries that helps companies improve decision-making based on iterative product testing, and uses early adopter feedback to determine features and functionalities for a broader market launch.

The approach, also known as Build-Measure-Learn, is based on lean manufacturing principles, such as those promoted by the Lean Enterprise Institute, that aim to increase the value to customers while using fewer resources. 

Build

In the Build phase, companies make a minimum viable product (MVP), which is basically a prototype with sufficient core features to interest early adopters, whose feedback helps you indentify the additional features you'll need to appeal to a wider market. The Build phase doesn't have to be an actual product, but can simply be the idea of the product.

How Dropbox Did It:Dropbox signed on 5,000 subscribers before it actually had a product to offer. The cloud-based file storage and sharing services company generated sign-ups from a 90-second video that described its services and why people should pay for them.

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Measure

The response to your MVP launch determines:

  • Whether there is sufficient interest to continue product development
  • If there is sufficient interest, what features/functionalities should be added or refined?

How Dropbox Did It: A second Dropbox MVP video demonstration generated additional interest, adding 75,000 early adopters in a single day, accompanied by a flood of high-quality feedback to make the product as simple to use as possible. They encouraged users to make comments on Votebox about what they liked or didn't like. In fact, the company continues to use Votebox to allow its users to comment on which features work best for them, and which ones don't.

Learn

Based on what you've learned from your early adopters, the next decision point is whether to persevere or pivot. Can you carry on with the same product strategy or do you need to change some aspect of it? Or, do you need to shut down product development entirely?

If early adopters like the MVP, then persevere. Examples of pivots include:

  • Other features are discarded in favor of a single feature that becomes the final product
  • The product becomes larger to incorporate missing features or functions
  • You discover that other customer needs are more important to address than what the MVP offered, so it's back to the drawing board

How Dropbox Did It: Enthusiasm among early adopters persuaded Dropbox to persevere. The question then became how to expand beyond the initial user base. The company invested in a variety of online marketing techniques that resulted in excessively high and unprofitable customer acquisition costs. What Dropbox learned was to instead build on the enthusiasm of its user base by offering a two-sided incentive referral program.

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Dropbox then offered additional free storage to both new subscribers as well as those who referred users. In 15 months, Dropbox went from 100,000 registered users to 4 million, largely by word-of-mouth referrals. They learned to continue doing what they were doing right in the first place (developing a committed user community and providing it with influence on product development) and not to worry about more traditional marketing approaches.

 

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