Startups Shouldn’t Spread Resources Evenly–Just Ask Dropbox

It’s not comfortable or easy, says one VC, but the best startup CEOs overinvest where it matters most–and ruthlessly underinvest where it doesn’t.

Startups Shouldn’t Spread Resources Evenly–Just Ask Dropbox
[Photo: Flickr user z287marc]

This story reflects the views of this author, but not necessarily the editorial position of Fast Company.


After a long drought of successful tech IPOs, Dropbox had a fruitful public debut last Friday. Despite operating in a crowded market and battling formidable multibillion-dollar competitors, Dropbox now appears well-positioned to hold its own. While the company’s success rests on a few important elements–like early market entrance, solid execution, and strong leadership–one critical ingredient may have mattered the most: Dropbox invested aggressively in its drivetrain.

What Really Drives You?

In automobile design, a “drivetrain” is simply the name given to the components that deliver power to a vehicle’s wheels, but it’s an apt simile for growing companies, too: A startup’s drivetrain is whichever piece of the organization moves the business forward the most–the components that help it accelerate.

Dropbox was founded by a product-minded engineer, so the company sought customer feedback early in order to build a product that resonated with its target users. That’s a good plan of action in just about every startup, but particularly for a product-driven business like Dropbox, growth often comes from customer referrals inspired by positive product experiences. (The best products, after all, are bought, not sold.)

There’s a lesson here for startup CEOs about how to allocate resources: Once you’ve identified the differentiator that drives your business forward, invest disproportionately in it–with time, money, and headcount.

The shoe-seller Zappos famously catapulted to success by rallying around customer success. You could argue that customer care, not shoes, was the company’s real product; at any rate, it proved to be Zappos’s drivetrain. Amazon’s differentiated offering comes down to convenience, so the company focuses maniacally on logistics and supply-chain management.

This doesn’t apply solely to online retailers, either–I’ve seen it at two successful companies my VC firm has backed as well: Outreach is a startup that builds software for salespeople, so the company naturally showcases its own sales prowess. And analytics firm New Relic emphasizes product so heavily that its founder and CEO Lew Cirne spends as much as two weeks per quarter in isolation building out his company’s product roadmap.


You Can’t Be Good At Everything, So Don’t Try

Startup CEOs battle daily with the seemingly impossible conundrum of how best to prioritize scarce resources. Some choose the dreaded “peanut butter approach,” made famous years ago in a leaked memo by a former Yahoo exec reporting how he’d “heard our strategy described as spreading peanut butter across the myriad opportunities that continue to evolve in the online world. The result: a thin layer of investment spread across everything we do and thus we focus on nothing in particular.” We all know how that turned out.

Prioritization can be brutal, but it’s critical. In order for it to work, CEOs must intentionally underinvest in worthy areas. They may find it uncomfortable to explicitly favor–and, by extension, disfavor–certain divisions within their organizations. It’s far more pleasant to choose harmony over progress. But when executives allocate scarce resources evenly across divisions, each gets diluted to mediocrity. Mediocre teams can’t do better-than-mediocre things. A company that tries to be good at everything will be exceptional at nothing.

As hard as it sounds, great CEOs manage to rally companywide support for strategically unequal distribution of resources. This requires briefing all employees on the strategy and openly acknowledging trade-offs and pain points. More than that, effective leaders help employees in non-core areas feel motivated instead of bitter.

This takes skill, especially since core groups should receive more investment, not just in team size but even in employee compensation. In core areas, A-minus players can sink the ship, while A-plus players can catapult the company to the next level; A-plus players often demand A-plus compensation. However, once companies achieve a certain scale, underinvested areas finally get investment, too. For example, now that Dropbox is public and has additional resources, the company is reportedly planning to staff up in sales.

Observers this week are commenting on the positive message that Dropbox’s successful IPO is sending to the investment community. If its stock price holds up, can we expect a tech IPO comeback? While these are important questions, I have no doubt that Dropbox’s management team is already thinking about something else: Now that we’re public and have even more resources, how can we make our product even better? Effective leaders won’t let anything–even an IPO–derail their drivetrain.

Karan Mehandru is General Partner at Trinity Ventures.