Founders - #290 Bill Gates

Starting point is 00:00:00 This is not a book about computers. It is a story about people. A remarkable collection of individuals led by one man, Bill Gates, whose drive, genius, vision, and entrepreneurial spirit created one of the great success stories in the history of American business. At 35 years old, Gates was at the pinnacle of his young career. Microsoft, the company that he and Paul Allen had founded 16 years earlier, had become the first software company in history to sell more than a billion dollars worth of products in a single year. Gates was the undisputed mastermind of that success. His company's astounding ascension had made him the youngest billionaire in the history of America. A most unlikely captain

Starting point is 00:00:41 of industry, he looked as if he could have been 25 years old or younger. No one underestimated Bill Gates, though. Too many people had done that in the past. Most people already knew Microsoft's history. In 1980, the company had sold the MS-DOS operating system to IBM. The revenue from that partnership gave Gates a guaranteed income stream and the push he needed to make his vision, Microsoft software on every desktop PC, come true. Not long after he made the deal with IBM, the fiery, competitive Gates slammed his fist into his palm and vowed to put several of his major software competitors out of business. By 1991, many of those competitors were in full retreat. That is an excerpt from one of my favorite

Starting point is 00:01:24 biographies in the book that I'm going to talk to you about today, which is Hard Drive, Bill Gates and the Making of the Microsoft Empire. And it was written by James Wallace and Jim Erickson. I first read this book almost three years ago for episode 140. And the reason it's one of my favorite biographies is because it covers the first 36 years of Bill Gates' life. It is about the beginning of the company. And more importantly, it is about the young version of Bill Gates that built the foundation that the Microsoft empire rests upon today. And the young version of Bill Gates is nothing like the version of Bill Gates that you see in the media today. And after I read the book the first time, the way I described it was that a

Starting point is 00:01:58 young Bill Gates was like Genghis Khan in a Mr. Rogers costume. And so let's jump into his early life and how he was when he was a kid spread throughout the first chapters, all these different descriptions from people that knew Bill when he was younger. Some were friends, classmates, family members. And so I'm just going to give you a couple of examples of how they described him. Aggressive and stimulated by conflict, prone to change moods quickly, a dominating personality with outstanding powers of leadership. If left to his own devices, a young Bill Gates would just sit in his room and read nonstop. Gates read the encyclopedia

Starting point is 00:02:31 from beginning to end when he was only seven or eight years old. That is going to be a reoccurring theme throughout the entire book, just how much he reads. And this is a description of Bill from his mother, Mary. Mary Gates, in describing her son, has said that he has pretty much done what he wanted since the age of eight. And here's another description of a young Bill Gates. Even as a child, Gates had an obsessive personality and a compulsive need to be the best. Any school assignment, be it playing a musical instrument or writing papers, whatever, he would do at any or all hours of the day. Everything Bill did, he did to the max. That's actually a great one sentence summary of the Bill

Starting point is 00:03:06 Gates that's present in this book all the way up until the age of 36. Everything Bill did, he did to the max. What he did always went well, well beyond everyone else. A few pages later, Gates loved competing. He hated losing. Everything he did, he did competitively and not simply to relax. He was a very driven individual. When Bill was going into seventh grade, his parents did something that was important. They transferred him from a public school to a private school. This private school is called Lakeside. The reason that is important is because Lakeside is the first place where Bill ever sees a computer. This is going to be the start of Gates' obsession. This is where he gets access to a PDP-10 minicomputer. So it says the PDP-10 Lakeside used was owned by General Electric, which build Lakeside for computer time.

Starting point is 00:03:50 And so the parents at the school, they raised about $3,000 thinking, OK, this is going to be this should be enough for the kids to learn how to use a computer. Right. So it says they raised about $3,000, figuring that the amount would be enough to last the rest of the school year. What they didn't realize was how seductive a mistress the machine would become. Bill Gates was about to develop a very expensive addiction. And this event in Bill Gates' life is important for at least two reasons. The first thing that popped to mind when I was rereading this section was this excellent advice that Charlie Munger gives to increase your likelihood of success.

Starting point is 00:04:22 And he said you should maneuver yourself into doing something in which you have an intense interest. The key word being intense. Intense is exactly what a young Bill Gates obsession with the computer was. And the second reason was he's about to meet Paul Allen, which is going to be a few years from now, his co-founder of Microsoft. Gates was immediately hooked. Whenever he had free time, he would run over to get more experience on the system. But Gates was not the only computer crazed kid at Lakeside. He found he had to compete for time on the computer with a handful of others. Among them was Paul Allen, who was two years older than Gates. Seven years later, the two classmates would form Microsoft. And so this is

Starting point is 00:04:58 more about Bill's intense interest. It also makes me think of one of my favorite quotes ever from Jeff Bezos. He says, we don't choose our passions, they choose us. It says, Bill Gates cannot explain why he reacted as he did to the computer, but it triggered a deep passion, an obsession in him. And this is what obsession looks like. Gates devoured everything he could get his hands on concerning computers and how to communicate with them, often teaching himself as he went.

Starting point is 00:05:20 The faculty knew next to nothing about computers. Gates and the other kids hanging out day and night in the computer room were pretty much on their own. Within weeks, most of the $3,000 raised was gone. And so we're about to see how a young Bill Gates solves problems. He's like, okay, well, I want to use a computer. I can't use a computer because we're out of money. So I need to find some other way to get more time on the computer. So in his mind, the logical thing is, okay, let's figure out how to hack into the system and just change the amount of time that we're using. Gates and a couple other boys

Starting point is 00:05:49 broke into the PDP-10 security system and obtained access to the company's accounting files. They found their personal accounts and reduced the amount of the time the computer showed that they had used. They were quite proud of this ingenious accomplishment until they got caught. And so at first they get in

Starting point is 00:06:05 trouble and then they get a job, which leads them to getting unlimited computer time. The company that they were paying for their computer time had a problem with their software crashing all the time. Bill and a couple of the other boys at Lakeside were really actually good at identifying and then fixing bugs. And so they saw Gates and his friends as a solution to what they called their reliability problem. And so it says, so the company hired a herd of friendly users and they became the unofficial night shift. They offered Gates and the other lakeside computer junkies an opportunity to try to crash the system. In exchange, they would get all the free computer time that they wanted. And this is the first time the book talks about a theme that's going to repeat it over and over again for the next 400 pages.

Starting point is 00:06:43 And that is Bill Gates' desire to be hardcore. He uses the term hardcore over and over and over again. It was often past midnight when the boys finished their work. That's insane because they're in middle school at this time. It was when we got that free time that we really got into computers, Gates said. I mean, then I became hardcore. It was day and night. Gates was 13. Gates and Allen not only look for bugs, but they also look for any information that might help them learn more about computers, operating systems, and software. Gates would go through garbage cans so he could poke around for important tidbits of information left behind on the day shift. I'd get the notes out of the trash with coffee grounds on them and study the operating

Starting point is 00:07:20 systems. And there's a line in here that made me think of something I read last week when I read Brunello Cucinelli's autobiography for episode 289. And he talks about when he was getting started, right? He had no money, but he had a ton of enthusiasm. And he actually thought that enthusiasm helped other people want to help him. I think the line in the book says he was describing stuff. He says, I was a young man with no money and tons of enthusiasm. We see that with both Bill Gates and Paul Allen in this book right now. Gates and Allen stood out from the other kids because of their enthusiasm. And so as I'm rereading the book for the second time, I'm like, wow, this is like really, Bill Gates' parents had like a lot of foresight. Like they're letting their 13 year old kid work on these computers till after midnight. Nope. They were

Starting point is 00:08:01 worried about his obsession too. His parents became increasingly concerned about their son. The computer seemed to have an almost supernatural hold on him. Although he was only in the ninth grade, he was already obsessed with the computer, ignoring everything else and staying out all night. So they order him to stop using computers completely, which he complies with, temporarily at least. But this is the interesting thing about Bill Gates. He has to direct his energy and his enthusiasm and his passion in some direction. So he directs it back into books. He said there was an infinite amount to read. There was at least nine months there when I did nothing with computers. Read he did with the same kind of

Starting point is 00:08:33 commitment he had made to computers. He consumed a number of biographies, Franklin Roosevelt's and Napoleon's, among others, to understand how the great figures of history thought. So young Bill Gates is doing exactly what you and I are doing right now. In addition to rereading this book, I also watched this documentary on Netflix for the second time about Bill Gates. It's called In Bill Gates' Mind. And he talked about this time in his life and why he was so obsessed with reading these biographies. He said,

Starting point is 00:09:01 The idea that some people were super successful was interesting. What did they know? What did they do? He said, Back to more descriptions about a young Bill Gates. Bill Gates was never just one of the boys. His drive, intensity, attitude, and intelligence made him stand out. Nothing about Bill Gates was normal. He had a hard-nosed confrontational style. His intensity at times simply boiled over into raw, unthrottled emotion. And he was definitely introverted, but he also had a small group of really close friends. This is how they would describe Bill Gates at this point in his life. To those who knew him best, Bill Gates was hardly

Starting point is 00:09:38 the social outcast he may have appeared to be from a distance. He had a sense of humor and adventure. He was a risk taker, a guy who liked to have fun and who was fun to be distance. He had a sense of humor and adventure. He was a risk taker, a guy who liked to have fun and who was fun to be with. He had an immense range of knowledge and interest, and he could talk at length on any number of subjects. This part that jumped out to me says he was a risk taker. I read his co-founder's autobiography, Paul Allen's autobiography, a long time ago. It was all the way back on episode 44. And there was something in that book said about Bill Gates by Paul Allen's mother that I never forgot. And she called Bill Gates an edgewalker, which is a fantastic term. This is a quote from Paul Allen's autobiography. He says, my mother had a term for adrenaline junkies, people who would court risk for the thrill of it. That person, she'd say, is an edge walker. Bill Gates was an edge walker.

Starting point is 00:10:25 Where I was wary of danger, Bill seemed to enjoy it. So, so far we have an extremely tense, intelligent, driven, focused person, obsessed with learning. And then another part that we have to add to understanding Bill Gates is he knew he wanted to be very, very rich. And he said so at a very early age. This is just the first example of many times he repeated stuff like this to people around him, even when he was like a kid. So it says, although Gates may not have known what he was gonna do with his life,

Starting point is 00:10:50 he seemed confident that whatever he would do would make him a lot of money. He made such a prediction about his future on several occasions. Gates told his friend that he would be a millionaire by the time he turned 30. He told another friend, I'm gonna make my first million by the time I'm 25.

Starting point is 00:11:05 It was not said as a boast or even a prediction. He talked about the future as if his success was predestined. And one idea that Bill and Paul arrived at early was the fact that, hey, learning how to create software is really valuable. Like we can make a lot of money doing this. And so there's gonna be two examples of how they actually made real money when they were still in high school by programming. And so the very first company that they start together was this company called Trafo Data. And the premise is very simple. If you ever drive on these roads, it says almost every municipality used metal boxes linked to rubber hoses that stretched across the roadway to count cars. So this system is producing data. They're like, hey, we're just gonna make this data look better. So you can actually analyze it easier. Gates and Allen figured that they

Starting point is 00:11:47 could program a computer to analyze the traffic counter, then sell the information to municipalities faster and cheaper than their competition. The software program turned the data into easily readable traffic flow charts. They grossed about $20,000 from this. Remember, they're still in high school. The company eventually folded, though, after Gates went off to college. So at this point in the story, Gates is a senior in high school, and this is where he's going to get a full-time job. And this is how that happened. Gates received a phone call one day from a man from TRW, the giant defense contractor. TRW was offering a full-time job with a salary. They needed help with a project to computerize the power administration's power grid for the Northwest.

Starting point is 00:12:28 So why would they be calling a high school senior? They did not know they were calling a high school senior. Their project was behind schedule because the PDP-10 software was infested with bugs. TRW went looking for bug hunting experts with PDP-10 software. So the people at TRW are going to discover this book from that company that was giving them free time to find bugs at night and as a result you had unlimited Gates and his friends had unlimited time on the computer and so TRD comes comes across this book called the problem report book and it says the names of two bug hunters appeared on nearly every page Bill Gates and Paul Allen so TRW decided to contact Gates by phone. And then it says Gates received permission to miss part of his senior year so he could work full time at TRW. And so Bill's going to graduate high school. He's going to go off to Harvard.

Starting point is 00:13:13 But at the same time, him and Allen have these ongoing discussions about what they should do together in the future, said he and Allen began to talk seriously about forming their own software company. For some time now, they had shared the same vision, that one day the computer would be as commonplace in the homes as a television, and that these computers would need software, their software. We always had big dreams, Allen said. So Bill arrives at Harvard,

Starting point is 00:13:36 keeps the same level of intensity, the intensity he had when he was a kid, that he had in high school, that he had in college, that he's gonna have his entire time running Microsoft. There's just one line in here that made me laugh, though I have to read to you first. Bill Gates would later tell a friend he went to Harvard University to learn from people smarter than he was, and he left disappointed. So most of his time in college was not spent on his classes. It was actually spent programming and playing poker. And so it says that Gates would fall

Starting point is 00:14:00 asleep in his class was not surprising. He was living on the edge. It was not unusual for him to go as long as three days without sleep. His habit was to go for 36 hours or more at a stretch, collapse for 10 hours, then go out, get a pizza, and go back at it. And if that meant he was starting again at three o'clock in the morning, then so be it. And so there's a ton of stories in the book in the early days of Microsoft that people would just walk in the office in the morning and they'd trip over like Gates just sleeping on the floor or sleeping on his desk or curl up in the corner. And so Gates doesn't think he's getting a lot out of Harvard. At the same time, he's having all these phone conversations with Paul Allen and he's telling Allen, I'm thinking about dropping out of Harvard. And Gates had been telling his parents that I

Starting point is 00:14:41 might drop out of Harvard and me and Paul are going to start our own computer company. They did not like that idea. And this is the thinking of Paul Allen and Bill Gates on like, why would you, they would both take a risk of dropping out of college to do this thing. And it said Gates and Allen were convinced that the computer industry was about to reach critical mass. And then when it exploded, it would usher in a technological revolution of astounding magnitude. They were on the threshold of one of those moments when history held its breath and jumped as it had done with the development of the car and the airplane. They could either lead the revolution or be swept along by it.

Starting point is 00:15:10 And this might surprise you that Gates may never have dropped out of college if it wasn't from the constant push from Paul Allen. Allen was much more eager to start a company than Gates, who was worried about the reaction from his family if he dropped out of school. Paul kept saying, let's start a company. Let's do it. He kept saying, it's going to be late. We'll miss it. And so we see from this section of the book, he's at the right place at the right time in history with the right set of skills. And yet he still needed a push from Paul. What's so fascinating about this time in Bill's life is he just wasn't sure where to direct his

Starting point is 00:15:41 monomaniacal focus. This is one of my favorite paragraphs in the entire book. Bill had a monomaniacal quality. He would focus on something and really stick with it. He had a determination to master whatever it was he was doing. Bill was deciding where he was going to put his energy and to hell with what anyone else thought. And so he's looking at all these options, trying to figure out, okay,

Starting point is 00:16:03 where am I going to direct this monomaniacal focus? He makes a decision, which is one of my favorite things that Edwin Land ever said. And it had a huge influence on my own decision, like where I'm going to direct my energy. He says, don't do anything that someone else can do. Bill is going to arrive at a very similar conclusion that Edwin Land did. It says at Harvard, Bill was one of the top math students, but he was not the best. The is italicized. He had met several students better than he was at math. Gates eventually gave up any thoughts of becoming a mathematician if he couldn't be the best in his field. I met several people in the math department who were quite a bit better than I was, said Gates. It changed my view about going into math. And this is why. It made the odds much

Starting point is 00:16:46 longer that I could do some world-class thing. Bill wanted to be the best. Not one of the best, not kind of best, not top five, top 10. He wanted to be the best at what he did. And so he's going through all these options. Okay, mathematician, that's out. He says, there were so many choices. My mind was pretty much open. Maybe being a lawyer would be fun. I thought working in artificial intelligence would be fun. I thought theoretical computer science would be fun. I really had not zeroed in on something. But this sentence is very important in how he made his decision. Gates may not have been the best math student at Harvard, but he had no peers in computer science. And then the decision was made obvious when Paul Allen walks by a magazine stand and sees the latest edition of Popular Electronics Magazine. And on the cover

Starting point is 00:17:31 is the world's first minicomputer. And it says on a cold winter day in December 1974, Allen was walking across Harvard Square and on his way to visit Gates when he stopped at a kiosk and spotted the issue of popular electronics. That issue sent his heart pounding. On the cover was a picture of the Altair 8080. It said, world's first microcomputer kit to rival commercial models. I bought a copy, read it, and raced back to Bill's dorm to talk to him. I told Bill, well, here's our opportunity to do something with BASIC, BASIC's a programming language at the time. Alan was a student of Shakespeare and was reminded of what Shakespeare wrote in Julius Caesar. There's a tide in the affairs of men, which, taken at the flood, leads on to fortune, omitted all of the voyage of their life is bound in the shallows and in miseries.

Starting point is 00:18:14 On such a full sea, we are now afloat, and we must take the current when it serves or we'll lose our ventures. Gates knew Allen was right. It was time. The personal computer miracle was going to happen. And so this is going to be the first project of what turns into Microsoft. And so they call up the maker of the computer. It's this company out in Albuquerque, New Mexico called MITS. He needed somebody to write software for the computer. And he tells Paul and Bill, whoever shows up first with a working version of BASIC will get the deal. And so I'm skipping ahead to after their program worked. This is how the author describes the importance of this event. And this is just absolutely excellent writing. The personal computer revolution had begun with a game played

Starting point is 00:18:54 on a small blue box with blinking lights named after the brightest star in the constellation. That's the Altair. 30 years earlier, people in Albuquerque had witnessed the sun come up in the south when the world's the sun come up in the south when the world's first atomic bomb exploded in the pre-dawn darkness, 100 miles away, heralding the nuclear age. Now, another age had dawned in Albuquerque. It began at a ragtag company located next to a massage parlor. Its profits were two young men, not yet old enough to drink, whose computer software would soon bring executives in three-piece suits from around the country to a highway desert town to make million-dollar deals with kids in blue jeans and t-shirts. This is happening 45 years ago. I think this paragraph gives you context to why this is so important. You have to remember that in those days, the idea that you could own a computer, your own computer, was about as wild as the idea today of owning your own nuclear submarine. It was beyond comprehension.

Starting point is 00:19:56 And so this is where Gates is going to drop out of Harvard for the first time. He actually winds up going back for like one other semester and then dropping out permanently. But what was fascinating is this is what I mentioned earlier, how his parents did everything they could to try to talk him out of this. So they had a family friend that was a founder and investor. They send him over. They're like, hey, can you talk to Bill? Can you please tell him not to do this? His name's Samuel. He's having this conversation with Bill Gates. And so not only did he not talk him out of it, he thought it was a great idea. Not only did Samuel not try to talk Gates out of his plans to start a business, but after listening to the enthusiastic teenager,

Starting point is 00:20:27 he encouraged Gates to do so. Mary, which is Bill Gates' mom, Mary and I have kidded about this for years, said Samuel, who's now 70 years old when he's given this interview for the book. Mary and I have kidded about this for years. I told her I made one terrible mistake. I didn't give Bill a blank check to fill out the numbers. I had been known as an astute venture capitalist, and I sure didn't read that one right. And so Bill drops out of Harvard, moves to Albuquerque, where MITS is headquartered. And this is another main theme that is repeated over and over and over again in the book, is just how financially conservative Bill Gates was when he was running

Starting point is 00:21:06 Microsoft. Even many years into the future, when Microsoft is printing money, he was very financially conservative. Microsoft was unbelievably capital efficient. They got from founding to IPO without needing to take venture capital money. When they did take an investor in, they did it for advice. And they said they just took whatever, I think it was like a million dollars, maybe two million dollars. They're like, oh, we just took that million or that two million and just put it in the bank with all the rest of our millions. And so this is the first time it's mentioned in the book, but it's repeated over and over again. His parents and grandparents had taught him to be financially conservative. And that was the way he intended to run his company.

Starting point is 00:21:38 There would be no unnecessary overhead or extravagant spending habits with Microsoft. When Gates arrived in Albuquerque, he and Allen shared a room. And so even from the very beginning, they had these giant goals that Paul Allen referenced early in the book when they talked about in high school that they're saying, hey, the PC is going to be everywhere. It's going to be as common as television. And we want our software on all of them. And so this is a description of the very, very early days at Microsoft. Bill and Paul were very, very intense. They had a clear understanding of what they were doing in the sense that they had a vision of where they were going.

Starting point is 00:22:09 It wasn't just that they were developing BASIC. I don't think most people ever really understood this, but Bill certainly always had the vision from the time that I met him that Microsoft's mission in life was to provide all the software for microcomputers. And this is a description of a lot of the early employees at Microsoft. Part of what made Microsoft so successful during the company's infancy was the team of programmers that Gates and Allen began to assemble in the spring of 1976. They became known as the micro kids, high IQ insomniacs who wanted to join the personal computer crusade, kids with a passion for computers who would drive themselves to the

Starting point is 00:22:45 limits of their ability and endurance. And so the agreement that Microsoft has with MITS at the time is that, hey, you're going to pay us a license fee for every computer that you sell that contains our basic. And there's going to be a dispute on how exclusive this license agreement should be. Gates is out there selling it to a bunch of other hardware makers. But Ed Roberts, the founder of MITS, gets in the way constantly. And so the first time I got to this section of the book, I wrote, this does not seem like a situation that Bill would put up for very long. And it's not. And part of the reason is that Bill thought that MITS was a poorly run company.

Starting point is 00:23:16 And he had no intention allowing anybody else to limit the amount of licenses that he could sell. And so this disagreement goes on for a while. What happens is Microsoft says, okay, we're going to terminate the license agreement. This is going to lead to MITS suing Microsoft. Their contract said that any dispute had to be resolved by arbitration. So that is what they're waiting for.

Starting point is 00:23:38 This leaves Microsoft in kind of a limbo. And so it says, until the licensing dispute was resolved, Microsoft could not license its BASIC. It would take several months to resolve the matter. And for what would be the only time in the company's history, that is a crazy line. And what would be for the only time in the company's history, Microsoft faced money problems. And so what was interesting is while this dispute is happening, Ed Roberts actually sells his company. He sells MITS to this other company called Pertek. And that leads to one of

Starting point is 00:24:06 the funniest paragraphs in the entire book, which gives you a great idea of who, remember this, this entire book, this entire podcast is about young Bill Gates. And this is going to give you a great insight to how a young Bill Gates was to somebody that was working with him for years. A bit, his, in many ways, his very first business partner outside of Paul Allen. Listen to how he describes him. When the chief counsel for Pertek came to Albuquerque to assess the situation and talk with Gates,

Starting point is 00:24:32 he took one look at the long-haired, scraggly 21-year-old and decided that this legal battle against Microsoft was going to be easy. It's not easy. Not only was it not easy, they wound up losing. Roberts had warned Pertek that it would have its corporate hands full with Gates, but no one listened to him. Pertek kept telling me I was being unreasonable

Starting point is 00:24:50 and that they could deal with this guy. It was a little like Roosevelt telling Churchill that he could deal with Stalin. He's comparing a 21-year-old Bill Gates to Joseph Stalin, and he wind up being correct. Pertek winds up losing this arbitration because they also said that, hey, they had sent Bill a letter and they said they would no longer market BASIC or allow it to be licensed because it considered all other hardware companies competitors. And so that letter winds up being a key piece of evidence. And this is the result. After the Pertek decision came down and the log jam of customers waiting for BASIC broke loose, Microsoft never had to worry about money again. And so again, I just have to reiterate how lean Bill Gates ran Microsoft four years in.

Starting point is 00:25:36 They're just 11 employees. They're about to move from Albuquerque to Seattle. Before I get there, there's just one line that made me laugh. It said Gates had read business books like other male students read Playboy. He wanted to know everything he could about running a company. And so again, we see this insatiable desire of knowledge that is so common with the people that you and I study on this podcast. And so right before they move the company from Albuquerque, they take this company portrait. You can actually see this if you type in Microsoft 11 portrait on Google Images. It says a few weeks before the move, they decided that Microsoft needed a company portrait. The picture of the Microsoft 11 taken

Starting point is 00:26:08 that day would later become famous, appearing in magazines across the country. And so they're all packing their stuff up and they're going to drive from Albuquerque to Seattle. And the way that Bill drives is also the way that he built his company. One of the last employees to leave Bob Wallace while driving along Route 66 towards Seattle and his Honda Civic, noticed a green dot appear in his rearview mirror. Moments later, it shot past him at well over 100 miles per hour. It was Bill Gates in his Porsche. He was anxious to get moving. All this driving was a waste of time. You couldn't be programming. And so I think a lot of people might find how Bill spent his time in the early years of Microsoft surprising. He was their main salesman.

Starting point is 00:26:48 He prioritized sales over everything. What sustained the company was not Gates' ability to write programs. Gates sustained Microsoft through tireless salesmanship. For several years, he alone made the cold calls and haggled, cajoled, browbeat, and harangued the hardware makers of the emerging personal computer industry, convincing them to buy Microsoft services and products. He was the best kind of salesman there is. He knew the product, and he believed in it. He approached every client with the zealotry of a true believer. From the day he first articulated the Microsoft mantra,

Starting point is 00:27:24 a computer on every desktop and Microsoft software in every computer. And this is Bill describing Microsoft when he was 25 years old. When we got up to 30 employees, it was still just me, a secretary, and 28 programmers. I wrote all the checks, answered the mail, took the phone calls. So since the first five years of Microsoft's history, there was more than 200 different brands of microcomputers that had been brought to the market. That is who Bill Gates is selling into. That is the first wave that Microsoft is going to ride. The second one is going to be IBM. And so this is what's going to set the stage for IBM and Microsoft to work together. Many of those working at IBM did not

Starting point is 00:27:59 believe it was possible for them to develop its own successful personal computer, given the existing structure and culture of the company. So it's talking about at this stage in IBM's career, it's very, it's a, it's just a giant bureaucracy. The personal computer had been created out of an entrepreneurial spirit that did not exist at IBM. And so what IBM does is essentially they set up this lab in Boca Raton, Florida, that's supposed to be set. It's still owned by IBM, but it's supposed to be like more like a startup culture outside of IBM's headquarters in New York. And so I'm going to get into why, if they're building their own hardware, why didn't they just build their own software, too? But I found a note that I left the first time I read this book and I just found it again.

Starting point is 00:28:36 And I wrote, oh, this is still a good note almost three years later. And it's this guy from IBM meeting a very young Bill Gates. And this is how he described him. He says, I knew Bill was young, but I'd never seen him before. When someone came to take us back to his office, I thought the guy who came out was the office boy. It was Bill. Well, I'll tell you or anybody else that by the time you were with Bill for 15 minutes, you no longer thought about how old he was or what he looked like. He had the most brilliant mind that I had ever dealt with and so this is the note I left myself many years ago and I thought the one I thought was still good Bill overcame his weakness which was that he looked young by relying on his strength his mind and the passion he had for his work

Starting point is 00:29:15 lean into your strengths and so they wound up making this agreement that Microsoft's going to provide the software for IBM's PC and this is very interesting why they had to do this. Actually, I'll get there in one second. Before I get there, this decision for Bill not to cap his upside, maybe the most important business decision he ever made in his life, IBM had talked to Gates about a fixed price for an unlimited number of copies of the software Microsoft licensed to IBM. The longer Gates thought about this proposal,

Starting point is 00:29:43 the more he became convinced it was bad business. Microsoft would be making a huge financial investment in this project, and a lump sum payment from IBM would not give the young company much of a return on its investment over time. Gates had decided to insist on a royalty arrangement with IBM. That royalty arrangement was referenced in the introduction of the book, when it says that the revenue from the partnership gave Gates a guaranteed income stream and the push he needed to make his vision, which was Microsoft software on every desktop PC, come true. Another part of the agreement, which is what I was just referencing earlier and why this is super important, was that Microsoft would retain ownership of whatever software it developed.

Starting point is 00:30:23 And so the reason that IBM is not writing its own software and saying Microsoft can keep ownership of the software that it creates is because for the last 10 to 15 years, through three different presidential administrations, the government had been investigating IBM as a monopoly. Three separate presidential administrations had investigated and tried to break up IBM. So once Bill has a signed agreement with IBM, he actually goes and buys the operating system. And there's a few things interesting about this deal. The first one is that you see that Bill wants to receive license royalties. He does not want to pay them. He just insisted IBM pay him a royalty and not a flat fee. Now, when he's doing this deal with Seattle Computer Products, it says Gates personally

Starting point is 00:31:04 went through the document in his own handwriting and changed key language to specify a sale of DOS instead of an exclusive license. Gates signed what would prove to be the key financial agreement that made him a billionaire and many of those working for him millionaires. For only $50,000, Gates bought all the rights to 86 DOS previously owned by the Seattle Computer Products Company. It was the bargain of the century. And why do they say it's the bargain of the century? Because just a few years later, I think this is like maybe eight, maybe 10 years at the most, says the operating system that once belonged to Seattle Computer had by then become an industry standard. By 1991, Microsoft was making more than $200 million a year just from sales of MS-DOS.

Starting point is 00:31:43 And so the book goes into a lot more detail about the development of the partnership between Microsoft and IBM. It was top secret. Eventually, they wind up finishing the work for IBM. Then it becomes publicly announced that IBM is building a PC and Microsoft software is going to be running it. And Microsoft's reaction to this major milestone in the corporate history is fascinating. It reminded me of something that Michael Jordan said in his autobiography. I'll get there in one second. So he says, there was a little celebrating back at Microsoft when the big day came.

Starting point is 00:32:08 Steve Ballmer took the newspaper clipping and posted it on the front door. There were smiles, handshakes, and pats on the back, but no wild parting, no champagne corks popping. There was still a lot of work to do. A new version of DOS was already in the works. This is the turning point in Microsoft's history. And when I read that part on episode, I think it was 2.13 of Michael's autobiography, Driven

Starting point is 00:32:33 from Within, he talks about this mentality that you see in Microsoft. He talks about it. He had this mentality. He says extreme winners have this mentality. It's this idea of being uncompromised. And so this is what Michael said about that. You have to be uncompromised in your level of commitment to whatever you're doing or it can disappear as fast as it appears. So the way I think about this is if you go to sleep on a win, you wake up with a loss.

Starting point is 00:32:52 Michael continues. Look around. Just about any other person or entity achieving at a high level has the same focus. The morning after Tiger Woods rallied to beat Phil Mickelson at the Ford Championship in 2005. He was in the gym by 6.30 a.m. to work out. No lights, no cameras, no glitz or glamour. Uncompromised. So Microsoft's revenue and profit growth from here is just absolutely parabolic. This is where he brings in, quote, unquote, adult advice. Imagine being able to buy 5% of Microsoft for a million dollars. I think they buy like 985,000 shares for a million dollars.

Starting point is 00:33:28 I think it mentions this later in the book as well. Then in a carefully planned move that had been under discussion for some time, Bill sold 5% of Microsoft for a million dollars to technology venture investors. It was a venture capital firm in Menlo Park, California. David Marcart, I think is how you pronounce the guy. He was a general partner in TVI, was made director of Microsoft's new board. Microsoft did not need the venture capital. Gates was essentially hiring the firm's expertise.

Starting point is 00:33:53 It was Steve Ballmer who convinced Gates to sell off a small part of the company as a long-term investment in the future. We just threw that million dollars into the bank with all of our other millions. And so we go back to this main theme that appears over and over again in the book, over and over again in documentaries about the early days of Microsoft. Bill Gates was ruthless. This is why I say he reminds me of Genghis Khan.

Starting point is 00:34:13 Gates wanted to eliminate his opponents from the playing field. Bill learned early on that killing the competition is the name of the game. There just aren't as many people later to take you on. In game theory, you improve the probability you're going to win if you have fewer competitors. And so there's a ton of anecdotes in this book just like this.

Starting point is 00:34:30 We're going to put digital research out of business, slamming his fist into the palm and his other hand. So there's actually a sequel to this book that I did all the way back for episode 174. It's called Overdrive. And it's like the next like five years or maybe six years of the history of Microsoft. And there is a story in that book that stuck with me for the very first time that I read it or from the very first time that I read it that really describes just how obsessed Bill Gates was of eliminating his competitors. You have to understand, if he didn't think, this is how, this is something he repeats in this book over and over again. If this is the way he thought, if you lost a $50,000 contract, he considered it a $100,000 loss because he lost the $50,000 from the revenue of the contract.

Starting point is 00:35:13 And the other competitor, the other company got the $50,000. And so in that book, Overdrive, it goes into even more detail, I think, than this book does about like their obsession with their competitors and eliminating the competitors. They would like create like t-shirts talking about their competitors, like to rally them up to like try to destroy them. Okay, that's fine. I'm sure other people have done that. I'm not sure if I've ever heard another story like this. Keep in mind, at the time of this story, this comes from Overdrive, episode 174, Bill Gates is a multi-billionaire. Microsoft is undeniably the leader in its category, right? Philippe Kahn ran a software company. They were competitors or like frenemies, right? But they would like talk to each other at industry events. So Philippe Kahn tells a story

Starting point is 00:35:55 that he winds up walking over. They're both at an industry conference. Gates is sitting alone in a corner, right? Looking at a photograph in his hands. Philippe Kahn walks over to say hi to Bill Gates and realizes that Bill is looking at a picture by himself in the corner, staring at a picture of Philippe Kahn. That is some serial killer shit. So this obsession to eliminate players, other players from the board cannot be understated. It's also why the U.S. government hits Microsoft in a few years with the antitrust suit. But Bill was obsessed with knowing everything that was happening in his industry. This is another example. This is a few pages later. If you talk to Bill about any software company or any hardware

Starting point is 00:36:41 company, there's a very high probability that he will be able to tell you who the CEO is, what their revenues were last year, what you who the CEO is, what their revenues were last year, what they're currently working on, what the problems are with their products. He's very, very knowledgeable, and he prides himself on knowing what's going on in his industry. And so a major criticism people would fling at a young Bill Gates was that, oh, he's arrogant, he's cocky, he thinks he's smarter than everybody else.

Starting point is 00:37:01 Everybody really says that he's arrogant, but there's also a ton of examples where he knew where he was weak and he would listen to others. So at the time, Microsoft's doing this massive expansion into another huge category for them, which is we're going to write our own applications. Okay. And so they're actually developing what is eventually going to turn into Microsoft Word. Before it was called Microsoft Word, Bill Gates wanted to call it multi-tool Word. But we see that he's willing to listen to other people, and if their idea is better, he's willing to use their ideas. Word was originally going to be released as multi-tool Word, which would just be a continuation of the multi-tool application product line that Microsoft was developing at the time. So there's a guy named Hanson that's working in there. He says, no, that's a bad idea.

Starting point is 00:37:41 Hanson suggested a different product naming strategy. It was important. This is actually good advice for products, for naming products and the importance of brand. Talks about the brand has to be the hero. Hanson suggested a different product naming strategy. It was important for the product to be identified by its brand name. He pointed out that Microsoft had to get its name associated with its products. And so he elaborates on why this is an important concept. He says, if you look back at some of the old articles that were written in the industry, you'll see the word multi-plan,

Starting point is 00:38:06 but no Microsoft associated with it. That was because multi-plan was a standalone name, just like WordStar. So WordStar is the application they're trying to compete against and trying to displace, okay? People who wanted a word processing program knew the name WordStar,

Starting point is 00:38:21 but they could not have told you that MicroPro was the company that had made it. And Hanson's point is like, we want the consumer to know that it's made by Microsoft. The brand is the hero, Hanson said. People start to associate certain images with the brand, and that becomes much more important than any single product. What the consumer goods companies realized years ago was that products come and go. You're going to have a product and it's going to rise and fall. But if you create a halo around a brand name and create equity in a brand, when you introduce new products under that brand halo, it becomes much, much easier to create momentum. We decided that we needed to make Microsoft the hero. Gates immediately saw the logic of Hansen's argument.

Starting point is 00:38:59 And that is an important idea behind this concept of you have to know what you're not good at. It appears over and over again in the book. This is a summary of that. As you watch, this is coming many pages later. As you watch how Microsoft has developed, what you see is Gates realizing well in advance what he's not good at and going out and finding exactly the right person to do the job. This is so rare. I've been following startup companies for years. I can't tell you how rare this is.

Starting point is 00:39:23 And so then I got to tell you about something that I missed the first time I read the book, or I couldn't tie it together yet, because the first time I read this book was for episode 140. Well, on episode 155, I read this fantastic book called Invent and Wander, The Collected Writings of Jeff Bezos. And Jeff says something in that book that's very fascinating. And he talks about like how important speed is in business. Like the importance of speed is something that appears over and over again in these conversations that you and I have, right? Let me read this quote, though, from Jeff Bezos, Invent and Wander, episode 155, okay? Hopefully you have that book. It's all of Jeff Bezos' shareholder letters and then transcripts of all of his important speeches. It's absolutely

Starting point is 00:39:56 excellent. If you don't have it, I'd order it right now. There's ideas worth millions, if not billions of dollars in that book. And this is what Jeff says. You can drive great people away by making the speed of decision-making really slow. Why would great people stay in an organization where they can't get things done? They look around after a while and they're like, look, I love the mission, but I can't get my job done because our speed of decision-making is too slow. And so at this point in history, we were in the Bill Gates book is that Steve Jobs and Bill Gates are just taking a ton of ideas from Xerox Park, which is a research and development company in Palo Alto owned by Xerox. And not only are

Starting point is 00:40:30 they taking ideas, but they're taking people away from them. Why? Because they move too slow. Finding Xerox defectors wasn't difficult. So Bill Gates, his company's growing like crazy. He needs his bottleneck. In many cases, it's like talent, right? So he's finding talent because this other company is just too damn slow. Finding Xerox defectors wasn't difficult. I'm going to skip over the names. They had grown disillusioned with the fact that so many good ideas developed by Xerox Park never got to market. Xerox was the epitome of corporate culture, said one of these people that he's recruiting.

Starting point is 00:40:59 Everything was run by committee and there was not too much individuality. Microsoft, on the other hand, was a bunch of individualists with the whole show run minute to minute by Bill Gates. He was in on every decision from top to bottom. It's in this book called Inside Steve Jobs' Brain. I think that's episode 204. And it's the fact that Apple is just Steve Jobs with 10,000 lives. The founder's personality is going to be embedded into the company. And we see this explicitly in Microsoft's early history. Microsoft just hired clones of its leader over and over and over again. One of the greatest lines that I've ever had in conversation came from my friend Seth Bannon, who was describing this other founder named Alexis Rivas, who's also a friend of mine. And he said that Alexis is intolerant of slowness.

Starting point is 00:41:50 I just absolutely love that term. I think I go into more detail on the Alexander the Great episode that I did. That's episode 232. But here's another great line. So we have intolerant of slowness. And now we're going to have Bill Gates version intolerant of distractions. I love this. Gates was extremely focused and did not tolerate distractions.

Starting point is 00:42:08 He didn't own a television and he had disconnected the radio in his car. There's this great quote from Warren Buffett that I heard one day where him and Bill are having, I think, lunch with Bill's dad. So Bill Gates Sr., right? Bill's dad. And Warren said something that was fascinating. He. So Bill Gates, senior, right? Bill's dad. And Warren said something that was fascinating. He said, Bill Gates, senior, posed the question to the table. What factor did this is the question Bill had for for his son and Warren Buffett? What factor did people feel was the most important in getting to where they've gotten in life?

Starting point is 00:42:40 And I said, focus. And Bill said the same thing. Gates was extremely focused and did not tolerate distractions. So eventually Bill realizes there's no avoiding. Microsoft has to go public. He didn't want to go public. This is the financial performance of Microsoft the year before they go public. And Bill is 30 years old when this is happening. And it said Microsoft had revenues of $140 million. Its profits were $31.2 million. And that's in 1985 dollars adjusted for inflation. That'd be like if you had a private company and your company was doing $87 million

Starting point is 00:43:18 a year in profit. And so this is what Bill had to say about going public. I hate the whole thing. All I'm thinking and dreaming about is selling software, not stock. And I thought this was excellent. This is what Bill Gates was doing when Microsoft went public. On the day Microsoft went public, Bill Gates was off the coast of Australia on a 56-foot sailing vessel reading books. He had chartered the boat for five days. This was to be one of his reading vacations in which he spent time alone plowing through as many books as possible. So that's something that he still does to this day. He calls them reading weeks. These vacations are called reading weeks. And we actually see that in the documentary on Netflix as well. He'll take a bag full of books, go to like this remote cabin by himself just to

Starting point is 00:43:59 be able to read and think. And he did this throughout his entire time he was at Microsoft as well. A year after Microsoft goes public, Bill Gates becomes a billionaire. So it says at age 31, Bill Gates was officially a billionaire. No one in American history, from the great industrial barons and financiers of the 19th century to the modern day corporate raiders, had ever made so much money at such a young age. And so I mentioned earlier, one of the reasons that I love this book so much is because like 90, 95% of it is just about Microsoft before it IPO'd. Then the book ends and Bill Gates is only 35 or 36. And so when I got to this part, I thought what I love about it is like it's a snapshot in time of this company history, right? But when I got to this part, when I got to the end, I sat and thought,

Starting point is 00:44:41 I was like, what is the chance that this version of Bill Gates, this 35 or 36-year-old Bill Gates, would ever believe that seven years from now, seven years from where we are in this book, that he would no longer be running the company that he gave his entire young life to? I would love to be able to have lunch or dinner, to be able to talk to Bill and ask him about the times not contained in this book, but after stepping down from the head of Microsoft in the year 2000. I hope he writes an autobiography one day and goes into detail the difference between his life as the founder and complete control of Microsoft to what his life was after. And so these will be the last words that we'll cover from a young

Starting point is 00:45:31 Bill Gates. It's impossible to imagine Microsoft without Gates at the controls. Those who know him best say he is as driven as ever. We have this vision of where we're trying to go and we're a long way away from it, Gates said during a recent interview in his office. A large window looks out over part of Microsoft's huge campus. But Bill Gates is not the kind of CEO who spends valuable time admiring the view. You've got to watch out for the anti-climax, he said, in a response to a question about what it felt like to be running the world's largest software company. I mean, we are not on top of the networking heap, of the spreadsheet heap, or the word processing heap. Computers are not very easy to use. We don't have information at our fingertips. Yes, our revenues are bigger than anybody else's, but if we don't

Starting point is 00:46:15 run fast and do things, his voice trailed off, leaving the sentence unfinished. Believe me, he said, staring out the window and saying, isn't this great, is not the solution to pushing things forward. You've got to keep driving hard. And that is where I'll leave it for the full story. Highly recommend buying this book. I think this book should be in every entrepreneur's library. It is a book I plan on rereading again in the future. And if you're going to buy the book, use the link that's in the show notes on your podcast player are available at founderspodcast.com. And if you're going to buy the book, use the link that's in the show notes on your podcast player are available at founderspodcast.com.

Starting point is 00:46:47 And if you buy the book using that link, you'll be supporting the podcast at the same time. Another way to support the podcast is to sign up for Founders Premium, where you can not only ask me questions directly, but you can also listen to the AMA, the Ask Me Anything episodes that I make on that private feed.

Starting point is 00:47:01 And last but not least, if you want me to email you my top 10 highlights from every book that I read, you can join my email list for free. All the links that I mentioned are down in the show notes on your podcast player, but you can also find them by going to founderspodcast.com. That is 290 books down, 1,000 to go, and I'll talk to you again soon.

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Founders - #290 Bill Gates

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