A couple of times we really didn’t accurately assess the complexity of a project. We had a few cases where we compromised in terms of the quality of the people we hired. It doesn’t really matter now, but we had some cases where we grossly underpriced our stuff; we’d bid X [for a sale] and later found out that we would have won the bid with 2X. Anyway, it’s not that critical.
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When Microsoft was starting to come into its own you decided to bring in some professional management by hiring Jim Towne as Microsoft’s first president. Why did you let him go only several months later?
Until the day he retired, Paul Allen and I ran the company in partnership with regard to all product and technology decisions. Paul is an incredible visionary. There would never be a Microsoft without Paul, but as soon as Steve Ballmer came on Steve was my primary business partner. Paul was involved in all major decisions, but in terms of organizing and developing management, Steve and I drove that. It was a real challenge because the demand for our capabilities exceeded what we could do. How do you decide which things to do? The key was to never view ourselves as a service company. We had to be a product company. We started what was called Consumer Products Division to sell software direct to end-users. The retail channel meant global distribution, support, manufacturing—things like that.
It was all complicated and we thought that other people must have done it before and knew how to manage it.
We naïvely thought that there were guys who could tell us we weren’t doing things the best way. Jim Towne managed 12,000 people at Tektronix, which made 500 different products and was 50 times our size. We took it for granted that it was mostly a matter of convincing somebody to join our small little company. But Jim was not a match for our environment. It was tricky because Steve and I are also very, very close friends. Jim was in between Steve and I, so I could never criticize Jim to Steve because I wanted things to work out. Eight months later Jim wasn’t even using his PC—it just wasn’t a match at all.
We then hired Jon Shirley, who was exactly what we had in mind.
Exactly. Jon knew a lot of things and was very helpful as we grew. He loved the business. He was very hands-on. He was part of the team.
You can say Jon and Steve and I ran the business and all three of us loved working together.
Your company has a reputation for aggressively pursuing opportunity.
One Microsoft employee we spoke with said that the driving force here is to win, win, win. Now that the company has grown so large, how do you maintain the intensity?
I think win, win, win is bad. I wouldn’t use that phrase. I never used that phrase with the employees. You don’t ever win, you do better
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products. At Microsoft we hold up competitors as an example of what we need to do. We do that well because we think of ourselves as underdogs and take a very long-term approach. We bring in great people. Those are our keys to success. You never win. We know that we have to deliver enterprise solutions better than IBM can, databases better than Oracle, machines more powerful than the one Sun ships. You don’t get there overnight. That’s a long quest. Our people can think about that. Are we making progress? How would you measure that progress? We never talk about the things we’ve been successful at. We always talk about the challenges ahead, but there is no finish line. We define the challenges so that the finish line recedes far into the future. You will never go to a Microsoft meeting and hear somebody say, “Let’s win” or “We won” because that’s got a finite scale to it.
Is that how you manage a company with 20,000 people?
Large companies are never as easy to maintain at a high level of excellence. It becomes the daily task. It’s mostly about hiring great people. It’s mostly about making sure you have a vision that’s important. Microsoft is just designed to write great software. We are not designed to be good at other things. We only know about how to hire, how to manage, and how to globalize software products. Our approach may not apply to any other business. This is a business where you can find people who have enthusiasm for doing things well. You can create incredible feedback loops that guide what you do. We have many users who love to tell us how they do things.
You can design things such that even the developer gets a lot of user input. You can review what we weren’t the best at, talk about it, and recognize what other companies, large or small, are doing well.
We’ve created an organization that loves to write great software and has many great people who maintain those values. If we were a company trying to do other things, I don’t think we would hold together.
Microsoft’s just designed for a very particular vision.
What could Microsoft be better in?
It’s a matter of how quickly we are moving. Our success has allowed us to grow and get some incredible people for database and graphics, speech, vision—all the things that we think will be big in the future.
In terms of enterprise computing, people are willing to use PC technology with our software to run their most demanding systems. We
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still have a ways to go on that. There is a huge business out there.
I’m pretty pleased with the rate of progress, but there is just so much more to be done. You can look at the company lots of different ways:
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Innovation across the product lines;
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How we are developing and hiring people;
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Our financial results;
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Our market shares.
For any group I meet with at Microsoft, the whole meeting is about what I think they ought to be doing better—a little bit about some of the things that went well—but you just can’t spend too much time on that. Take PC ownership cost as an example. It’s too high today. A PC is too hard to install. We must work a lot to make sure that PC cost of ownership is low and that the PC is a great appliance.
We have an immense amount to do in graphics and video and bringing a unified object approach to browsing and storing data. It’s a deep problem in computer science. A deep, deep problem. We have too many stores of data today. We have file systems, message systems, directory systems, database systems, and all sorts of different software that optimizes all those things. That just isn’t going to cut it.
When you say to a small business, “Hey, get a server,” they’re not going to pick a database, a mail package, a communications package, read about them, install them, and learn about them independently.
They are going to need one integrated thing that hides all those differences. In terms of getting to the market potential, it’s all in front of us. The PC will be dramatically better. There will be a wallet-type device that you carry around. The way that you input into the machine will be far better. Just to achieve the vision of having a computer on every desk and in every home, there is a lot of great software yet to be written.
What could you personally be better at?
All successful companies are run by a team of people, and I’ve been very lucky with the other people who have come in and helped out. I like to focus on working with the product groups. That involves about a third of my time going out and meeting with customers, the majority of time meeting with product groups, and the remaining one-sixth for various things that don’t fit either of those two categories. How do you manage the sales force and make sure that those measurement systems are really tracked down to the individual level and
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encourage the right behavior? I’ll sit in meetings where Steve Ballmer talks about how he wants to do it, but that’s not my expertise. How do we advertise to get these messages across? I sort of know where we are going long-term. I’ve got to make sure people are coming up with the messages consistent with that future. But I’m not expert in those things. Even in technology areas it’s fun to learn new things; when I�
�m trying to find out where we are going with asynchronous transfer mode [an emerging standard for high-speed networking] we have experts who come in and talk to me about those things. I spend two weeks here just doing “think weeks” where I read all the stuff smart people have sent me. I get up to date to see how those pieces fit together. I’m a very product-oriented executive. That’s how I spend my time, which means that in top management you’ve got people who look at it from a management point of view, a sales and marketing point of view, a financial point of view, and they become a key part of the team.
Can we move to Microsoft’s next big challenge, building products for the internet? Some think that the rise of the internet minimizes the need for an operating system, like Microsoft’s.
We’re a software company and we think software will continue to be valuable. Anybody who says there is not an operating system is playing a word game with you. There is something inside the machine that you are working with. You can turn a browser [i.e., Netscape Navigator or Microsoft internet Explorer] into an operating system.
You can turn a language run-time into an operating system, but the things that applications run on top of, the way they get their security authorization and do storage management, that’s an operating system. So there will be an operating system. If you’ve met people who’ve said that Microsoft won’t sell operating systems in the future, if you believe them, you should short Microsoft stock. There’s an opportunity to make about $55 billion out there and you ought to put that on the front of the book. [ If the publisher agrees to it, we will. ]
It’s a competitive market and I’m glad these guys like their products. Maybe they wanted to sell two copies of software to get you to buy them. I’m not here to talk about our products. If you think nobody is going to be doing word processing, I think that’s another reason to short Microsoft stock—seriously. Maybe nobody is ever going to do any more word processing. Maybe this whole electronic mail thing just isn’t that interesting. We will have to find out. I’m
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much more of an optimist than whoever it was you were talking about.
Okay, it seems that these competitors obviously have you in their sights.
It doesn’t help you that Microsoft has developed a reputation among Silicon Valley companies for a lack of integrity in its business dealings.
Why does that perception exist?
I’ve never heard that. Maybe there is some Silicon Valley thing that you guys are involved in. I don’t know. I’ve never heard any attack on our integrity.
Gordon Eubanks [CEO of Symantec] said that many of these companies are trying to do Microsoft in and would be better off focusing on improving their own products. Perhaps it’s Microsoft’s aggressiveness that causes them to say this.
We’ve done a lot of things with Gordon. Successful companies succeed because they have a long-term approach in dealing with employees and dealing with customers. People buy products because of their relationship with the company that makes them. They will only buy a piece of software if they know there are going to be new versions, customer support will come through, and the product takes you in the direction you want to go. It’s all about the reputation that company has.
In terms of hiring great people, how do we hire all these people?
It’s by word of mouth. People say it’s great to work here. The stock value has a huge impact on employees, customers, stock holders, everybody, and reflects the long-term approach and strength in the company. We’ve never had any dispute about anything because we just move forward. The question takes me aback, really.
What’s aggressive? Shipping a good product. That’s aggressive.
Lowering the price of the product so more people can get it. That’s aggressive. Those are good things. We’re here making good products, taking all the phone calls, meeting with the users, hiring smart people. That’s all our business is.
With IBM, we both benefited immensely from that relationship, and we still have a lot of positive relationships. They’re our second biggest customer after Compaq. They decided not to work with us on operating systems and to go down their own path. That certainly wasn’t our choice. They even got to keep the old name of the product we produced jointly.
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You’ve certainly shipped a lot of product. When do you think Microsoft’s incredible growth will plateau?
We’ve always said that, given our long-term approach, this business will definitely go through cycles. There will be ups and downs. There haven’t been yet, but we are still sincere about saying that. We say our profitability, percentage-wise, has grown at an unsustainable rate.
We are clear about that. However, if you take the right perspective, there is a lot of value in lower cost communications and lower cost computing. It simply means that great software will be more valuable. The only question is how we maintain leadership in delivering software. We certainly feel very good about our ability to do that. We will never grow at the percentages that we did in our early years.
That’s just not possible. Ask any analyst about our company, we take the most conservative perspective of any company that you’ll find. We are always telling analysts, “Don’t recommend our stock. We sell software, not stock. Lower your earnings estimate, be more conservative.” It’s not a long-term approach to promote the stock in any way.
You’ll soon see that we have major upgrade cycles. Our revenue will be less consistent than it was. Windows 95 is a big upgrade cycle and it will be two to three years before we get an equivalently huge upgrade cycle. We are a company with an incredible future. We are one of the most valuable companies in America and I think it reflects people’s optimism about the people here and what software can be.
Microsoft’s stock appreciation has been lucrative for Microsoft employees. Will you have employee retention and recruitment problems if earnings growth slips?
People who have worked at companies that failed have a lot of good experience in thinking through the trade-offs. Many of the managers we hire have that background. I’ve talked about how success is a lousy teacher. We set up big challenges and we set high goals. People don’t always meet those goals. It’s an environment where we discuss the mistakes we’ve made and this company has had a chance to make lots and lots of mistakes. Our people have learned from many projects. They’ve seen both the positive and negative aspects. Sure, as companies go through tough times you find out who has the where-withal to solve problems and take the right approach. It’s a good thing for companies. I look forward to it. There is nothing imminent for us, though.
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In the beginning you worked a tremendous amount. Is it less now?
I work long hours, but not as long as I used to and certainly haven’t expected other people to work as hard as I did. My job is the best job there is and I get a lot of variety. I travel around and see customers. I see such a variety of the product groups that it’s very stimulating. I work long hours.
Twelve to fifteen hours a day?
No. It’s a rare day when I’ll work more. There are days that I work fourteen hours, but most days I don’t work more than twelve hours.
On weekends I rarely work more than eight hours. There are weekends I take off and I take vacations.
In the beginning the company totally depended on you. Even now it seems like it’s dependent on you.
Not really. The company has five billion dollars in the bank.
But that alone is not enough.
Enough for what?
Enough to sustain growth and momentum. Is the structure in place to compensate if you left Microsoft today?
We’d have to see. They’d have to pick somebody else to run the company. Who knows? The guy could do a better job. A CEO transition is probably a very risky transition for a company. I’m a younger CEO
than you’ll find in most companies and more committed to my job than most. No
body is going to get me interested in some other job or activity, so it’s very unlikely that we’d face that challenge, but it would be a challenge to the company in terms of picking new leadership. Who knows how the new CEO would do?
There are an immense number of good people here. The whole notion in the press of personifying a company through one person or very few people is a gross simplification, and it totally misstates the picture.
Think of whatever your favorite Microsoft product is. The people who created that product did it without too much coding or design work on my part. I helped create a system that allows people to man-
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age their own products. They understand how to manage those products very, very well. That’s the company’s real asset.
How is your role as CEO different today from your role in Microsoft’s early days?
The key to starting out was having the right code, but eventually I had to sell the software, write contracts, and learn how to hire people and make sure their code was pretty good. It’s quite a contrast to what I do today. Today I don’t write code. None of the people who work directly for me write code, though there are few who have. If you go from the beginning to the end, it’s quite a change, but it’s been gradual and I enjoy it. It’s something to learn and figure out how to do well. That’s a big difference between myself and a lot of people who fade away. They just aren’t as interested in what the next stage requires and fitting into the role it requires. In terms of starting a company and running it 21 years later, it’s surprising that it’s not more common. I think it has to do either with people’s adjustment to success—there are always distractions there—or their enjoyment with the new imperative tasks of a CEO.
What would you tell entrepreneurs starting companies today?
We didn’t start Microsoft with any notion of it becoming a large company. Our vision implied it would be a large company, but we were pretty humble about taking it one step at a time. We picked the field to go into because we enjoyed it and were excited to contribute. In the world of technology there is room not only for a few big, big successes, but for thousands of wonderful companies that are successful along all the appropriate matrices: innovation, developing great people, having good common sense, and economics that make it all work.
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