by Lewis Schiff
What’s your role? You’re supposed to look after your personal interests. Hiring managers expect you to do this. They’ve started with a low offer in part to leave room for negotiation. And most of them will admire you if you negotiate well.
Looking after your interests has always been important in business, but the new, risky job environment makes sticking up for yourself an essential fact of life in every workplace. The frugality gospel of Orman and all the others doesn’t really support this way of thinking, though. To me, their message seems to be, “You’re average. Admit it. Hope for the best but prepare for the worst.” It’s a message that reflects the shame and self-denial I detect in some of the middle-class survey results, where most say they worry about what others think about them when they negotiate. Orman tells you to send your kids to cheaper colleges. A self-made millionaire would tell you to negotiate your compensation aggressively, as though your kids’ futures depended on it.
The frugality gospel encourages you to see yourself as the vulnerable party in salary negotiations and overlook the vulnerabilities on the other side of the table. You want the job. That’s a point of vulnerability on your part that your manager exploits by offering you less money than you want. But the manager also wants you to take the job. That’s the manager’s point of vulnerability, which you need to exploit by asking for the number of dollars that would make you happy. And to start, you ask for an amount that would make you more than happy, because you just might get it.
This is where the Business Brilliant survey reveals one of the biggest differences in attitude between self-made millionaires and the middle class. About 9 in 10 self-made millionaires agree that “It’s important in negotiations to exploit weaknesses in others.” Among the middle class, just over 2 in 10 agreed.
Exploiting the other side’s weaknesses is an essential fact of negotiation. Nearly all self-made millionaires accept and understand this, while the vast majority of the middle class don’t and can’t. That’s another reason why 3 out of 4 new hires respond to the first salary offer with a mere “Yes” and “Thank you very much.”
The survey results show why earning more money is all about managing your natural unease with fear and personal rejection. Those unafraid to ask for more, like self-made millionaires, will always earn more than those who fear rejection. If a bunch of wet-behind-the-ears graduate students from Pittsburgh can use this knowledge to earn 14-point bumps in their salary offers, then certainly any adult with a proven track record in the workplace can make good use of the same skills. The trick is to not let “No” feel like rejection and failure, because it’s not. Without the word “No,” you can’t be sure that you’re earning all you can.
On this subject, I’ll give the final word to Linda Babcock, who says, “If you never hear ‘No,’ you’re not trying hard enough.”
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Imitate, Don’t Innovate
ABOUT 7 OUT OF 10 OF THE MIDDLE-CLASS SURVEY RESPONDENTS SAID THAT THEY BELIEVE IT TAKES “A BIG OR NEW IDEA” TO BECOME WEALTHY.
ONLY 3 OUT OF 10 SELF-MADE MILLIONAIRES AGREED.
The Man Who Could Have Been Bill Gates
Gary Kildall was a thirty-year-old Ph.D. in computer science at the Naval Postgraduate School in Monterey, California, when, in early 1972, he got a look at a new microchip produced by a local company called Intel Systems. The inch long Intel 4004 had been designed to work inside a desktop calculating machine, but Kildall and a handful of his fellow technophiles saw the 4004 for what it truly was: the nucleus of a revolution in microcomputing. For the first time ever, the entire central processing unit of a computer had been contained within a single inexpensive microchip. As one computer trade magazine announced at the time, Intel was selling “a computer for $25.”
With 2,300 transistors packed into a chip smaller than a human thumb, the Intel 4004 could theoretically power a computer compact enough to sit on a desktop. Almost immediately, Kildall set out to prove it could be done. He worked nights and weekends on the project for more than a year, patiently developing dozens of laborious workarounds to cope with the 4004’s pathetically limited memory. Kildall couldn’t afford to buy many of the computer components he needed to complete the task, so he bartered with Intel for hardware by trading some of the new software code he was writing.
At the time, Kildall had a wife and young son at home and was living on a $20,000-a-year teaching stipend. He probably should have had other priorities. But Kildall was one of those people who gets a vision in his head and feels compelled to make it real. One day in 1973, he walked into the computer science department carrying a giant suitcase-sized box and plunked it down on his desk. It was heavy, ugly, and didn’t do very much, but it was the very first personal computer. Kildall took it around the school, showing it off proudly to the amazement of hundreds of his fellow faculty and students.
Cobbling together the computer’s hardware wasn’t Kildall’s greatest accomplishment, however. What mattered most was what he had done with writing new software code. Out of sheer necessity, and with no thought of the commercial possibilities, he developed a master program or control program so that his unique little computer could adapt itself to run useful software applications designed for much larger stand-alone machines. That’s how Kildall developed the first operating system software for personal computers. After revising it further so it could run on the newer and faster Intel 8080 microchip, Kildall would call his operating system CP/M—Control Program for Microcomputers. Only when hobbyists started building their own 8080-based home computers did Kildall realize he’d created something of value. He put a small ad in a computer trade magazine and began selling copies of CP/M for $70, first to hobbyists, then to other small computer makers. In Accidental Empires, Robert X. Cringely wrote that within six years, hundreds of thousands of personal computers had been sold with CP/M running inside them. Kildall and his wife “made millions of dollars, essentially without trying.”
When the personal computer revolution took off in the late 1970s, it launched on the wings of Kildall’s CP/M operating system. Prior to CP/M, every computer manufacturer had to deal with the headache of writing machine-specific software for word processing, database management, and all the other things that people use computers for. But thanks to Kildall’s invention, these companies could now simply license copies of the CP/M operating system and their customers could buy whatever CP/M-compatible software they liked. By 1980, there were an estimated 600,000 PCs in the entire United States, and about 90 percent of them were running on CP/M and using CP/M-compatible software. Popular software programs like dBase and WordStar worked only with CP/M. As Harold Evans wrote in his bestselling They Made America, “Kildall created the bedrock and subsoil out of which the PC software industry would grow.”
With virtually no competition, CP/M earned Digital Research 85 cents of profit on every dollar of revenue that came in. Officials at Digital Research’s bank once called to double-check some figures because they didn’t think it was possible for any company to have such high profit margins. And, then, almost as suddenly as it began, the party ended. By the mid-1980s, Kildall and Digital Research were both on the road to oblivion and today Kildall ranks as a mere footnote in computer history. The reason lies with a few crucial miscalculations he made in 1980, part of a cautionary tale about how imitation so often trumps innovation when it comes to being Business Brilliant.
One of the first computer entrepreneurs to hitch his wagon to CP/M’s rising star in the late 1970s was a precocious young programmer named Bill Gates. In 1979, when Gates was just twenty-four, he was running a software company called Micro-Soft. The company had secured an early, profitable niche in the personal computer industry by creating popular versions of BASIC and other common programming languages that communicate between a computer’s hardware and its operating system software.
Gates and his partner, a high school friend named Paul Allen, didn’t stumble into the software industry the way Kildall had with Digital R
esearch. Since their teenage years, Gates and Allen had been looking for ways to turn their passion for code-writing into cash. The two originally wrote the Microsoft version of BASIC in 1976 because they saw a chance to get in on the ground floor with one of the earliest makers of homebuilt personal computer kits. After that, Gates often sought licensing deals that would pair Microsoft’s BASIC with Kildall’s CP/M, in the hope that Microsoft BASIC could ride CP/M’s coattails and become an industry standard of its own.
Gates and Kildall had a lot in common. Both hailed from the Seattle area. They had even bumped into each other at a Seattle computer center years earlier when Kildall was still a graduate student at the University of Washington and Gates was a high school hacker sneaking some computer time. Both loved talking about software code as much as they enjoyed writing it. They also shared a passion for driving dangerously fast. When they weren’t talking software, they swapped stories about speed traps, comparing the size of their most recent speeding tickets.
But their differences were much more pronounced than their similarities. Kildall was older, a family man, and a much more accomplished programmer. At heart he was an academic, a computer scientist with a Ph.D. Although he was nominally the head of Digital Research, he disdained making business decisions and preferred spending his time on complicated programming tasks that most CEOs would leave to their employees. Gates was the exact opposite. He was a businessman first and a programmer second. He started Microsoft while still a student at Harvard, and then he dropped out before finishing because he was so intent on getting his computer business going. At the age of twenty-five, he was still living like a college student in a disheveled one-bedroom apartment. And although Gates and Kildall shared a capacity for getting lost in days-long bouts of obsessive programming, their motivations were completely different. Bill Gates never would have spent a year building a microcomputer from scratch as Kildall did, merely out of intellectual curiosity. Gates’s all-nighters were always driven by practical business objectives and deadlines, while Kildall had more of an artistic temperament. Some said Kildall designed computer code the way Mozart composed symphonies.
The stark contrast in the two men’s personalities came to a head in 1980 when IBM contacted them about a new secret project. Big Blue, as IBM was nicknamed, was by far the largest computer company in the world at the time. It occupied such a dominant position in the industry that its seven main competitors were known collectively as the seven dwarfs. But by the late 1970s, IBM salespeople started seeing Apple II’s and other personal computers popping up in the offices of their big corporate customers. IBM chairman Frank Carey, sensing a threat, decided that if IBM didn’t move fast to produce a little machine of its own, the personal computer business would soon get too big for even Big Blue to dominate it. In early 1980, Carey signed off on a plan to rush an IBM PC to market by September 1981. The strategy was to cut out years of laborious development by using off-the-shelf hardware and by licensing existing software from other companies. Except for the logo glued to each unit, nothing about the new IBM PC would be unique to IBM.
An IBM engineer named Jack Sams was charged with setting up licensing deals for the IBM PC’s software. Of all the personal computers then on the market, Sams was most impressed with the Apple II, which is why a product by Microsoft called the Softcard caught his eye. The one drawback to the Apple II was that its proprietary operating system prevented it from running popular CP/M-compatible software applications, including WordStar and dBase. The Softcard was a little translator card, created by Paul Allen at Microsoft, that snapped into the back of the Apple II and turned it into a CP/M-compatible machine. Even though the Softcard was a slight diversion from Microsoft’s normal focus on computer language software, Gates embraced it because it represented yet another strategic opportunity to extend CP/M’s market domination while also binding Microsoft BASIC to CP/M. Microsoft eventually sold hundreds of thousands of Softcards, which told Sams that it was a popular and reliable product. Sams started his software hunt by contacting Gates and proposing that IBM license the Softcard, along with all the other programming languages Microsoft offered.
What Sams didn’t understand was that although Softcard was a Microsoft product, its most valuable feature was the CP/M operating system, owned by Digital Research. Gates told Sams that IBM needed to license CP/M directly from Kildall and offered to help Sams make the deal happen. At the time, Gates accepted his subordinate position in the software food chain. He had positioned Microsoft so that the company’s success was dependent on CP/M’s continued market domination. If CP/M were paired with Microsoft BASIC inside the new IBM PC, Gates saw how the two complementary programs might be inseparable as industry leaders for years to come. So Gates arranged the initial meeting with IBM and Kildall. With Sams in the room, Gates called Kildall and said he was sending an important client Kildall’s way and that Kildall should, according to several sources, “treat them right.”
Gates’s phone call, however, didn’t do much good. Almost nothing went right when Sams and his team sat down with Kildall and his wife, Dorothy, who managed the business side of Digital Research. At first, Dorothy absolutely refused to sign IBM’s strict, strongly worded confidentiality agreement. An entire day was wasted discussing what, if anything, the two parties could discuss. Once they got past that hurdle, Kildall was cold to IBM’s insistence that Digital Research negotiate a flat licensing fee for CP/M and forgo Digital Research’s usual per-unit royalty rate. It didn’t help matters that Kildall was generally contemptuous of IBM because so many IBM products struck him as slow, unimaginative, and clumsily designed.
But the biggest stumbling block preventing a deal was Kildall’s timing, or rather, his utter disregard for timing. IBM planned to build its personal computer around a new, faster Intel chip called the 8086, but CP/M would need an upgrade in order to run on it. Kildall already had such an upgrade in the works, called CP/M-86. But Kildall either wouldn’t or couldn’t guarantee to Sams that it would be delivered quickly enough to meet IBM’s development deadlines. Sams tried to explain that IBM needed a schedule and a commitment by October 1980, but Kildall resisted. Perhaps Kildall assumed that IBM would bend to his schedule, since it appeared that IBM needed him and CP/M’s 90 percent market share more than he needed IBM. But what Sams gathered from Kildall’s attitude was that Kildall would never be a reliable partner and that the IBM PC project needed an alternative plan for an operating system. Not long after, he stopped returning Kildall’s calls. Kildall’s fate was sealed forever as “the man who could have been Bill Gates.”
By giving up on Kildall and CP/M, Sams put himself in a tight spot. But Sams also knew that Gates, more than anyone, would be highly motivated to help him find a way out. During the time that Kildall was giving Sams the runaround over royalties and deadlines, Gates was back in Seattle bending over backward to accommodate IBM’s development schedule. He had put almost all Microsoft’s personnel to work on the IBM effort, shoving other projects to the side. Now Gates needed the IBM PC project to succeed, if only out of a sense of survival for Microsoft. So in the late summer of 1980, Sams told Gates that Kildall wasn’t working out, and that the operating system issue was now Gates’s problem to solve. Gates picked up Kildall’s fumble and ran with it. He gave Sams the promise that Kildall would not—he would produce a detailed plan for an operating system by October. The difference was that Gates made the promise without having an actual operating system to work with.
Throughout 1980, Kildall’s failure to set a hard release date for CP/M-86 fueled a rising sense of panic among manufacturers who needed the operating system for their new 8086 machines. In effect, Kildall’s delays were holding the whole industry hostage. Across town from Microsoft, a little computer maker called SCP, Seattle Computer Products, came up with a stopgap solution. A programmer there spent months working from the CP/M technical manual (using it like a cookbook, as he would later claim) to write a new operating system so similar to CP/M that it
would allow all CP/M-compatible software to work on the new 8086 machines. He called the operating system QDOS—quick and dirty operating system. The plan was to ship SCP’s computers with QDOS until CP/M-86 was released.
When Gates and Paul Allen heard about QDOS, they figured they might be able to meet IBM’s tight schedule by buying QDOS and then giving it a spit-shine and a new name. Paul Allen knew the owner of SCP fairly well, and he negotiated the rights for Microsoft to use QDOS for the grand sum of $25,000. The cash-starved owner at SCP took the money gladly, with no idea that IBM would be QDOS’s ultimate customer. It took several months of around-the-clock programming to massage, tweak, and test QDOS before Microsoft presented a finished product to IBM’s engineers under its new name: MS-DOS—Microsoft Disk Operating System. Gates would later say that if Microsoft had tried to write an operating system from scratch it would have taken a year.
When IBM’s programmers tried to run MS-DOS on their prototype IBM PCs, they could hardly believe how buggy it was. By one count Microsoft had left at least 300 bugs in the software, and IBM eventually chose to rewrite the entire program. But Gates had delivered on time, which kept the entire IBM PC project on schedule. The new IBM PC made its debut in August 1981, accompanied by a massive advertising and marketing campaign, the likes of which the personal computer industry had never seen. It only took a few years for Big Blue’s new desktop machines to take over the entire PC market. By 1983, two out of every three new home computers were made by IBM and were running the MS-DOS operating system.
When Kildall got his first look at the IBM PC, he was enraged. He felt that MS-DOS was nothing more than a crude clone of CP/M and that Gates had stabbed him in the back. But he decided not to sue IBM and Microsoft, partly because software copyrights were a hazy area of the law, but also because he was so confident of CP/M-86’s superiority. Once CP/M-86 was ready for release in early 1982, Kildall was certain that most computer users would switch over from MS-DOS. That’s not what happened, though. CP/M-86 did prove to be a better and more reliable operating system, but it was also more expensive. Then IBM cautioned PC buyers that it would only offer technical support for computers running MS-DOS. In no time at all, Microsoft displaced Digital Research as maker of the industry standard in operating systems. Software companies responded to IBM’s growing market dominance by pouring their resources into new applications for subsequent revisions of MS-DOS. They also stopped bothering to upgrade their existing CP/M-compatible products.