Bill Gates Mastered 'Know When to Hold 'Em, Know When to Fold Em'


As Bill Gates steps down from being the visible power in Microsoft, I thought it would be good to capture some of the lessons we can learn from both Redmond's successes and its mistakes. Lessons that, at times, Microsoft itself appears to have forgotten. While most of these really have to do with corporate practices, and apply only to the very largest firms, some have analogs to personal life.


Keystone Products: Protecting the Crown Jewels


Microsoft has five keystone products. They are, in order of importance: Windows, IE, Windows Server, Office and Xbox. A keystone product forms the foundation for a revenue stream based on product dependencies that is much broader than the product itself. Done right, the combination of the keystone product and secondary products creates a protective layer of interdependence that makes it nearly impossible to displace a vendor once it becomes dominant.


However, this strategy does make it more difficult to achieve that dominance because the value of the product is largely based on the ability to run those secondary offerings. Without them, the keystone product won't sell well.


Operating systems, by their nature, are keystone products. We can see the Linux vendors struggling to build the required ecosystem of secondary offerings around them. This is also largely why OS/2 failed -- the secondary offerings simply did not emerge in enough volume for the platform to sustain itself. With the exception of Apple and the gaming console business, hardware-based platforms like Atari and Commodore failed for much the same reason.


The key to a keystone product is that you want it as widely implemented as possible. Otherwise, the rest of the ecosystem will either fail to develop or will begin to collapse because the founding product isn't being implemented in high enough volume. This suggests the product should always be priced to maximize penetration, not profit. Companies that are showcasing this are Apple with the MacOS, Nintendo with the Wii, and Microsoft with IE. Redmond set the standard initially with DOS. Once you shift to a profitability model, you may gain bottom-line benefits from the one product, but the collateral damage will be the increased risk to the rest of the ecosystem. We are currently watching that play out with Windows Vista.


If at First You Don't Succeed...


The saying follows with "Try, try, again." One of the common examples of success built on failure was the story of Babe Ruth, who is remembered for the most home runs in his time but not for his other record: the most strike outs. I was meeting with a new vendor the other week and they were rushing their first product to market because, if it didn't work, they wanted to learn from its failure and get a fixed product to market before their venture funding ran out.


When a company takes chances, it will fail, and it has to build a tolerance for failure into its culture. However, it shouldn't have a tolerance for failures that could have been avoided. The most visible failure that Microsoft ever made was Microsoft Bob. It was based on solid research indicating that people who weren't using computers at the time needed a less technical interface. Microsoft took a huge chance with Bob which, unfortunately, belly flopped.


While I think Bob partially failed because it was positioned as the next UI after Windows -- which was way too far for it to go -- it also failed because the technology needed to make an avatar-based interface was at least a decade in its future. But, because it failed so spectacularly, Microsoft stopped work in this area. That makes it very likely that the first company to actually do something in this space won't be Microsoft.


In context, the first iPhone-type hardware I ever saw was from Panasonic in the early '90s; the first iPhone-like device was from Phillips. Both largely gave up because they were so ahead of the curve, which is why the first successful iPhone came from Apple.


The overall lesson is, learn from your mistakes but don't fear them or you are sure to permanently fail.


Don't Abide Fools


In the early days of OS/2, there was a report of Bill Gates going into an IBM office and, upon seeing the employees all working on PCs running terminal emulators, concluding that the IBM partnership and OS/2 would fail. The public reporting of that incident is seen by many as the defining moment that put the two firms on a war footing with each other.


But, Bill was right. The culture of IBM was preventing it from moving into the new age of PCs and locking it into an increasingly obsolete mainframe-oriented world. IBM, which had actually created the business PC segment in the first place, didn't understand it as a company and couldn't deploy it.


My better example was a story I was told while I was working at IBM. It had to do with PROFS, IBM's intra-company e-mail product. One of the lead sales women on the platform was called into the office of the senior software VP, who owned PROFS. He dressed her down for the poor sales performance of the offering as he couldn't understand why such a great product wasn't selling well. She asked him if he had ever used it. He said no. Recall that this is the executive who owned PROFS. At IBM at the time, only secretaries or people who didn't have secretaries used products like PROFS. Once he had tried to use the product, he understood why it didn't sell.


While I don't know what happened next, normally what did happen in a situation like this is the executive would put in for a transfer so the product failure wouldn't go on his record; the exec wouldn't stay and fix the product.


Bill, in the early days of Microsoft, had little or no tolerance for this kind of behavior. But as the company has grown, that has changed. Elsewhere, Steve Jobs has been known for personally going after people like this. Ellen Hancock, his highest ranking ex-IBM employee when he took Apple back, was an early casualty and the primary reason why Apple couldn't get a new OS out the door. I think this is also partially the reason that the Google founders oversee much of the hiring at that company.


Political skills are critical to getting a job done but, if misused, can be company-killers. Enron and WorldCom both are examples of what can happen when this skill is misused. The lesson from young Microsoft was don't abide fools.


Wrapping Up: Personal Lessons


I get some interesting questions. One I received recently was how to fix a broken CEO. My advice was to change jobs, because the easier way to fix the problem was to change the working environment the employee found himself in.


In looking across all of this, and recalling some of the teachings of IBM's best CEO, Thomas Watson Jr., I think there are three personal lessons to take away from this:


One, know what your company and personal key assets are and don't mess with them unless you absolutely have to. They could be products, they could be brands, they could be services or skills, but know what they are and don't screw them up.


Two, keep trying. I've known a lot of people who simply gave up. I even got a lecture while I was at IBM that the best way to advance was to avoid making commitments. Companies or individuals can reach a point where they are afraid to move and unwilling to take chances. Apple and Microsoft resulted from Xerox reaching that point. If you can't move where you are, find someplace else to be.


Three, don't abide fools. I don't mean call them idiots either -- that works for CEOs sometimes but it won't work for you. If you are partnered with, employ, or are working for a fool, fix that. I don't mean get your boss fired, either, as I've only seen one person in my career do that and not get themselves shot (and it wasn't me). Being nice does not mean putting your career or company at risk. Sometimes the bravest and most successful thing you can do is to walk away.


Some things to consider this week.