Chapter 6 - Hard Drive: Bill Gates and the Making of the Microsoft Empire
This Chapter is based on the book “Hard Drive: Bill Gates and the Making of the Microsoft Empire” by James Wallace & Jim Erickson.
Buy it on Amazon here:
https://www.amazon.com/Hard-Drive-Making-Microsoft-Empire/dp/0887306292
Here’s what I have learned from the book:
Focus, Focus, Focus
“I think people who multitask pay a huge price. They think they're being extra productive, and I think when you multitask so much you don't have time to think about anything deeply, you are giving the world an advantage you shouldn't do, and practically everybody is drifting into that mistake.”
— Charlie Munger
From an early age, Bill Gates had a monomaniacal quality; he would focus on something and really stick to it. He had the obsession and dedication to master whatever he was doing. This perhaps comes from his grandmother’s influence who encouraged a young Bill Gates to read as much as possible, who pushed him to excel in all he did and who challenged him to use his mind.
This dedication to the task at hand was not only limited to his passion in computers, but was also seen in other fields of interest such as poker, tennis, business and reading. As a matter of fact, when his parents asked him to give up the computer, he used the same kind of commitment he had for computers into reading biographies. He read a lot of biographies of great figures of history, such as Franklin Roosevelt and Napoleon, with the goal of learning how they thought.
“I am a biography nut myself, and I think when you’re trying to teach the great concepts that work, it helps to tie them into the lives and personal ties of the people who developed them. I think that you learn economics better if you make Adam Smith your friend.”
— Charlie Munger
This focus and dedication led a young Bill Gates to be quite confident that whatever he did in life would make him a lot of money. In fact, when he was in high school, Bill Gates founded various companies with his friends in the hope of money with his computer skills. He often told his friends that he would be a millionaire by the time he was 30 years old. (Little did he know that he would become a billionaire by the age of 31.)
Furthermore, Bill Gates’s strong competitive spirit made him hate to lose. He had to be the best in whatever he was doing. As a matter of fact, he initially taught of becoming a mathematician when he was studying in Harvard, but when he realised he wasn’t going to be the best, he gave up. His mentality was if he couldn’t be the best in his field, why risk failure? This obsession to win was certainly apparent in the way Bill Gates built Microsoft into becoming an empire.
“We Set The Standard”
“The most important thing [is] trying to find a business with a wide and long-lasting moat around it … protecting a terrific economic castle with an honest lord in charge of the castle.”
— Warren Buffett
Even at the age 15, Bill Gates was way more knowledgeable in business than his age. At the early stage of Microsoft, while his friend Paul Allen was more focused into programming, Bill Gates was more focused on the business side of things. As a matter of fact, during his time at Harvard, he read business books similar to college students reading Playboy. He wanted to learn everything he could about running a company, from hiring people to marketing products.
As such, right from the start of Microsoft, Bill Gates understood the importance of game theory in business:
“The theory of games is a theory of decision making. It considers how one should make decisions and to a lesser extent, how one does make them. You make a number of decisions every day. Some involve deep thought, while others are almost automatic. Your decisions are linked to your goals—if you know the consequences of each of your options, the solution is easy. Decide where you want to be and choose the path that takes you there. When you enter an elevator with a particular floor in mind (your goal), you push the button (one of your choices) that corresponds to your floor. Building a bridge involves more complex decisions but, to a competent engineer, is no different in principle.”
— Morton Davis from the book Game Theory
“It was clearly not enough for Microsoft to beat the competition; 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 are going to win if you have fewer competitors.”
— James Wallace & Jim Erickson
Bill Gates understood that to win over the competitions, he had to make sure Microsoft products was the standard in the industry. As a matter of fact, Microsoft used the standard-setting strategy to win control of the market in languages and operating systems. This idea of “We Set the Standard” became the company’s motto and Bill Gates’ core business philosophy.
This reminds me of how powerful network effect is as company’s moat. Network effect is the phenomenon where a product or service becomes more valuable as more people use it. This is a strong competitive advantage as it makes it harder for competitors to enter the market. If everyone is already using a particular product or service, it can be difficult for a new product or service to gain traction. Using Microsoft Word as an example, users are forced to collaborate and share documents by using Microsoft Word because Microsoft make it the de facto standard program for document creation and sharing.
Brand Name
“A brand is the set of expectations, memories, stories, and relationships that, taken together, account for a consumer’s decision to choose one product or service over another.”
— Seth Godin
Similarly to Network Effect, a strong brand name can be considered a competitive advantage because it helps a company differentiate its products or services from its competitors. A strong brand name can create a perception of quality, reliability and trustworthiness in the minds of consumers, which can lead to increased customer loyalty and sales.
“A brand is a promise.”
— Warren Buffett
Bill Gates was definitely influenced by the cosmetics industry in terms of marketing after he hired Rowland Hanson, an ex-VP of Marketing from Neutrogena. As a matter of fact, Hanson gave the idea of promoting market software like the cosmetics industry by providing free samples. This is eerily similar to how Estee Lauder used the Power of Reciprocity to attract customers.
Hanson understood the importance of brand name from his experience in the cosmetics industry and quickly advised Bill Gates why it was important for a product to be identified by its brand name:
“The brand is the hero, said Hanson, 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 are going to have a product and it’s going to rise and fall. But if you can 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 easier to create synergy, momentum. We decided that we need to make Microsoft the hero. Gates understood the logic of Hanson right away.”
— James Wallace & Jim Erickson in the book
Beyond the Book
Read "Mental Model: Game Theory" by Farnam Street
Read "Chapter 1 - Estee Lauder" by Biography Nuts
Listen to "#140 Bill Gates and the Making of the Microsoft Empire" by Founders Podcast