World Changers

On the morning of June 27, 2008, Bill Gates went to his office at Microsoft Corp. and worked his last full day at the company he had famously cofounded. Over the course of those thirty-three years when his focus was nothing but Microsoft, Gates had achieved unfathomable success as one of the world’s most influential and powerful entrepreneurs. The day after June 27, he began devoting himself full-time to philanthropy, using his extraordinary wealth to become the world’s most famous social entrepreneur.

In a sense, Gates began trying to change the world twice. After helping to usher in the personal computer revolution that changed the way people worked and lived across the world, he now threw himself into the stubborn challenges of global health, public education, and low-income communities. As cochair of the Bill and Melinda Gates Foundation, the largest philanthropic foundation in history, he pledged to eradicate polio from the world and to mount an effort to fight malaria as well.

One of the great business stories of all time began on a day in 1975 when Gates and his friend Paul Allen were walking through Harvard Square and spotted a magazine on a newsstand that made both of them do a double take. Inside the January issue of Popular Electronics was a story on a new microcomputer called the Altair 8800.

The two had met at Lakeside, a private school in Seattle, and had discovered a mutual passion for computers. Gates began programming in his spare time when he was in the eighth grade. Gates was a student at Harvard, while Allen had gotten a job as a computer programmer in Boston with Honeywell. But now, fearful they were missing a crucial turning point in the development of the computer, they sprang into action.

“We’d thought about what kind of software could be done for it, and it was happening without us,” remembers Gates. “And for all we knew maybe they had some software people; they were just going to go charge off and do this thing.”

The pair drafted a quick letter to the maker of the computer in Albuquerque, New Mexico, offering to do software programming for the machine. “We didn’t know how long it would take us,” adds Gates. “And it was kind of funny because we were sort of acting like we had it already. We went to work day and night.”

In fact, they didn’t have an Altair and had not written any code for it. But now they had to muscle together the code for a version of BASIC computer language that worked on the new machine. The night before Allen was to fly out to demonstrate their handiwork, Gates stayed up all night to make sure none of the instructions were miscoded. When Allen came back, he not only had a deal to sell their software to the company—Micro Instrumentation and Telemetry Systems—he also would be hired into the firm as its vice president of software. Gates dropped out of Harvard, taking an official leave of absence, to work with him in Albuquerque in November 1975.

They named their partnership “Micro-Soft,” dropping the hyphen within a year. And then in 1979, the pair moved the company to Seattle. Their big break would come in 1980 when IBM would commit one of the biggest blunders in the history of business. Thinking that most of the value of its soon-to-launch personal computers lay in the hardware, IBM turned to Microsoft to develop the operating system for its new product. The modern PC era was here, and Gates and Allen had secured one of the most valuable contracts ever drafted. As part of the deal with IBM, the pair negotiated a clause restricting IBM’s ability to compete with Microsoft in licensing the MS-DOS operating system to other computer makers.

“We wanted to make sure only we could license it,” recalls Gates. “We did the deal with them at a fairly low price, hoping that would help popularize it. Then we could make our move because we insisted that all other business stay with us. We knew that good IBM products are usually cloned, so it didn’t take a rocket scientist to figure out that eventually we could license DOS to others. We knew that if we were ever going to make a lot of money on DOS it was going to come from the compatible guys, not from IBM.”

It was a brilliant stroke, one that outmaneuvered IBM and laid the foundation of the company’s massive success. And IBM’s mistake allowed Gates to grow what had been a backroom start-up into the world’s largest software company worth, at its peak, $400 billion. Among all of the company’s vast achievements is the fact that two of its core products—the Windows operating system and the Office application software—became the only two products in the world with more than a billion users.

With his great wealth that at one point made Gates the richest man in the world, the entrepreneur began to study the work of Andrew Carnegie and John D. Rockefeller, and in 1994 sold some of his stock in the company to create a foundation. It put him on the path to create one of the greatest second acts in history.

The key for us, number one, has always been hiring very smart people. There is no way of getting around that, in terms of IQ, you’ve got to be very elitist in picking the people who deserve to write software. Ninety-five percent of the people shouldn’t write complex software. And using small teams helps a lot.

You’ve got to give great tools to those small teams. So pick good people, use small teams, give them excellent tools; vast compilation, debugging, lots of machines, profiling technology, so that they are very productive in terms of what they are doing. Make it very clear what they can do to change the spec. Make them feel like they are very much in control of it.

Have lots of people read the code so that you don’t end up with one person who is kind of hiding the fact that they can’t solve a problem. Design speed in from the beginning. A lot of things have helped us, even as the project teams have become larger, and the company has become a lot larger than it was. It is not some methodology where there is a lot of funny documentation. Source code itself is where you should put all your thoughts, not in any other thing. So our source codes, although there are a few exceptions, tend to be very well commented on in a very structured way.

With technology we’ve always got that people tend to overestimate what can change in a year or two, and they underestimate the cumulative effect of change that can take place in a ten- or fifteen-year period. We’re also subject to cycles of overoptimism and pessimism. Certainly the late nineties were kind of an insane period, where every start-up was going to replace your bank and your retail store, and people forgot that there are some benefits to experiences working those other ways, and the economic proposition that’s brought there. And in any medium where the barrier to entry is very low, the ability to build up an asset is all the more difficult. So only a few of those companies managed to get to the critical mass and do something interesting.

That was a fantastic thing, there was some crazy investment. It was like the gold rush. Some people did lose money, but that’s what capitalism is good at, taking lots of wild ideas and continuing to back the ones that work. So it was a period of, in the final analysis, quite a bit of innovation.

Then when that bubble burst some people went to the other extreme thinking that these changes were not really valid, that it had all been overhyped. But it was only overhyped in the sense of the time frame. Some of the things were not thought through. Some of the technical foundations were not there yet.

If you’re going to start a company, it takes so much energy that you’d better overcome your feeling of risk. Also, I don’t think that you should necessarily start a company at the beginning of your career. There’s a lot to be said for working for a company and learning how they do things first. In our case, Paul Allen and I were afraid somebody else might get there before us. It turned out we probably could’ve waited another year, in fact, because things were a little slow to start out, but being on the ground floor seemed very important to us.

If you’re young, it’s hard to go lease premises. You couldn’t rent a car when you were under twenty-five, so I was always taking taxis to go see customers. When people would ask me to go have discussions in the bar, well, I couldn’t go to the bar.

That’s fun, because when people are first skeptical, they say, “Oh, this kid doesn’t know anything.” But when you show them you’ve really got a good product and you know something, they actually tend to go overboard. So at least in this country, our youth was a huge asset for us once we reached a certain threshold.

The technology business has a lot of twists and turns. Probably the reason it’s such a fun business is that no company gets to rest on its laurels. IBM was more dominant than any company will ever be in technology, and yet they missed a few turns in the road. That makes you wake up every day thinking, “Hmm, let’s try to make sure today’s not the day we miss the turn in the road. Let’s find out what’s going on in speech recognition, or in artificial intelligence. Let’s make sure we’re hiring the kinds of people who can pull those things together, and let’s make sure we don’t get surprised.”

Sometimes we do get taken by surprise. For example, when the Internet came along, we had it as a fifth or sixth priority. It wasn’t like somebody told me about it and I said, “I don’t know how to spell that.” I said, “Yeah, I’ve got that on my list, so I’m okay.” But there came a point when we realized it was happening faster and was a much deeper phenomenon than had been recognized in our strategy. So as an act of leadership I had to create a sense of crisis, and we spent a couple of months throwing ideas and e-mail around, and we went on some retreats. Eventually a new strategy coalesced, and we said, “Okay, here’s what we’re going to do; here’s how we’re going to measure ourselves internally; and here’s what the world should think about what we’re going to do.”

That kind of crisis is going to come up every three or four years. You have to listen carefully to all the smart people in the company. That’s why a company like ours has to attract a lot of people who think in different ways, it has to allow a lot of dissent, and then it has to recognize the right ideas and put some real energy behind them.

I’d have to say my best business decisions have had to do with picking people. Deciding to go into business with Paul Allen is probably at the top of the list, and subsequently, hiring a friend—Steve Ballmer—who has been my primary business partner ever since. It’s important to have someone who you totally trust, who is totally committed, who shares your vision, and yet who has a little bit different set of skills and who also acts as something of a check on you. Some of the ideas you run by him, you know he’s going to say, “Hey, wait a minute, have you thought about this and that?” The benefit of sparking off somebody who’s got that kind of brilliance is that it not only makes business more fun, but it really leads to a lot of success.

When you do a product a little bit later than you wanted to it can be a mistake. We should have gotten serious about Internet search four years earlier than we did. It is a business where if you are early that’s okay. Internet TV we were early. Tablet computers we were early. But we could just keep improving it and wait until all the trends came together to create a new huge phenomenon. If you are late, then everything coalesces around who’s doing that. You have to look for a paradigm shift, something dramatic, to contribute there. We missed one or two things. You could say those are our biggest mistakes, but the list of mistakes has a large taxonomy.

There were a lot of missteps in the early days, but because we got in early we got to make more mistakes than other people. I had customers who went bankrupt and didn’t pay us. Customers who we spent a lot of time with who never built microcomputer-based machines.

In retail marketing, we made a number of mistakes that were important for us to learn from. We had, in a few countries, agents. And you really don’t want to use agents. You want to have your own people. If you are going to be a serious company, take a long-term approach. You should hire people in all the countries you are going to be in and make sure they are there cementing long-term relationships—not just generating short-term commissions. I think we learned that one pretty quickly.

We did hire in some very sharp business people, and got them to share their experience so it wasn’t just us technical guys and the other people. We were very young. I mean, Steve Ballmer and I were kind of driving the business and Paul Allen and I were driving the technology. We were optimistic in thinking we could get things done sometimes faster than what we did. The project of the moment always seemed very exciting. And some of them never generated much in the way of royalties. But all correctable stuff as long as we sort of wake up and see what the results were.

Well, I was always thinking that the environment we did product development in should be a fun environment, a lot like a college campus. And this idea of using small teams means you want to give them all the tools, all the computers, an individual office, whatever it takes so that they feel like they can concentrate on their jobs and be very creative. And in the Northwest, having a lot of trees around, you know, one-, two-, and three-story buildings where offices are very good sized. That made sense to me. And we had been looking ever since we moved up to Seattle for a piece of land that wasn’t too far away and yet that would let us grow as a company. And in 1986 we actually got to move into our corporate campus.

Initially, there were four buildings clustered around a lake, and each of the main development groups got their own building. And that meant that we really had the best of all worlds. People felt that it was a fun environment, but yet we were really close to each other as far as working together. Things like people joggling or riding unicycles around, having barbecues outside, having company meetings where everybody would stand around.

Microsoft had started giving out stock options to people as early as 1981. So we were sharing in the success we thought we’d have. As we did that, the options had about a five-year vesting period. And so as some people were starting to vest on quite a bit of their stock, there was the question of how would they get liquidity. Now you could just let it be traded privately, but then the price would fluctuate a lot because the supply would be so short. And I was quite reluctant to go public because of the overhead. We had been able to track our stock price internally up in a very linear way. And with the market sort of maybe over-anticipating the future, or getting paranoid—you know the stock would be very volatile.

But I was convinced that it made sense. And as long as we were going to do it, it was an opportunity to really expose the company broadly. Talk about our vision where we had done well, where we were taking the industry. And it did become something that was covered very, very broadly by a lot of people. And it was extremely successful. The stock took off after this offering at $21 and it just zoomed up from there for many, many years.

Going public is not without its complexities in terms of dealing with analysts and all the reports. It is a little convoluted about when can you keep things secret versus having to go out and talk about those things. So it is not totally simple. But the benefit of having the stock be very liquid for everyone was very positive. We didn’t use any of the money that we raised. We just put that money in the bank and it sat there with all of the money that we had earned, because we were very profitable and had plenty of cash by this time. So our reason for going public was very different than any other company that was going public.

Of my mental cycles, I devoted maybe 10 percent to business thinking. Business isn’t that complicated. I wouldn’t want to put it on my business card. Scientist is better, unless I’ve been fooling myself. When I read about great scientists like, say, Crick and Watson and how they discovered DNA, I get a lot of pleasure. Stories of business success don’t interest me in the same way. Part of my skill is understanding technology and business. So let’s just say I’m a technologist. Business is not the hard part. Let me put it this way: Say you added two years to my life and let me go to business school. I don’t think I would have done a better job at Microsoft.

I do know that if people say things that are wrong, others shouldn’t just sit there silently. They should speak. Great organizations demand a high level of commitment by the people involved. That’s true in any endeavor. I’ve never criticized a person. I have criticized ideas. If I think something’s a waste of time or inappropriate I don’t wait to point it out. I say it right away. It’s real time. So you might hear me say, “That’s the dumbest idea I have ever heard” many times during a meeting.

Hey, if being a geek means you’re willing to take a four-hundred-page book on vaccines and where they work and where they don’t, and you go off and study that and you use that to challenge people to learn more, then absolutely. I’m a geek. I plead guilty. Gladly.

In the same way that during my Microsoft career I talked about the magic of software, I now spend my time talking about the magic of vaccines. Vaccines have taken us to the threshold of eradicating polio. They are the most effective and cost-effective health tool ever invented. I like to say vaccines are a miracle. Just a few doses of vaccine can protect a child from debilitating and deadly diseases for a lifetime. And most vaccines are extremely inexpensive. For example, the polio vaccine costs 13 cents a dose.

This year 1.4 million children will die from diseases for which there are already vaccines—diseases like measles, pneumonia, and tetanus. Those lives can be saved if we can reduce the costs of vaccines and raise enough money to buy and distribute them. If we simply scale up existing vaccines in the five countries with the highest number of child deaths, we could save 3 million lives (and more than $2.9 billion in treatment costs alone) over the next decade. In addition, researchers are inventing new vaccines for malaria, AIDS, and tuberculosis, and these would save millions more lives. But generous aid is required to realize the true lifesaving potential of vaccines. The most direct way of saying this is that every $2,000 cut in the most effective aid spending causes a child to die.

Legacy is a stupid thing! I don’t want a legacy. If people look and see that childhood deaths dropped from nine million a year to four million because of our investment, then wow! I liken what I’m doing now to my old job. I worked with a lot of smart people; some things went well, some didn’t go so well. But when you see how what we did ended up empowering people, it’s a very cool thing.

I want a malaria vaccine. If we get one then we’ll have to find the money to give it to everyone, but the impact would be so huge we would find a way. Understanding science and pushing the boundaries of science is what makes me immensely satisfied. What I’m doing now involves understanding math, risk taking. The first half of my life was good preparation for the second half.