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this is not a book about computers it is a story about people a remarkable collection of individuals led by one man Bill Gates whose Drive genius vision and entrepreneurial Spirit created one of the great success stories in the history
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of American Business at 35 years old Gates was at the Pinnacle of his young career Microsoft the company that he and Paul Allen had founded 16 years earlier had become the first software company in history to sell more than a billion
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dollars worth of products in a single year Gates was the Undisputed Mastermind of that success his company's astounding Ascension had made him the youngest billionaire in the history of America a most unlikely captain of industry he
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looked as if he could have been 25 years old or younger no one underestimated Bill Gates though too many people had done that in the past most people already knew Microsoft's history in 1980 the company had sold the MS DOS operating system to IBM the revenue from
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that partnership gave Gates a g guaranteed income stream and the push he needed to make his vision Microsoft software on every desktop PC come true not long after he made the deal with IBM the fiery competitive Gates slammed his fist into his palm and vowed to put several of his major software competitors out of business by 1991 many of those competitors were in full Retreat that is an extra from one of my favorite biographies in the book that
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I'm going to talk to you about today which is hard drive Bill Gates and the making of the Microsoft Empire and it was written by James Wallace and Jim Erikson I first read this book almost 3 years ago for episode 140 and the reason
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it's one of my favorite biographies is because it covers the first 36 years of Bill Gates life it is about the beginning of the company and more importantly it is about the young version of Bill Gates that built the foundation that the Microsoft Empire
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rests upon today and the young version of Bill Gates is nothing like the version of Bill Gates that you see in the media today and after I read the book The First Time The Way I described it was that a young Bill Gates was like
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gang KH in a Mr Rogers costume and so let's jump into his early life and how he was when he was a kid spread throughout the first chapters all these different descriptions from people that knew bill when he was younger some were
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friends classmates family members and so I'm just going to give you a couple of examples of how they described him aggressive and stimulated by conflict prone to change moods quickly a dominating personality with outstanding
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powers of leadership if left to his own devices a young Bill Gates would just sit in his room and read Non-Stop Gates read the encyclopedia from beginning to end when he was only seven or eight years old that is going to be a reoccurring theme throughout the entire
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book just how much he reads and this is a description of Bill from his mother Mary Mary gates in describing her son has said that he has pretty much done what he wanted since the age of eight and here's another description of a
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young Bill Gates even as a child gates had an obsessive personality and a compulsive need to be the best any school assignment be it playing a musical instrument or writing papers whatever he would do at any or all hours of the day
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everything Bill did he did to the max that's actually a great one- sentence summary of the the Bill Gates that's present in this book all the way up until the age of 36 everything Bill did he did to the max what he did always went well well beyond everyone
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else a few pages later Gates loved competing he hated losing everything he did he did competitively and not simply to relax he was a very driven individual when Bill was going into seventh grade his parents did something that was
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important they transferred him from a public school to a private school this private school is called Lakeside the reason that is important is because Lakeside is the first place where Bill ever sees a computer this is going to be the start of gates Obsession this is
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where he gets access to a pdp10 mini computer so it says the pdp10 Lakeside used was owned by General Electric which build Lakeside for computer time and so the parents at the school they raised about $3,000 thinking okay this is going
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to be this should be enough for the kids to learn how to use a computer right so it says they raised about $3,000 figuring that the amount would would be enough to last the rest of the school year what they didn't realize was how
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seductive a mistress the machine would become Bill Gates was about to develop a very expensive addiction and this event in Bill Gates life is important for at least two reasons the first thing that popped to mind when I was rereading the
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section was this excellent advice that Charlie Munger gives to increase your likelihood of success and he said you should maneuver yourself into doing something in which you have an intense interest the key word being intense
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intense is exactly what a young Bill Gates obsession with the computer was and the second reason was he's about to meet Paul Allen which is going to be a few years from now his co-founder of Microsoft Gates was immediately hooked
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whenever he had free time he would run over to get more experience on the system but Gates was not the only computer craze kid at Lakeside he found he had to compete for time on the computer with a handful of others among
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them was Paul Allen who was 2 years older than Gates 7 years later the two classmates would form Microsoft and so this is more about Bill's intent interest it also makes me think of one of my favorite quotes ever from Jeff Bezos he says we don't choose our
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passions they choose us it says Bill Gates cannot explain why he reacted as he did to the computer but it triggered a deep passion an obsession in him and this is what Obsession looks like Gates devoured everything he could get his
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hands on concerning computers and how to communicate with them often teaching himself as he went The Faculty knew next to nothing about computers Gates and the other kids hanging out day and night in the computer room were pretty much on
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their own within weeks most of the $3,000 raised was gone and so we're about to see how a young Bill Gates solves problems he's like okay well I want to use a computer I can't use a computer because we're out of money so I
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need to find some other way to get more time on the computer so in his mind the logical thing is okay let's figure out how to hack into the system and just change the amount of time that we're using Gates and a couple other boys
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broke into the pdp10 security system and obtained access to the company's accounting files they found their personal accounts and reduced the amount of the time the computer showed that they had used they were quite proud of
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this ingenious accomplishment until they got caught and so at first they get in trouble and then they get a job which leads them to getting unlimited computer time the company that they were paying for their computer time had a problem
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with their software crashing all the time Bill and a couple of the other boys at Lakeside were were really actually good at identifying and fixing bugs and so they saw Gates and his friends as a solution to what they called their
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reliability problem and so it says so the company hired a herd of friendly users and they became the unofficial night shift they offered Gates and the other Lakeside computer junkies an opportunity to try to crash the system in exchange they would get all the free
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computer time that they wanted and this is the first time the book talks about a theme that's going to be repeated over and over again for the next 400 pages and that is Bill Gates desire to be hardcore he uses the term hardcore over
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and over and over again it was often past midnight when the boys finished their work that's insane because they're in middle school at this time it was when we got that free time that we really got into computers Gat set I mean
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then I became hardcore it was day and night Gates was 13 Gates and Allen Not only look for bugs but they also look for any information that might help them learn more about computers operating systems and software Gates would go through
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garbage can so he could poke around for important tidbits of information left behind on the dayshift I'd get the notes out of the trash with coffee grounds on them and study the operating systems and there's a line in here that made me
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think of something I read last week when I read Brunello Cinelli's autobiography for episode 289 and he talks about he was getting started right he had no money but he had a ton of enthusiasm and he actually thought that enthusiasm
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helped other people want to help him uh I think the line in the book says he was he was describing himself he says I was a young man with no money and tons of enthusiasm we see that with both Bill Gates and Paul Allen in this book right
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now Gates and Allen stood out from the other kids because of their enthusiasm and so as I'm rereading the book for the second time I'm like wow this is like really Bill Gates parents had like a lot of foresight like they're letting their
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13-year-old kid work on these computers to after midnight nope they were worried about his obsession too uh his parents became increasingly concerned about their son the computer seemed to have an almost Supernatural hold on him although
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he was only in the nth grade he was already obsessed with the computer ignoring everything else and staying out all night so they order him to stop using computers completely which he complies with temporarily at least but
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this is the interesting thing about Bill Gates he has to direct his energy and his enthusiasm and his passion in some Direction so he directs it back into books he said there was an infinite amount to read there was at least 9 months there when I did nothing with
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computers Reed he did with the same kind of commitment he had made to computers he consumed a number of biographies Franklin Roosevelts and napoleons among others to understand how the great figures of History thought so young Bill
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Gates is doing exactly what you and I are doing right now in addition to rereading this book I also watched this documentary on Netflix for the second time about Bill Gates it's called in Bill Gates mind and he talked about this
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time in his life and why he was so obsessed with reading these biographies he said the idea that some people were super successful was interesting what did they know what did they do what drove those kinds of successes so those
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are the questions that he's reading to try to answer for himself back to more descriptions about a young Bill Gates Bill Gates was never just one of the boys his Drive intensity attitude and intelligence made him stand out nothing about Bill Gates was normal he had a
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hard-nosed confrontational style his intensity at times simply boiled over into Raw all unthrottled emotion and he was definitely introverted but he also had a small group of really close friends this is how they would describe
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Bill Gates at this point in his life to those who knew him best Bill Gates was hardly the social out Outcast he may have appeared to be from a distance he had a sense of humor and Adventure he was a risk taker a guy who liked to have
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fun and who was fun to be with he had an immense range of knowledge and interest and he could talk at length on any number of subjects this this part that jumped out to me says he was a risk taker I read his co-founder's
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autobiography Paul Paul Allen long Paul Allen's autobiography A long time ago it's all the way back on episode 44 and there was something in that book said about Bill Gates by Paul Allen's mother that I never forgot and she called Bill
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Gates an edge Walker which is a fantastic term this is a quote from Paul Island's autobiography he says my mother had a term for Adrenaline Junkies people who would Court risk for the thrill of it that person she'd say is an edge
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Walker Bill Gates was an edge Walker where I was wary of danger Bill seemed to enjoy it so so far we have an extremely tense intelligent driven focused person obsessed with learning and then another part that we have to add to understanding Bill Gates is he
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knew he wanted to be very very rich and he said so at a very early age this is just the first example of many times he repeated stuff like this to people around him even when he was like a kid so it says although Gates may not have
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known what he was going to do with his life he seemed confident that whatever he would do would make him a lot of money he made such a prediction about his future on several occasions Gates told his friend that he would be a
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millionaire by the time he turned 30 he told another friend I'm going to make my first Million by the time I'm 25 it was not said as a boast or even a prediction he talked about the future as if his success was predestined and one idea
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that bill and Paul arrived at early was the fact that hey uh learning how to create software is really valuable like we can make a lot of money doing this and so there's going to be two examples of how they actually made real money
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when they were still in high school by programming and so the very first company that they started together was this company called trao data and the premise is very simple if you ever drive on these roads it says almost every municipality Ed metal boxes linked to
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rubber hoses that stretched across the roadway to count cars so this system is producing data they're like hey we're just going to make this data look better so you can actually analyze it easier Gates and Allen figured that they could
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program a computer to analyze a traffic counter then sell the information to municipalities faster and cheaper than their competition the software program turned turned the data into easily readable traffic flowcharts they grossed about about
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$220,000 from this they're still remember they're still in high school the company eventually folded though after Gates went off to college so at this point in the story Gates is a senior in high school and this is where
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he's going to get a full-time job and this is how that happened Gates received a phone call one day from a man from TRW the giant defense contractor TRW was offering a full-time job with a salary they needed help with a project to
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computerize the power administration's power grid for the Northwest so why would they be calling a high school senior they did not know they were calling a high school senior uh their project was uh was behind schedule because the pdp10 software was infested
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with bugs TRW went looking for bug hunting experts with pdp10 software so the people at TRW are going to discover this book from that company that was giving them free time to find bugs at night and as a result you had unlimited
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uh Gates and his friends had unlimited time on the computer and so TRD comes comes across uh this book called the problem report book and it says the names of two bug Hunters appeared on nearly every page Bill Gates and Paul
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Allen so TRW decided to contact Gates by phone and then it says Gates received permission to miss part of his senior year so he could work full-time at TRW and so Bill's going to graduate high school he's going to go off to Harvard
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but at the same time him and Allan have these ongoing discussions about what they should do together in the future said he and Allan began to talk seriously about forming their own software company for some time now they had shared the same vision that one day
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the computer would be as common place in the homes as a television and that these computers would need software their software we always had Big Dreams Allan said so Bill arrives at Harvard keeps the same level of intensity the
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intensity he had when he was a kid that he had in high school that he had in college that he's going to have his entire time running Microsoft there's just one line in here that made me laugh though I have to read it to you first
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Bill Gates would later tell a friend he went to Harvard University to learn from people smarter than he was and he left disappointed so most of his time in college was not spent on his classes was actually spent programming and playing
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poker and so it says that Gates would fall asleep in his class was not surprising he was living on the edge it was not unusual for him to go as long as 3 days without sleep his habit was to go for 36 hours or more at a stretch
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collapse for 10 hours then go out get a pizza and go back at it and if that meant he was starting again at 3:00 in the morning then so be it and so there's a ton of stories in the book in the early days of Microsoft that people
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would just walk in the office in the morning and they trip over like Gates just sleeping on the floor or sleeping on his desk or curled up in the corner and so Gates doesn't think he's getting a lot out of Harvard he at the same time
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he's having all these phone conversations with Paul Allen and he's telling Allan I'm thinking about dropping out of Harvard and Gates had been telling his parents that I might drop out of Harvard and me and Paul are going to start our own computer company
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they did not like that idea and this is the thinking of paulan and Bill Gates on like why would you they would both take a risk of dropping out of college to do this thing it said Gates and Allen were convinced that the computer industry was
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about to reach critical mass and then when it exploded it would usher in a technological revolution of of astounding magnitude they were on the threshold of one of those moments when history held its breath and jumped as it
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had done with the development of the car in the airplane they could either lead the revolution or be swept Along by it and this might surprise you that Gates may never have dropped out of college if it wasn't from the constant push from
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Paul Allen Allen was much more eager to start a company than Gates who was worried about the reaction from his family if he dropped out of school Paul kept saying let's start a company let's do it he kept saying it's going to be late we'll miss it
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and so we see from this section of the book he's at the right place at the right time in history with the right set of skills and yet he still needed a push from Paul what's so fascinating about this time in Bill's life is he just
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wasn't sure where to direct his monomaniacal Focus this is one of my favorite paragraphs in the entire book Bill had a monomaniacal quality he would focus on something and really stick with it he had a determination to master
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whatever it was he was doing bill was deciding where he was going to put his energy and to hell with what anyone else thought and so he's looking at all these options trying to figure out okay where am I going to direct this monom monacal
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Focus he makes a decision which is one of my favorite things that Edwin land ever said and it had a huge influence on my own decision like where I'm going to direct my energy he says don't do anything that someone else can do bill
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is going to arrive at a very similar conclusion that Edwin land did it says at Harvard bill was one of the top math students but he was not the best the is italicized he had met several students better than he was at math Gates eventually gave up any thoughts of
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becoming a mathematician if he couldn't be the best in his field I met several people in the math department who were quite a bit better than I was said Gates it changed my view about going into math it m and this is why it made the odds
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much longer that I could do some worldclass thing Bill wanted to be the best not one of the best not kind of best not top five top 10 he wanted to be the best at what he did and so he's going through all these options okay
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mathematician that's out he says uh there were so many choices my mind was pretty much open maybe being a lawyer would be fun I thought working on Art artificial intelligence would be fun I thought theoretical computer science
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would be fun I really had not zeroed in on something but this sentence is very important in how he made his decision Gates may not have been the best math student at Harvard but he had no peers in computer science and then the decision was made obvious when Paul
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Allen walks by a magazine stand and sees the latest edition of popular Electronics magazine and on the cover is the world's first minicomputer and it says on a cold winter day in December 1974 Allan was walking across Harvard
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Square on his way to visit Gates when he stopped at a kiosk and spotted the issue of popular electronics that issue sent his heart pounding on the cover was a picture of the alter 8080 it said world's first microcomputer kit to rival
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commercial models I bought a copy read it and raced back to Bill's dorm to to talk to him I told Bill well here's our opportunity to do something with basic basics of programming language at the time Allan was a student of Shakespeare
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and was reminded of what Shakespeare wrote in Julius Caesar there is a tide in the Affairs of men which taken out the flood leads on to Fortune omitted all of the voyage of their life is bound in the shallows and in miseries on such
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a full sea we are now afloat and we must take the current when it serves or will lose our Ventures Gates knew Allen was right it was time the personal computer miracle was going to happen and so this is going to be the first part project of
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what turns into Microsoft and so they call up the maker of the computer it's this company out in Albuquerque New Mexico called MIT he needed somebody to write software for the computer and he tells Paul and Bill whoever shows up
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first with a working version of basic will get the deal and so I'm skipping ahead to after their program worked this is how the author describes the importance of this event and this is just absolutely excellent writing the personal computer revolution had begun
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with a game played on a small blue box with blinking lights named after the brightest star in the constellation that's the altar 30 years earlier people in Albuquerque had witnessed the sun come up in the South when the world's
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first atomic bomb exploded in the pre-dawn darkness 100 miles away heralding the nuclear age now another age had Dawn in albuque it began at a ragtag company located next to a massage parlor its profits were two young men
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not yet old enough to drink whose computer software would soon bring Executives in three pce suits from around the country to a highway desert town to make million dooll deals with kids in blue jeans and t-shirts this is happening 45 years ago
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I think this paragraph gives you context to why this is so important you have to remember that in those days the idea that you could own a computer your own computer was about as wild as the idea today of owning your own nuclear submarine it was beyond
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comprehension and so this is where Gates is going to drop out of of Harvard for the first time he actually winds up going back for like one other semester and then dropping out uh permanently but what was fascinating is this is what I
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mentioned earlier how his parents did everything they could to try to talk him out of this so they had a family friend that was a Founder an investor they sent him over they're like hey can you talk to Bill can you please tell him not to
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do this his name's Samuel he's having this conversation with Bill Gates and so not only did he not talk him out of it he thought it was a great idea not only did Samuel not try to talk Gates out of his plans to start a business but after
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listening to the enthusiastic teenager he encourage gates to do so Mary which is Bill Gates's uh Mom Mary and I have kidded about this for years said Samuel who's now 7 years old when he's given this interview for the book Mary and I
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have kidded about this for years I told her I made one terrible mistake I didn't give Bill a blank check to fill out the numbers I had been known as an astute venture capitalist and I sure didn't read that one right and so Bill drops
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out of Harvard moves to alberquerque where mits is headquartered and this is another Main theme that is repeated over and over and over again in the book is just how financially conservative Bill Gates was when he was running Microsoft
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even many years into the future when Microsoft is printing money he was very financially conservative Microsoft was unbelievably Capital efficient they got from founding to IPO without needing to take Venture Capital Money when they did
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take an investor in they did they did it for advice and they said they just took whatever I think it was like a million dollars maybe $2 million they're like oh we just took that million or that 2 million and just put in the bank with
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all the rest of our millions and so this is the first time it's mentioned in the book but it's repeated over and over again his parents and grandparents had taught him to be financially conservative and that was the way he
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intended to run his company there would be no unnecessary overhead or extravagant spending habits with Microsoft when Gates arrived in Albuquerque he and Allen shared a room and so even from the very beginning they had these giant goals that Paul
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Allen uh referenced earlier in the book when they they had talked about in high school that they're saying hey the PC is going to be everywhere it's going to be as common as telev and we want our software on all of them and so this is a
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description of the very very early days at Microsoft Bill and Paul were very very intense they had a clear understanding of what they were doing in the sense that they had a vision of where they were going it wasn't just
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that they were developing basic I don't think most people ever really understood this but Bill certainly always had the vision from the time that I met him that Microsoft's mission in life was to provide all the software for micro
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computers and this is a description of a lot of the early employees at Microsoft part of made Micosoft so successful during the company's empy was the team of programmers that Gates and Allen began to assemble in the spring of 1976
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they became known as the micro kids high IQ insomniacs who wanted to join the personal computer Crusade kids with a passion for computers who would drive themselves to the limits of their ability and endurance and so the agreement that Microsoft has with mits
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at the time is that hey you're going to pay us a license fee for every computer that you sell that contains our basic and there's going to be a dispute on how exclud exclusive this license agreement should be Gates is out there selling it
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to a bunch of other Hardware makers but Ed Roberts the founder of mits gets in the way constantly and so the first time I got to this section of the book I wrote this does not seem like a situation that bill would put up for
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very long and it's not and part of the reason is that bill thought that MIT was a PO was very was a poorly run company and he had no intention allowing anybody else to limit the amount of licenses that he could sell and so this
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disagreement goes on for a while what happens is Microsoft says okay we're going to terminate the license agreement this is going to lead to mits suing Microsoft their contract said that any dispute had to be so resolved by arbitration so that is what they're
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waiting for this leaves Microsoft in kind of a limbo and so it says until the licensing dispute was resolved Microsoft could not license its basic it would take several months to resolve the matter and for what would be the only
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time in the company's history that is a crazy line and what would be for the only time in the company's history Microsoft faced money problems and so what was interesting is while this dispute is happening Ed Roberts actually
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sells his company he sells mits to this other company called pertek and that leads to one of the funniest paragraphs in the entire book which gives you a great idea of who remember this this entire book this entire podcast is about
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young Bill Gates and this is going to give you a great insight to how a young Bill Gates was to somebody that was working with him for years a bit his in many ways his very first business partner outside of Paul Allen listen to how he describes him
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when the chief counsel for pertek came to Albuquerque to assess the situation and talk with Gates he took one look at the long-haired scraggly 21-year-old and decided that this legal battle against Microsoft was going to be easy it's not
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easy Not only was it not easy they wind up losing Roberts had warned pertek that it would have its corporate hands full with Gates but no one listened to him pertek kept telling me I was being unreasonable and that they could deal
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with this guy it was a little like Roosevelt telling Churchill that he could deal with Stalin he's comparing a 21-year-old Bill Gates to Joseph Stalin and he wind up being correct pertek winds up losing this uh this arbitration because they also said
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that hey uh they had sent Bill a letter and they said they would no longer Market basic or allow it to be licensed because it considered all other Hardware companies competitors and so that letter winds up being a key piece of evidence
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and this is the result after the prot decision came down and the Log Jam of customers waiting for basic broke loose Microsoft never had to worry about money again and so again I just have to reiterate how lean Bill Gates ran
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Microsoft four years in they're just 11 employees they're about to move from Albuquerque to Seattle before I get there there's just one line that made me laugh it said Gates had read business books like other male students read
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Playboy he wanted to know everything he could about running a company and so again we see this insatiable desire of knowledge that is so common with the people that you and I study on this podcast and so right before they move
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the company from Albuquerque they take this uh company portrait you can actually see this if you type in Microsoft 11 portrait on Google Images it says a few weeks before the move they decided that Microsoft needed a company portrait the picture of the Microsoft 11
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taken that day would later become famous appearing in magazines across the country and so they're all packing their stuff up and they're going to drive from Albuquerque to Seattle and the way that bill drives is also the way that he
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built his company one of the last employees to leave Bob Wallace while driving along Route 66 towards Seattle and his Honda Civic noticed a Green Dot appear in the rear in his rearview miror moments later it shot past him at well
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over 100 mph it was Bill Gates and his Porsche he was anxious to get moving all this driving was a waste of time you couldn't be programming and so I think a lot of people might find how Bill spent his time in the early years of Microsoft
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surprising he was their main salesman he prioritized sales over everything what sustain the company was not Gates ability to write programs gate sustained Microsoft through tireless salesmanship for several years he alone made the cold
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calls and haggled cajoled browbeat and Harang the hardware makers of the emerging personal computer industry convincing them to buy Microsoft services and products he was the best kind of salesman there is he knew the product and he believed in it he
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approached every client with the with the zealotry of a True Believer from the day he first articulated the Microsoft Mantra a computer on every desktop and Microsoft software and every computer and this is Bill describing Microsoft
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when was 25 years old when we got up to 30 employees it was still just me a secretary and 28 programmers I wrote all the checks answered the mail took the phone calls so since the first 5 years of Microsoft's history there was more
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than 200 different brands of microcomputers that had been brought to the market that is who Bill Gates is selling into that is the first wave that Microsoft is going to ride the second one is going to be IBM and so this is
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what's going to set the stage for IBM and Microsoft to work together many of those working at IBM did not believe it was possible for them to develop its own successful personal computer given the existing structure and culture of the
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company so it's talking about at this page in IBM's career it's very it's a it's just a giant bureaucracy the personal computer had been created out of an entrepreneurial spirit that did not exist at IBM and so what IBM does is
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essentially they set up this lab in Bon Florida that's supposed to be set it's still owned by IBM but it's supposed to be like more like a startup culture outside of IBM's headquarters in New York and so I'm going to get into why if
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they're building their own Hardware why didn't they just build their own software too but I found a note that I left the first time I read this book and I just found it again and I wrote Oh this is still a good note almost three years later and it's this guy from IBM
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meeting a very young Bill Gates and this is how you described him he says I knew bill was young but I had never seen him before when someone came uh to take us back to his office I thought the guy who came out was the office boy it was Bill
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well I'll tell you or anybody else that by the time you were with Bill for 15 minutes you no longer thought about how old he was or what he looked like he had the most brilliant mind that I had ever dealt with and so this is the note I
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left myself many years ago and I thought the one I thought was still good bill overcame his weakness which was that he looked Young by relying on his strength his mind and the passion he had for his work lean into your
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strengths and so they wind up making this agreement that Microsoft's going to provide the software for IBM's PC and this is very interesting why they had to do this actually I'll get there in one second this before I get there this this
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decision for Bill not to cap his upside maybe the most important business decision he ever made in his life IBM had talked to Gates about a fixed price for an unlimited number of copies of the software Microsoft license to IBM the
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longer Gates thought about this proposal the more he became convinced it was bad business Microsoft would may be making a huge financial investment in this project and a lump sum payment from IBM would not give the young company much of
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a return on its investment over time Gates had decided to insist on a royalty arrangement with IBM that royalty Arrangement was referenced in the introduction of the book when they says that the revenue from the partnership gave Gates a guaranteed
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income stre stream and the push he needed to make his vision which was Microsoft software on every desktop PC come true another part of the agreement which is what I was just referencing earlier and why this is super important
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was that Microsoft would retain ownership of whatever software it developed and so the reason that IBM is not writing its own software and saying Microsoft can keep ownership of the software that it creates is because for
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the last 10 to 15 years through three different presidential administrations the government had been investigating IBM as a monopoly three separate presidential administrations had investigated and tried to break up IBM so once bill has a signed agreement
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with IBM he actually goes and buys the operating system and there's a few things interesting about this deal the first one is that you see that Bill wants to receive license royalties he does not want to pay them he just insisted IBM pay him a royalty not a
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flat fee now when he's doing this deal with Seattle computer products he says Gates personally went through the document in his own handwriting and changed key language to specify a sale of Doss instead of an exclusive license
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Gates signed what would prove to be the key financial agreement that made him a billionaire and many of those working for him millionaires for only $50,000 Gates bought all the rights to 86 Doss previously owned by the Seattle computer Products Company it was the
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bargain of the century and why do they say it's the bargain of the century because just a few years later I think this is like maybe eight maybe 10 years at the most says the operating system that once belonged to Seattle computer
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had by then become an industry standard by 1991 Microsoft was making more than 200 million a year just from sales of Ms Doss and so the book goes into a lot more detail about the development of the partnership between Microsoft and IBM it
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was top secret eventually they wind up finishing the work for IBM then it becomes publicly announced that IBM is building a PC and the Microsoft software is going going to be running it and Microsoft reactions this major milestone
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in the corporate history is fascinating reminded me of something that Michael Jordan said in his autobiography I'll get there one second so he says there was little celebrating back at Microsoft when the big day came Steve Balmer took
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the newspaper clipping uh and posted it on the front door there were Smiles handshakes and pats on the back but no wild parting no champagne corks popping there was still a lot of work to do a new version of Doss was already in the
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works this is the turning point in Microsoft's history and when I read that part on episode I think it was 213 of U Michael's autobiography driven from within he talks about this this mentality that you see in Microsoft he
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talks about it he had this mentality see extreme winners have this mentality it's this idea of being uncompromised and so this is what Michael said about that you have to be uncompromised in your level of commitment to whatever you're doing
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or it can disappear as fast as it appears so that the way I think about that is if you go to sleep on a win you wake up with a loss Michael continues look around just about any other person or entity achieving at a high level has
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the same Focus the morning after Tiger Woods rallied to beat Phil mikkelson at the Ford championship in 2005 he was in the gym by 6:30 a.m. to work out no lights no cameras no Glitz or glamour uncompromised so Microsoft's revenue and
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profit group from here is just absolutely parabolic this is where he brings in quote unquote adult advice imagine imagine being able to buy 5% of Microsoft for a million dollar I think they buy like $985,000 shares airs for a million
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dollars uh I think it mentions this later in the book as well then in a carefully planned move that had been under discussion for some time Bill sold 5% of Microsoft for a million dollars to technology Venture investors it was a
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venture capital firm in menow Park California uh David markart I think is how you pronounce uh the guy he was a general partner in tvi was made director of Microsoft's new board Microsoft did not need the Venture Capital Gates was
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essentially hiring the firm's expertise it was Steve balber Who convinced gates to sell off a small part of the company as a long-term investment in the future we just threw that million dollars into the bank with all of our other millions
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and so we go back to this main theme that appears over and over again in the book over and over again in documentaries about the early days of Microsoft Bill Gates was ruthless this is why I say he reminds me of gangas Conan gase wanted to eliminate his
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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're going to
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win if you have fewer compe editors and so there's a ton of anecdotes in this book just like this we're going to put digital research out of business slamming his fist into the palm and his other hand so there's actually a sequel
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to this book that I that I did all the way back for uh episode 174 it's called overdrive and it's like the next like five years or maybe six years of the history of Microsoft and there is a story in that book that stuck with me the for the very first time that I read
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it or from the very first time that I read it that really describes just how obsessed Bill Gates was of a eliminating his competitors you have to understand if he didn't think this is how this is this is something he repeats in this
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book over and over again if this is the way he thought if you lost a $50,000 contract he considered it a $100,000 loss because he lost the $50,000 from the revenue of the contract and the other competitor the other company got
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the $50,000 and so in that book overdrive it goes into even more detail I think than this book does about like their obsession with their competitors and eliminating the competitors they would like uh create like shirts talking about their competitors like to Rally
35:28
them up to like try to destroy them okay that's fine I'm sure other people have done that I'm not sure if I've ever heard another story like this keep in mind at the time of this story this comes from overdrive uh episode 174 Bill
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Gates is a multi-billionaire Microsoft is undeniably the leader in its category right Philipe Khan ran a software company they were competitors or like frenemies right but they would like talk to each other industry events
35:53
so Philipe KH tells a story that he want winds up walking over they're they're both at an industry conference Gates is sitting alone in a corner right looking at a photograph in his hands Philipe Khan walks over to say hi to Bill Gates
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and realizes that bill is looking at a picture by himself in the corner staring at a picture of Philipe Khan that is some serial killer so this Obsession to eliminate players other players from the board cannot be understated it's also why the US government hits Microsoft in a few years uh with the antitrust suit but Bill was obsessed with knowing everything that was happening in his industry this is another example of this just a few pages
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later if you talk to Bill about any software company or any hardware company there's a very high probability that he will be able to tell you who the CEO is What their revenues were last year what they're currently working on what the
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problems are with their products he's very very knowledgeable and he Prides himself on knowing what's going on in his industry and so a major criticism people would fling at a young Bill Gates was that oh he's arrogant he's cocky he
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thinks he's smarter than everybody else everybody really says that he's arrogant but you there's also a ton of examples where he knew where he was weak and he would listen to others so at the time Microsoft's doing this massive expansion
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into another huge category for them which is we're going to write our own applications okay and so they're actually developing what is eventually going to turn into Microsoft Word before it was called Microsoft Word Bill Gates
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wanted to call it multi-tool word but we see that he's willing to listen to other people and if their idea is better he's willing to use their ideas word was originally going to be released as multi-tool word which would just be a
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continuation of the multi- two application product line that Microsoft was developing at the time so there's a guy named Hansen is working in there he says no that's a bad idea Hansen suggested a different product naming strategy it was important this is
37:44
actually good advice for products for naming products and the importance of brand talks about the brand has to be the hero Hansen suggested a different product naming strategy it was important for the product to be identified by its
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brand name he pointed out uh that Microsoft had to get its name associated with its products and so he elaborates on why this is an important concept he says if you look back at some of the old articles that were written in the
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industry you'll see the word multiplan but no Microsoft associated with it that was be because multiplan was a standalone name just like word star so word star is the application they're trying to compete against and trying to displace okay uh people who wanted a
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word processing program knew the name word star but they could not have told you that micropro was the company that had made it and hans's point he's like we want want the consumer to know that it's made by Microsoft the brand is the
38:30
hero Hansen said 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're
38:40
going to have a product and it's going to rise and fall but if you 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 much easier to create momentum we decided that we needed to
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make Microsoft the hero Gates immediately saw the logic of Hansen's argument and that is an important idea behind this concept of you have to know what you're not good at it appears over and over again in the book this is a
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summary of that as you watch how this this is coming many pages later as you watch how Microsoft has developed what you see is Gates realizing well in advance what he's not good at and going out and finding exactly the right person
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to do the job this is so rare I've been following startup companies for years I can't tell you how rare this is and so then I got to tell you about something that I missed the first time I read the book or I couldn't tied together yet
39:27
because the first time I read this book was for episode 140 well on episode 155 I read this fantastic book called invent and wander the collected writings of Jeff Bezos and Jeff says something in that book that's very fascinating and he
39:38
talks about like how important speed is in business like the importance of speed is something that appears over over again these conversations that you and I have right let me read this quote though from uh Jeff Bezos in vent and wonder
39:49
episode 155 okay hopefully you have that book it's all of Jeff bezos's sharehold letters and then transcripts of all of his important speeches it's absolutely excellent excellent if you don't have it i' order it right now it's definitely
39:59
you know there's ideas worth millions if not billions of dollars in that book and this is what Jeff says you can drive great people away by making the speed of decision- making really slow why would great people stay in an organization
40:10
where they can't get things done they look around after a while and they're like look I love the mission but I can't get my job done because our speed of decision- making is too slow and so at this point in history where we're in the
40:20
Bill Gates book is that Steve Jobs and Bill Gates are just taking a ton of ideas from the from Xerox Park which is a research and development company in Palo Alto owned by Xerox and not only taking ideas but they're taking people
40:32
away from them why because they move too slow finding Xerox defectors wasn't difficult so Bill Gates is his company's growing like crazy he needs his bottleneck and in many cases is like Talent right so he's finding talent
40:44
because this other company is just too damn slow uh finding zero defectors wasn't difficult I'm going to skip over the names they had grown disillusion with the fact that so many good ideas developed by Xerox Park never got to
40:54
Market Xerox was the epitome of of corporate culture said one of these people that he's recruiting everything was run by committee and there was not too much individuality Microsoft on the other hand was a bunch of individualists
41:06
with the whole show run minute to Minute by Bill Gates he was in on every decision from top to bottom and this is something that's also repeated multiple times in the book it's going to Echo one of my favorite quotes that I've told you
41:19
over and over again it's in this book called Inside Steve Jobs brain I think that's episode 204 and it's the fact that apple is just Steve Jobs with 10,000 lives the founders personality is going to be embedded into the company and we see this explicitly in
41:33
Microsoft's early history Microsoft just hired clones of its leader over and over and over again one of the greatest lines that I've ever had in conversation came from my friend Seth Bannon who was describing to other founder named Alexis
41:45
Rivas who's also a friend of mine and he said that Alexis is intolerant of slowness I just absolutely love that term I think I go into more detail on the Alexander the Great episode that I did that's episode 232 but here's
41:57
another great line so we have intolerant of slowness and now we're going to have Bill Gates version intolerant of distractions I love this Gates was extremely focused and did not tolerate distractions he didn't own a television
42:10
and he dis and he had disconnected the radio in his car there's this great quote from Warren Buffett uh that I heard one day where him and Bill are having I think lunch with Bill's dad so Bill Gates Senior right Bill's dad and Warren said something that was
42:27
fascinating he said Bill Gates Senor posed the question to the table what factor did this is the question Bill had for for uh his son and Warr Buffett what factor did people feel was the most important in getting to where they've
42:39
gotten in life and I said focus and Bill said the same thing Gates was extremely focused and did not tolerate distractions So eventually Bill realizes there's no avoiding Microsoft has to go public he didn't want to go public
42:56
this is the financial performance of Microsoft the year before they go public and Bill is 30 years old when this is happening and it said Microsoft had revenues of $140 million its profits were 31.2 million and that's in $1 1985
43:13
adjusted for inflation that'd be like if you had a private company and your company was doing $87 million a year in profit and so this is what Bill had to say about going public I hate the whole thing all I'm thinking and dreaming about is selling software not not
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stock and I thought this was excellent this is what Bill Gates was doing when Microsoft went public on the day Microsoft went public Bill Gates was off the coast of Australia on a 56t sailing vessel reading books he had chartered
43:39
the boat for 5 days this was to be one of his reading vacations in which he spent time alone plowing through as many books as possible so that's something that he still does to this day he calls them reading weeks uh these vacations
43:52
are called reading weeks and we actually see that in the documentary on Netflix as well he'll take a bag full of books go to like this remote cabin by himself just to be able to read and think and he did this throughout his entire time res
44:02
out Microsoft as well a year after Microsoft goes public Bill Gates becomes a billionaire so it says at age 31 Bill Gates was officially a billionaire no one in American history from the great industrial Barons and financiers of the
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19th century to the modern day corporate Raiders had ever made so much money at such a young age and so I mentioned earlier one of the reasons that I love this book so much is because like 90 95% of it is just about Microsoft before
44:26
before it ipoed then the book ends and Bill Gates is only 35 or 36 and so when I got to this part I thought what I love about is like it's a snapshot in time of this company history right but when I got to this part when I got to the end I
44:40
sat and thought I was like what is the chance that this version of Bill Gates this 35 or 36 year- old Bill Gates would ever believe that seven years from now seven years from where we are in this book that he would no longer be running
44:57
the company that he gave his entire Young Life to I would love to be able to have lunch or dinner to be able to talk to Bill and ask him about the times not contained in this book but after stepping down from the head of Microsoft in the year 2000 I hope he writes an
45:17
autobiography one day and goes into detail the difference between his life as the founder and complete control of Microsoft to what his life was after and so these will be the last words that we'll cover from a young Bill Gates it's
45:32
impossible to imagine Microsoft without gates at the controls those who know him best say he is as driven as ever we have this vision of where we're trying to go and we're a long way away from it Gates said during a recent interview in his
45:45
office a large window looks out over part of Microsoft's huge campus but Bill Gates is not the kind of CEO who spends valuable time admiring The View you got to watch out for the anti climax he said in a response to a question about what
45:58
it felt like to be running the world's largest software company I mean we are not on top of the networking heap of the spreadsheet Heap or the word processing Heap computers are not very easy to use we don't have information at our
46:11
fingertips yes our revenues are bigger than anybody else's but if we don't run fast and do things his voice trailed off leaving the sentence unfinished believe me he said staring out the window and saying isn't this great is not the solution to pushing
46:28
things forward you've got to keep driving hard and that is where I'll leave it for the full story highly recommend buying this book I think this book should be in every entrepreneur's Library it is a book I plan on rereading again in the
46:41
future and if you're going to buy the book use a link that's in the show notes on your podcast player are available at Founders podcast.com and if you buy the book using that link you'll be supporting the podcast at the same time
46:51
another way to support the podcast is to sign up for Founders premium where you can only ask me questions directly but you can also listen to the AMA the ask me anything episodes that I make on that private feed and last but not least if
47:02
you want me to email you my top 10 highlights from every book that I read you can join my email list for free all the links that I mention are down in the show notes on your podcast player but you can also find them by going to
47:12
Founders podcast.com that is 290 books down 1,000 to go and I'll talk to you again soon okay so all the way back on episode 227 I read this fantastic book called The essays of War Buffet so all the way back on episode 88 I read every
47:29
single one of Warren's shareholder letters but what this book that was put together by Lawrence Cunningham uh called the essays of Warren Buffett uh did that was so smart is that he took the shareholder letters and instead of organizing them by year which is
47:43
standard he organized them by topic and so in the original podcast I did on this book which again is episode 227 1 hour and 28 minutes into the podcast or thereabouts I go over this letter that I'm about to read to you now it's under
47:56
the heading titled on selling one's business and the reason I'm bringing this up is because one of the sponsors of this episode is Tiny and one way that tiny has been described is that they're building the birkshire of the internet
48:07
and you can go to tiny.com and read the testimonials and see all the founders that have sold their business to Tiny and how their main differentiation just like Warren Buffett and Charlie merer is there's no BS we're going to make this
48:17
transaction as simple and easy as possible where a lot of people that buy businesses make you jump through hoops and it's just a headache and so if you think well what Warren is doing here in this letter is his business is buying
48:29
businesses and so his customer or Founders or managers of businesses and so he is essentially writing a letter to a guy so he wrote this letter in uh 1991 to a guy who indicated he might want to sell his family business and so I'm just
48:43
going to pull out a few highlights here and really think about what Warren's doing is he is differentiating his services from other people that also buy businesses he says if you if you should decide to sell I think Burk hathway
48:56
offers some advantages that most other buyers do not practically all of these buyers will fall into one or two categories and so now Warren is going to describe his competition if you go to tiny.com you'll see they described their
49:10
compet in some ways their competition which is typically VCS or private Equity companies okay so Warren says number one a company located elsewhere but operating in your business or in a business someone Akin somewhat akin to yours such a buyer no matter what
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promises are made will usually have managers who feel they know how to run your business operations and sooner or later will want to apply some Hands-On and he puts the word help in quotation marks obviously Warren does not think
49:41
that the managers they're going to install in that business are actually going to be helpful at all the second other option a financial maneuverer invariably operating with large amounts of borrowed money who plan to resell
49:53
either to the public or to another corpor operation as soon as the time is favorable frequently this buyer's major contribution will be to change accounting methods so that earning earnings can be presented in the most favorable light just prior to his
50:08
bailing out and then listen to this persuasion technique that he uses because he's writing to somebody that he knows it's a family business which means they put a lot of their time and life energy into so he says if the sole motive of the present owner is to cash their chips and put their business behind them and plenty of sellers do fall into this category either type of the buyer that I just described to you is satisfactory but if the seller's
50:32
business represents the creative work of a lifetime and forms an integral part of their personality and sense of being buyers of either type have serious flaws so he's just described his competitive landscape he says listen there's option
50:46
one there's option two but then there's a new Option something that's completely different and better and he's describing the services that he provides to Founders right so he says Burkshire is another kind of buyer a rather unusual
50:59
one we buy to keep tiny does too by the way all of the businesses we own are run autonomously to an extraordinary degree when we buy a business the sellers go on running it just as they did before the sale we adapt to their methods rather
51:15
than vice versa and in Tiny's case it's up to the founder if they want to stay or if they want to go Tiny's fine with either solution and then Warren does something fantastic he's like listen you know who the P the past businesses that we bought
51:27
in fact I'm including in this letter a list of every single person we've ever bought a business from Tiny does something very similar on their website which you can go see you know some of our past purchases I'm enclosing a list
51:37
of everyone from whom we have ever bought a business and I invite you to check with them as to our performance versus our promises and then Warren says hey I'm going to keep it simple with you if you should decide to do a business do
51:51
business with birkshire we would pay in cash tiny says the exact same thing on their website your business would not be used as collateral for any loan by birkshire there would be no Brokers involved Warren also says you deal with
52:03
me and finally you would know exactly with whom you were dealing you would not have one executive negotiate the deal only to have someone else in charge a few years later or have the president regretfully tell you that his board of
52:13
directors required this change or that change and because Warren has hacked away at the unessential all that is left is Simplicity and his pitch is simple do you want a great home for your business then call me and I will do a cash
52:25
transaction really fast same thing that tiny does I will not pester you if you have any possible interest in selling I would appreciate your call I would be extraordinarily proud to have birkshire along with the key members of your
52:36
family own blank so he took out any identifying information of who he's writing to okay I believe we would do very well financially and I believe you would have just as much fun running your business over the next 20 years as you
52:48
have during the past 20 sincerely Warren Buffett I think reading the entire letter is worth your time if you buy the book book it's on pages 230 through 233 and make sure you go back and listen to episode 227 the essays of Warren Buffett if you have not done so already