How to Become As Rich As Bill Gates
Lesson 1: Choose Your Grandparents Carefully
Note: Recall that in the 1980s we venerated Donald Trump and studied his "art of the deal". If Donald Trump had taken the millions he inherited from his father and put it all into mutual funds, you'd never have had to suffer through one of his books. But he'd be just about as rich today.
Lesson 3: Acquire Research Results by Hiring and Buying
Conventional (loser) economic wisdom holds that monopolies should spend
heavily on research because they are in a position to capture the fruits
of the research. But if you want to become as rich as Bill Gates, you
have to remember that it is cheaper to wait for a small company to come
up with something good and then buy them. In the old days, antitrust laws
kept monopolies from buying potential competitors. But not anymore. When
Microsoft products were threatened by network computers and Web-based
applications, they simply bought WebTV and Hotmail.
In the long run a tech company without research probably can't sustain its market leadership. So you'll eventually need to build something like research.microsoft.com (check out netscan.research.microsoft.com to see some interesting online community research).
Lesson 4: Let Other People Do the Programming
If you're a great engineer, it can be frustrating to rely on other people
to translate your ideas into reality. However, keep in mind that the entire
Indian subcontinent is learning Java. And that if Microsoft, Oracle, SAP,
and Sun products simply worked and worked simply, half of the world's
current IT workers would be out of a job. You're not going to get rich
being "just a coder." Especially working in painful low-level
imperative languages such as C or Java. It might be worth writing your
own SQL queries and HTML pages since these tend to be compact and easier
than precisely specifying the work for another person to do. But basically
you need to get good at thinking about whether a piece of software is
doing something useful for the adopting organization and end-user. Bill
Gates does code reviews, not coding.
Lesson 5: Train your new CEO
If you're an intelligent curious person it can be painful to run a company
of more than 50 people. You spend more time than you'd like repeating
yourself, sitting in boring meetings, skimming over long legal documents
in which you know there are errors but aren't sure how serious, etc. The
temptation is to hand over the reins to the first "professional manager"
who comes along. And that's what the standard venture capitalist formula
dictates. But Bill Gates didn't do that. He hired Steve Ballmer in 1980
and gave him the CEO job 20 years later. Making money in the software
products business requires domain expertise and a commitment to solving
problems within that domain. Great tech companies are seldom built by
non-technical management or professional managers who aren't committed
to anything more than their paycheck. Adobe is another good example. The
two founders were PhD computer science researchers from Xerox PARC who
were passionate about solving problems in the publishing and graphics
world. They are still guiding operations at Adobe.
See Charles Ferguson's High Stakes, No Prisoners (1999) for a longer explanation of how hired-gun CEOs manage to kill software products companies.
"At Hewlett-Packard, people, materials, facilities, money, and time
are the resources available to us for conducting our business. By applying
our skills, we turn these resources into useful products and services.
If we do a good job, customers pay us more for our products than the sum
of our costs in producing and distributing them. This difference, our
profit, represents the value we add to the resources we utilize."
If you're creative and diligent the software products business is extremely lucrative. If you're losing money, ask yourself what you're doing wrong. The answer is probably "plenty".
Lesson 7: Let the Venture Capitalists Schmooze Wall Street ...
... but don't let them run your company. A profitable Microsoft Corporation
brought in venture capitalists (VCs) at the last minute. They didn't need
or spend the money but used the VCs to boost their valuation at the initial
public offering, thus getting more money for the shares that they sold.
Venture capitalists are dangerous because even the most successful might
not know anything about business. Remember that there are tens of thousands
of venture capitalists in this world. Assuming that they make random choices
of companies in which to invest there will be a Gaussian curve of performance.
Some firms will do consistently better than average even if everyone is
guessing. Imagine that thousands of monkeys are flipping coins; some of
the monkeys will get 10 heads in a row. These are the monkeys that will
be celebrated for their insight. These are the monkeys whose track records
will lead to uncritical cheerleading by underwriters and public investors.
In bull markets such as we had in the 1990s nearly all the monkeys will
be fairly consistent winners. But remember your next-door neighbor who
made money in the stock market in 1985. He convinced himself that he had
special insight and ability when actually he was only holding high-beta
stocks in a rising market. So his foray into the commodities futures market
wiped him out in the crash of '87.
[See "Money, Money, Money (and Investing)" for how the Gaussian curve works for mutual fund managers and also read Princeton Professor Burton Malkiel's A Random Walk Down Wall Street.]
Gentility, politesse, decorum, and high self-esteem are wonderful. You
can achieve all of these things within your organization. And then watch
it be destroyed by competitors where frank and, if necessary, harsh criticism
is encouraged. Technical people, even (and especially) those fresh out
of school are always convinced that whatever they've developed, no matter
how hare-brained, is perfect. It takes a technical person with good judgement
to notice the flaws and it may require repeated and increasingly harsh
delivery for the, uh, pinhead to realize his or her mistake.
An 1994 New Yorker article about Microsoft relates "If he strongly disagrees with what you're saying, [Gates] is in the habit of blurting out, 'That's the stupidest fucking thing I've ever heard!'". Jennifer New, a former Microsoft contractor, writes "Meetings with Bill or one of his top people are often replete with a barrage of expletives and other disdainful comments." (Salon, September 1997) My friends who work or have worked at Microsoft tell similar tales. But how different is this from other elite organizations?
When I arrived at MIT as a first-year graduate student in electrical engineering and computer science, I asked a professor for help with a research problem. He said "The reason that you've having trouble is that you don't know anything and you're not working very hard." A friend of mine was a surgery resident at Johns Hopkins. He complained to one of his teachers that he was having trouble concentrating because he'd been up all night for several nights in a row. The professor replied "Oh... does your pussy hurt?" According to Business Week, Jack Welch "encouraged near-brutal candor in the meetings he held [at GE]".
The bottom line: self-esteem is great but beware of creating a cozy home for unproductive people with bad ideas.
People who've inherited fortunes tend to be light with their money but
that people who've made their fortunes "have a second love of money
as a creation of their own, resembling the affection of authors for their
own poems, or of parents for their children, besides that natural love
of it for the sake of use and profit which is common to them and all men.
And hence they are very bad company, for they can talk about nothing but
the praises of wealth."