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How IBMs naivety helped Microsoft get established

It is often said that every successful founder got lucky.
Luck builds great companies just as much as a intelligence and hard work and this holds true for Microsoft as well!!!

Yes, there is a story about how Bill Gates got lucky with a particular deal with IBM – which actually turned tables for Microsoft and became the reason for it’s brand growth or existence – per se.

ibm microsoft marketing deal

So we all know the Bill Gates story. About how a brilliant kid who loves computers, drops out of Harvard in 1975 to start Microsoft with his childhood friend – Paul Allen.

Gates and Allen initially sold code interpreters to companies like MITS (Micro Instrumentation and Telemetry System).
In 1976, their revenue is $16,000.
By 1978, Microsoft hits $1 million in revenue.
But they were far from taking over the world.

Until…the year 1980.

It was when, IBM asked Bill Gates to build them an operating system for their new personal computers. As Gates had never done this, so he referred them to his friend Gary Kildall from Digital Research.

The IBM-Digital Research meeting Went poorly.
The two parties couldn’t reach a consensus over non-disclosure agreements and other legal issues. Eventually, IBM offered Digital Research $250,000 to build the operating system. However, Digital Research insisted specifically royalties, rather than a fixed sum and refused.
As a result – the deal felt through.

Now IBM, again returned to Gates to build the operating system.
Here Bill Gates does a quick hack!!!!

He buys the “Quick and Dirty Operating System” (QDOS) from Seattle Computers for $50,000 and repackages it into the now famous Microsoft DOS.

Gates initiates the process of selling IBM the “new” (rebranded) operating system.
But here’s the marketer’s trick played by Gates: He wanted it be a non-exclusive royalty deal. In other words: Microsoft was free to sell this operating system to any other computer company in the world.

IBM didn’t realize the growth opportunity, in software and perhaps Gates did.

Now this is the naivety of the IBM team, to which Gates played well.

Microsoft had zero leverage over IBM.
They were basically a supplier and If IBM wanted an exclusive deal, Gates would have signed it. But instead, IBM allowed Microsoft to receive unlimited distribution through all their PCs.

If IBM hadn’t made this mistake, Microsoft would still have been successful.
But not the $2 trillion company, as it is today.

There is even a film titled “Pirates of Silicon Valley” which is the best written story about what happened. The ending is phenomenal and tells you everything you need to know about what Gates did.

So what are the key takeaways – what can we learn?

  1. Every single massive success has luck.
    But you can also make your own luck through persistence, hard work and hustle.
  2. Build a unique brand or character where luck can find you.
    That is how IBM found Gates.
    They thought of him as someone who could build their operating system.
    And as they say – the rest is history.
  3. One little decision is all it takes!!
    Here it was the difference between building an average company and becoming the world’s richest man.
  4. Luck plays an outsized role in so many success stories we know, yet is the most under-represented amongst the many common factors of success. Wish there was more humility to be straight up about it, to show things as they really are.
  5. Lastly, how Gates got the meeting with IBM – courtesy his mother, who was on the board of IBM is another story altogether – you ofcourse need connections!!
    Right one at the right moment!!

Lastly, as much it’s about luck – it’s also about being a great marketer. How Gates understood the market and with his research was able to read the trajectory of growth – was all which could make it successful.
If you want to be a great marketer, leader or entrepreneur – it’s essential you understand the nitty gritties and learn how to decode the business!! Expensive B schools could teach that or a quirky choice of course from Grazing Minds.
Do check out here!!!