Bill Gates, Andy Groves, and Steve Jobs’ Second Strategy: “Make Big Bets, without Betting the Company”
By Zulfiqar Ashraf Chaudhry
Roseville, CA
Man accepted the responsibility—the “Trust (of God)”, while the heavens and the earth and the Mountains refused (33:72). David volunteered to fight the Giant Goliath, while much stronger and experienced men stood tongue tied and trembling. Why? Were these men fools?
Whenever a weaker person or company takes on a giant, like Microsoft taking on IBM in the 1980s, we think the weaker person does not stand a chance. However, when the weaker person succeeds, we usually attribute their success to mere chance or luck. However, if we look closely, we will see that the underdog had a specific strategy in mind: Gates had Windows, Grove had the audacity to go “single-source” on his microprocessors, and Jobs had the restless quest for “architectural evaluation” (from Motorola 68000 to PowerPC to Intel microprocessor). So, it seems that if David had the sling to slay the mighty Goliath, we –the Vicegerent of the Almighty, must also have a strategy to slay the conniving Iblees.
Be-Khatar Kood Para Aatish-e-Namrood Mein Ishq
Aqal Hai Mehv-e-Tamasha-e-Lab-e-Baam Abhi
Love fearlessly jumped into the fire of Namrud
Intellect is absorbed in the spectacle from roof ‐ top still.
Jumping into fire, without proper gear, might be ok for the Khalil-ul-Allah, but may prove fatal for most of us, including the great Sufi: Mansur Al- Halaj. So, when does one know the right time to make the “big bet”, without annihilating oneself, or bankrupting the company? We can hear the pundits saying, “You have to be at the right place, at the right time; you have to have all the necessary data; you have to be a good Muslim!” However, if one waits for the “right time”, the “right place,” and the “right data”, he will be waiting for a long time, perhaps until Azrai’l (the angel of death) arrives. In most situations, one must act. Even if the situation is muddy, the weather grey and foggy, and the data incomplete and conflicting. Also, one cannot wait until encouraging signs or miracles show up, like the Indian PM becoming a good Muslim. In other words, how can one “make big bets, without betting the company.” Yoffie and Cusumano provide some answers in their thought-provoking book, Strategy rules, through Bill Gates, Andy Grove, and Steve Jobs (GGJ).
Jim Collins, in his book Great by Choice, advises “fire bullets, then cannonballs”. That is, first test the waters (or the fire) before jumping in. First fire small inexpensive bullets (or projects) before firing big expensive cannon balls. After all, if your bullets are not hitting the right target, then there’s no point in firing the expensive and destructive cannon balls. As for GGJ:
“Gates postponed the break with IBM until Microsoft’s other lines of business were strong enough to keep the company afloat. Grove reduced the riskiness of his biggest bet by phasing in capital investment over time. And Jobs astutely timed his bet to lessen the company’s exposure to risk (p. 62).”
Big Bets of GGJ
Bill Gates:Gates’s greatest fear remained a breakdown in Microsoft’s relationship with IBM. IBM had been the 800-pound gorilla of the computer industry for more than three decades. It had set the standards for every generation of computing from main frames to minicomputers to personal computers. In 1990, IBM had $69 billion in revenue and $6 billion in profits. Microsoft by contrast (had) 1 billion in revenue and less than $3 million in profits. In 1990, when Microsoft released Windows 3.0, the first version of Windows to win widespread praise, IBM demanded the same terms for Windows that it had received for DOS—a perpetual low cost, royalty free license. Faced with this demand, Gates said ‘no’. He was willing to risk the number one nightmare scenario of (his) company and put his full force behind Windows. The divorce Microsoft had long feared finally happened without the dreaded results. Windows 2.0 established Microsoft dominance on the desktop, a position cemented with the release of the Windows 3.1 in 1982 and then Windows 95 in 1995. For almost two decades, Windows retained more than 90% of the PC operating systems market and generated roughly half of Microsoft’ profits. IBM’s new CEO, Lou Gerstner eventually decided to steer the company away from PCs (p 68-69).” Would Pakistan’s divorce from USA, and marriage with China, have the same profitable results?
Steve Jobs: Switching the microprocessor to Intel “was a huge bet (for Jobs). Not only Apple (would) have to rewrite its operating system to run on Intel chips, but Mac developers had to rewrite their application.” The cost of this switch was not only prohibitive, “$1 billion at a time when the company’s total spending on research and development was $500 million and profits were only $276 million,” this switch would render the old Macs obsolete. Why would anyone buy an old Mac, at a lower price, whose microprocessor would be obsolete, than buy a new Mac? But Jobs remained firm in making this expensive switch, while “burning the boats” as “there was no turning back.” In other words, he employed the same strategy that Tariq ibn Ziyad employed in 711AD, when Muslim forces invaded the Iberian Peninsula; or the Spanish commander, Hernan Cortes, employed in 1519 AD, when he conquered the enormously rich Mexico, with handful of comrades, with his new slings: guns. However, Jobs did not bet his company on any of his “big bets” of switching over to GUI, Intel’s microprocessors, or retail stores. He had enough reserve that had any of these bets gone sour, his company would have survived. According to Rubinstein, head of hardware engineering at NeXT and then Apple, “Steve would take risks that I wouldn’t take…. the guy had balls—he didn’t always decide the right thing, but he made decisions.”
Andy Grove: He used to say, “I might be wrong, but I am never confused." Unfortunately, we cannot say the same for ourselves or our fickle leaders. Groves biggest bet was to go for “sole-source” strategy. Groves had struggled for years to figure out how to escape the miserable industry structure.”
Every computer and electronics company had insisted on having multiple suppliers for key components to ensure both price competitiveness and reliable supply. This meant that semiconductor companies had to license their designs to competing firms.” This conventional way of doing business was eating into Intel’s profits. So, Grove decided to break away from this traditional and time-honored way of doing business. “There is at least one point in the history of any company when you have to change dramatically to rise to the next level of performance. Miss that moment and you started to decline.” The bet to sole-source the 386 was the moment for Grove and Intel (p 72).”” History proved Grove to be correct. Would history also prove Man’s acceptance of God’s Trust to be correct?
Learning from Mistakes
Gates’s Mistake: Bill Gates realized the threat of internet relatively late, but once he realized the gravity of his mistake, he immediately started a plan to correct his mistake. “Gates did not let Microsoft be swamped by the disruptive forces of the internet barreling down upon it. Instead, he changed direction and rode its momentum to even greater success.” This admission of mistake paid off in the end: “Internet Explorer, which had only 3 % of the browser market in 1995 compared to Netscape’s 80%, was the market leader by the end of 1998 (P 89).” While great leaders admit their mistakes and change course, we and our leaders almost never do, like Iblees. So, does that mean our end would be the same as Iblees’s?
Grove’s mistake: In 1994, “a math professor discovered an error in Intel’s new Pentium processor: a small design flaw produced a rounding error, when one very large number was divided by another.” This was an obscure error, which would happen “once every 9 billion calculations... or once every 27,000 years” for most users. Intel intended to correct this error on mission critical tasks, like launching of a shuttle, but it was financially prohibitive to correct it on every Pentium chip. However, media picked up the story and started fanning negative publicity, to the point, IBM—Intel’s biggest customer, announced that it would not buy Pentium chips! When this happened, “all hell broke loose.” Initially, Grove held his ground, but once he realized that with all this negative publicity, Intel’s good name will be tarnished, he made a U-turn and published “full-page ads in major US newspapers, apologizing for its initial handling of the Pentium processor flaw and offering every Pentium owner a new motherboard.” Interestingly, this admission of mistake, turned crisis into victory: “revenue grew 40% in the twelve months following the resolution of the crisis and profits jumped 56% (P 87).” In other word, admitting mistakes can be rewarding, while their denial can be devastating. Ask Adam (PBUH) or Iblees. Who was successful in the end?
Job’s Mistake: He wrongfully thought that no one outside Apple should be able to write applications for iPhone. “Job’s initial vision for the iPhone called for Apple to write all the apps. Conventional wisdom held that third-party applications could introduce viruses into the network or instability into the device and user experience, which most consumers would find unacceptable.” However, developers were breaking into Apple software and running unauthorized applications. Initially, Jobs resisted. But when he realized that “jailbreak” into Apple was inevitable, he gave in, and “in June 2007 that third party developers (were) allowed to create iPhone applications. One year later, there were 550 company approved offerings; 3 years later, 200 million users had downloaded more than 15 billion copes of available apps. (Thus), by pivoting to accept the open platform model, Jobs had turned what he once saw as a source of weakness into one of I phone’s greatest sources of strength (P 90).” It literally pays, both in this material world and the spiritual world, to be humble, like Adam (PBUH), and not arrogant and obstinate, like Iblees.
So, if David had the sling to slay the mighty Goliath, what strategy should we, the Vicegerent of the Almighty, have to slay the conniving Iblees? The strategy of all successful people: admit mistakes and correct course.
Moti samajh key Shan-e-Karimi ne chun liye
Qatrey jo thay mere Arq e Infa’al ke
His Grace gathered them as pearls
So shining and bright were the beads of perspiration of my remorse.
(Next, we will discuss GGJ’s third strategy: “build platforms and ecosystems—not just products.”)
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