What ever happened to "Hardcore"?
No, I'm not talking about the adult entertainment industry. I'm referring to a term that is not precisely defined, but was often used by MSFT insiders in the 90's to describe extreme commitment, focus and/or technical depth. Executives would refer to being "hardcore" about this or that - meaning laser-focused, willing to do whatever it takes (sometimes to their legal detriment) and make the tough trade-offs required to ensure success. Importantly, it also meant shutting out other distractions regardless of their individual merit. In other words, it wasn't just about what you did, but also what you chose not to do. Hardcore was also characterized by a strict attention to cost-control. Sure, management still paid themselves a fortune back then (and even average employees were becoming millionaires within 3-5 years), but headcount increases - even as late as the late 90's - were widely reported to still require direct sign-off from either Raikes, Ballmer or Gates. This Spartan-like dedication served the company and shareholders very well through the period. It was a golden era for MSFT, and for much of the decade the company was generally regarded as one of the best run companies in the world, with one of the strongest management teams. Not surprising, many companies tried to emulate MSFT, numerous stories and articles were written about the management team and their approach, and Gates' own book Business @ the Speed of Thought was a New York Times bestseller.
Flash forward to today, and we see a very different Microsoft. Gone, seemingly, is the concept of being hardcore. Microsoft's strategy now - as best as I can discern it - is to sit back and wait until someone else either proves out a lucrative new market, poses a competitive threat (real or imagined) to existing profit streams, garners (in MSFT's mind at least) too much media attention, or simply pisses off Gates or Ballmer. Then, invariably way late to the party and often without any real plan for a successful and profitable market entry, the company plunges in. The results, more often than not, are predictable: The initial entry is poorly conceived, requiring major rethinking and redesign. Milestones, minimal though they may be, get missed by years not months. In the end, the entire exercise falls far short of hopelessly optimistic initial expectations, to the point where a positive payback is often no longer even possible/likely or MSFT is forced to retreat entirely (something that unfortunately they're loathe to do now given the $B's - or even $10B's in some cases [think MSN] - spent on these new "investments"). Joining this lack of focus on the strategy side - which a marketing friend of mine calls the "see-a-bear, shoot-a-bear" approach - is a new disregard for watching expenses. Yes, they did try to save $1B the other year by famously taking away towels (among other things). But much of that has now been rescinded and last year saw 10K new employees hired - the most since the pre-00 run-up. Then there's that recent $1B distributed to 900 senior managers for all their great work these past 3 years (cough, sputter, choke). The result? While revenue has nearly doubled since '00, net income is up only about 34%.
Seriously, if Steve Ballmer wrote a book about business management at MSFT today, would it be a bestseller? Could he even get a publisher interested? If you asked tech company CEO's who they were looking to as potential role models, how many would say MSFT versus say, GOOG or AAPL? I suspect very few. Heck, just today, long-time company follower Mary Jo Foley, in the process of switching from MicrosoftWatch to blogging independently, was asked "Why are you sticking with covering Microsoft? There are so many other companies doing cool things… isn’t Microsoft on its way out?".
So, assuming I'm correct, can what's wrong be fixed and if so, how? I think it can be, although probably not with Ballmer still remaining as CEO. Somewhere along the line, MSFT seemingly figured it was entitled to its success and didn't have to earn it any more. A big part of that, perhaps, was the wide barrier to entry (some would say "monopoly") - at least until Linux/OSS came along. But imo another key factor is/was the massive cash position. Having tons of money, while generally great, can have major detrimental effects on focus, creativity, initiative and accountability. One of the best discussions of this that I've seen, is by Greg Gianforte, CEO and founder of CRM provider RightNow. You can find excerpts here and here.
Although he's focused on startups, the lessons imo are very applicable to MSFT and deal with what happens when you have cash to burn versus when you don't (bootstrapping). For example:
Bootstrapping ensures that you build your business on a legitimate, real-world value proposition. When you’re Bootstrapping, you’re forced to deal with customers and to fulfill their needs from Day One. If you have a lot of external funding, on the other hand, you can be fooled into thinking you’ve already created an actual business just because you’re paying salaries and rent. But you haven’t. You only have a business when you have paying customers. Bootstrappers know this instinctively, and never lose that customer focus.
Bootstrappers initiate the critical sales learning process sooner, not later. Selling is the hardest job of all. You have to learn how to be absolutely great at selling your product or service, and then teach others how to be absolutely great at selling it too. If you have too much cash-on-hand, it will take away from the urgency of initiating this process—so you wind up delaying the day when you screw up your courage, pick up the phone, and ask for that First Order. Bootstrappers are forced to start selling immediately as a matter of survival, which means they become better at selling sooner than their venture-funded counterparts.
Bootstrappers don’t waste money; they make it. If you have $100,000 or $1 million in funding, what do you do? Leave it in the bank? Of course not. You go out and spend it—or, to use the commonly accepted term, you “burn” it. This has actually become an accepted practice! Venture funding actually encourages the start-up to waste money long before a viable business has been established. In a Bootstrapping model, on the other hand, waste simply can’t occur because there is nothing to waste.
Bootstrappers are less likely to make big, fatal financial mistakes. Because they don’t have huge amounts of cash, Bootstrappers can’t make the kinds of huge mistakes that often destroy venture-funded companies it.
Bootstrappers are forced into unconventional thinking. Necessity truly is the mother of invention. Without a big cushion of cash, Bootstrappers are constantly forced to solve problems creatively. This results in innovative, outside-the-box approaches to everything from product design and manufacturing to marketing and sales.
See any lessons there for Xbox? MSN? MBS? Zune? All of them imo would have been better off had they followed this approach (or may never have been allowed to start). So in a nutshell, that's what I think MSFT needs to do - get back to its roots and think like a startup. Assume that no one owes it a market, and no "emerging business" group should consider cash an infinite resource. Also, recognize that massive windfalls increasingly go to those who stake out new frontiers early - not those who belatedly enter and try to steal them. And yes, it means being 100% accountable for results - not bonusing yourself despite massive failures. MSFT has been playing defense for much of the past decade and it's not working any more. Thrilling customers with innovation (versus merely meeting the minimum needs or worse, charging them for beta-testing) is now the bar for success. Jumping in late, with largely derivative products (i.e. ZUNE), isn't likely to be successful or rewarded highly. And as we've seen, it may even piss off existing partners - which are one of MSFT's crown jewels. It's time to go back on offense, lead not follow, but with a well thought out and disciplined plan. If I hear one more MSFT executive excusing their late entry and obvious strategy/product/execution shortcomings with "Well, our goal was really just to begin a dialogue with our customers", or "Don't worry, the XYZ market revolution has only just begun", I think I'm going to puke.