MSFTextrememakeover

Thursday, September 21, 2006

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.

6 Comments:

  • I totally agree. And even more to the point, I think that we need to start funding internal start ups. So what if an internal start up only grosses $10M. If we only spent $3M on it, that's a good return. We don't seem to want to think outside the box. If it doesn't fit out licensing model, engagement model, marketing model, product wave or whatever drum beat you're marching to, we just don't do it....wrong wrong wrong. We suck.

    By Anonymous Anonymous, at 4:38 PM  

  • The fire's gone because the ranks of Microsoft's middle management - managers of managers up to junior VPs - are not used to scrapping for survival. They grew up during the Party Times when so much cash was pouring in we couldn't evaluate talent based on revenue. There were so many trailing zeros sloshing around, increasing revenue seemed so easy none of them bothered to learn how to do it. Instead, they learned how to grow their own personal careers.

    These are the people who now make plans and schedules and drive execution, but 90% of them are more interested in getting their way than in getting something done. Instead of enabling execution and greatness, they block it, trying to run out the clock on (internal) competing ideas until nothing is left but theirs. It's a grand-scale version of the joke that committe decisions are made by the guy with the biggest bladder because he's the last one left in the room.

    I believe it's not so much the cash flow into the company, but the skewed distribution larding up "top performers" and stiffing the rest. Helping someone else make their idea successful gets you a 2% raise and a "low-promotion velocity" label. Getting your idea implemented, whether the product is sucessful or not, gets you SPSA grants and italian villas.

    This is what's wrong, this is what has killed the fire. People are still "hardcore", but about their careers instead of their work.

    Lean budgets won't solve the problem unless you make it clear market failure means zero bonus, no stock, and termination for the leadership.

    By Anonymous Anonymous, at 9:59 PM  

  • What do you think of this program http://www.internetnews.com/bus-news/article.php/3496616 ; http://seattletimes.nwsource.com/html/businesstechnology/2002263305_microsoftip05.html

    If MS was able to capitalize on its innovations and inventions and quickly bring them to market would it be licensing its IP to start-ups??

    MS can still invent and innovate like no other company. But it can't deliver or bring to market these inventions in a timely fasion as evidenced by Vista and Office 2007. It's sad that Vista and Office 2007 open source clones already exist - they've copied MS' innovations and brought them to market quicker than MS.

    It's also sad that MS can not fully exploit its IP and is now licensing it to start-ups. The next MS, Apple, Google is more likely to emerge from this.... than MS re-tooling itself and recapturing its glory days.

    I'm still optimistic though... some of the brightest and most passionate people are still at MS. And if not MS, then who?

    By Anonymous Anonymous, at 10:14 PM  

  • "What do you think of this program"

    If this is for me, the link doesn't work, but suspect I know what you're talking about. If so, it's a copout but better than leaving that technology to gather dust and might save some future anti-trust grief (e.g. "Gee, look at all the technology we licensed to others). More broadly, Rashid's constant denials aside, I think MSFT's return on its R&D investment has been abysmal and fault seems to lie both on focus (too many cycles spent protecting the crown jewels vs innovating) and then execution (self-evident). Agree it's not for lack of in-house talent and in fairness, it does seem to be improving - although like everything else, too slowly. Unfortunately, I think the latter is a reflection of being driven to it by increased competition vs valuing it inherently. That needs to change. Either that, or MSFT should conclude it's simply incapable of sustained [timely] innovation and offer a piece of the action to others who can be (including perhaps employees in their spare time).

    By Blogger MSFTextrememakeover, at 1:13 PM  

  • Dude, you took my question completely out of context. It was a tongue-in-cheek question that I already knew the answer to. If you read my blog more than just once, you would have known that I'm a Microsoft fanboy. Microsoft is not on it's way out, but the industry is trying to make it look that way.

    But thanks for trying to spin my words to suit your purposes. At least you linked to my post so people could read it for themselves.

    By Anonymous Robert McLaws, at 11:47 PM  

  • "But thanks for trying to spin my words to suit your purposes"

    FYI, I didn't "spin" your words. I quoted them and linked to the article. At the time, I didn't know what your motivation was in asking that particular question - only that the question had been asked. But I'm happy to approve your comment in order to clarify. BTW, your own admission that this is a prevalent industry perception, is really the point I was making.

    By Blogger MSFTextrememakeover, at 10:36 AM  

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