Bill Gates's career teaches unbeatable lessons in business management. Although he built his fortune on highly technical products, his business mastery is even more important than his technical skills. By using his basic strategy, you can emulate Microsoft's success in your company — and yourself.
Compete for success
Whatever business you are in, the principles for achieving market dominance are the same. Master your own market, using the six-part competitive strategy:
The Six-Part Strategy
1 Concentrate your effort on a market with large potential but few competitors.
2 Get in early and big.
3 Establish a proprietary position.
4 Protect that position in every way possible.
5 Aim for high gross margins.
6 Make the customers offers they cannot refuse.
The early success of Gates and his partner, Paul Allen — the result of supreme ambition grounded in reality — was founded on this strategy. It can be applied to anything from high-tech products to sausages — as long as they are a new, inimitable kind of sausage.
Use technological advances to achieve non-technical commercial aims.
Plan strategically
The best strategies aim to give you a position of clear "competitive advantage" such as that Gates enjoys. Use the following matrix to analyze your own strategy. Which of your products fits into which square? "Different and better" is by far the best.
Different and better, Different and worse
The Same and worse, The Same and better
Go for the best
For Gates, being the best is more important than being the first. Customers want "the biggest bang per buck" and will usually pay more for something that they perceive as better. Gates believes that you should continually invest resources in research and development to get the right products, and develop your products and services to find ways in which they can be constantly improved.
While not all Microsoft's products have achieved market leadership, in general they have been seen as sufficiently different — and effective — to support the quasi-monopoly that the company obtained through its connection with IBM.
Following the principles
Note the way in which Gates and Allen won that contract. These two absurdly young and confident entrepreneurs perfectly applied the six-part strategy outlined opposite:
They pursued a potentially huge market (built on IBM's PC sales), in which they faced only two competitors. They got in first, even though they originally had no product.
They kept the proprietary right to sell to anybody and everybody. They protected their IBM position by charging the lowest price for their product.
They earned a high gross margin on sales to third parties. They made IBM an offer it could not refuse — a perpetual licence to use MS-DOS, with no royalties.
Outwitting IBM
Gates and Allen gained a tremendous advantage from riding on the coat tails of IBM, which made it much easier to pursue the six-point strategy.
Early on, Gates and Allen realized that when IBM sought to attack the clones the microcomputer would become powerful enough to challenge IBM. They dedicated themselves to ensuring success for IBM's PCs, knowing full well that "there were going to be clones". They "structured that original contract to allow them. It was a key point in the negotiations."
With new PCs and software, since Gates had to carry on working with IBM, he "sunk hundreds of millions of dollars" and countless man-hours into the OS/2 joint venture. That folded in 1992, but Gates had won time to develop Windows. As a bonus, one OS/2 product became Windows NT.
