Steve Ballmer: Scaling the digital revolution

0:00After I'd been here, I don't know, two or three weeks, I went to Bill and said, look, we were 30 people at the time. And I said, we need 18 people. Steve, I didn't ask you to drop out, to bankrupt this company. And I was living with Bill, and we didn't speak for three days. That's Steve Ballmer, Microsoft CEO from 2000 to 2014, and my former boss. As Microsoft celebrates its 50th anniversary, I sat down with Steve. We talked about his 34-year tenure at the company, A time when it went from having only 30 employees to becoming one of the most valuable companies on the planet. We discuss how growing up as a shy kid still influences how he develops relationships with everyone.

0:44From software engineers to the players on the LA Clippers. My conversation with Steve Ballmer, up next on Tools and Weapons. Well, Steve Ballmer, Steve, thank you for coming by. Microsoft's second CEO. We're approaching our 50th anniversary as a company, and I just have to say thank you. And a great opportunity to have a conversation together, so thank you. Thanks. I'm real excited to be here and to just spend some time with you, Brad. So let's start with 1980. You're a business student, MBA student at Stanford. Life brings you up to Microsoft here in Redmond. Tell us about that. Yeah, I was in business school at Stanford, so to your program.

1:29I was interviewing for various jobs, trying to decide what to do. And then I get this call from Bill and Bill says, hey, how you doing? Haven't talked for a while. Hey, we're looking for a business person. Steve says, yeah, you know, too bad you're at school. And I said, yeah, I got another year. And then Bill says, ah, too bad you don't have like a twin. Be great to have you up here. Goodbye. goodbye. And I thought about it. There was no more obvious flirtation than that. I thought about it and said, you know, Bill's the smartest guy. I know this might be a cool thing to work with Bill. We kind of worked it out.

2:16And the deal was I'd come, I'd drop out and be here. But if by the end of the first summer, either he was unhappy with me, he could fire me, no harm, no foul. And if I was unhappy, I could quit. No harm, no foul, at least in terms of our personal relationship. And, you know, 34 years, I was here. And there was still a thought process, I think, that got you to stay here. Bill talks about the work he had to actually invest to make sure that you stayed. And, you know, being as young as he was, he didn't rely only on his own devices. I think he turned a little bit to his parents, as I recall. Yep.

2:58Bill and I had an interesting slash difficult first month. After I'd been here, I don't know, two or three weeks, I was talking to all the people in the company and there was more work than we could honor for our customers. And I went to Bill and said, look, we were 30 people at a time. And I said, we need 18 people. Steve, I didn't ask you to drop out, to bankrupt this company. And I was living with Bill and we didn't speak for three days. Three days, we didn't speak. But after three days, okay, we talk and Bill says, prove to me you can hire one good person and then we'll worry about the other 17.

3:37But in the process right before that, I decided I'm not dropping out of business school to be the bookkeeper essentially for a 30-person company. That didn't fit with me. And I was, so I talked about going back and we were having this argument about people and, you know, sort of, I can't remember if it was right before or right after the argument. Bill, Bill's dad and I go out for dinner. I still remember there's a place called The Butcher that was here in Bellevue. And, you know, Bill's trying to convince me to stay. And Bill's dad is kind of an imposing, serious character. He's six foot seven or whatever he was.

4:18You know, a little more imposing. But I think it was that dinner where Bill said, Steve, Steve, you don't get it. We're going to put a computer on every desk and in every home. That was the sales pitch as I remember it. And, of course, that became a company motto for many, many years. And I wound up buying a house a few weeks later and staying. And the rest is history. So to speak. You played such a role in creating that history. And Bill, when I was talking to him, was reminding me, he's reminded everybody through his recent book that he loved the code. He loved math. You two had in common this love of math.

4:59But you took that love of math to what I would almost characterize as every aspect of what's needed to run a great business. The marketing, the product development, the sales. How did you develop the breadth of, I'll just say, the range that you ended up pursuing? Look, I was blessed with some skills, numerical skills. And I was extra motivated twice in my life to get good at math. In second grade, my dad got transferred overseas. And we spent one month in the international school in Brussels, where I think I dragged you one time. Yeah. Yeah. And my second grade teacher told my parents, Steve is addled because of math.

5:44He will have trouble in the third grade. Wow. So I spent the summer between second and third grade studying math because I did not want to be failing in third grade. I spent three weeks in third grade because I had studied so hard and then they put me in fourth grade. But it was all because I felt like I was failing the math. Interesting. I transferred to, I moved back to the U.S. After eighth grade, I got a scholarship to go to this private school. I get to the private school and I'm a year behind in math. Everybody else has had one year of algebra. I haven't. And so I'm feeling very behind again.

6:21And I had a nurturing math teacher who, you know, sort of in March said, I think if you wanted to, we could do algebra two while we're finishing up algebra one, and then you would catch up with the rest of the kids. So I was behind again in math. So math, I had a lot of my motive force, if you will, in math. I'm good at it. I majored for a while until I switched to applied math when I was in college. But math to me is something that describes pictures. It's not just sets of numbers. Not every picture can be described in numbers, but many pictures that are important can be described in numbers, in my opinion.

7:03And, you know, it's always about seeing the forest for the trees. People come, they'd come to meetings, they'd be afraid. I wanted to go in some tiny, because I always asked about numbers. It wasn't, do you actually memorize the number? But do you see a picture? This is the picture I see. Let me ask you a couple of questions to verify whether my picture of the situation is right. and people would think it was about the numbers. No, it was about the pictures. What do the pictures really tell us about what customers we're weak with? What's going on? Where's our revenue? Are we weaker in, I don't know, small businesses?

7:37Are we suffering in the transportation industry with this particular set of products? Numbers tell stories.

7:52I want to go to your years as CEO, starting in 2001. 2000, I guess it was. 2000. January of 2000. Yeah. Having been, I started reporting to you directly in November 2001, it was an extraordinary period, going all the way up to basically February of 2014. the company enjoyed really uninterrupted growth. The company's revenue tripled depending on how you account for stock compensation. The company's profit grew even more. But there were so many challenges as well because by then Microsoft was sort of on the king of the hill and there were so many people always trying to sort of knock us off that pedestal.

8:39How do you think about sort of what the most sort of rewarding triumphs were, the hardest challenges during that period of time? Bill and I flipped. I became CEO. Bill became chief software architect. And then you realize there's a difference mentally that nobody can prepare you for, which is absolutely the buck stops with you. You own no matter what you think. When you're not CEO, you wind up deferring. When you are CEO, it is your job to listen, but you can't defer. You can agree with somebody else's recommendation, but you're not deferring. You're agreeing. and so that that's the difference but it didn't I didn't really feel like I had more skin in the game it just had a different role uh as it as it relates to things so yeah there you know was it hard to build our enterprise business well we started that in the late 80s it didn't really come into fruition really where people would say yeah they're an enterprise company till the late 2000s or so, maybe even early 2010s.

9:52Of course, now people don't even think of Microsoft as a consumer company, but that's really where we grew up. So a lot of business in general is about innovation, but it's also about competition. And there's all kinds of ways to understand, to build a great product and fail. And there's all kinds of ways to copy and fail. And there's all kinds of ways to succeed on the flip side of those things and really sorting that through. And where are you? It was a fabulous, fabulous run as CEO, but no more fabulous than the run before I was CEO. It was just the buck stopped with me in that instance. We had a new kind of competition, new for the company called Free Software.

10:41And, you know, that time it took the form of something, you know, Linux and something called OpenOffice, which I'm sure most employees of Microsoft today probably haven't even heard of, to be fair. I did a piece of math that said, since I left in 2014, I'll bet there's only about, of the total population of Microsoft today, it would be between 5 and 10 % of the people here today were here when I was here. And then I think about things and they are ancient history, but they are important. So you say you go from competition to competing against something free. Wow. That was a different way to have to think about things.

11:19It was a different, you know, how do you beat free and price isn't the only thing, but we went through that and thank God we were successful. If we're not successful, the company's not sitting here with an office business, let alone a Windows business, let alone a server business, because Linux and open office, that was the heart and soul of a competitive attack. And our ability to be a learning organization, to be able to throw off, you know, people would always say, well, that's not the way Microsoft does things. That's not our business model. We're a platform company. Whatever the rhetoric was, you know, if the company has that too locked and loaded, it helps.

12:00But when you're going to do new things, you really do have to be able to think differently. I get a little fired up about things, and I'll tell you, there's not much that gets me more fired up than the chance to start selling, delivering, and letting customers enjoy Windows 7. I do think there's some, I will almost say some life lessons, that I, in my own opinion, speak to anybody, whether they were at Microsoft or whether they've never even worked in tech at all. To be successful for the period of time that you were here for, say, 50 years, especially once one is a diversified company, requires a lot of resilience.

12:45Because by definition, not every year is a success. And once you have four or six or more businesses, you're never at a point where every single one of them is say firing on all pistons at the same time you're likely to have you know some things that are doing better than others what's the mindset that you think is sort of indispensable for that kind of approach yeah i think you have to have great you have to have some combination of irrational confidence and realism irrational confidence that says, yeah, everything's a mess right now, but it's going to be okay. We are smart enough. I'm smart enough.

13:27We're going to fix this. Yes. But if you're not realistic about where you are, your irrational confidence cannot carry you through. It's something I've seen in basketball. You have to have a level of irrational confidence to be great. Some people, sometimes you can call it cocky, but it doesn't have to manifest itself that way. You have to have some irrational confidence. So for example, we were nothing as, as you know, in the enterprise business through talking to customers, me, many others, we developed a really clear view of the offering. It was product, the way they go in together, it was service, it was support.

14:07It wasn't, it was pricing. It wasn't one thing, but we had a model and we had irrational confidence with the presence of IBM and Oracle and others, we were going to be the enterprise software company. And guess what? It may have taken us 15 years. So it takes us realism. It took irrational confidence and it took a hell of a lot of persistence. Does that always work? I've learned it doesn't. It doesn't always, but it can work in many instances. Microsoft's got a good search business today. I'm proud of what we did, but we had an irrational confidence that we were going to have over 50 % share. And the irrational confidence can't come from we're just going to follow our model and it always works.

14:56So we're Microsoft. We give this thing a little bit of Windows flair and a little bit of synergy with Windows, which is kind of where the company was coming from at the time. Obviously, the business still, you know, Windows is an important piece, but things have rotated. But just saying our model succeeds with everything gets the realism part of it out of the equation. Irrational confidence and realism, I think, are sort of the distinguishing factors. Oh, and persistence. Yeah. In the roughly 11 years since you stepped down as CEO of Microsoft. You've pursued this fascinating array of things. Owner of the Clippers, the basketball team, USA Facts, really sharing information with the public.

15:43The work that you and Connie, your wife, do when it comes to philanthropy. Are there parallels between business and basketball that you've found? Oh, yeah. More parallels than anybody would ever think of. Okay. Businesses want to be accountable. Basketball teams and players are far more accountable than any business I've ever known about or run. Why? Every 24 seconds, you're getting a report card. We either scored, we didn't score. The other team scored or didn't score. Every 24 seconds, you get a report card. Then the game's over. You either won or lost. It's not like even a business, hey, we're going to get it back next quarter.

16:26We got stuff in the labs to fix the situation. No, you can't pretend. You can't hide. Every movement, every player's made, every statistic about how fast they were running, what they were doing, how they played. You're not going to find a place of higher accountability. And I'm not bashing business, but I learned more about accountability, lessons that might have been useful for me actually when I was running Microsoft. I think both basketball players and companies have to get in the weight room. Now, what do I mean by that? You need to develop new skills. Weight room, gym, you have to be developing new skills before you know you need them necessarily.

17:14Look, I'm going to assert that Microsoft would have a whole lot of problems and a whole lot of things it does if we hadn't been investing in hardware through a variety of lenses. Go back to the old mouse. Go through what we were doing with Xbox. But the core capabilities and people and talent, building that muscle started with people who worked on things like Xbox. I can't remember exactly, but I think the Silicon team, at least I was reading the Silicon team that works on things that will be important for AI and Azure. I'm pretty sure those people started working on Xbox, if I read correctly, because there was an ability to develop skills, to grow, to grow in a context.

17:58And I think that's another, you have to be constantly building new skills and reinventing yourself, even before you know what the ultimate application. Otherwise, you can't jump into new areas.

18:19One of the biggest decisions that you were involved in was actually playing that role of a member of the board, the existing CEO on who your successor would be, Satya Nadella, an engineer. An engineer who, you know, you had to say, can he do it all? You know, be the person who can run this diversified company. How do you think back about that thought process and that decision? Let me just say something in my mind. Satya is a very technical person. And one of the things that was important to him, to the company, later to the board, was we were able to get him a lot of different experiences. And he did well at all of them.

19:08So we said, hey, you don't really know anything about an area called general ledger and accounting, but why don't you go run this thing called dynamics? Probably called Great Plains at this time. I can't even remember. Okay. Then, oh, what about very rapidly? We moved him quite rapidly. We said, we got to get this search thing together. This is the high potential guy. This is a guy who can learn new things. He's technically minded. Boom, throw him a new problem. And he's building new skill sets along the way. Machine learning, the notion, a different sort of style. Old programs were supposed to generate the right answer.

19:45Many new programs are supposed to generate the statistically best answer. And you only know after whether it was precisely the right answer. And so in that sense, he had all these experiences. He clearly had good people skills. He clearly had an affinity for product. He clearly had a knack for understanding how to think about particularly our enterprise selling operation. I knew we needed to give him even more stuff. So we actually, me, Bill agreed, our senior leadership team, this is a guy we should be thinking about for the future of the company. And so when it came time to find my replacement, I kind of knew up front, like we've been grooming this guy for about 10 years, 15 years.

20:38This guy is really talented. So he gets the job, obviously. I had one great conversation with him, which was, quote, an interview. And he told me a story about his dad. And, you know, his dad was a kind of a senior official in government who worked with people who became the prime ministers in these top jobs. And he said, told me the story. His dad told him, look, Satya, a lot of people come to the leadership positions in government and they're just not ready. But guess what? They learn what they don't know pretty well on the job. Interesting, yeah. But the key there was he realized that. He could recognize.

21:24I mean, there was a combination, I guess I'll say, of the irrational confidence, which I can get there, partly backed by kind of his father's experience, as well as a lot of realism about where he was. He had huge skills in many areas of the business, more than anybody else. He knew not only software companies, but he knew more of the breadth of this place than anybody. He's done an incredible job with the company. They remain a Microsoft booster. I never know whether I'm supposed to say we or you or they talk about Microsoft. I lapse into we pretty easily, I will say. And, you know, if you look, we had a cloud business that we had was, I'll call it nascent when I left.

22:09That thing didn't have to succeed. It didn't. It succeeded because Satya was able, with the team of course, but to give it what I'll call the jet fuel that's propelled it. This company's had three CEOs. They're all right here. This is all... Satya is thoughtful. Satya is cool. And is absolutely the perfect choice as our new CEO.

22:44The last thing that I want to ask you about is sort of picking up on that because, you know, you made a thoughtful decision or a bet on Satya as the CEO now 11 years ago. Typically, somebody in your position would have handed over the keys, so to speak, said, good luck, I wish you well, and I'll maybe follow you from afar or a little closer. You have continued to bet on the people of this company from Satya on down every day since in a way that is truly extraordinary. And many people would have left and said, that chapter of my life is done. I'm going to sell my stock or I'm going to sell most of my stock.

23:33And you have not. I believe in the people. I believed in what we could do. I believed in the mission. I had a lot of loyalty. A little anecdote, I'll tell you. I joined a golf club in L.A. You know, I'm retired. I get to play golf and stuff. But they organized a little panel where a friend of mine studied up, interviewed me, you know, kind of fireside chattish, and then they opened for questions. And Charlie Munger, Warren Buffett's former partner, famous investor, he had said beforehand, hey, you know, if you call on me, I have a question. Okay. So he, you know, and he's not very mobile. He's in his nineties, but he puts his hand up.

24:16He says, Steve, I have a question for you. Why is it that when your partners and compatriots around there were selling their stock, you held on to yours. I know you're not that smart. And I said, no, but I'm not loyal. Well, let me just conclude by saying thank you. Call it the 10 % of employees who are here today and were here when you were CEO and call it the 90 % who have come since. Because I think you've captured here everything that you've given to this company and to all of us, the 10 % or the 90%. And a great reminder. I mean, it does take this persistence, this acumen, this commitment, but I think this interpersonal set of human dimensions that maybe starts when you're a grade schooler and don't think you can do math or make friends, and then you find out You can actually do both if you work hard.

25:19And along the way, actually, that loyalty to people is so important. Can I give you one more thing? You bet. There's something for the newbies who are on this call. I'll call you newbie if you weren't here at least 10 years ago. I used to say something repeatedly. It's still true. I love this company. Don't let yourselves down. Don't let me down. Go Microsoft. off. I'll second that. Thank you, Steve.