7 Timeless Lessons From Bill Gates' Favorite Business Book
Gates says he asked Warren Buffett back in 1991 what his favorite business book was, and Buffett responded by sending his personal copy of "Business Adventures."
Gates fell in love with the storytelling. He writes:
Brooks's work is a great reminder that the rules for running a strong business and creating value haven't changed. For one thing, there's an essential human factor in every business endeavor. It doesn't matter if you have a perfect product, production plan and marketing pitch; you'll still need the right people to lead and implement those plans.
We've gone through "Business Adventures" and highlighted some of its key lessons that are still applicable today:
Innovators need to keep innovating.
Gates writes that one of the most instructive stories in the book, especially when taken in a historical context, is the article with his favorite title, "Xerox Xerox Xerox Xerox." Brooks chronicles how Xerox recruited researchers to develop the product that would replace the mimeograph machine and change how offices worked around the world. After the Xerox 914 hit the mass market in 1960, "xeroxing" a document soon became office parlance. Five years later, Xerox brought in $500 million in revenue.
Move a few years into the future, beyond Brooks' account, and you'll find that Xerox's leadership became comfortable resting on its laurels. This attitude would eventually lead to huge losses in the late 1970s as competitors started releasing their own photocopiers. Gates explains how this could have been avoided:
Starting in the early '70s, Xerox funded a huge amount of R&D that wasn't directly related to copiers, including research that led to Ethernet networks and the first graphical user interface (the look you know today as Windows or OS X).
But because Xerox executives didn't think these ideas fit their core business, they chose not to turn them into marketable products. Others stepped in and went to market with products based on the research that Xerox had done. Both Apple and Microsoft, for example, drew on Xerox's work on graphical user interfaces.
I know I'm not alone in seeing this decision as a mistake on Xerox's part. I was certainly determined to avoid it at Microsoft. I pushed hard to make sure that we kept thinking big about the opportunities created by our research in areas like computer vision and speech recognition.
Don't release a product before it's ready.
Xerox's initial success is important to look at, as well.
Joseph C. Wilson, the company's founder, inherited The Haloid Photographic Company in the late '40s. After learning of the physicist Chester Carlson's invention of an electronic printing machine, he made an agreement with Carlson and decided that his company's future was in finding a way to turn the experiment into an easy-to-use office tool.
Wilson took the new name of this copying process, xerography, and renamed his company Haloid Xerox in 1958, while the xerography machine was still in development.
Wilson's board grew anxious as he insisted on the years of R&D the machine required, and Brooks explains that even the researchers weren't convinced they could create a marketable product. Wilson could have given customers a cumbersome product, but it likely would have bombed and then later improved upon by a competitor. But $75 million later, the Xerox 914 made Wilson and his executive team rich and Xerox a household name.
Corporate culture matters.
Brooks expresses fascination with Wilson's do-gooder rhetoric, concluding that it was genuine.
Today, many companies hype their compassionate corporate cultures, but it was less common in the '60s. Wilson believed that it was his duty to donate millions of dollars to charities and universities and to have progressive hiring policies during the civil rights movement.
Though Wilson's unorthodox ideas initially faced pushback, it's widely accepted today that beyond just doing good for others, corporations with a charitable mission or flexible benefits like generous leave for new parents attract motivated employees and promote employee retention. And it's good PR, too.
Don't let egos trump research.
Another one of Gates' favorite case studies in "Business Adventures" is the story of the Ford Edsel, which remains one of the most disastrous product launches in corporate history.
Ford's executives decided that they would use research to develop the perfect car for middle-class Americans. Its designers and marketers spent two years gathering suggestions from the public and testing ideas on focus groups. But after all that research, Ford's executives did what they wanted.
They also tried to please everyone instead of focusing the brand. Ford debuted the Edsel in 1957 in 18 variations, none of which seemed to target a particular audience.
As for the name, the chairman of the board decided at the last minute that the car would be named after Henry Ford's son Edsel, dismissing the list of names that took endless hours to compile.
Don't put yourself in a situation you can't get out of.
Before the car was finished or even named, Ford began promoting teasers for the "E-Car," which promised to revolutionize the automobile industry. Brooks says that the executives never even considered failure an option, creating an entire Edsel division and signing distribution contracts with dealerships before the vehicle was completed.
The stock market took a nose dive in the summer of 1957, and people stopped buying mid-priced cars. The Edsel was set to launch in 1957. Had Ford's leadership acted more cautiously and avoided betting so much on the Edsel, they likely would have been able to avoid losing $350 million.
If you fail, accept it, learn from it, and move on.
Despite the countless mistakes that Ford's leadership made with the Edsel, Brooks found that no one would take responsibility for the failure and felt they had done everything right.
Edsel marketing manager J.C. Doyle even tells Brooks, "People weren't in the mood for the Edsel... What they'd been buying for several years encouraged the industry to build exactly this kind of car. We gave it to them, and they wouldn't take it. Well, they shouldn't have acted like that."
Managers must communicate clearly with their employees.
Brooks also tells the story of the 1961 price-fixing scandal among 29 electric companies. He looks particularly at the biggest party involved, General Electric, where employees worked on their own to profit from their illegal actions. So many people were lying or withholding the truth from each other that Brooks says it was "a breakdown in intramural communication so drastic as to make the building of the Tower of Babel seem a triumph of organizational rapport."
Brooks writes that even after researching the case thoroughly, he couldn't tell if the higher-ups were responsible or at least aware of the price fixing because GE had a culture where nobody seemed to communicate with each other. Multiple employees even testified that their bosses would often say things with a wink, making it difficult to ascertain if what they just said was what they actually meant. Brooks writes:
[T]he clear waters of moral responsibility at G.E. became hopelessly muddied by a struggle to communicate - a struggle so confused that in some cases, it would appear, if one of the big bosses at G.E. had ordered a subordinate to break the law, the message would somehow have been garbled in its reception, and if the subordinate had informed the boss that he was holding conspiratorial meetings with competitors, the boss might well have been under the impression that the subordinate was gossiping idly about lawn parties or pinhole sessions.
Specifically, it would appear that a subordinate who received a direct oral order from his boss had to figure out whether it meant what it seemed to or the exact opposite, while the boss, in conversing with a subordinate, had to figure out whether he should take what the man told him at face value or should attempt to translate it out of a secret code to which he was by no means sure he had the key.
After an extensive SEC investigation and trial, GE was fined $437,500 and three employees were sent to jail for 30 days.
The rest of "Business Adventures" reads like an intriguing history lesson in corporate America. Brooks waxes on the irrational complexities and loopholes of the income tax code and looks at the history of the Federal Reserve. He chronicles the story behind the 1966 ruling that bolstered the definition of insider trading and illustrates other failed schemes that have shaped Wall Street.
The book will be reprinted in September and is currently available as an ebook on Amazon.