Hire Steve Ballmer as First Business Manager
Setting
Microsoft in 1980 was a 30-person company run by programmers. Bill Gates and Paul Allen handled business negotiations themselves, but the IBM opportunity required professional management. Gates reached out to his Harvard dormmate Steve Ballmer, who was at Stanford Business School.
People
- Responsible: Bill Gates
- Approvers: Paul Allen
- Consulted: Steve Ballmer
- Informed: Microsoft employees
The Candidate
Steve Ballmer's background:
- Education: Harvard (Math/Economics), Stanford MBA (dropped out)
- Experience: Procter & Gamble brand management
- Connection: Gates' Harvard dormmate, close friend
- Personality: Intense, analytical, legendary energy
Alternatives
Option A: Continue Founder-Led Operations
Pros:
- No dilution
- Simpler decision-making
Cons:
- Bill and Paul stretched thin
- No professional management experience
- IBM negotiations required dedicated focus
Option B: Hire Experienced Executive
Pros:
- Proven management track record
- Industry connections
Cons:
- Cultural fit risk with young company
- May not understand software business
- Less loyalty than personal friend
Option C: Hire Steve Ballmer
Pros:
- Gates trusted him completely
- Business training (P&G, Stanford)
- Understood technology (Harvard math)
- Willing to work Microsoft pace
- Young enough to grow with company
Cons:
- No tech industry experience
- Significant equity required (8.5%)
Decision
Chosen: Option C — Hire Steve Ballmer
Ballmer joined in June 1980 as employee #30 with 8.5% equity—a founder-level grant that would make him a billionaire.
The Compensation Negotiation
Ballmer's offer:
- $50,000 salary (significant for 1980)
- 8.5% of Microsoft
This equity stake was unprecedented for a non-founder. Gates' reasoning:
- Ballmer was essential, not just helpful
- Microsoft would grow enormously or fail
- Better to share a big pie than own all of a small one
Immediate Impact
Ballmer's first assignment: the IBM deal.
- Managed relationship with IBM's lawyers
- Coordinated technical deliverables
- Handled commercial negotiations
- Freed Gates to focus on product
Without Ballmer, Microsoft might not have successfully navigated the IBM partnership.
Consequences
Positive
- +Operational excellence — Microsoft scaled professionally
- +Sales machine — Ballmer built enterprise sales organization
- +Gates complement — Product visionary + business executor
- +Loyalty — Ballmer stayed 34 years
Negative
- −Equity dilution — 8.5% was substantial
- −Gate-Ballmer dependency — Company relied heavily on their partnership
- −Succession complexity — Ballmer's eventual CEO tenure was controversial
The Partnership
Gates and Ballmer developed one of business history's most effective partnerships:
| Gates | Ballmer |
|---|---|
| Product vision | Operational execution |
| Technical depth | Business breadth |
| Strategic thinking | Tactical implementation |
| Reserved | Explosive energy |
"There was a year where they didn't speak" during OS/2 tensions, but the partnership endured.
Long-term Impact
Steve Ballmer:
- Became President (1998)
- Became CEO (2000-2014)
- Grew revenue from $23B to $87B
- Built enterprise business (STR-002)
- Currently owns LA Clippers ($2B+)
The $50K salary + 8.5% equity is one of the best employment deals ever made—for both parties.