Bill Gates Talks About the Importance of Knowledge in Business

This article is an excerpt from the Shortform book guide to "The Third Door" by Alex Banayan. Shortform has the world's best summaries and analyses of books you should be reading.

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Are you trying to establish credibility in your field? How did Bill Gates do it when he was starting out?

Alex Banayan interviewed successful people from a wide range of fields to discover what insights, tricks, and motivations helped them find success. He chose interviewees who started out as unknowns and, thus, lacked credibility. One of these is Bill Gates, who shared how he got people to invest in him.

Continue reading to learn what Bill Gates has to say about the importance of knowledge in business, especially as you seek to build credibility.

The Importance of Knowledge in Business

When Bill Gates, co-founder of Microsoft, was trying to close a deal with IBM in 1980, he faced a credibility problem. IBM was the world’s largest tech company at the time, and landing a deal with them would allow Microsoft to dominate the tech field for decades. But, he was the youthful-looking head of an unproven startup. He had to convince IBM executives that he was a serious player in the field and could be trusted with their business. To do this, he went into their meeting armed with knowledge not only about his product but also about IBM itself. His story powerfully illustrates the importance of knowledge in business.

(Shortform note: Microsoft’s eventual success, which was started by clinching that deal with IBM, is an example of what Nassim Nicholas Taleb calls a “path-dependent outcome,” where the success of a company is determined not necessarily by the strength of its offerings, but instead by its luck in getting a key early contract. Taleb argues that while Gates was intelligent and hard-working, his product was not necessarily the absolute best available—but his good fortune in getting that early contract put his company comfortably ahead of competitors. Like with his discussion of Spielberg, Banayan doesn’t argue against the luck involved but instead focuses on how Gates (and Spielberg) met the challenges of that early connection, lucky or not.)

Know Your Product

Gates convinced IBM executives of his expertise in his product by talking fast and overwhelming them with detailed, technical answers to questions they raised. By discussing in-depth aspects of programming and software, he made it known that his knowledge outpaced his youthful looks.

(Shortform note: Gates was essentially trying to convince IBM executives that the benefits of his knowledge outweighed the risks of his youth and inexperience. Such calculations are part of any business deal, as companies try to balance the potential upsides and downsides of entering into a partnership with another organization.)

Know Your Client

Gates also leveraged his knowledge of IBM’s desires and fears to secure a more favorable contract than would have been expected of his new and inexperienced company. 

Desires: He knew IBM valued speed so he emphasized how fast his company could deliver—even deliberately overpromising what Microsoft was capable of at the time. He did so knowing that if he said what they wanted to hear, they’d be more inclined to work with his company.

(Shortform note: Although overpromising helped Gates in this situation, doing so can backfire. In the Mythical Man-Month, Frederick Brooks notes that when a company overpromises on a deadline, either to please a client or to outdo a competitor, they risk disappointing that client—or worse, adding complexity to a project that ends up causing errors. Brooks argues it’s better to be honest with a client as to your capabilities, even if it disappoints them, as that’s better than disappointing them by breaking a deadline.) 

Fears: Gates knew IBM feared potential lawsuits, and he used that knowledge to secure what he wanted, which was to keep the source code to his product a secret. He implied that if he disclosed the code to them and it was leaked, they’d be liable for billions of dollars. Fearful of this possibility, they agreed to his terms, even though normally, IBM, as the company with more leverage, would have been expected to extract the source code from Gates as part of the deal. Gates was thus able to establish his company as the one with more power in the negotiation, despite the fact that it was far smaller and less experienced. 

(Shortform note: By mining IBM’s fears, Gates was taking advantage of the paranoia that successful companies often harbor: what Jim Collins, in Great by Choice, calls “productive paranoia.” Gates himself let productive paranoia guide many of his decisions at Microsoft over the years, constantly imagining all possible threats the company might face. Collins argues that by considering every worst-case scenario, companies can prevent unfavorable circumstances from arising—as IBM sought to do with their paranoia of lawsuits.)

Bill Gates Talks About the Importance of Knowledge in Business

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Like what you just read? Read the rest of the world's best book summary and analysis of Alex Banayan's "The Third Door" at Shortform.

Here's what you'll find in our full The Third Door summary:

  • That there are three doors in life—but most people only know about two
  • Insights, tricks, and motivations to help you find your path to success
  • Advice from some of the world's most successful people

Elizabeth Whitworth

Elizabeth has a lifelong love of books. She devours nonfiction, especially in the areas of history, theology, science, and philosophy. A switch to audio books has kindled her enjoyment of well-narrated fiction, particularly Victorian and early 20th-century works. She appreciates idea-driven books—and a classic murder mystery now and then. Elizabeth has a blog and is writing a creative nonfiction book about the beginning and the end of suffering.

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