Guest Commentary: I want to thank Paul Allen for writing his memoirs. It’s great to hear the story of the formation of Microsoft in his own words. His candor is surprising to some, but I think he is just telling it like he saw it. That is not to say that this is a balanced account of Microsoft’s history.  Paul’s stories are first-person accounts, from the perspective of a participant — and without displaying much empathy for the motivations of the other people involved.

In the Microsoft story, I entered as a young software developer just at the time that Paul was leaving.  Having just graduated from MIT, I showed up on a June morning in 1983 at Microsoft’s Northup building in Bellevue for my first day of work. With only 300 employees, Microsoft was not yet a household name; I had to explain to my family why I was headed out to the far corner of the United States to join a tiny little company, when I could have had any number of jobs from well known companies like IBM, Hewlett Packard, Texas Instruments, Digital Equipment Corporation, Xerox, or even Apple Computer.

Paul dropped by my office perhaps once that first year to say “hi” between trips. All I knew of him was that he and Bill founded the company together, and that he had been battling cancer. As new employees, my co-workers and I didn’t have much awareness of why he had left. As Paul’s book fills in, he was deeply unhappy with his relationship with Bill at the time and the stress of working at Microsoft while dealing with his cancer was too much for him to face.

I was eager to read details of how Microsoft got started. I think most readers who have followed Microsoft will be disappointed with this aspect of the book. The facts of the story have been out for some time, and Paul does little to add to what is commonly known. We get a few personal details like what kind of car he was driving or the apartment he was living in at the time he discovered the Popular Electronics magazine with the Altair computer on the cover. The details of Bill and Paul’s hacking on the Lakeside computer and other high-school adventures present new material that are quite interesting to read about.

The secret sauce of Microsoft’s early days

That first Altair BASIC programming language that Bill and Paul developed (with Monte Davidoff) was an amazing feat of engineering for which they were uniquely prepared.  Paul’s major contributions were in developing the tools for building their program.  He adapted the PDP-10 assembler to understand the Intel 8080 op-codes, and built the simulator that let them test their BASIC without having access to an actual machine.

In fact, it’s clear that being able to use these larger computers as a development environment was Microsoft’s secret sauce in the early days. Paul credits the cross-assembler and simulator he built with giving them a leg up on anyone else who might be trying to develop software using the target platform alone.  These early machines were just too limited and unreliable to make fast progress developing software on them directly.

Even as I joined Microsoft in 1983, we were still using this same strategy. We developed software on a Unix “minicomputer” using a CRT terminal to connect 2 or 3 developers to each machine. Our software was cross-compiled and downloaded to the target machine only for testing. While not quite a Teletype and paper-tape, it was not that far removed from the techniques they were using in 1975 to program the Altair.

Unfortunately, the reader of Idea Man will be distracted by Paul’s efforts to puff up the importance of his own role in creating what Microsoft was to become. No one can deny that Paul was an essential part of founding the company in 1975 or that he and Bill worked very hard over the next 8 years to build Microsoft up to an important provider of languages and tools in the new microcomputer industry.  Paul’s industry knowledge and connections were also instrumental to getting into the operating system market by negotiating the purchase of QDOS from Tim Paterson in 1980 and bringing him in later to help complete the first version of MS-DOS for IBM in 1981.

Paul seems to be trying too hard to establish his own reputation in this book.  Apportioning credit between people that work so closely together is very hard to do in a fair way.  I personally do not place a very high value on merely having an “idea” or claiming to have a unique “vision.” Paul states:

I was the idea man, the one who’d conceive of things out of whole cloth.

My most vital charge was to chart our future. Where Bill eyed tomorrow’s markets, I looked to a more distant horizon.

I would argue that in the evolution of technology, it is usually obvious to a very large number of people (if not the general public), what the future potential can be. Seeing the potential of a new technology is not the unique asset, but rather being able to create a business that can bring a product to market is the quality that separates success from obscurity.

Good ideas don’t guarantee success

Looking at the successes that Microsoft has had, it’s pretty clear that most of the Big Ideas were not home-grown.  Windows followed an idea originated at Xerox and elaborated by Apple. Excel was a better-done GUI-based clone of Lotus 123 than Lotus was able to make themselves. Merely having the idea for a new product, is not the guarantor of ultimate success. Success, in Microsoft’s case, came from a lot of hard work and iteration. It’s common knowledge that “Version 3” is the first edition of a Microsoft product that most users really want to be using.  Feedback and iteration, I would argue, are the keys to Microsoft’s successful products.

Paul Allen and Bill Gates in 1981. (Microsoft photo)

When Paul was diagnosed with cancer in September of 1982, he was already having a falling out with Bill, having sent him a resignation letter in June. But Bill tried to reset Paul’s expectations and keep him involved in the company with his own six-page letter in December. By February 1983, Paul had officially resigned, but kept a board seat. His cancer was in remission and understandably, he just knew that he wanted to enjoy life.

Paul’s initial contributions were great; he had helped create a company with 220 employees that reached $24 million in revenue by 1982. But then he was gone. His impact on future Microsoft product development was practically zero. The company was doubling revenue and employees each of the next two years and into the stratosphere beyond.

Paul makes much of busting in on a December 1981 meeting between Bill Gates and Steve Ballmer where they were discussing diluting Paul’s ownership of the company. Paul was understandably hurt, but I maintain that decision would have been the “right” thing to do in this situation. At that time, it was obvious that Paul was leaving the company, and was not contributing as much as a founder as others were. From my experience with startups today, I would not view it as healthy to have a non-participating founder retaining a large equity stake in the company. If the demands for capital or incentives for new employees outstrip the revenue that a company is bringing in (as it was, even for Microsoft in 1981), a company needs to be able dilute the current shareholders to more fairly apportion rewards to the active participants.

Yet, when Microsoft went public in 1986, Paul had still managed to retain over a 10% roughly 28% ownership of the company. [Editor’s Note: Number corrected since original post; thanks to Mike Slade in the comments.] I view this as a largess on the part of Bill Gates, who would have been within his rights and abilities to dilute the ownership of his former partner.  This gift resulted in a net worth of over $20 billion for Paul at its peak (estimated at $13 billion today).

Perhaps the most interesting chapters in the book deal with Paul’s failures. With great candor, he admits to poor negotiating tactics with NBA players, and losing $500 million as an owner of the Portland Trailblazers. He got stiffed by David Geffen into paying 18 times more than the other investors in the new DreamWorks movie studio (though he ended up with a 2x return in the end).  In the largest loss of all, he tells the story of losing $8 billion dollars in cable company Charter Communications, chasing his dream of the Wired World.

Looking for a unique competitive advantage

Here we can best understand the differences in style between Bill Gates and Paul Allen. Neither man continued to be a serious “software developer” in his own right past 1983.  But, where Paul chased ideals to predict the future direction of a technology, Bill kept a laser focus on the business outcomes.

Up until the mid 1990’s, I never saw Bill “green light” a project unless he felt that Microsoft had a unique competitive advantage. In every product review meeting, he would always ask why Microsoft would win in a new category. It was never enough merely to have a vision for a new technology, nor even to have the smartest people or development team; Microsoft had to have a unique ability to capitalize on a market.  This was later the seed of many of Microsoft’s problems with the Justice Department with claims of anti-competitive behavior and bundling.

I was hoping for more details from Paul on the other companies he had started using his Vulcan Ventures investment company.  Paul “invested in more than a hundred Internet, media, and communications companies” in the 1990s.  His record for business success has not been great with most of these. I wish the book would have talked more about some of the companies he founded here, especially where he was an early pioneer of multimedia authoring tools.

Paul’s sister, Jody, obviously has played a huge role in helping Paul manage his many ventures. She earns his gratitude in the book, but she remains largely anonymous. I would love to know more about her and her role in running the Allen Family Foundation and other ventures.

Paul’s startup companies have a reputation for being more hobby than business. Employees I’ve talked to seem less motivated by their work when they have such a casually engaged (though deep-pocketed) boss. Paul has spread himself too thinly, and has not been able to surround himself with the talented hard-driving managers he would have needed to make more of his ventures successful.

An outsized interest in life

While Paul seems too distracted to focus on his many businesses, he has some very engaging chapters about his experiences with travel, music, and recreation. He’s used his wealth to seize the day when it comes to “enjoying life.” One of his yachts, Octopus, would stick out past both end-zones were you to place it on Qwest Field (and would stand well into the upper deck of seats at seven stories tall). He’s been able to meet and play music with most of of his idols (in his private music studio aboard his yacht). He’s even been able to extend his love for scuba diving to much greater depths by deploying his yacht’s on-board submarine!

As a philanthropist, Paul has stayed more local than Bill and Melinda have. Our communities in the Northwest owe a large debt to Paul for invigorating our sports teams, and urban development in both Seattle and Portland. And his Allen Institute for Brain Science has also given the world a highly detailed brain map in the public domain.

Paul embarked on this book knowing that his health was particularly fragile. Now, having survived a second bout with cancer, and with a pacemaker installed, he remains optimistic about life, and pursuing his passions. As a fellow “geek,” it is great to see someone like Paul putting into action things others can only dream about. At the end of the book, he hints that he’s thinking about extending his interests in space travel. Paul’s team was the first private group to launch a man into space in 2004 on SpaceShip One. I think we’ve not heard the last from Paul as he makes plans for SpaceShip Three.

What I don’t expect from Paul is a more focused approach to business or philanthropy, despite the lessons from the past.  Perhaps it’s not in his DNA. I suspect it’s a hard thing for a billionaire to say “no,” especially when faced so concretely with one’s own mortality. In the live interview with GeekWire last week, Paul said we should expect to see him “cast a wider net” in his future endeavors. It should be interesting to watch.

Former Microsoft developer Mike Koss is the launch director at Seattle technology incubator and the organizer of the Seattle Google Technology User Group.

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  • Mike Slade

    Correction – Paul had about a 20% stake in Microsoft when it went public in March of 1986.

    • Anonymous

      Thanks for the help, Mike. We made the correction above. Just so you know, I went back and found a reference to this in the book — Allen says he owned 28% of the company after the March 1986 IPO, after selling 200k shares. In any event, even more support for Mike Koss’s point.

    • mckoss

      Thanks for the correction, Mike. I pulled the “more than 10%” number from the 1986 IPO prospectus.

      BTW – I really enjoyed reading about StarWave as one of Paul’s (and your) successes in the early Internet.

      • Mike Slade

        Paul was very patient with Starwave, and it paid off!

        • Harry Snyder

          Patient, and he hired a great CEO, Mike! (btw, I noticed that Paul left out the earlier CDROM days of Starwave).

          • Mike Slade

            Who could forget The Muppets?

  • Mike Slade

    Here is a screen grab of the stock ownership portion of Microsoft’s IPO prospectus. Paul owned 24.9% after selling some on the IPO.

  • Mike Slade

    Here is a screen grab of the stock ownership portion of Microsoft’s IPO prospectus. Paul owned 24.9% after selling some on the IPO.

  • Nanostring Founder

    This “Allen vs Gates” thing seems blown out way out of proportion. Both are highly intelligent innovators, and I don’t see any evidence for real fighting between the two. It’s just that Bill has more discipline, focus and better health than Allen and that’s why his contribution was larger.

    Some of the commentaries go way overboard with this, and I am afraid that the way the story is being artificially spun as “idea vs business execution” may provide cover for business pinheads to denigrate the importance of creativity and innovativeness.

    The real historic example of creativity vs. corporatist close-mindedness is Apple, and that was a real conflict: corporatist snitheads ran out the creative talent and proceeded to destroy the company, before he returned and saved it. Nothing like this happened at Microsoft, it’s way more nuanced. We have two great innovators, one with a little bit more focus, discipline, and better health.

  • Donald Schneider

    What did the plan to “dilute” Mr. Allen’s shares mean, please? Does it mean it just would have diminished his voting power (his owned percentage of the company), or did it mean that all of a sudden his holdings in MS would have been worth significantly less in monetary value as well? If the latter, how could that have been legally done? Would such a stock manipulation also have diluted Mr. Gates’s percentage held? Thanks.

    • mckoss

      Sorry – for the technical investment jargon. Dilution means that a company issues additional shares. The net effect being that the % stake that any (previous) shareholder had, would be reduced.

      For example, Paul held 6.3 million shares of stock when Microsoft went public. That was out of a total of about 22 million shares total. At any time, the board could have approved an issuing of new stock, say an additional 22 million shares, which could have been vested by the active founders or other employees to represent the value of their ongoing contribution to the company.

      This would have reduced Paul’s % ownership from 28% down to 14% of the company, while increasing the % ownership of the currently active employees and founder(s).

      There is an even better way to do this – but requires some forethought at the time of company formation. And that is to have a buy-back provision so that the company has the right to re-purchase some portion of a founder’s shares at a set price, in the event that the founder leaves the company. This would reduce the number of outstanding shares and increase the value of the other shareholders proportionally.

      • Donald Schneider

        Thank you very much for your reply, which is appreciated. If I am understanding you correctly, then if (an example for simplicity’s sake) two people start a corporation and one owns 51% and the other owns 49%, then the majority stockholder can at any time simply issue (at no cost?) new stock to himself rendering the minority stockholder’s interest virtually worthless. Is that what you are saying? If that understanding is correct, then I would never want to start any corporation in which I received less than half the stock! The majority could effectively appropriate one’s investment at will. This seems crazy. However, you doubtlessly know more about high finance than me and most others.

        • mckoss

          Not quite – but close. The board of directors have a fiduciary responsibility to ALL shareholders. So they cannot take an action that *arbitrarily* reduces the value to one shareholder vs. another.

          But any group with a controlling interest in the company CAN do things like this, issuing new stock, etc. The company needs to receive SOME VALUE for any stock it distributes. If they do not have a good justification that they are getting fair market value for newly issued stock, then they open themselves up to lawsuits from the harmed shareholders.

          But there is a LOT of wiggle room in justifying issuing stock in exchange for something of value (like continued participation by a founder).

          • Donald Schneider

            Thanks again. This is what I sort of figured. In other words, had Mr. Gates gone through with this scheme it would have opened up the mother of all lawsuits. I can understand some justification with such a maneuver to prevent a now passive, large shareholder from participating in future earnings, but to try to render worthless his or her investment in the company as of now (which reflects past earnings) seems highly dubious to me, both ethically and legally. Myriad corporations could take that attitude regarding heirs of founders who no longer represent controlling interests but still have ponderous amounts of stock despite never having been involved with the corporations..

            By the way, someone named Rob Enderle, who claims he was “almost an employee” (a consultant?) of MS in the early days and thus quite knowledgeable about the situation as represented in Mr. Allen’s *Idea man*, has a different take on Mr. Gate’s motivation behind his scheme than the one offered in this article. He claims that Mr. Gates and Mr. Ballmer were worried that Mr. Allen would pass away and that his heirs (his parents?) would then be in a position to seize control of the company.

            (Don’t ask me how. If that would have been the case, then Mr. Allen himself presumably could have.) I am somewhat skeptical about the article as the author confesses he hasn’t yet read the book and is merely responding to some salient points in it that have been discussed.

            I don’t know if links are permitted on this forum. In the event they are, here it is:


            Thanks again!

          • Top Scientist

            “In other words, had Mr. Gates gone through with this scheme it would have opened up the mother of all lawsuits….”

            Anyone can try to sue anyone for just about anything, but your reading comprehension skills need some serious work if you imagine you’re rephrasing what McKoss said. To the contrary he said the opposite: that a company could do it WITH JUSTIFICATION, and a founder leaving the company entirely would qualify.

          • Top Scientist

            “In other words, had Mr. Gates gone through with this scheme it would have opened up the mother of all lawsuits….”

            Anyone can try to sue anyone for just about anything, but your reading comprehension skills need some serious work if you imagine you’re rephrasing what McKoss said. To the contrary he said the opposite: that a company could do it WITH JUSTIFICATION, and a founder leaving the company entirely would qualify.

          • Donald Schneider

            Mr. Koss stated that the board of a corporation has a fiduciary responsibility to all stockholders. If by financial slight of hand the board of MS (controlled by Mr. Gates) attempted to simply appropriate billions of dollar in equity from one person (Mr. Allen) to give to others (primarily, I assume, to the personal benefit of Mr. Gates), then that such a machination would not raise serious questions in the eyes of a court of law regarding a breach of said fiduciary responsibility seems inconceivable.

            Secondly, I don’t see why you and some others here seem so “hung up” over the fact that Mr. Allen was a founder of the company (as if that somehow placed some note of onus upon him to remain with the company presumably indefinitely notwithstanding the fact that he had a potentially terminal disease at the time). Recipients of large amounts of passive income have been the bane of the existences of socialist types for centuries now. There are heirs of founders who have been living off of inherited stock all their lives who never stepped foot in the headquarters of the corporations their ancestors founded.

            Are you suggesting that Mr. Gates is the Karl Marx of capitalists? You mean Pablo Picasso no longer holds the record of having been the world’s richest communist?

          • mckoss

            I’m just saying that Paul should not have been able to retain as much % ownership of the company over time.  If you look at the contributions of Bill Gates, who worked diligently over the following 15 years to increase the value of the company, as compared to Paul, who left in 1983.  Yet their relative ownership was frozen in time at their 1983 percentages.

            That’s really not a fair situation to Bill, or the other shareholders and employees.

            So, I feel that founders should be subject to earn-outs on their shares, and those that remain with the company should be getting continual additional shares to reflect their lifetime contribution to the company.

            A founder should be receiving value proportional to their contribution (if we believe in a meritocracy).  I don’t think you could argue that Paul “earned” the windfall he received because he left so early in the company’s history.

          • Donald Schneider

            Mr. Koss:


            First of
            all, holding stock that pays no dividends is worthless to an individual until which
            time he or she is able to sell the shares. 
            Holding the stock can yield great benefit in growth should the
            corporation endure and prosper, as was certainly the case with MS.  However, how does one live in the

            Since prior to 1986, MS was
            not publicly held, how were Messrs. Gates and Allen compensated?  Where did they get the cash to live on?  I assume both drew hefty compensation packages.  I also assume that once Mr. Allen left, he no
            longer received a salary and benefits. 


            After Mr.
            Allen left MS, I don’t know what he was living on until MS’s IPO, when he became
            an instant billionaire (at least on paper). 
            I don’t know if he arranged a private sale of some of his stock (shares
            in closely held corporations are usually illiquid and those held by minority
            interests are usually de facto worthless until which time they can be sold; and
            all too often, at the behest of the majority interests who will only pay a
            fraction of what the actual value of the stock is) or had been living on
            savings until the IPO. 


            Therefore, Mr.
            Allen presumably was no longer being rewarded *after* he ceased active
            participation in the corporation, so I fail to understand your problem with his
            simply keeping the ownership stake he had worked to earn in founding the
            company and subsequently until 1983.


            Once the
            company went public, there was now a liquid market for his shares.  In order for Mr. Allen to actually benefit
            from his investment, he had to sell some of his shares, thus voluntarily
            reducing his ownership stake   I assume he
            continued to sell shares gradually as is common with all mega-rich founders of
            very successful corporations, or else arranged a large private share at a hefty
            discount to the market.


            If you hold
            the position that only workers who are actively contributing to a company through
            labor have any right to benefit from the fruits of that company, then you are
            in essence a communist.

            You, like Marx, would oppose what he termed to be “the return
            to other factors,” by which he meant capital (i.e., private property:   in this
            instance, ownership). companycompany).    

          • Donald Schneider

            Sorry, here is the correct link for the other article I referred to about this:


      • Donald Schneider

        Thank you very much for your reply, which is appreciated. If I am understanding you correctly, then if (an example for simplicity’s sake) two people start a corporation and one owns 51% and the other owns 49%, then the majority stockholder can at any time simply issue (at no cost?) new stock to himself rendering the minority stockholder’s interest virtually worthless. Is that what you are saying? If that understanding is correct, then I would never want to start any corporation in which I received less than half the stock! The majority could effectively appropriate one’s investment at will. This seems crazy. However, you doubtlessly know more about high finance than me and most others.

  • Joe the Coder

    Very well written and balanced review, Mike. It pretty much mirrors my thoughts on the subject. Vision is great but rewards accrue to those who do.

    On the dilution comments – if a company has 1M shares outstanding and sell 1M more share to an investor, ALL the original investors are diluted by 50% It’s neither bad nor good though on can argue that the new investment will allow the company to grow, thus increasing the value for everyone. There is no way to unilaterally reduce a single investors share of a company.

    • Nanostring Founder

      “Vision is great but rewards accrue to those who do.”
      I am not following. Where is the evidence that Bill Gates (one of the most intelligent people in the world) lacked vision, or that Paul Allen did not accrue rewards ($20B certainly qualifies in my book)

      Again, this is blown way out of proportion; people are trying to draw lessons that are simply not there. This is not really a confrontation, it’s more of a quibble.

    • Harry Snyder

      It’s easy to dilute ex-employees. Paul actually did this at Asymetrix. All you have to do as a company is issue a bunch more shares (which dilutes everyone) and then give the current employees a bunch more shares. Now current employees are whole and ex-employees are screwed.

      • Donald Schneider

        Mr. Snyder, could such a maneuver prompt a lawsuit? Along the lines that Mr. Koss suggests, would the corporate board be forced to defend their justification in just giving stock to certain employees while significantly diluting the value of other stockholders’ holdings in the process? If not, then I don’t see what is stopping every publicly held corporation’s board from looting their corporations in their own favor.

        There has to be more to this than meets the eye. I just can’t see their having been able to appropriate billions of dollar form Mr. Alllen to give to themselves or others by financial slight of hand. If corporate boards could do this, I would think it would undermine confidence in the stock market as a whole.

        • Top Scientist

          What “publicly held” corporation is involved?

          • Donald Schneider

            I was suggesting that in theory (as laid out here) whoever controls the board of *any* publicly held corporation could invoke such a ploy. Warren Buffet, for example, could dilute every stockholder’s equity in BH to his benefit if such were legally tenable and own virtually 100% of the company. Does this sound logical to you?

  • Anonymous

    Personally, I don’t see this as some vendetta to get even with Bill. Rather, I see Paul trying to rewrite history where he is given more credit for the achievements of Microsoft and innovations made in PC industry. Sadly in 100 years when folks read through the history books on the dawn of the PC era, I think Paul Allen will merely be a minor footnote.

    • mckoss

      Paul has not received as much credit for his early work as he should, I agree. But maybe he tries to over-extend a bit in claiming the role of visionary for the work of those that came to Microsoft after he left.

  • Tom George

    This was a compelling and fascinating read. Thank you for sharing this.

  • Concerned

    “…diluting Paul’s ownership of the company… would have been the “right” thing to do in this situation.”

    “From my experience with startups today, I would not view it as healthy to have a non-participating founder retaining a large equity stake in the company.”

    This is an unbelievably aggressive statement. I hope that anyone who even thinks about doing business with you reads and understands this statement.

    Mr. Gates is clearly a very savvy business man; If he wanted Mr. Allen’s shares vested over 15 years, he could have negotiated that, but he did not.

    According to your logic, the only way a founder is rewarded for his equity is if he continues (in perpetuity I can only assume) to add tremendous value to the company. Because Microsoft was successful and continued to grow, Mr. Allen should have received less benefit from his original work?

    Should Mr. Gates now be diluted since he has also left the company? Or did he meet your magical hindsight litmus test to be allowed to keep his full equity?

    • mckoss

      You must not have much experience with the multiple rounds of funding and executive changes that go on with early startups. This is very common. One of the worst things to happen to a company is to have a vacating founder walk away with a large equity stake as a time where the company is trying to grow and needs to add more early employees or bring in new investment. It demotivates everyone involved and can kill what would have otherwise been a success.

  • Avatar X

    Great article.

  • Dorinda Hughes

    Sometimes it is good to look past the blazing star to see the enpowered one behind the starburst. I am glad he wrote the book- I am glad heis finally getting the praise he deserves. Respect and acknowledgment. Good for him.
    Dorinda Hughes

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