7 Timeless Lessons FromBill Gates' Favorite Business Book - Yahoo India Finance

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7 Timeless Lessons From Bill Gates' Favorite
Business Book
By Richard Feloni | Business Insider Fri 1 Aug, 2014 1:44 AM IST
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7 Timeless Lessons FromBill Gates' Favorite Business Book - Yahoo India Finance
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Bill Gates recently revealed that his favorite business book was "Business Adventures," a 1969
collection of New Yorker articles by John Brooks that illustrate the formation of the modern
American corporation.
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
1940s. 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.

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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
1960s. 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 instead 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
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responsible or at least aware of the price fixing because GE had a culture in which nobody seemed
to communicate with one another. 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.
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