Conforming To Your Customers’ Realities: Your Stakeholders’ Perceptions Matter

The man at left built the first personal computer. He also spearheaded a number of fundamental software breakthroughs, including creating the basic hardware / software architecture which resulted in the creation of the third-party personal computer (PC) software industry.

If this gentleman was such a pivotal player in the early days of the PC revolution, why is he essentially unknown to most entrepreneurs under forty years old?

The short answer is that he failed to conform to his Stakeholders’ realities. Few mistakes would have such wide-ranging implications in the business world over the next two decades.

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Gary Kildall’s contribution to the evolution of the PC industry is legendary. Some of the additional “firsts” attributed to Kildall include:

• Wrote first PC operating system

• Architected menu driven systems, windows capabilities & preemptive multitasking

• Developed first floppy disk operating system

• Designed CD-ROM filing system and created Universal Software Bus

• Established basis for PC local-area networks

• Pioneered nonlinear playback and search capabilities, commonly used in DVD technology

Due to the number of contributors to the PC’s evolution, some of the above “firsts” could be reasonably argued. Yet, no one disputes Mr. Kildall’s leadership role during the emergent days of the PC industry. So why is he virtually unknown? The glib answer is that he had the misfortune of competing with Bill Gates.

However, there is more to Mr. Kildall’s story than whether or not Microsoft competed fairly against his CP/M PC operating system, which by 1980, was overwhelmingly the market leader. Much has been written about how Microsoft entered the operating system market and a number of ethical lessons can be drawn from the manner in which Microsoft handled its relationship with Intergalactic Digital Research, Mr. Kildall’s company. However, this essay does not focus on Microsoft’s actions. Few young entrepreneurs know about Mr. Kildall’s contributions because of his behavior, not Mr. Gates’.

Reality Conformance

“History is written by the victors” Winston Churchill, 20th century British Statesman

The myth that arose to explain why IBM selected Microsoft’s Operating System over Digital Research’s market leading software is that Mr. Kildall opted for a joy ride in his private plane the day the IBM executives visited his offices. This apocryphal story was repeated so often, many people accepted it as fact.

In reality, Gary Kildall was present when IBM came knocking during July of 1980. Author Harold Evans in his seminal work, They Made America, draws from Mr. Kidall’s unpublished biography three reasons why Digital Research did not establish a partnership with IBM, which are paraphrased below:

• No large company had previously been successful in the PC market

• Kildall did not want IBM employees stationed in his offices

• Kildall did not want to betray Digital Research’s original equipment manufacturing (OEM) partners

Mr. Kildall claims that his loyalty to his OEM distribution partners was the primary source of his reluctance to partner with IBM. However, his actions indicate that the cultural clash between the two companies was the real reason a deal was never consummated.

Instead of utilizing Digital Research’s stable, industry leading operating system, IBM licensed Microsoft’s software. What IBM did not realize was that Microsoft’s code was hastily written by a single programmer who relied upon Digital Research’s CP/M architecture. The original name of the software Microsoft licensed to IBM was Quick and Dirty Operating System (QDOS), which Gates artfully renamed it MSDOS. As Harold Evans points out, “By adopting Microsoft Disk Operating System (MS-DOS), IBM and Microsoft forced users to endure years of crashes with incalculable economic cost in lost data and lost opportunities.”

Flower Power

Kildall, a former college professor, was proud of Digital Research’s academic culture. Beer and pizza were served on Friday afternoons and anyone who dressed in a suit was easily identified as a visitor. In many ways, the culture Kildall established was a precursor to the egalitarian, laid-back environments made more famous by Apple, Yahoo and Google before they became Big Dumb Companies. Such cultures place seeking the truth above blind allegiance to hierarchy or rank.

In addition to his sanctimonious view of his corporate culture, Mr. Kildall was also a victim of his company’s success. At the time IBM sought out Digital Research’s operating system, it was widely understood that nearly every PC was running an operating system that was either directly or indirectly based upon Digital Research’s CP/M’s code. Widely understood, as Harold Evans points out, by nearly everyone except IBM.

IBM’s staid culture and utter lack of understanding of the PC market caused Kildall to underestimate the value of the potential partnership. He felt they needed him more than he needed them. In this regard, Mr. Kildall’s lacked self-awareness. Small companies cannot afford to be self-unaware.

Kildall should have realized that the IBM executives viewed him and his team as naïve, slightly arrogant hippies. By adopting an attitude based on Humble Pride, Digital Research could have taken advantage of IBM’s ignorance. In 1980, IBM was the prototypical Big Dumb Company (BDC). They knew what they wanted but had no idea how to achieve their goals. Rather than seizing this extraordinary opportunity to infiltrate IBM and educate them as to CP/M’s benefits, Digital Research considered IBM’s lack of knowledge of the PC market as further evidence that IBM’s PC would fail and thus the partnership was not worthy of its time or attention. Educating BDCs is an opportunity to be embraced, not a challenge to be avoided. When a BDC lacks information, a small company can add tremendous value to the relationship and thus exercise significant influence over the terms of the partnership.

Mr. Kildall was comfortable scorning IBM because he felt that the PC market would be different and the rules established in the “old world” of the mainframe and minicomputer industries were not applicable. He was wrong. (see the upcoming It Ain’t Gonna Be Different)

Raising Money And Selling Robots

Computer Motion, a medical robotics startup which we took public in 1997 and was later sold to Intuitive Surgical, developed a collegial corporate culture in its early days, similar to Digital Research. In the early 1990’s, when few companies introduced the radical concept of “casual Friday”, we routinely worked in shorts, T-shirts and flip-flops. However, whenever we hosted visitors, the company’s executives dressed in attire consistent with that of our guests. If the visitors were Bay Area venture capitalists, Dockers and a collared shirt were in order. If they were Hospital Administrators from the Midwest, we would don the full monty (i.e., a coat, tie and socks).

In this way, we conformed to our guests’ version of reality. We did not ask them to accept our Santa Barbara, casual startup view of the world. Attire may seem like a small point, especially since dress codes subsequently became universally relaxed by the late 1990’s (even at Midwest hospitals!). However, conforming to our guests’ realities did not stop with our clothing. We also placed ourselves in our potential Stakeholders’ shoes when crafting the nature and scope of our relationships and we never assumed that our Stakeholders needed us more than we needed them.

Gates And The Department Store Tie

During the flight to meet IBM for the first time at their Boca Raton headquarters, Bill Gates realized that he had not packed a tie. Rather than saunter into IBM’s offices wearing West Coast casual attire, Bill went directly from the airport to a department store, where he purchased a tie. He understood the importance of conforming to the reality of his Stakeholders, especially those who had the ability to place his adVenture on an entirely new growth trajectory.

There is no need to assume that your individuality will be lost in a never ending quest to conform to the reality of others. Such conformance is a temporal phenomenon. As your adVenture succeeds, you can be less concerned with conforming to others’ reality and start creating a reality of your own. However, on your road to success, do not repeat Mr. Killdal’s mistake and assume that modest success during the early days of an emerging industry gives you license to reject your Stakeholders’ perception of reality. When it comes to Stakeholders, their perception is your reality.

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John Greathouse has held a number of senior executive positions with successful startups during the past fifteen years, spearheading transactions which generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses.
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