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5 Things I Learned About

Leadership from the Death &
Rebirth of Microsoft
Dare Obasanjo · Follow
8 min read · 2 days ago

1.4K 35

In 2007 Paul Graham, the founder of Y-Combinator, penned an essay titled

Microsoft is Dead. The thesis of the article was that Microsoft had become
irrelevant thanks to the combination of the internet, Mac computers and
Google’s services. In fact at the time, Y-Combinator didn’t bother inviting
Microsoft to its demo days to meet any of their startups, but did invite Yahoo
which at the time was a more relevant company.

I was at Microsoft from 2002 until 2019 and pretty much agreed that
Microsoft was essentially dead as an innovative tech company in 2007. Under
Steve Ballmer, the CEO at the time, the company was good at extracting
money and building software for business customers. However the company
also tried and failed to build any compelling products in every new space it
tried. The company tried and failed to build a compelling mobile operating
system, consumer email service, social networking app, search engine, or
music services. It also tried and failed at building hardware with the failure
of the tablet PC or Zune to take hold.

That entire time period ended up being described as Microsoft’s Lost

Decade. I remember as an employee during that decade noticing that the
stock price was always $27± $2. It was never much lower than $25 nor did it
go past $29 for my first decade as an employee. The stock price was around
$34 the day Steve Ballmer announced he was stepping down on August 23rd
2013,

Satya Nadella took over the company on February 4th 2014 and immediately
began working on changing the culture and business performance of the
company. The market, employees and customers responded positively to his
changes. Today Microsoft’s stock price is $410 and has outperformed the
NASDAQ Composite by 3x since the day Satya took over. His transformation
of Microsoft has made many describe him as the most successful CEO in the
tech industry.

So the trillion dollar question is how did Satya transform Microsoft? What
follows are my observations of the key changes he made at the company that
completely changed its trajectory.

Lesson #1: Culture Eats Strategy for Breakfast

The first thing Satya did was immediately start working on changing
Microsoft’s culture.Satya believed strongly in the mission of the company as
shown in his first letter to employees on becoming CEO but he also realized
that the culture of the company was holding Microsoft back.
The defining characteristic of the culture under Steve Ballmer was
complacency and a sense of hubris. Despite failure after failure, many
people at the company acted like we were the best thing since sliced bread
because we had Windows & Office, two of the most successful software
products ever built.

Satya worked directly to challenge that mindset by asking everyone at the

company to embrace a growth mindset. We were to be a company of learn-it-
alls not know-it-alls. People were expected to be curious, embrace change
and try new things. There were stickers in every conference room that
contrasted a meeting that was a fixed mindset meeting versus a growth
mindset meeting.
Everyone at the company was encouraged to try new things, learn from
failure and refuse to be complacent. Satya led by example here by changing
a number of ways we did business as the company had become stuck in its
ways. This was a transformative cultural change that started at the top but
was felt by every individual team at the company.

Lesson #2: Forget Strategy, Do What’s Best for the Customer

Microsoft is a company that believed a lot in strategy. Everything corporate
move was a chess move to drive towards creating some durable competitive
advantage. This had worked brilliantly for years. Office and Windows had
become a virtuous cycle where companies bought Windows because they
needed it to run Office at its best and bought Office because it was the best
productivity software for Windows. The enterprise business grew like a vine
as once you got Active Directory and Exchange in the door, you could pull in
all sorts of other Microsoft products such as Sharepoint which rapidly grew
to becoming a billion dollar product despite being widely panned both
within and outside the company.

However a lot of this strategy was also user hostile. Windows 8 which was a
failed attempt to turn desktop Windows into an iOS style operating system
was driven by the idea that we had to prevent the iPad from disrupting
Windows and so a touch tablet that could also run Windows desktop apps
would be the best way to stave that off. Being able to or even trying to
actually execute a usable product was never a part of the equation.

Microsoft also eschewed bringing its productivity apps to the web or mobile
despite the fact that it was already quite clear that they had both won and the
Windows desktop was losing.
Satya signaled to the company and our customers that those days were over
within a month of becoming CEO by announcing Office on the iPad. This
was a product the Office team had been working on for a while but thought
they’d never get approval to ship because it was “off strategy”. Other
customer centric moves followed such as Satya declaring that Microsoft
Loves Linux a few months later as a clear signal that Azure would now treat
hosting Linux VMs as a priority as opposed to being focused primarily on
hosting Windows VMs.

Microsoft, a company that made popular the concept of strategy tax, where
integrating one’s products at the cost of making it more difficult for one
product to be individually successful abandoned that philosophy under
Satya. Office no longer had to ignore the web or iOS because it made
Windows less valuable. Azure no longer had to ignore Linux because it made
Windows Server less valuable.

Lesson #3: Sometimes You Just Have to Cut Your Losses

Steve Ballmer was obsessed with competitors and no price was too steep to
pay when chasing after a competitor that Microsoft was focused on. The
company lost billions for years on Bing chasing after Google, spent over $6
billion buying aQuantive after being spurned by DoubleClick which sold to
Google for $3 billion only to have the aQuantive acquisition written down to
$0, and acquired Nokia for $7.2 billion to chase after the iPhone.

When Satya took over the company, it was quite clear that Windows Phone
and Nokia Lumia devices were a distant third to iPhones and Android
phones. Satya wrote down the entire cost of the acquisition and laid off
almost 26,000 Nokia employees over two years, 18,000 in 2014 and an
additional 7,800 in 2015.
It was quite clear that there was no path to meaningful success for Nokia’s
smartphone business and so Satya ignored the sunk cost then jettisoned the
business. Throughout my time at Microsoft, I observed similar dispassionate
winding down of businesses where there was little value in continued
investment.

I was a big fan of the Microsoft Band, which was Microsoft’s competitor to
the Fitbit which was wound down in 2016. I remember asking Satya about
this in a leadership Q&A and he responded that the business model wasn’t
great and even Fitbit the market leader at the time, didn’t have a great
business model. Satya turned out to be right as Fitbit was acquired by Google
for $2.1 billion amid uncertainty about the company’s future.

Lesson #4 Every Investment has an Opportunity Cost

This is more of a lesson from Amy Hood not Satya. Amy isn’t well known
outside Microsoft but she’s the most influential person at the company
besides Satya. Amy is CFO and runs a very tight ship when it comes to
spending.

I used to work on Bing Ads and a constant question our teams used to ask
was why despite being able to go head to head against Google search
relevance in the US, our product performed so poorly in other markets like
Latin America or Europe. It turns out that Amy Hood was the reason.

In a leadership Q&A Amy shared that her philosophy was to always look at
the opportunity cost of every business request from a business group. So
when the Bing team asks for $1 billion to increase search crawling and train
AI models to improve search relevance in Europe & Latin America, she asks
how much money that would make versus spending that $1 billion on data
centers for Azure. Given that acquiring advertisers and tuning the ad algos
would lag any increase in usage from improved relevance in the consumer
search experience, the ROI has always been better to spend on Azure.

As a person on the Bing product team, this sucked and my friends who still
work there today still complain about it. However as a business decision and
a Microsoft shareholder, I am quite happy with Amy’s decision.

It should be noted that this is an approach that should be used sparingly

since in some cases investments that do not return as quickly as other
opportunities could be strategic.

Lesson #5 At a Software Company Engineers Are Your Most

Valuable Resource, Listen to Them
During the Steve Ballmer era, Microsoft forgot its roots as a software
company as its CEO came from sales and not the product teams. This meant
that certain practices that seemed quite obvious to product teams never got
greenlit under Steve Ballmer. When I worked on cloud services like Windows
Live and Bing Ads, I used to marvel at the fact we used Microsoft software
such as SQL Server which at the time was designed for B2B use cases instead
building or leveraging open source cloud based solutions like everyone else
in the industry was doing at the time.

The company was also hostile to open source which combined with the
above usage of Microsoft B2B software to build cloud services was like trying
to run a race with your legs tied together.

Under Satya some of this slightly improved at first. You could use Open
Source software if you got it audited. I went through this process when I was
the group product manager for Bing Ads where I got approval to use services
from WalkMe to create walkthroughs for our advertiser tools. However I
quickly found the process to be Kafkaesque. I needed to pay $20,000 out of
my team’s budget for the software to be audited and then it was only for that
specific major + minor version combination. So if a new version of the
software package was released next week, I’d need to pay $20,000 to get that
audited and certified as well or hope some other team at Microsoft had.

After spending $20,000 to get JQuery certified to use on Bing Ads because
WalkMe depended on it and realizing I was going to need to find another
$20,000 whenever the library was updated, I sent an email to Satya about
how ridiculous the process was. He asked members of his team to follow up
with me and they mentioned they’d already heard some complaints about
the process. I gave them a bunch of feedback and shortly afterwards the
software auditing process went away and Microsoft started leveraging Open
Source to build its products just like every other tech company.

This greatly improved the productivity of Microsoft’s engineering teams.

There are all sorts of examples big (e.g. migrating Windows source code to
git) and small (e.g. hackathons) that occurred during the early years of
Satya’s tenure as Microsoft CEO which count as listening to developers and
making them happier, translating into more productivity and higher morale.

Microsoft Leadership Product Management Technology

Software Development
Written by Dare Obasanjo Follow

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"Everything you touch you change. Everything you change, changes you" - Octavia Butler,
Parable of the Sower

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