Part of what made Microsoft so successful during the company’s infancy was the team of programmers that Gates and Allen began to assemble in the spring of 1976. They became known as the Microkids—high-IQ insomniacs who wanted to join the personal computer crusade, kids with a passion for computers who would drive themselves to the limits of their ability and endurance, pushing the outside of the software envelope.

It was bad enough that Gates rewrote other programmers’ code. But at least once he also got credit for their work. When Microsoft published the MS-DOS Encyclopedia, the preface to this huge technical manual credited Gates for developing Standalone Disk BASIC. In fact, the program was developed by Marc McDonald for National Cash Register in 1977. McDonald had since left the company, but when he read the preface he fired off a blistering letter to Gates. “When I saw that in the DOS Encyclopedia,” McDonald recalled, “I said to myself, ‘What is this bullshit!?’ Bill knew damn well I did that.” The Disk BASIC developed by McDonald used a revolutionary file management technique known as the FAT, or file allocation table. According to McDonald, Gates did not write any of the code for Standalone Disk BASIC. It was much faster and more efficient than the Disk BASIC Gates wrote for the Altair while holed up for five days at the Hilton Hotel in Albuquerque.

“Bill has a very convenient memory," McDonald said of Gates. Subsequent editions of the encyclopedia gave McDonald, rather than Gates, credit for Stand-alone Disk BASIC. Before he left Microsoft, McDonald helped develop a version of Standalone Disk BASIC that was widely used on Japanese computers, as well.

It would prove to be the most important business meeting of his career, and Bill Gates didn’t have a tie.

He had spent a sleepless night on Delta’s red-eye flight from Seattle to Miami, memorizing business and technical information for his meeting with IBM. He, Steve Ballmer, and Bob O’Rear were scheduled to meet with IBM executives at their Entry Level Systems facility in Boca Raton. Gates carried with him the final report on how the jeans-and-tennis-shoe programmers at Microsoft could work with the white-shirt-and-wingtip crowd at IBM on Project Chess, codename for the top secret IBM effort to develop a personal computer.

The meeting was scheduled to begin that morning at ten o’clock, and it would determine once and for all whether IBM and Microsoft were to do business together. For two months, the companies had been holding unprecedented secret talks. Never before had Big Blue, as IBM was known, considered letting an outsider play such a critical role in developing one of its computers. Now it was time for Gates to deliver the consulting report that IBM officials had been waiting for. Time was short. The personal computer that IBM was developing had to be ready in ten months. Could a small language company like Microsoft meet such a demanding schedule?

Not only did growing pains force Microsoft in 1981 to move into new offices, but the company was reorganized from a partnership into a privately held corporation. Gates became chairman of the board, with Allen serving as a director. Then, in a carefully planned move that had been under discussion for some time, Chairman Bill sold five percent of Microsoft for a million dollars to Technology Venture Investors, a venture capital firm in Menlo Park, California, the heart of the Silicon Valley. David Marquardt, a general partner in TVI, was made a director of Microsoft’s new board. Gates had been introduced to TVI officials a year earlier by Blair Newman, the computer whiz who later killed himself.

Microsoft did not need the venture capital; Gates was essentially hiring the firm’s expertise in incorporation procedures. He was also positioning the company should it eventually go public, as Apple Computer had done the year before, in December 1980. It was Ballmer who convinced Gates to sell off a small part of the company as a long-term investment in the future.

“We just threw that million dollars into the bank with all our other millions,” said Steve Smith, Microsoft's first business manager.

As a private corporation, Microsoft could now offer stock incentives to its employees. Although there had been some grumbling about the lack of a company stock plan, most of the technical people working for Gates would probably have remained with Microsoft even without one. But stock participation in the company made it easier to attract good people. Employees could buy stock for about $1 a share. Owning stock in the company made up for a lot of hard work at low pay. Microsoft did not pay very well in comparison with the rest of the industry, but it was very generous with its stock options. (When the company went public in 1986, a number of long-time employees became millionaires on paper).

“The pay was always okay, but never much more than okay,” said one programmer who was working for Microsoft in 1981 when the stock plan was first announced following incorporation. “Nobody ever did real well at Microsoft until the stock started coming. They didn’t pay well at all, especially when you considered the hours involved. The big compensation for most people was being in a place where you were going to know more about what was happening in the industry than you could anywhere else. Although it took a long time for the rest of the world to realize it, everybody at Microsoft understood the company’s significance from early on. There was never any doubt in my mind, practically from the time I hired on, that Microsoft was going to be the most important company in the personal computer industry.

Gates underscored that message to his programmers whenever he got the chance.

Having tangled with Microsoft, Z-Nix attorney Thomas Chan, a Los Angeles lawyer seasoned in computer law, had this to say of Microsoft:

“This is one of the few companies where the businessman wants to drive a harder bargain than the lawyer. They are really the toughest negotiators I’ve encountered in the industry. Small guys, they don’t even talk to you. It’s just take it or leave it. With big guys, they push and push and push and push, and at the last minute they up the stakes. That's got to be because of Bill Gates.”

One reason Gates pushes so hard is fear—he is always looking over his shoulder. “You always have to be thinking about who is coming to get you,” he told the Wall Street Journal. It’s a message and attitude that filters down through the company. A couple years ago, Gates said his products managers ought to wake up thinking about their main competitor. He even suggested they go so far as to get to know the names of their competitor’s children and birth dates.

“It is a competitive edge we try and hone,” said Jeff Raikes, then manager of Microsoft’s word processing division, of the chairman’s remarks about knowing the competition. “Bill expected me to always be thinking about my competitor. If you just say ‘We’re No. 1, that’s good enough,’ that kind of complacency will lead to failure in a business as dynamic as ours.” A week after Gates made his remarks about knowing one’s competitors, Raikes has a photo of WordPerfect’s executive vice-president’s children on his desk. And he sends them birthday gifts.

Perhaps as a result of this attitude within Microsoft, Microsoft Word, for years trailing far behind WordPerfect as the industry’s best-selling word processing application for personal computers, has steadily closed the gap. Twice a year, Gates personally visits WordPerfect’s best customers, demanding to know why they continue to buy WordPerfect when Microsoft Word is so much better.

Stewart Alsop, for one and there are others who agree with him, said the fundamental advantage Microsoft has is not the operating system but Bill Gates. “He never allows Microsoft to goof off. He always deals with the problem. Every other company allows something else to get in the way. But Gates is tenacious. That’s what’s scary.”

He noted that the first versions of Microsoft Word and Windows were market failures because they didn’t work well. But Gates kept coming back until he got it right. “Bill always comes back, like Chinese water torture,” Alsop said. “People are scared of Microsoft because they are so persistent. They have executed better than any other company. Others don’t feel they are capable of competing with Microsoft. It’s a lack of self-confidence. Every other company has screwed up. Does Microsoft have an unfair advantage that results in inferior products in the industry? That’s the myth. That’s what all the competitors want you to believe. . . . Microsoft has made it harder to compete because it’s constantly addressing problems. It single handedly forced Lotus to improve its products. Lotus was not doing a good job of upgrading its products. But because of Excel, Lotus clearly felt a competitive threat. . . . That’s the irony. The reason Microsoft has such a hold on the industry, a monopoly, is that they make better products.”

At the fall Comdex in Las Vegas, IBM staged a glitzy show to formally introduce its beleaguered version of OS/2. It had earlier promised the operating system would be ready to ship by the end of the year, a boast which prompted Microsoft’s Steve Ballmer to say he would eat a floppy disk if IBM met that deadline. IBM announced at Comdex that OS/2, as Ballmer had predicted, was delayed, and would not be out before early spring of 1992. Microsoft planned to release another version of Windows to hit the market about the same time, backed with an $8 million television advertising campaign.

There were many in the industry who believed IBM had made a serious blunder by sticking with OS/2. When IBM Chairman John Akers announced in late 1991 a top-to-bottom reorganization of the monolithic computer giant into independent business units, the move was seen by many as an attempt to catch up with mistakes like OS/2. IBM had poured more than a billion dollars into its development, even though the industry seemed to support Microsoft’s Windows. OS/2’s future was further clouded by the IBM/Apple joint announcement that they would eventually develop a new operation system.

“This has to be the greatest disaster in IBM’s history,” George Colony, president of the consulting firm Forrester Research, told the Wall Street Journal in a front page story on the OS/2 debacle. “The reverberations will be felt throughout the decade.”

At the end of 1991, IBM reported a loss of $2.8 billion, its first annual deficit ever. Revenues fell 6.1 percent from 1990 to $64.8 billion.

Microsoft, on the other hand, reported profits were up fifty-five percent and its revenues were up forty-eight percent during the last three months of 1991. While almost every other major software company, including Lotus, was laying people off in 1991, Microsoft had been adding as many as 70 new workers a week. By the end of the year, employment had reached 10,000. Shuttle buses now carried employees around the sprawling 260 acre campus, where several more buildings were under construction. Microsoft had overtaken the Boeing Company as the largest Northwestern business in terms of market value. Microsoft, worth an estimated $21.9 billion at year's end, had even surpassed General Motors in market value. The company’s stock had risen a staggering 1,200 percent since it went public in 1986. Figuring in several stock splits, someone who invested $1,000 in Microsoft when the company went public would have made about $30,000 by 1992.

As Microsoft’s stock shot up to record highs, so did the stupendous wealth of the company’s top executives. Microsoft had the unique distinction of having produced three billionaires—Bill Gates, Paul Allen, and Steve Ballmer. Filings with the Securities and Exchange Commission showed at least 16 Microsoft executives were multimillionaires. Former president Jon Shirley led the pack with $112 million; Scott Oki, who had started the International Division, and retired in January of 1992 at age 43, had $28 million; Jeff Raikes, who came over from Apple was worth $23 million; Bill Neukom, the former partner in the law firm of Gates’ father, $21 million; Frank Gaudette, who took Microsoft public, $7 million; and Mike Maples $3.5 million. There are believed to be over 2000 Microsoft employees who had reached the magical status of “millionaire” by 1992. Chris Larson, Gates’ schoolmate from Lakeside and Microsoft’s first programmer, had enough money in 1992 to come forward with a group of investors, including the owners of Nintendo, with a $100 million offer to buy the Seattle Mariners baseball team.