Steve Ballmer: Stanford University: Innovation and Entrepreneurship: Opportunities in Difficult Times

Remarks by Steve Ballmer, chief executive officer, Microsoft Corp.
Stanford University, Palo Alto, Calif.
May 6, 2009

TINA L. SEELIG: Hello. Can you hear me? I guess you can. Hi there. For those who don’t know me, my name is Tina Seelig. I am the Executive Director of the Stanford Technology Ventures Program, which is the Entrepreneurship Center at Stanford School of Engineering, and I want to welcome you to this very, very special occasion. This is actually part of our normal class. Does this look like a normal class at Stanford? This is MS&E 472, the Entrepreneurial Thought Leader Lecture Series. And every single week we bring in really exciting speakers. Normally, we’re over in Skilling, we have three new people, but as you can see today we have about 1,700 people in the room. So this lecture series is brought to you every week by the Stanford Technology Ventures Program, and by BASES, the Business Association of Stanford Entrepreneurial Students, and it’s also sponsored on line by the Stanford Center for Professional Development. And one thing you should remember, because if you’re ever interested in this and you can’t come to the class, you can always listen to the podcast, or get video clips of it at ecorner.Stanford.edu. In fact, I’m going to repeat that, ecorner.Stanford.edu, because we’re really proud of the collection of video clips and podcasts that we’ve collected over the last few years.



Tina L. Seelig, (left) Executive Director of the Stanford Technology Ventures Program, Entrepreneurship Center at Stanford School of Engineering, with Microsoft chief executive officer Steve Ballmer. Ballmer spoke to a crowd of approximately 1,700 students and others as part of the university’s Entrepreneurial Thought Leader Lecture Series. Stanford, Calif. May 6, 2009.

So it is a very special pleasure to introduce Steve Ballmer today. As you all know, he is the CEO of Microsoft, and the interesting thing is, as many of you probably know, he started out at Harvard University. And down the hall from him in his dorm who should be there but Bill Gates. So I would like all of you to look around and look at all your fellow classmates, and imagine which of these folks you’re going to be starting the next big thing with. Because what happened is after Steve graduated, he went off to Procter & Gamble, and then two years later came back to Stanford. I don’t know if you all know that, but he came to Stanford to business school. And after the first year, during the time he would go do a summer internship, he was asked by Bill to go up and check out Microsoft up north in Washington. So he checked it out and decided that that’s what fits him.

So I want to introduce this fabulous, wonderful leader who is going to share some of his insights into the last, I guess, 29 years at Microsoft. Without further ado, Steve Ballmer. (Applause.)

STEVE BALLMER: Thanks. It’s fun to have a chance to be here. I’ve been in this theater now exactly three times in my life, today I gave some speech about five years ago in here and I got a question from a student who suggested that we go borrow a bunch of money when we had a bunch of money. I had to really think hard about that for like three years. But the first time I was in here was sort of a major moment. I was at Stanford, and the play “Pippin,” my favorite play, was performed on this stage. And I remember thinking just how awesome this place was, and it’s sort of fun for me to have a chance to speak here, although it’s not at all what I expected.

I’m here in the Bay Area for one reason, and one reason only. I was meeting with a few interns, one of them last summer, who’s in the class. And he said to me, come on, man, will you come speak to our class. And I said, blah, blah, blah, all right, sure, I’ll come speak to the class. And I said, what’s it all about? He said, it will be like 50 people, something like that, and we’ll all just kind of chitchat. And then I pick up the paper on the way down here that sort of reminds me of what we’re doing, and I said, wait, what’s with this 1,000-person thing? I thought it was kind of 50 people in an entrepreneurship class. But it is, nonetheless, a delight to be here. We’re not going to get Nikio back for the summer, but we’re working hard. Nikio, Ollie, SteveB, by the way, at Microsoft.com, for other bright talented people looking for work, we’re always hiring, even while the economy is tough. There’s always a place in some part of Microsoft for the most talented folks around.

So, I’m glad to have a chance to be here. I’ll try to talk for 25 minutes or less, and then I guess we have a chance to do some questions and answers at least from  I don’t know if it’s just students in the class, but nonetheless I guess we get to do that. I’m going to start with just a little bit about the economy, not because it’s the cheeriest or sort of warmest subject to start with, but at least if you’re thinking about entrepreneurship, it’s probably the right place to start. You say, my gosh, I am graduating, I am starting a company, I am moving forward in the worst economy in whatever, 70-plus years. Is that a good thing or not?

Well, first let’s start with the basics. It is really a bad economy. Business is tough. People really are being laid off. We had a round we did yesterday. It really is a tough, tough, tough environment. There is no question about it. And I like to characterize, at least for folks at Microsoft, that I don’t actually think what we’re doing – we didn’t go down, and we’re going back up. The economy is kind of resetting over a year, two years, three years, at a lower level. And then we will build from a lower base. And that happened because essentially the world borrowed too much money. The question I got here five years ago, should I go borrow a bunch of money, it’s a prescient question. The world had too much debt, just as a statistic.

You say, why are we talking about this in entrepreneurship? Because you’ve got to understand a little bit kind of the environment in which you work, but consumer plus business debt was about 300-odd percent of GDP before our recent bubble burst. Before the Depression, it was 160 percent of GDP. It means we probably at least have one or two GDP’s worth of extra money that’s been used to fund business investments, to fund startup companies, to buy PCs, and flat panel displays, and servers, and houses, and blah, de blah, de blah. And now you say flush, all that extra debt is going to get flushed out of the system, and it’s not going to be replaced, because after one of these – there’s been four of them in the last 200 years of U.S. history, after one of these bubbles, people don’t immediately start borrowing again. Everybody is a little more cautious than they were before. So it’s a tough economy.

You say, well, gee, I want to do a startup, is there going to be investment out there? Well, gee, I want to sell to customers, and they’re going to need to buy equipment to do things, or, gee, I want to appeal to advertisers, and there has to be a consumer demand out there. Those are some of the kinds of ideas that I’m sure are swirling at least in some entrepreneurial heads in this audience. And yet, in a sense, you could say there’s really not a better time to start a business. If you’ve got the right idea, you will get some funding. The ideas that weren’t good enough shouldn’t have been funded, and they won’t be funded today. So in a sense, the fact that there’s a more critical screen, there’s more of a careful thought process, the fact that customers are pickier with their money today, all of that really is a chance to make people better.

One of our folks reminded me, Microsoft was started and Apple was started during kind of a recessionary period. General Electric, ironically, was started right after the great deleveraging of 1873. That was the bubble before the Depression that was just like this one. So, in a sense, there is opportunity. And there may be more opportunities in the long run even if kind of the entrepreneurial opportunities are less glossy than they might have been in the short run.

Particularly as a guy whose business has for the last 29 years been software, the number of opportunities to create brilliant, genius, amazing ideas, the number of interesting things that we see people doing, it continues to be stunning. So there’s not going to be any shortage of real possibilities. And so the question is, will you have the patience, and the tenacity, and the interest to really start something that’s important.

I started at Microsoft, as Tina said, almost 30 years ago. I thought I would give you my “entrepreneurial story.” That’s me when I left Stanford. I still part my hair, by the way, on the right, just like I did back then. I did meet Bill Gates at Harvard, and our sophomore year at school we lived down the hall from each other. And his friend from high school, they had started actually a company when they were in high school that did software that processed traffic tape. I don’t know if you notice when you drive down the road you sometimes see these rubber tubes across the road. Well, it turns out in the old days when you drive over one of those, it would punch holes in a paper tape in a box at the side of the road. And you would have to ship them back to Maryland. And Bill and Paul said, gee, let’s buy one of these new Intel microprocessors. At the time it was something called the Intel 4004, just to show you how olden days that was, and they started a business processing these tapes for cities in the State of Washington.

And then Bill came to Harvard, and they still loved microprocessors, and Paul Allen wanted to build a company to build computers with microprocessors. And somehow even then Bill kind of said, no. I know what we’re good at, Paul, we’re software guys. Let’s not do that. And then finally, when our sophomore year in college, the cover of Popular Electronics magazine, there was a picture of the first microprocessor-based computer, something called the Altair. And Bill and Paul decided to “write all the software the machine would ever need.”

Of course, they didn’t, but they wrote some important software for the machine, and the company got started and was kind of purring along with 30 people when I joined. There were no business people. It was all programmers when I joined the company in 1980. I came in to “be a business person,” whatever that meant. I didn’t know much. Frankly, all I’d ever really done was interview for jobs, and market brownie mix. I wasn’t exactly well-credentialed. I’d taken the first year in Stanford Business School, so I could read a balance sheet. That was really important. We didn’t have that much money back then, so there wasn’t much to read. But, anyway, those lessons were important.

And then from there, we kind of just kept grinding and grinding, a few bits of inspiration, a lot of perspiration. I just spent an hour with a group of venture capitalists, and they said, hey, look, if you’re going to tell entrepreneurs – I said, I’m going to go talk to some entrepreneurs – what would be your lessons from the early days? They were simple. Hire good people. We actually didn’t have very good people when I started. Bill was good. There were like four or five very good people, and I went into Bill’s office after I’d been there a month or so, and I said, we’ve got to hire 18 more people on top of the 30 that we had. He said, Steve, our people aren’t even very good. Why do you want to hire 18 more? And you’re going to bankrupt us, go back to Stanford or something, but don’t stay here unless you’re going to do better than that. And so we just really worked hard at getting good people, smart people.

Tina was joking around, look around at the people you know. The people you know, at least in my case, they wound up being super important. The initial programmers at Microsoft were people who grew up with Bill. We brought in people we knew from college, because those are the people you know and you trust if you start something. With good people, and then a lot of patience. I think a lot of entrepreneurs think that things happen quickly. Success is 90 percent inspiration, 10 percent perspiration. It’s much more balanced than that. It’s great idea, a lot of hard work, and then you work at it for a year, two years, three years, four years, five years, six years, seven years, eight, nine, 10. Some things that actually wind up being really important take more than 10 years to get popular.

You wouldn’t believe it reading the popular press, but it’s really true. It’s really true. It’s true with Windows. It’s true with SQL databases, for guys like Oracle. The Google guys were at it for a number of years before that thing really took off. There’s a few exceptions, but most things you’ve got to really grind up. And certainly that was kind of the history of Microsoft in the early days.

We had some products. We were a tiny company. My parents thought I’d lost my mind to drop out of Stanford Business School to go join some company that made software. You know, I said, software for personal computers, mom, dad, that’s why I’m leaving the hallowed halls of Stanford. And my dad said, what the heck is software? And my mother said, why the heck would a person need a computer? Well, we’re talking about 1980, and life was a little different in 1980. But it’s those kinds of questions that – there’s a little bit of spark, there’s a little bit of a powerful force, and then there’s just a lot of hard work to get from here to there.

You know, if you say today, OK, is all the good stuff in the days gone by? This is one of the questions I get a lot from people who are just starting out who say, wow, technology has changed so much in the last five years, 10 years, 15 years, 20 years. Are all of the great companies created? The answer is no, not even at all. The truth of the matter is, if you look at the technology industry there’s always a few big guys, some medium-sized guys, and lots of small guys, and the names are always changing, because the industry is so darned dynamic. And there’s so much new stuff being invented. The way chips work is changing completely as we speak. You’re able to get bigger, and bigger displays at cheaper and cheaper prices.

I didn’t check this one out before I walked up here, look, this is just a piece of plastic, it doesn’t know a thing. I can touch it, I’m not controlling it, it doesn’t recognize me and say, hey, Steve, stop beating on me. It doesn’t see me, feel me, speak to me. I don’t know, there’s some song that sounds a little bit like that. But, that’s the future. That’s where things are going.

Today you learn to speak the computer’s language, if you want to write programs you learn to write programs in the computer’s language. If you want to control programs, file, open, copy, paste, not get me ready for my trip to Stanford. My secretary is able to process that command, my computer cannot process that command. The kinds of things that are going to be invented over the next several years is just to me outstanding, and particularly for somebody who’s got skills in software.

You don’t even have to be interested in the tech field, software is going to change so many fields. It will change energy, environmental science, the impact of software will be broadly felt. So I’m a bit of a zealot on that, as a particular expertise, but the chance for entrepreneurship is really, really high.

We live in a world where I think things are really also changing based upon the fact that we’re still quite early in the presence of the Internet. People say, well, the Internet, we’ve had that for 15 years. So much has been invented. And yet really the whole world of technology is being redone as we speak. Technology grew up with the computer, and now it’s the computer, the PC, and maybe the smart TV. The computers, phones, and TVs, didn’t grow up assuming the Internet. And frankly the Internet didn’t grow up assuming tomorrow’s PCs, phones, and TVs. And so the whole mode of how software gets written to run intelligently in PCs, phones, and TVs, to talk to the Internet cloud, that’s all going to get redone.

Since I’ve been at Microsoft the basic paradigm for how software gets written has changed a few times. Mainframes, PCs, client-server, Internet, and now we’re in sort of a Web 2, Web 3 kind of generation. Smart phones, smart PCs, smart TVs, talking to a smart Internet, and that creates a whole generation of opportunities to disrupt the businesses that are to there. To create new businesses that people couldn’t dream of before. We talk about the cloud, the cloud is kind of that smart Internet presence talking to those smart clients.

A lot of people sort of question the fact, will we continue to need smart phones, smart PCs, et cetera, and the answer is yes. Yes, people will actually want to get the best they can get, because this stuff is just so darned cheap, and as long – Bill Gates when he started Microsoft said, the hardware represents a form of free intelligence. We just have to have the software to switch it on. And that opportunity still exists. Your world needs to be brought together, the consumer, you have one identity on the phone, you’ve got another on the Internet, you’ve got another at work, you’ve got another at home. You may want them separate, but you may not want to manage the cacophony of things that you deal with today.

Just take contacts, how many different places do you have to update when somebody switches homes, switches phone numbers. How many different places do you go touch, just simple things, so much to do, so much to do to improve the overall experience people have with these things. See, I wish there was a camera in that darned screen.

Anyway, at Microsoft we’re investing aggressively across the spectrum, touch, voice, natural language input, smart phones, smart PCs, smart TVs. We’ve introduced a whole new platform for writing smart applications in the Internet, a new version of Windows that we call Windows Azure. Our company this year will invest over $9 billion in R&D. Nobody sort of is – you can’t process what numbers like that mean, I can’t and I deal with them every day. It means we’ve got about 45,000 people involved creating software, and perhaps most importantly we will invest the same amount of money this next 12 months that we did the last 12. We were going to increase it, because of the economy we won’t. But, it sure reflects the fact that we’ve got fundamental optimism about what can be created.

Now Microsoft is sort of a funny place. We’ve got these big businesses, but in the software business big businesses need to be constantly recreated. A product like Windows is, in a sense, only as good as its last release or two, not just its last release, but it’s last release or two. So we need to have this mix of sort of large – thank you. Anyway, moving right along. I kind of knew what I was doing when I walked down that road. Anyway, you need to have a mix even in a big company of smaller entrepreneurial projects, bigger entrepreneurial projects. It’s not like running a factory. It’s not like running a bank. It’s not like running a retailer. Not just Microsoft, but nobody.

In our business you’ve got to be inventing new things, because software doesn’t wear out. It doesn’t break, or at least if it breaks it was broken when you finished it, it doesn’t break over time the way physical goods do. So the opportunity and need to invent, just like any other startup, or entrepreneurial activity remains strong.

So we’re investing. Venture capitalists, there’s going to be less venture capital this year than last year. There is still probably in my opinion more venture capital than there are really good ideas to absorb the venture capital. So whether you’re going to join a startup, whether you want to start a business yourself, whether you want to join a company like ours, I think there’s just incredible opportunities.

We want to be kind of a partner and friend to people who are starting these businesses. We’ve made our tools now free for students, for startup companies, qualified startup companies. We’ve made our software free so we can bootstrap entrepreneurs who want to come with us, and help pioneer and really pursue the future, the future for students, for consumers, for businesses, for the whole range of things.

I hinted at this earlier, but I really want to come back to this notion that the range of innovation, you live in almost a better time, you’re coming out of school in almost a better time than Bill Gates and I did, because the power of information technology to give new innovation possibilities, not just in technology itself, but in science, in health, in education, it’s unbelievable. You’re able to model today the physical world, with computers, in a way that was never possible before.

People say we have an energy problem, what’s the answer? We need better software, whether you believe in oil and gas to simulate, or whether you need better tools to model what can happen with new forms of energy, software accelerates the process. Pharmaceutical research, software accelerates the process. Education, education is the one industry that never gets more efficient. This is not a slam at Stanford or other fine educational institutions, but in a sense everybody says, hey, the only way to get more efficient is to actually have smaller class sizes – I’m sorry, bigger class sizes, and yet people resist that. So how do we use information technology to actually improve and measure, and advance education? Healthcare, I think everybody kind of understands that healthcare needs to be reborn and reinvented, and information technology is at the key of what doctors and nurses and other health professionals really do.

I think it’s just a phenomenal time to be starting all kinds of companies. And I think leveraging and building on the kind of software that our company and our industry provide is just a great, great opportunity.

I just want to end on the notion of good times. These are tough economic times, but these are times that I think are rich in opportunity. In a sense I’m going to make kind of a radical statement. When I was a student here at the business school most people wanted to become consultants or investment bankers. Those were the hot jobs. I love consultants, and I love investment bankers, but consultants don’t invent, and most of the products investment bankers invented are somewhat discredited in the current environment.

Entrepreneurs who invent, who create, who really add to the level of innovation, the productivity in the economy, will change the world, will create economic value, will drive jobs, and will have a heck of a lot of fun doing it. So I think despite everything else now is the time. Now is the time for people who care, who want to invent, who have skills in specifics, scientific and information technology areas. I think now is the time, and certainly I hope for many, or most of you who choose that path, you’ll do it with us, working with us, partnering with us, building on our tools and technologies, but I certainly wish you all the best, if you choose to take that path. And as I said, if you’re looking for something from us, SteveB@Microsoft.com, shoot me a little piece of e-mail.

Pleasure talking to you and I’ll look forward to questions. (Applause.)

END

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