Steve Ballmer's Big Moves

Steve Ballmer didn't set out to run a big company.

Two decades ago, he dropped out of Stanford Graduate School of Business at age 24 and joined Microsoft, where he became one of the software company's first 40 employees. No matter how successful Microsoft became, he and the other pioneers maintained the brash, intense culture of a company where people viewed themselves as working for a tiny underdog.

Today, though, there's no escaping Microsoft's vastness. The company has nearly 40,000 employees, $23 billion per year in revenues, and a market position so dominant that it has spent much of the past three years battling the Justice Department in an antitrust investigation. While that court case has dominated media coverage of Microsoft, a second, largely overlooked drama has been playing out inside the Redmond, Washington-based company. Since becoming Microsoft's CEO last year, Ballmer, 45, has been wrestling with all of the classic big-company tensions between innovation and inertia -- looking for ways to stay on the fast-growth track when most giants would inevitably slow down.

Those challenges will be especially pressing over the next five years. Major parts of the economy are sagging, and it just isn't realistic to expect the sunny conditions of the late 1990s to resume anytime soon. Meanwhile, the Internet is creating all sorts of pitfalls -- as well as opportunities -- for big companies that are trying to transform themselves. Get your Web strategy right, and you can speed up innovation, reduce costs, and be more in touch with customers' wishes than ever before. But it's all too easy to spend a fortune putting the wrong parts of your business online the wrong way. Even a company with as brilliant a past as Microsoft's has no easy answers as it tries to make the most of Internet opportunities without undermining the company's longtime profit engines.

In a recent conversation with Fast Company, Ballmer talked not only about how he wants to run Microsoft, but also about how any executive should think about strategy, the competition, the Internet, and the war for talent. At times, Ballmer can be his own toughest critic, worrying about Microsoft's slowing growth rate and the difficult interplay between all of its divisions. Don't be fooled, though. For all of his grumbling, the Microsoft CEO knows where the biggest opportunities lie and how an executive in his shoes can best exploit them. As he wryly put it, "It's nice to have simple businesses. But sometimes it's the complicated businesses that make a lot of money.''

You've had a great career at Microsoft, but not everything you've done has worked out well. In the 1980s, when you were running the Windows business, your first few versions flopped. What did you learn from that?

I like to tell people that all of our products and business will go through three phases. There's vision, patience, and execution. Windows 1.0 wasn't a success. Windows 2.0 wasn't a success. It wasn't until we put out Windows 3.1 that we really had a big winner. It reminds me of that elementary-school joke where the thirsty donkey is trudging through the desert, and every time he asks how much farther it is to the well, his owner tells him, "Patience, jackass, patience.'' That goes on forever, until the person hearing the story asks, "Will this ever end?'' And then the answer, of course, is "Patience, jackass, patience.''

The vision phase is full of excitement, vim, and vigor. Everything looks big and rosy. At that stage, we don't know what we don't know. Then you get into the patience stage, and that's tough. You have to cut out parts of the product that don't fit. You have to react to what the market is telling you. You get in trouble if you assume that you're going to reach critical mass quickly -- because it's most likely that you won't. Through all of these trials, you can't lose patience. Then you finally get to the execution stage, when you're tuning things up, tracking prices, and figuring out how to get more revenue.

That final execution phase can be a comfortable place to be. Frankly, the vision phase can be very comfortable, too. It's the patience phase that's really not comfortable at all.

So where are we in the Internet economy? We surely aren't in the vision stage anymore.

We've gone from the vision phase to the patience phase. And most people aren't very patient. Entrepreneurs in particular don't have the stomach for this. They thought the vision phase would last forever, or that they could go right from vision to execution. That's why we had little companies doing Superbowl ads that frankly just should not have been done. Even take a look at Amazon. I love the company, but if you aren't patient, get out! That goes for the employees as well as the stock traders. A bit of the same is true for Yahoo! too. They still look great, but hey, it's the patience phase now.