1.2_ How bill Gates got rich-.pdf

Luck and risk are siblings. They are both the reality that every outcome in life is guided by forces other than individual effort.

NYU professor Scott Galloway has a related idea that is so important to remember when judging success --- both your own and others': nothing is as good or as bad as it seems.

Bill Gates went to one of the only high schools in the world that had a computer.

The story of how Lakeside School, just outside Seattle, even got a computer is remarkable. Bill Dougall was a World War II navy pilot turned high school math and science teacher. “He believed that book study wasn’t enough without real-world experience. He also realized that we’d need to know something about computers when we got to college,” recalled late Microsoft co-founder Paul Allen.

In 1968 Dougall petitioned the Lakeside School Mothers’ Club to use the proceeds from its annual rummage sale-about $3,000-to lease a Teletype Model 30 computer hooked up to the General Electric mainframe terminal for computer time-sharing.

“The whole idea of time-sharing only got invented in 1965,”Gates later said. “Someone was pretty forward looking.” Most university graduate schools did not have a computer anywhere near as advanced as Bill Gates had access to in eighth grade. And he couldn’t get enough of it.

Gates was 13 years old in 1968 when he met classmate Paul Allen. Allen was also obsessed with the school’s computer, and the two hit it off.

Lakeside’s computer wasn’t part of its general curriculum It was an independent study program. Bill and Paul could toy away with the thing at their leisure, letting their creativity run wild-after school, late into the night, on weekends. They quickly became computing experts.

During one of their late-night sessions, Allen recalled Gates showing him a Fortune magazine and saying, “What do you think it’s like to run a Fortune 500 company?” Allen said he had no idea. “Maybe we’ll have our own computer company someday,” Gates said. Microsoft is now worth more than a trillion dollars.

A little quick math.

In 1968 there were roughly 303 million high-school-age people in the world, according to the UN.

About 18 million of them lived in the United States.

About 270,000 of them lived in the United States.
A little over 100,000 of them lived in the Seattle area.
And only about 300 of them attended Lakeside School.

One in a million high-school-age students attended the high school that had the combination of cash and foresight to buy a сташом computer. Bill Gates happened to be one of them.

Gates is not shy about what this meant. “If there had been no Lakeside, there would have been no Microsoft,” he told the school’s graduating class in 2005.

Gates is staggeringly smart, even more hardworking, and as a teenager had a vision for computers that even most seasoned computer executives couldn’t grasp. He also had a one in a million head start by going to school at Lakeside.

Now let me tell you about Gates’ friend Kent Evans. He expe

1. 1.2:HowbillGatesgot
rich-
Thepsychologyofmoney
LUCK&RISK
Luckandriskaresiblings.Theyareboththerealitythateveryoutcome
inlifeisguidedbyforcesotherthanindividualeffort.

2. NYUprofessorScottGallowayhasarelatedideathatissoimportantto
rememberwhenjudgingsuccess---bothyourownandothers':nothing
isasgoodorasbadasitseems.
BillGateswenttooneoftheonlyhighschoolsintheworldthathadacomputer.
ThestoryofhowLakesideSchool,justoutsideSeattle,evengotacomputeris
remarkable.BillDougallwasaWorldWarIInavypilotturnedhighschoolmathand
scienceteacher.“Hebelievedthatbookstudywasn’tenoughwithoutreal-world
experience.Healsorealizedthatwe’dneedtoknowsomethingaboutcomputerswhen
wegottocollege,”recalledlateMicrosoftco-founderPaulAllen.
In1968DougallpetitionedtheLakesideSchoolMothers’Clubtousetheproceedsfrom
itsannualrummagesale-about$3,000-toleaseaTeletypeModel30computerhooked
uptotheGeneralElectricmainframeterminalforcomputertime-sharing.
“Thewholeideaoftime-sharingonlygotinventedin1965,”Gateslatersaid.“Someone
wasprettyforwardlooking.”Mostuniversitygraduateschoolsdidnothaveacomputer
anywherenearasadvancedasBillGateshadaccesstoineighthgrade.Andhe
couldn’tgetenoughofit.
Gateswas13yearsoldin1968whenhemetclassmatePaulAllen.Allenwasalso
obsessedwiththeschool’scomputer,andthetwohititoff.

3. Lakeside’scomputerwasn’tpartofitsgeneralcurriculumItwasanindependentstudy
program.BillandPaulcouldtoyawaywiththethingattheirleisure,lettingtheir
creativityrunwild-afterschool,lateintothenight,onweekends.Theyquicklybecame
computingexperts.
Duringoneoftheirlate-nightsessions,AllenrecalledGatesshowinghimaFortune
magazineandsaying,“Whatdoyouthinkit’sliketorunaFortune500company?”Allen
saidhehadnoidea.“Maybewe’llhaveourowncomputercompanysomeday,”Gates
said.Microsoftisnowworthmorethanatrilliondollars.
Alittlequickmath.
In1968therewereroughly303millionhigh-school-agepeopleintheworld,according
totheUN.
About18millionofthemlivedintheUnitedStates.
About270,000ofthemlivedintheUnitedStates.
Alittleover100,000ofthemlivedintheSeattlearea.
Andonlyabout300ofthemattendedLakesideSchool.

4. Oneinamillionhigh-school-agestudentsattendedthehighschoolthathadthe
combinationofcashandforesighttobuyaсташомcomputer.BillGateshappenedto
beoneofthem.
Gatesisnotshyaboutwhatthismeant.“IftherehadbeennoLakeside,therewould
havebeennoMicrosoft,”hetoldtheschool’sgraduatingclassin2005.
Gatesisstaggeringlysmart,evenmorehardworking,andasateenagerhadavisionfor
computersthatevenmostseasonedcomputerexecutivescouldn’tgrasp.Healsohada
oneinamillionheadstartbygoingtoschoolatLakeside.
NowletmetellyouaboutGates’friendKentEvans.Heexperiencedanequally
powerfuldoseofluck’sclosesibling,risk.
BillGatesandPaulAllenbecamehouseholdnamesthankstoMicrosoft’ssuccess.But
backatLakesidetherewasathirdmemberofthisgangofhigh-schoolcomputer
prodigies.
KentEvansandBillGatesbecamebestfriendsineighthgrade.Evanswas,byGates’
ownaccount,thebeststudentintheclass.
Thetwotalked“onthephoneridiculousamounts,”Gatesrecallsinthedocumentary
InsideBill’sBrain.“IstillknowKent’sphonenumber,”hesays.“525-7851.

5. EvanswasasskilledwithcomputersasGatesandAllen.Lakesideoncestruggledto
manuallyputtogethertheschool’sclassscheduleamazeofcomplexitytogethundreds
ofstudentstheclassestheyneedattimesthatdon’tconflictwithothercourses.The
schooltaskedBillandKent-children,byanymeasure-tobuildacomputerprogramto
solvetheproblem.Itworked.
AndunlikePaulAllen,KentsharedBill’sbusinessmindandendlessambition.“Kent
alwayshadthebigbriefcase,likealawyer’sbriefcase,”Gatesrecalls.“Wewerealways
schemingaboutwhatwe’dbedoingfiveorsixyearsinthefuture.Shouldwegobe
CEOs?Whatkindofimpactcouldyouhave?Shouldwegobegenerals?Shouldwego
beambassadors?”Whateveritwas,BillandKentknewthey’ddoittogether.
Butitwouldneverhappen.Kentdiedinamountaineeringaccidentbeforehegraduated
highschool.
EveryyeartherearearoundthreedozenmountaineeringdeathsintheUnitedStates.
Theoddsofbeingkilledonamountaininhighschoolareroughlyoneinamillion.
BillGatesexperiencedoneinamillionluckbyendingupatLakeside.KentEvans
experiencedoneinamillionriskbynevergettingtofinishwhatheandGatessetoutto
achieve.Thesameforce,thesamemagnitude,workinginoppositedirections.
Luckandriskareboththerealitythateveryoutcomeinlifeisguidedbyforcesother
thanindividualeffort.Theyaresosimilarthatyoucan’tbelieveinonewithoutequally
respectingtheother.Theybothhappenbecausetheworldistoocomplextoallow100%
ofyouractionstodictate100%ofyouroutcomes.Theyaredrivenbythesamething:

6. Youareonepersoninagamewithsevenbillionotherpeopleandinfinitemovingparts.
Theaccidentalimpactofactionsoutsideofyourcontrolcanbemoreconsequentialthan
theonesyouconsciouslytake.
Butbotharesohardtomeasure,andhardtoaccept,thattheytoooftengooverlooked.
ForeveryBillGatesthereisaKentEvanswhowasjustasskilledanddrivenbutended
upontheothersideofliferoulette.
Ifyougiveluckandrisktheirproperrespect,yourealizethatwhenjudgingpeople’s
financialsuccess-bothyourownandothers-it’sneverasgoodorasbadasitseems.
RobertShiller
YearsagoIaskedeconomistRobertShiller,whowontheNobelPrizeineconomics,
“Whatdoyouwanttoknowaboutinvestingthatwecan’tknow?”
“Theexactroleofluckinsuccessfuloutcomes,”heanswered.Ilovethatresponse,
becausenooneactuallythinksluckdoesn’tplayaroleinfinancialsuccess.Butsince
it’shardtoquantifyluckandrudetosuggestpeople’ssuccessisowedtoit,thedefault
stanceisoftentoimplicitlyignoreluckasafactorofsuccess.

7. IfIsay,“Thereareabillioninvestorsintheworld.Bysheerchance,wouldyouexpect10
ofthemtobecomebillionairespredominantlyoffluck?”Youwouldreply,“Ofcourse.”
ButthenifIaskyoutonamethoseinvestorstotheirface-youwilllikelybackdown.
Whenjudgingothers,attributingsuccesstoluckmakesyoulookjealousandmean,
evenifweknowitcosts.Andwhenjudgingyourself,attributingsuccesstoluckcanbe
toodemoralizingtoaccept.
EconomistBhashkarMazumderhasshownthatincomesamongbrothersaremore
correlatedthanheightorweight.Ifyouarerichandtall,yourbrotherismorelikelyto
alsoberichthanheistall.Ithinkmostofusintuitivelyknowthisistrue-thequalityof
youreducationandthedoorsthatopenforheavilylinkedtoyourparents’
socioeconomicstatus.ButfindmetworichbrothersandI’llshowyoutwomenwhodo
notthinkthisstudy’sfindingsapplytothem.
Failurewhichcanbeanythingfrombankruptcytonotmeetingapersonalgoal-isequally
abused.
Didfailedbusinessesnottryhardenough?Werebadinvestmentsnotthoughtthrough
wellenough?Arewaywardcareersduetolaziness?Sometimes,yes.Ofcourse.
Buthowmuch?It’ssohardtoknow.Everythingworthpursuinghaslessthan100%
oddsofsucceeding,andriskisjustwhathappenswhenyouendupontheunfortunate
sideofthatequation.Justaswithluck,thestorygetstoohard,toomessy,toocomplex
ifwetrytopickaparthowmuchofanoutcomewasaconsciousdecisionversusarisk.

8. SayIbuyastock,andfiveyearslaterit’sgonenowhere.It’spossiblethatImadeabad
decisionbybuyingitinthefirstplace.It’salsopossiblethatImadeagooddecisionthat
hadan80%chanceofmakingmoney,andIjusthappenedtoenduponthesideofthe
unfortunate20%.HowdoIknowwhichiswhich?
DidImakeamistake,ordidIjustexperiencetherealityofrisk?
It’spossibletostatisticallymeasurewhethersomedecisionswerewise.Butinthereal
world,daytoday,wesimplydon’t.It’stoohard.Weprefersimplestories,whichare
easybutoftendevilishlymisleading.
AfterspendingyearsaroundinvestorsandbusinessleadersI’vcometorealizethat
someoneelse’sfailureisusuallyattributedtobaddecisions,whileyourownfailuresare
usuallychalkeduptothedarksideofrisk.WhenjudgingyourfailuresI’mlikelytoprefer
acleanandsimplestoryofcauseandeffect,becauseIdon’tknowwhat’sgoingon
insideyourhead.“Youhadabadoutcomesoitmusthavebeencausedbyabad
decision”isthestorythatmakesthemostsensetome.ButwhenjudgingmyselfIcan
makeupawildnarrativejustifyingmypastdecisionsandattributingbadoutcomesto
risk.
ThecoverofForbesmagazinedoesnotcelebratepoorinvestorswhomadegood
decisionsbuthappenedtoexperiencetheunfortunatesideofrisk.Butitalmostcertainly
celebratesrichinvestorswhomadeOKorevenrecklessdecisionsandhappenedtoget
lucky.Bothflippedthesamecointhathappenedtolandonadifferentside.

9. Thedangerouspartofthisisthatwe’realltryingtolearnaboutwhatworksandwhat
doesn’twithmoney.
Whatinvestingstrategieswork?Whichonesdon’t?
Whatbusinessstrategieswork?Whichonesdon’t?
Howdoyougetrich?Howdoyouavoidbeingpoor?Wetendtoseekouttheselessons
byobservingsuccessesandfailuresandsaying,“Dowhatshedid,avoidwhathedid.”
Ifwehadamagicwandwewouldfindoutexactlywhatproportionoftheseoutcomes
werecausedbyactionsthatarerepeatable,versustheroleofrandomriskandluckthat
swayedthoseactionsonewayortheother.Butwedon’thaveamagicwand.Wehave
brainsthatprefereasyanswerswithoutmuchappetitefornuance.Soidentifyingthe
traitsweshouldemulateoravoidcanbeagonizinglyhard.
Letmetellyouanotherstoryofsomeonewho,likeBillGates,waswildlysuccessful,but
whosesuccessishardtopindownasbeingcausedbyluckorskill.
CorneliusVanderbilthadjustfinishedaseriesofbusinessdealstoexpandhisrailroad
empire.

10. OneofhisbusinessadvisorsleanedintotellVanderbiltthateverytransactionhe
agreedtobrokethelaw.
“MyGod,John,”saidVanderbilt,“Youdon’tsupposeyoucanrunarailroadin
accordancewiththestatutesoftheStateofNewYork,doyou?
Myfirstthoughtwhenreadingthiswas:“Thatattitudeiswhyhewassosuccessful.”
Lawsdidn’taccommodaterailroadsduringVanderbilt’sday.Sohesaid“tohellwithit”
andwentaheadanywayVanderbiltwaswildlysuccessful.Soit’stemptingtoviewhis
law-flaunting-whichwasnotoriousandvitaltohissuccess-assagewisdom.That
scrappyvisionaryletnothinggetinhisway!
Buthowdangerousisthatanalysis?Nosanepersonwouldrecommendflagrantcrime
asanentrepreneurialtrait.YoucaneasilyimagineVanderbilt’sstoryturningoutmuch
different-anoutlawwhoseyoungcompanycollapsedundercourtorder.Sowehavea
problemhere.
YoucanpraiseVanderbiltforflauntingthelawwithasmuchpassionasyoucriticize
Enronfordoingthesame.Perhapsonegotluckybyavoidingthearmofthelawwhile
theotherfounditselfonthesideofrisk.
JohnD.Rockefellerissimilar.Hisfrequentcircumventingofthelaw-ajudgeoncecalled
hiscompany“nobetterthanacommonthief”isoftenportrayedbyhistoriansascunning
businesssmarts.Maybeitwas.Butwhendoesthenarrativeshiftfrom,“Youdidn’tlet
outdatedlawsgetintheofinnovation,”wayto“Youcommittedacrime?”Orhowlittle
wouldthestoryhavetoshiftforthenarrativetohaveturnedfrom“Rockefellerwasa

11. genius,trytolearnfromhissuccesses,”to“Rockefellerwasacriminal,trytolearnfrom
hisbusinessfailures.“Verylittle.
“WhatdoIcareaboutthelaw?”Vanderbiltoncesaid.“Aint!gotthepower?”
Hedid,anditworked.Butit’seasytoimaginethosebeingthelastwordsofastorywith
averydifferentoutcome.Thelinebetweenboldandrecklesscanbethin.Whenwe
don’tgiveriskandlucktheirproperbillingit’softeninvisible.
BenjaminGrahamisknownasoneofthegreatestinvestorsofalltime,thefatherof
valueinvestingandtheearlymentorofWarrenBuffett.ButthemajorityofBenjamin
Graham’sinvestingsuccesswasduetoowninganenormouschunkofGEICOstock
which,byhisownadmission,brokenearlyeverydiversificationnalethatGraham
himselflaidoutinhisfamoustexts.Wheredoesthethinlinebetweenboldandreckless
fallhere?Idon’tknow.GrahamWroteabouthisGEICObonanza:“Oneluckybreak,or
onesupremelyshrewddecision-canwetellthemapart?Noteasily.
WesimilarlythinkMarkZuckerbergisageniusforturningdownYahoo!’s2006stbillion
offertobuyhiscompany.Hethefutureandstucktohisguns.Butpeoplecriticize
Yahoo!withasmuchpassionforturningdownitsownbigbuyoutofferfrom
Microsoft-thosefoolsshouldhavecashedoutwhiletheycould!Whatisthelessonfor
entrepreneurshere?Ihavenoidea,becauseriskandluckaresohardtopindown.
Therearesomanyexamplesofthis.

12. Countlessfortunes(andfailures)owetheiroutcometoleverage.Thebest(andworst)
managersdrivetheiremployeesashardastheycan.
“Thecustomerisalwaysright”and“customersdon’tknowwhattheywant”areboth
acceptedbusinesswisdom.
Riskandluckaredoppelgangers.
Thisisnotaneasyproblemtosolve.Thedifficultyinidentifyingwhatisluck,whatis
skill,andwhatisriskisoneofthebiggestproblemswefacewhentryingtolearnabout
thebestwaytomanagemoney.
Buttwothingscanpointyouinabetterdirection.
Becarefulwhoyoupraiseandadmire.Becarefulwhoyoulookdownuponand
wishtoavoidbecoming.
Or,justbecarefulwhenassumingthat100%ofoutcomescanbeattributedtoeffortand
decisions.Aftermysonwasborn,Iwrotehimaletterthatsaid,inpart:

13. Somepeoplearebornintofamiliesthatencourageeducation;othersareagainstit.
Somearebornintoflourishingeconomiesencouragingofentrepreneurship;othersare
bornintowaranddestitution.Iwantyoutobesuccessful,andIwantyoutoearnit.But
realizethatnotallsuccessisduetohardwork,andnotallpovertyisduetolaziness.
Keepthisinmindwhenjudgingpeople,includingyourself.
Therefore,focuslessonspecificindividualsandcasestudiesandmoreonbroad
patterns.
Studyingaspecificpersoncanbedangerousbecausewetendtostudyextreme
examples-thebillionaires,theCEOs,orthemassivefailuresthatdominatethenews
andextremeexamplesareoftentheleastapplicabletoothersituations,giventheir
complexity.Themoreextremetheoutcome,thelesslikelyyoucanapplyitslessonsto
yourownlife,becausethemorelikelytheoutcomewasinfluencedbyextremeendsof
luckorrisk.
You’llgetclosertoactionabletakeawaysbylookingforbroadpatternsofsuccessand
failure.Themorecommonthepattern,themoreapplicableitmightbetoyourlife.
TryingtoemulateWarrenBuffett’sinvestmentsuccessishard,becausehisresultsare
soextremethattheroleofluckinhislifetimeperformanceisverylikelyhigh,andluck
isn’tsomethingyoucanreliablyemulate.Butrealizing,aswe’llseeinchapter7,that
peoplewhohave
controlovertheirtimetendtobehappierinlifeisabroadandcommonenough
observationthatyoucandosomethingwithit.

14. Myfavoritehistorian,FrederickLewisAllen,spenthiscareerdepictingthelifeofthe
average,medianAmerican-howtheylived,howtheychanged,whattheydidforwork,
whattheyatefordinner,etc.Therearemorerelevantlessonstotakeawayfromthis
kindofbroadobservationthanthereareinstudyingtheextremecharactersthattendto
dominatethenews.
BillGatesoncesaid,“Successisalousyteacher.Itseducessmartpeopleinto
thinkingtheycan’tlose.”
Whenthingsaregoingextremelywell,realizeit’snotasgoodasyouthink.You
arenotinvincible,andifyouacknowledgethatluckbroughtyousuccessthen
youhavetobelieveinluck’scousin,risk,whichcanturnyourstoryaroundjust
asquickly.
Butthesameistrueintheotherdirection.
Failurecanbealousyteacher,becauseitseducessmartpeopleintothinking
theirdecisionswereterriblewhensometimestheyjustreflecttheunforgiving
realitiesofrisk.Thetrickwhendealingwithfailureisarrangingyourfinanciallife
inawaythatabadinvestmenthereandamissedfinancialgoaltherewon’twipe
yououtsoyoucankeepplayinguntiltheoddsfallinyourfavor.
Butmoreimportantisthatasmuchaswerecognizetheroleofluckinsuccess,
theroleofriskmeansweshouldforgiveourselvesandleaveroomfor
understandingwhenjudgingfailures.

15. Nothingisasgoodorasbadasitseems.
Nowlet’slookatthestoriesoftwomenwhopushedtheirluck.
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