Paul Allen on founding Microsoft and life after leaving

Executive overview

Paul Allen co-founded Microsoft with Bill Gates in 1975, starting from a cold call bluffing their way into a contract they hadn't yet written a line of code for. Allen was the idea man — spotting opportunities at the frontier of what microprocessors could do — while Gates drove execution, negotiation, and an increasingly aggressive hold on equity.

After eight years, a cancer diagnosis and a conversation he overheard — Gates and Ballmer discussing diluting his shares while he was undergoing chemotherapy — Allen resigned. His most important realization: life was too short to spend unhappily, and the company did not define him.

Ownership of the software, not royalties, was the decision that built Microsoft — and the discipline to retain it across every deal shaped everything that followed.

How Microsoft started

• Allen spotted the Altair 8800 on a magazine cover and convinced Gates the moment had arrived for a microprocessor BASIC.
• Gates cold-called the manufacturer (MITS) claiming their BASIC was nearly finished — they had not written a line of code.
• MITS's offer: first team through the door in Albuquerque with working software gets the contract.
• They delivered. MITS offered Allen a job running its software group; Gates eventually dropped out of Harvard to join him.
• Early lesson from their failed Traf-O-Data venture: do no market research, and you will not foresee how hard it is to compete with free.

Ownership and equity

• From the first MITS deal, Allen and Gates structured the contract so Microsoft retained ownership of the BASIC interpreter and could license it to third-party OEMs.
• Gates argued for a 60/40 split at founding, claiming Allen had a salary at MITS while he did most of the BASIC work. Allen accepted.
• After Allen invented the SoftCard — which let Microsoft share in the Apple II's explosive growth, generating ~$8 million in 1981 sales alone — he asked to revisit the split. Gates refused and told him never to raise it again.
• The MS-DOS acquisition: Microsoft bought full rights to 86-DOS (Q-DOS) from Seattle Computer Products for $50,000. Gates insisted on outright purchase over licensing. That ownership became the foundation of the IBM PC era and Microsoft's dominance.
• IBM accepted a non-exclusive arrangement for DOS, allowing Microsoft to sell MS-DOS worldwide under its own name — the real bonanza, sold over and over to every compatible PC maker.

The partnership breakdown

• Gates pushed the equity split from 60/40 to 64/36 a year later, citing his centrality to the business. Allen conceded, noting "my heart wasn't in it."
• The partnership agreement gave Gates the right to demand Allen's withdrawal in the event of irreconcilable differences.
• As Microsoft scaled, Allen's role diminished. Gates stopped seeking him out; conflict became a pattern of browbeating.
• In late 1982, Allen overheard Gates and Ballmer discussing how to dilute his equity through new option grants — while he was on chemotherapy for Hodgkin's lymphoma. He confronted them and resolved to leave.
• Allen wrote Gates a formal letter: the personal verbal attacks had destroyed both their friendship and their ability to work together.

Leaving Microsoft and what followed

• Allen resigned in 1983 with Hodgkin's in remission, roughly 28% of Microsoft's equity.
• At the 1986 IPO he became $175 million richer overnight. By 1990, age 37, he was a billionaire.
• He bought 15% of AOL in the early 1990s and sold for a $75 million profit — but had he held his 24.9% stake through the AOL–Time Warner merger, it would have been worth $40 billion.
• Gates remained a close friend. During Allen's 2009 chemotherapy for stage 4 non-Hodgkin's lymphoma, Gates was one of his most regular visitors.

Core lessons from the book

• Follow your passion before a health crisis forces you to. Allen's father urged him to love what he did — having not followed his own advice. Allen finally acted on it only after cancer.
• Each failure contains the seeds of the next success — but only if you are willing to learn from it.
• Consumer behavior for genuinely new technology is unpredictable; the proof of demand was in the mail sacks, not the analyst reports.
• The earliest days of a company — small, intimate, full of possibility — are often what founders miss most. Growth replaces that feeling and does not bring it back.
• "If there's any irony to my life, it's that my time with Microsoft was atypically one-dimensional." Allen's post-Microsoft decades — music, sports, space, philanthropy — were truer to his nature than the eight years that made his fortune.