‘Baby Bills’ Are Blooming in Microsoft’s Neck of the Woods

After he awoke from a coma caused by a life-threatening bicycle accident, Pradeep Singh decided to leave behind his stressful, eight-year career at Microsoft and change his approach to life.

But who can tell the difference?

The technology company he founded, Aditi Corp., is eerily like the software giant in Redmond, a 10-minute drive away. Singh’s 200 employees work long hours but have flexible schedules. They enjoy generous benefits, from mental health care to free soft drinks. Singh, 41, even keeps a copy of the Microsoft flow chart on his desk, for guidance.

Like the Army or the Mormons, the Boy Scouts or the space program, Microsoft has become an American institution that shapes--and marks--its disciples for life. Nowhere is that influence more apparent than in greater Seattle, where dozens of small high-tech companies have grown on Microsoft’s base.

This trend spotlights an irony behind Microsoft’s legal troubles with the Justice Department, which argues that the software giant is using its dominance of computer operating systems to stifle smaller companies. Whether that’s true or not, Microsoft has inadvertently funded hundreds of new companies--some allies, some competitors--as ex-employees cash in their options to cover the costs of start-ups.

“It’s inevitable that as Microsoft grows, it scatters more and more seeds,” says Doug DeSantis, 32, a former Microsoft employee who used to introduce founder Bill Gates’ speeches and now runs Nth Dimension, in Bothell, Wash. “Microsoft is a draw for a rich pool of talent, and that talent leaves to start new companies that, in many cases, will compete with Microsoft.”

Founded in 1975, Microsoft has nearly $14 billion in annual revenue, 25,000 employees, and seemingly boundless earning potential. For much of its history, Gates has kept his workers from leaving his college-like office park in suburban Redmond, known simply as Campus, with a stock option plan so generous it has created six billionaires and an estimated 4,000 millionaires.

Those options are known as the “golden handcuffs,” but in recent years, several Microsoft managers have broken free. More than 500 ex-workers have launched their own start-ups-- so-called Baby Bills--most of them in software or related fields.

Easing their way is the rise of the Internet, which allows new companies to disseminate their products without replicating Microsoft’s costly distribution network. The most prominent companies run by ex-Microsoft workers--from office solutions provider Onyx to the video and audio firm RealNetworks--have built their services around the Internet.

Of course, most Microsoft babies have closely aped their parent. All the generous benefits--free soda, laptops on demand, generous health insurance--are standard. Stock options are granted easily. Microsoft’s openness--with e-mail updates across the company and the wide availability of beta, or pretested, versions of new products to all employees--is widely emulated.

And when Singh diagrams his new company’s business strategy on a yellow legal pad, it is a model of you-know-who’s, with one solid long-term revenue stream (operating systems for Microsoft, technical services for Aditi) allowing the company to take chances in other areas.

“We thrived in the fire at Microsoft, and in that kind of conflagration, you trust the lessons you learn,” said Singh, who spent more than $1.5 million in money he made at Microsoft to build Aditi into a $5-million company. “So it’s only natural that Microsoft alums like me are exporting the company’s culture.”

The idea of Microsoft as more state of mind than company has flowered most fully on the 23rd floor of a Bellevue office tower. Here are the offices of Microsoft Alumnet, a nonprofit association of former employees that is part Harvard Alumni Assn., part Veterans of Foreign Wars.

Tony Audino, a Microsoft executive turned venture capitalist, founded the group in 1995 after trying unsuccessfully to contact old co-workers. Gates pledged his support. In less than three years, more than 1,700 ex-Microsoft workers--all of whom must have left the company “in good standing,” according to bylaws--have paid $100 to join Alumnet.

Members receive privileges at the Microsoft company store, access to a directory of other Alumnet members, and invitations to the group’s forums--on topics from harnessing the latest Internet technology to starting your own foundation. Former employees get discounts on technology purchases and buy group health insurance plans for their new businesses through Alumnet.

The association’s most popular product is its quarterly newsletter, the Connection, based on Alumnet’s motto: “Stay Connected.” Audino’s sister, Lisa Audino Davisson, and Gates’ former executive assistant, Bonnie Tabb, run the group.

“So many people quit but . . . always wonder about the place they gave their youth to,” said Tabb, who worked at Microsoft from 1984 to 1994. “We’ve changed the whole concept of what it means to leave a company--which is to say you never really leave Microsoft.”

In fact, many of the Baby Bills exploit their Microsoft ties for financial advantage. Greg Slyngstad, the former general manager of Microsoft’s Expedia Travel Network, started his own travel software company and won a coveted spot on Explorer, Microsoft’s Internet tool, by giving Microsoft part-ownership. At Aditi, Singh’s first customer for his 24-hour technical software support service was his old company.

But for most, Microsoft is merely a place from which to find employees, and lessons.

At Nth Dimension, which produces an online consumer guide for cell phones, DeSantis uses presentation skills he honed during Microsoft product demonstrations, where he introduced Gates.

The founders of Onyx, former Microsoft employees Brent Frei and Brian Janssen, say they learned that it is better to work with the old boss than to compete directly with him. Their company makes a tool that allows businesses to enhance Microsoft’s BackOffice software.

“You don’t want to compete with Microsoft. You want to leverage them,” said Frei, nervously. “Fortunately, they’re not in our specific market space yet.”

Still, dozens of ex-employees have made private investments in Microsoft competitors. And even start-ups financed with Microsoft money compete with the software giant. Rob Glaser, chief executive of Internet audio and video software maker RealNetworks, is close personally to Gates, and Microsoft owns 10% of his company. But that didn’t stop Glaser from bitterly criticizing his benefactor’s aggressive tactics in testimony last month before the Senate Judiciary Committee.

Inside some Baby Bills, there are a few complaints about the culture that has grown up around Microsoft. Onyx’s Frei said that the size of his old company hinders innovation. Microsoft’s use of more than 5,000 temporary workers--some have filed a lawsuit against the company--is widely criticized. Black ex-employees say they felt isolated in Microsoft’s predominantly white culture.

But there are also companies like E-Stamp, a California company that has brought Microsoft culture to the heart of Silicon Valley. Sunir Kapoor, E-Stamp president and onetime head of Microsoft Europe, says he talks to old co-workers every day about his company, which makes software for buying, downloading and purchasing postage on the Internet.

“On nearly every decision, I think, ‘What would Microsoft do?’ ” Kapoor says. “Sometimes I feel like I never left.”