Riding the Bear: Partnering With a Dominant Player While Hedging Your Bets
Stay visibly loyal to an essential but potentially wrong partner while quietly building your own future.
- Difficulty
- Advanced
- Time to result
- ~ongoing to results
- Steps
- 6
- Confidence
- —
When a startup depends on a dominant, established partner for market access, leaving is dangerous but blind loyalty is worse. Microsoft's leadership called this 'riding the bear': staying visibly committed to IBM's OS/2 strategy — the only safe public position while IBM controlled PC distribution — while simultaneously funding a small, low-prestige internal team to build Windows as an independent hedge. The mechanism works because it lets a company capture the short-term protection and legitimacy of the dominant partner's ecosystem while preserving genuine optionality if the partner's strategy fails. The hard part is resourcing the hedge seriously enough that it's ready to scale the moment market signals turn, and having the organizational courage to reallocate the entire company's priorities once that signal appears.
Origin
Described by Steve Ballmer to characterize Microsoft's posture toward IBM during the OS/2 co-development years of the mid-to-late 1980s, while Windows was quietly being built in parallel.
Core principles
- 01Public commitment and private hedging can coexist without contradiction if managed carefully.
- 02Small, low-prestige teams often move faster and take more creative risks than the flagship project.
- 03Market adoption data is a more reliable signal than internal politics or partner pressure.
How to run it
- 1
Publicly Commit to the Dominant Partner's Roadmap
Continue visibly supporting and resourcing the partner's stated strategy so the relationship doesn't fracture while you still depend on their distribution.
- 2
Fund a Small, Independent Hedge Team
Stand up a separate, lower-profile group to pursue the alternative bet without diverting the company's central narrative or provoking the dominant partner.
Pro tip Let the hedge team operate outside the main org's politics and prestige hierarchy — that separation protects its speed and creative latitude.
- 3
Recruit Believers, Not Placeholders, to the Hedge
Staff the side bet with people who genuinely want to build the alternative future, even if it's not the prestigious internal assignment.
- 4
Watch External Market Signals Closely
Track real adoption data as the true referendum on which bet the market is validating, rather than relying on internal consensus.
- 5
Reallocate Company-Wide Resources the Moment the Signal Is Clear
When the hedge starts winning, move quickly and completely across the whole organization to back it.
Watch out Waiting too long after the signal is clear risks losing the market to a faster-moving competitor who reads the same signal.
- 6
Exit the Dominant Partnership on Your Own Terms
Once your hedge is strong enough to stand alone, formally end the constrained partnership and go compete directly using the strength you quietly built.
In the wild
While Microsoft's official strategy and prestige track was OS/2 with IBM, a roughly 30-person team kept building Windows in parallel, treated internally as a secondary project.
→ When Windows 3.0 unexpectedly took off, Microsoft pivoted the entire company to Windows as its primary platform within months.
After years of publicly supporting OS/2 while quietly building Windows, Microsoft formally ended joint development once Windows's success made the partnership unnecessary.
→ Microsoft entered the 1990s free to build its own enterprise strategy and eventually overtook IBM in market value.
Common mistakes
Underfunding the Hedge
If the side bet is treated as a token project instead of a real one, it won't be ready to scale when the market signal arrives, forcing a slow and costly catch-up.
Breaking Publicly With the Bear Too Early
Announcing independence before you have real leverage invites retaliation from the dominant partner while you still need their distribution.
Is it for you?
Not ideal for
Situations where the dominant partner has explicit contractual exclusivity preventing any independent development, or where the hedge team can't get any real resources or credibility internally.
From the transcript
“it was 65 people that shipped Windows 3.1 these were like the Misfits it was not prestigious”
From the episode
Microsoft Volume I