Dell, Michael S. 1965–
Michael S. Dell
Chairman, Dell Inc.
Education: Attended University of Texas, Austin, 1983–1984.
Family: Son of Alexander (orthodontist) and Lorraine D. (stockbroker) Dell; married Susan Lieberman (fashion designer, boutique owner), 1989; children: four.
Career: Dell Computer Corporation, Dell Inc., 1984–2004, chief executive officer; 1987–, chairman.
Awards: Customer Satisfaction Award, J. D. Power and Associates, 1991; CEO of the Year, Financial World, 1993; CEO of the Year, Industry Week, 1998; Entrepreneur of the Year, Inc., 1998; Chief Executive of the Year, Chief Executive, 2001.
Publications: Direct from Dell: Strategies That Revolutionized an Industry, 1999.
Address: Dell Inc., 1 Dell Way, Round Rock, Texas 78682-0001; http://www.dell.com.
■ Michael Dell defied conventional wisdom—that consumers would not purchase computer equipment over the telephone—and built a billion-dollar company doing just that. Through his direct method of offering low-cost, custom-configured personal computers direct to customers, Dell changed the competitive dynamic of the computer industry. Notable for a natural business talent coupled with a willingness to share power, Dell carried the company through rapid growth and economic difficulties. He innovated operating processes, took risks, learned through his mistakes, and built Dell Inc. from a college dormitory operation to a global corporation. Along the way Dell became one of the wealthiest Americans and the youngest CEO of a company on the Fortune 500 list of largest American companies.
ENTREPRENEURIAL ABILITIES EMERGE
Dell understood the meaning of "business opportunity" early in life, as his mother's profession, stockbroker, frequently
raised discussions of business and economic affairs at the family dinner table. So when he began to collect stamps at age 12 and noticed prices rising, Dell recognized a business opportunity. He determined the most profitable way to sell stamps would be to bypass the auctioneer and sell direct to collectors. He compiled a 12-page catalog of his and his friends' stamps and advertised in a stamp collectors' magazine. In this first business venture Dell earned $2000.
Dell further developed his business acumen at the age of 16, when he sold newspaper subscriptions for the Houston Post. The inefficiency of cold-calling prompted Dell to find better marketing methods. He determined that the people most likely to subscribe were newly married couples and people who had moved. He obtained lists of marriage license applicants and mortgage applicants then used his Apple II computer to address sales letters to people on these lists. The approach succeeded so well that Dell earned $18,000 the first year and had bought a BMW automobile by the time he went to college. In the back seat of that BMW, Dell carried three personal computers, the seeds of PC's Limited and Dell Computer Corporation.
Dell's fascination with computers began with exposure to a data processor in junior high school then to computers at the local Radio Shack store. After much persuasion, Dell's parents allowed him to use savings to buy an Apple II computer at the age of 15. To the fury of his parents, upon arriving home Dell dismantled the computer to see how it operated. The following year, in 1981, Dell bought an IBM desktop computer and learned how to upgrade and add new components. With insight that IBM-compatible computers would become the choice of business, Dell began to buy, upgrade, and resell personal computers for friends and acquaintances, eventually purchasing components at wholesale rates from distributors. Exposure to the computer industry fostered Dell's desire to start a computer business. In June 1982 he skipped classes for most of a week to attend the National Computer Conference. After saving money to buy a hard disk drive (not standard equipment at the time), Dell communicated with other computer enthusiasts on a bulletin board system and learned how the industry operated. He found dealers sold computers for $3,000 and made $1,000 gross profit, yet he could purchase components for less than $700.
FOUNDING DELL COMPUTER CORPORATION
Dell determined that he could compete with retail computer dealers by selling direct to consumers at a lower price and offering better technical service, but his parents had another idea—that Dell should become a physician. Dell went to the University of Texas at Austin in fall 1983. While he attended to premed studies, Dell continued to upgrade and resell computers, finding customers among students and local business-people through word-of-mouth. By the time his parents made a surprise visit in November to address poor class attendance, Dell knew he wanted to compete with IBM. An attempt to be the good son and study premed lasted approximately three weeks, then Dell returned to upgrading computers. In early 1984 Dell registered PC's Limited with the state of Texas and moved to a two-bedroom condominium. Between word-of-mouth referrals and a small advertisement in the local newspaper, PC's Limited sold between $50,000 and $80,000 per month in computers, add-on components, and upgrade kits. The week before final examinations in May 1983 Dell incorporated the company as Dell Computer Corporation with the state-required minimum of $1,000 capital. He never returned to college.
PC's Limited moved to a 1,000-square-foot office, and Dell hired a few people to take and fill orders and upgrade basic machines. Computer sales increased so rapidly that the company outgrew that facility and two larger ones in one year. When the company moved into a 30,000-square-foot facility in 1985, Dell believed the space would never be used. But that year the company began to design and build computers with purchased components. Dell hired an engineer to develop a 286 microprocessor from chip sets, a strategy that simplified computer design. In spring 1986 Dell introduced the fastest personal computer of the time, a 12-megahertz 286 processor. The price of $1,995 compared favorably with IBM's price of $3,995 for a 6-megahertz 286 processor. The machine caught the attention of the news media and garnered excellent performance reviews and a cover story in PC Week. Sales exploded to $60 million that year.
Despite speculation that consumers would not want to purchase a technologically complex product over the telephone, Dell succeeded. From the start Dell emphasized a customer focus. Another company could compete on price, but quality products and excellent service would make Dell Computer sustainable over the long term. The advantage of custom configuration and a direct relationship with customers meant that Dell did not have to guess what a customer might want then attempt to inventory and sell preconfigured computers, as the competition tended to do. Parts inventory and computer manufacturing processes were designed for rapid configuration and product delivery in a matter of days. Because the direct model did not allow the customer to see or handle the product, however, in 1986 Dell began to offer a 30-day money back guarantee, a first in the industry. When the company began to pursue corporate business, Dell initiated another industry first in 1986, next-day, on-site service for personal computers in the customer's home or office.
BUSINESS AS AN EXPERIENCE IN HANDS-ON LEARNING
Rapid growth challenged Dell's abilities as a businessman. Although he made many mistakes, Dell credited those mistakes with helping him learn quickly. It was ironic that when Dell made big mistakes, those mistakes conflicted with his most cherished ideas: to manage inventory, to focus on the customer, and to sell direct to the customer.
The first major mistake involved excess parts inventory and led to innovation in high-tech production. Growing at a rapid pace, the company bought as many parts as it could. When technology changed in 1989, however, the company was left with memory chips that could not be used or sold. The company had to raise prices to compensate for the loss, slowing growth. Taking an unconventional approach to problem solving, the company implemented supply process in partnership with vendors. This strategy limited parts inventory, so that when technology changed, Dell Computer could adopt the new technology quickly. During the late 1990s Dell refined supply chain management to less than an eight-day lead, whereas competitors maintained inventory of preconfigured computers for more than 60 days. The vendor relationships worked because Dell shared information and helped vendors stay abreast of technological change.
The second major mistake involved development of the Olympic computer, introduced in 1990 with technology that far exceeded anything in the industry. Customers said they did not need that much technology. While certain elements of the new technology were applied elsewhere, Dell realized he had not communicated with his customers before product development. He learned that slow, incremental change served the customer better.
The third problem involved entry into the retail market in 1990. Once profit and loss analysis by business segment was put into place, Dell discovered that the company lost money in retail. Although retail sales accounted for 10 percent of total sales, and retail sales were growing more than 15 percent industrywide, Dell risked an exit from retail in 1994 and refocused on the direct model. Dell launched www.dell.com that year, introduced online pricing in 1995, and initiated online sales in 1996. Internet sales quickly reached $1 million per day and increased to $50 million per day in 2000. Dell Computer entered the market for servers in 1996 and storage products in 1998, passing the cost savings of the direct model to customers. Again, Dell's direct method, selling servers and storage products directly over the telephone and then via the Internet, defied conventional wisdom.
SEEKING COUNSEL AND SHARING POWER
Unlike many entrepreneurs, Dell learned to relinquish responsibility and share power when he could no longer handle responsibilities himself. He sought the wisdom of experienced executives early in the company's history. In 1986 Lee Walker, a venture capitalist and consultant, joined Dell Computer and established a mentoring relationship with Dell. Dell matured as a businessman when he accepted Walker's decision to fire or demote most of the senior management staff, recognizing the need to find people who could grow into positions of increasing responsibility as the company expanded. Walker encouraged Dell to overcome his shyness as well as his reluctance to take a public role. He persuaded Dell to use his name for the company and its computer brand, a change that took place in 1987 in conjunction with the company's first international foray, to the United Kingdom. Walker brought two high-profile executives to the board of directors, George Kozmetsky, the cofounder of Teledyne, and Bobby Ray Inman, the former chairman, president, and chief executive of Westmark Systems. These executives provided Dell executives with sound advice, particularly as the company made its first offerings of stock—a private placement in October 1987 and a public offering in June 1988.
When rapid growth surpassed the company's ability to provide quality products and service and operate profitably in the early 1990s, Dell sought objective perspectives. First he hired Thomas J. Meredith of Sun Microsystems as chief financial officer in November 1992. Rather than simply pursue rapid growth as a goal, Dell adapted to the need to include data about cash liquidity and profitability into daily decision making. When the company failed to launch quality laptop computer products in 1993, Dell hired John Medica, who had led development of the Apple PowerBook computer. Medica focused on a single product, the Latitude XP computer, which gave Dell Computer its first significant share of the laptop market in 1994. Aware that even a CEO-founder can be removed from position in a public company, Dell approached the board of directors in August 1993 with an outline for improving operations and profitability. He hired Bain & Company to assist with profit and loss analysis and to develop measurements that created responsibility and accountability at the level of each business unit.
In May 1994 Dell hired the former Motorola executive Morton L. Topfer as vice chairman. Topfer's experience in product cycles and management restructuring fit well with Dell Computer's needs for executive leadership. Dell handled products, technology, and general strategy and took a more public role, that of customer relations, dealing with the press, and giving speeches. Topfer handled budget, day-to-day operations, sales, and marketing. The change allowed Dell to spend more time with his growing family, and Topfer brought ideas and discipline to a new emphasis on detailed, long-range planning. A three-year goal of achieving $10 billion in revenue by the end of 1997 was exceeded by $2 billion.
Kevin Rollins, a Bain & Company consultant credited with recommending that Dell Computer cease retail operation, joined the company in 1996 and began to work with Dell and Topfer in the office of chairman in 1997. The three men shared the responsibilities until Topfer left in 1999. Afterward, Dell and Rollins shared responsibilities, working from adjoining offices divided by a glass wall and a glass door that never closed. In 2004 Dell relinquished the CEO title to Rollins, a recognition that Rollins was already functioning in that role, rather than of a change in responsibilities.
MAINTAINING THE ENTREPRENEURIAL SPIRIT IN A GLOBAL CORPORATION
During the company's early years of rapid growth, unconventional thinking and new ideas pervaded the decision-making process at Dell. A simple, informal business process was the consequence and the facilitator of rapid expansion. Employees frequently handled any task needed, such as taking orders when the telephone lines were busy. That salespeople had to set up their own computers cultivated customer service through hands-on experience with the product from the point of view of the user.
As sales rose from the millions into the billions, Dell sought to maintain an entrepreneurial company culture while addressing the needs of a publicly owned, global corporation. Involving more facts and data in the decision-making processes constituted a major adjustment to the free-spirited, entrepreneurial culture of the company. A careful approach involved not pursuing every business opportunity but prioritizing, because growth can occur too quickly and threaten the existence of the company. Rather than pursue every idea, Dell chose to examine ideas more closely in relation to the whole of the company and to develop chosen ideas to their full potential.
While he learned to apply facts to intuitive knowledge and an awareness of risk, Dell encouraged all of the attitudes embodied in the company culture from the start. Open communication and exchange of ideas across all levels of the organization contributed to a flexible, nonhierarchal structure that allowed for quick responses in a constantly changing environment. Dell found employees' spontaneous interactions and candid comments more helpful than planned presentations. A learning attitude accepted failure as essential to the process of taking unconventional approaches to problems, and openminded self-criticism provided the foundation for innovation.
One way that Dell strove to maintain the intimacy of a small company involved creating manageable business units, beginning in the mid-1990s. Corporate sales divided into small and large companies, then medium-sized companies. International divisions divided into specific markets as sales increased. In 2003 sales to educational institutions segmented into kindergarten through grade 12 and higher education. Segmentation allowed executives to move into positions of manageable, if fewer, responsibilities. The challenge of segmentation involved sustaining a sense of common goals. To unify a large organization of people with diverse responsibilities, Dell believed that each individual needed to understand his or her role in contributing to overall success. Communication throughout the company via e-mail newsletters and posters as well as compensation incentives furthered this goal.
COMPETITIVENESS EXPANDS MARKET SHARE
Although Dell was known to be friendly and approachable, these qualities belied the competitiveness that helped his company become the leading manufacturer of personal computers worldwide. Although he designed the direct method with the intention of competing on price and service, Dell used that competitive edge whenever necessary. In 1992, when industry consolidation threatened smaller operations, Dell initiated a price war. When he introduced servers in 1996 Dell knew that Compaq used high profit margins in servers to offset low margins in desktop computers. He also knew the direct model gave Dell a price advantage.
When economic downturn negatively affected sales of personal computers, Dell initiated another price war, beginning in January 2001, adding aggressive advertising and cost cutting to the strategy. Dell restructured earlier than the competition, reducing the company's workforce by 1,700 in February 2001 and by another 3,000 jobs later that year. Dell also reduced inventory lead time to several hours. Supply trucks held inventory at the dock until needed on the factory floor when the customer paid for the computer. In 18 months the company rose from number five in worldwide personal computer sales to number one. Dell competed directly with Hewlett Packard (HP) by initiating printer sales in 2001. Taking advantage of the atmosphere of uncertainty surrounding the merger between Compaq and HP, Dell cut prices and captured market share. When HP implied possible price increases to offset low profits in 2003, Dell cut prices again and captured market share.
Dell's entry into any product market or geographical market caused prices to decline, a process referred to as "the Dell effect." Industry observers noted that competition on price hindered innovation, as other companies cut research and development costs to remain profitable while Dell relied on suppliers to innovate technology. For Dell, focusing on the customer meant value at low cost with excellent service. While Dell emphasized a focus on the customer rather than the competition, he and his executive team kept their attention on both.
See also entry on Dell Computer Corporation in International Directory of Company Histories.
sources for further information
Anderson Forest, Stephanie, et al., "The Education of Michael Dell," BusinessWeek, March 20, 1993, p. 82+.
"Dell, The Conqueror," BusinessWeek, September 24, 2001, p. 92+.
Goldstein, Mark L., "An Industry Legend—At 21," Industry Week, April 20, 1987, p. 72+.
Pellet, Jennifer, "Who's Afraid of Michael Dell?" Chief Executive, July 2001, p. 29+.
Pletz, John, "Dell Founder Still Hones Instincts 20 Years Later," Palm Beach Post, May 16, 2004.
Chairman of Dell, Inc.
In 1984, as a first-year college student in Austin, Texas, Michael Dell borrowed $1,000 from his parents to start a computer accessories business. He began by selling kits to help customers upgrade their personal computers, establishing a business model his company, Dell, Inc., still follows today: sell directly to consumers, eliminating the middle step of a retail store or a distributor, and hold on to far more of the profits. In just two decades, Dell's company grew to massive proportions, with more than 47,000 employees and annual revenues of more than $40 billion. Dell himself was squarely at the top of Forbes magazine's list of the ten wealthiest Americans under the age of forty. He has been praised as a visionary and an innovator, but he has also earned admiration for being a stable, consistent leader. In an industry that changes rapidly, in terms of both technology and personnel, Dell has stood out from his peers by remaining at the helm of his company from its struggling early days to its current status as a major player in the global field of information technology (IT).
A businessman from the beginning
Michael Saul Dell was born in 1965 in Houston, Texas. While he displayed intelligence and ingenuity from an early age, he had little interest in school. At the age of eight, he sent away for information on taking a high school equivalency exam, which, if he passed, would make him a high school graduate without having to endure the remaining years of school. His parents insisted he stay in the classroom, and Dell invested his considerable creative energy in after-school ventures. When he was twelve years old, he operated a mail-order trading business for stamps and baseball cards, earning $2,000. At the age of fourteen, Dell got his first computer, an Apple II and soon realized that he had a knack for taking computers apart and putting them back together. While in high school, Dell took a job delivering newspapers for the Houston Post. His aggressive selling strategies—which included obtaining mailing lists of newly married people, offering them free trial subscriptions, and then following up with phone calls—resulted in earnings of $18,000. Not one to hold on to his spoils, Dell spent the money on a new BMW.
"What people have never understood is that we're not like other companies."
In 1983, when Dell entered his freshman year at the University of Texas at Austin, his parents hoped he would become a doctor, but Dell's skills lay elsewhere. In examining the personal computer, or PC, industry, he noticed an opportunity to sell PCs for less, as he explained to Richard Murphy of Success magazine: "I saw that you'd buy a PC for about $3,000, and inside that PC was about $600 worth of parts. IBM would buy most of these parts from other companies, assemble them, and sell the computer to a dealer for $2,000. Then the dealer, who knew very little about selling or supporting computers, would sell it for $3,000, which was even more outrageous." Dell realized that he could assemble computer parts, skip the step of selling to a dealer, and go directly to the consumer. That way the consumer could buy the product for less, and Dell held on to every penny of the profits. Dell thus combined his knowledge of computers with his well-developed business sense and began his own business, assembling upgrade kits for personal computers.
In a 1999 article in Fortune, Dell recalled operating his new business out of his University of Texas dorm room on the twenty-seventh floor: "People would ride up to the 27th floor with their computers. I'd put in some memory or a disk drive, they'd pay me, and I'd send them on their way." His earnings soon reached about $25,000 a month. By the summer of 1984, after one year at the university, Dell had decided that he needed to focus all of his time on his business, and he dropped out of college. His company, then called PCs Unlimited, began building PCs, starting with parts from such established computer companies as IBM and Compaq and adding elements to make the products unique. Dell continued to sell directly to consumers, a strategy that paid off in vast sums: by the end of 1984, his company had earned $6 million. Dell was off and running, leading his company to enormous growth year after year.
The envy of CEOs everywhere
By early 1985, at the age of twenty, Dell had thirty employees working for him. During the summer of that year, the company began producing the Turbo PC, its first computer made entirely from scratch, rather than a customized version of another company's machine. In 1987 Dell changed the name of the company from PCs Unlimited to Dell Computer Corporation. At that time he began a program offered by no one else in the industry: rather than having customers bring broken-down computers to a store for repair, Dell Computer would pay house calls to service its customers' PCs. In Success magazine, Dell pointed out that this offer came out of necessity rather than an ingenious plan to outperform competitors: "That was a pretty important plus because we didn't have any stores," he recalled. During 1988 Dell began offering the public the opportunity to buy stock in his company. Just four years after the company had begun, sales reached $159 million. Dell found success in his personal life at that time, too; he married Susan Lieberman in October of 1989. Residing in Austin's hill country, the couple has four children.
A Brief History of Personal Computers
For many people, it is nearly impossible to imagine life without computers, yet it was not long ago that computers were a rare item, seen perhaps by the average citizen only on television. Mainframe computers of the 1950s took up entire rooms; minicomputers were the size of refrigerators; and microcomputers, which eventually became known as personal computers (PCs), could fit on a desktop. Today, many varieties of wireless computers can be held in the palm of a hand.
In the early 1970s, consumer demand for home and business computers began to develop. About that time, Ed Roberts, owner Micro Instrumentation Telemetry Systems (MITS), worked with engineers to develop the MITS Altair 8800. This computer was sold as a kit for $400; it had to be assembled by the consumer, who also had to write the software. In spite of these hurdles, MITS was flooded with orders for the Altair in 1975. Soon after the Altair hit the market, two young programmers approached Roberts to inform him of an existing software program that could be adapted to work on the Altair. These programmers, Paul Allen and Bill Gates, then a first-year student at Harvard University, created a version of the program, called BASIC, for the Altair. Later, MITS went out of business, and Gates and Allen founded Microsoft, the global software giant.
In about 1973 Xerox developed the Alto, a computer featuring a mouse and a point-and-click graphical user interface (GUI). The company never marketed this computer to the public, however, as Xerox management could not envision how consumers would use it. Computers that featured a GUI, including Apple's Lisa and Macintosh models, did not become widespread for another ten years. In 1975 Steve Wozniak and Steve Jobs, two computer hobbyists, began working together to build their own PC using inexpensive parts. The following year they founded Apple Computers and released the Apple I. In 1977 Apple Computers released the Apple II, considered by many to be the first true personal computer. This PC, which sold for just under $1,300, featured color graphics and a disk drive. Apple's primary competitor was Commodore, which released the Commodore PET in early 1977. The PET had features similar to Apple II but was sold for half the price. Commodore also created the Commodore 64, which featured a good deal of memory and color graphics and used inexpensive floppy disks for storing files. The Commodore 64 became the best-selling PC of all time.
Computers were catching on with a small segment of the population, but it was not until the invention of spreadsheet software in 1979 that many businesses saw the benefits of using PCs. With the development of VisiCalc, a program invented by Dan Bricklin and Bob Frankston, businesses calculating their finances could use computer software to perform in a few minutes tasks that had previously taken hours. When a user changed one number in a column, the software automatically calculated the change to every other number on the sheet, changes that otherwise had to be done by hand. During that same year, Wordstar, a groundbreaking word-processing software, was released and became immediately successful. With Wordstar and similar software, users could create, edit, save, and print documents using their computers.
With the release of the IBM PC—the computer credited with popularizing the phrase "personal computer"—in August of 1981, the PC came to be seen as a vital business tool and a machine that could be useful to general consumers as well. The IBM PC was designed with an open architecture, meaning that similar computers built by other companies could use IBM software. Microsoft, first with the development of MS-DOS and later with Windows, became the primary developer of operating systems—the programs that run every other program on a computer—for IBM-type PCs. While Apple had popularized computers with graphical user interfaces, Microsoft became a major GUI player with the release of its first Windows operating system in 1985. Developments in the personal computer since that time have been less dramatic than in the early years, focusing primarily on increasing memory, speed, and portability, decreasing the machine's size, and improving the quality of the GUI.
Dell Computer grew at an astronomical rate, and with that growth came problems. During 1993 the industry as a whole was suffering a slowdown, with consumers buying fewer PCs. Dell Computer was suffering from numerous management problems. The company scrapped plans for a new laptop computer when it realized the product was outmatched by its competitors. An attempt to sell Dell computers through retail outlets like Best Buy and Wal-Mart had failed. Recognizing that his company needed to be overhauled, Dell brought in several new high-level managers with years of experience in high-tech industries. Many of the day-to-day responsibilities were delegated to these trusted executives, leaving Dell to concentrate on the company's overall vision and strategy. The reorganization helped the company regain its footing, a triumph marked by the hugely successful release of a new laptop computer, the Latitude XP.
Many business analysts have suggested that one of Dell's secrets to success has been his ability to remain focused on his winning business model: sell directly to consumers, keep prices low and quality high, and offer solid technological support to customers. Within thirty-six hours of a customer ordering a PC by phone or through the company's Web site, a custom-built Dell computer is shipped. To keep its costs down, the company maintains an extremely low inventory of computer parts, at any given time housing only enough components to fulfill a few days' worth of orders. This strategy not only reduces the need for warehouse space but also ensures that, in the rapidly changing computer industry, Dell always has in stock the newest parts its suppliers offer. Michael Dell has been able to maintain his company's steady growth rate by selling not just to individual consumers but also to large corporations, educational institutions, and government agencies. The company has expanded its line of products in recent years to include network servers (powerful machines that run computer networks), storage systems, handheld computers, and printers—an expansion signified by its 2003 name change from Dell Computer to Dell, Inc. Dell has extended its customer base throughout the world, most notably into Asia, capturing 7 percent of the PC market in China by 2004.
During the summer of 2004, Dell, who had been chairman and chief executive officer, or CEO, of his company, relinquished the CEO position, passing that title on to Kevin Rollins, his former president and chief operating officer. In a 2004 interview with Fortune magazine, Dell and Rollins stated that the change in their job titles did not signal any major shift in the way the company would be run. Dell declared: "We run the business together, and we're going to continue." Since its beginnings in 1984, the company has set a rapid pace for growth; it took Dell just twenty years to surpass industry leader Hewlett-Packard to hold the largest share of the computer-making market. A 2001 article in The Economist summed up Dell's accomplishment, stating, "There is hardly a more admired boss than Mr. Dell, the man who turned the commodity business of PC making into a goldmine by doing things differently."
For More Information
Calonius, Erik. "Their Wildest Dreams." Fortune (August 16, 1999): p. 142.
Kirkpatrick, David. "Dell and Robbins: The $41 Billion Buddy Act." Fortune (April 19, 2004): p. 84.
Murphy, Richard. "Michael Dell." Success (January 1999): p. 50.
"A Revolution of One." The Economist (April 14, 2001): p. 10.
"Dell Inc." Hoover's Online. —ID__13193—/free-co-factsheet.xhtml">http://www.hoovers.com/dell/—ID__13193—/free-co-factsheet.xhtml (accessed on June 26, 2004).
"Executive Biographies: Michael S. Dell." Dell. http://www1.us.dell.com/content/topics/global.aspx/corp/biographies/en/michael_dell?c=us&l=;en&s=corp (accessed on June 26, 2004).
As a teenager, Michael Dell hit upon a new way to sell and manufacture computers. He turned this idea into a working business and started his own company before he even made it to college. For several years, he won national attention because of the great success he enjoyed at such a young age. Over time, however, people began to see that Dell was more than just a "wonder boy," he was a pioneer in the fast-paced world of technology. By 1992, Dell was the youngest chief executive officer (CEO) ever to lead a company in the Fortune 500, a listing of the top U.S. corporations. By 1999, he was the fifth-richest person in the United States.
"We dive headfirst into change. Part of that is because it's all we've ever known, but it's also because today, it's a must.… To thrive on change, you must understand how to give in to it, flow with it, and derive strength from it. There's no other way."
Selling Stamps, Newspapers, and Computers
Michael Dell was born on February 23, 1965, in Houston, Texas. His father Alexander was an orthodontist and his mother Lorraine was a stockbroker. Dell's parents hoped he would follow his father and study medicine. From an early age, however, Dell had an interest in business. Eager to speed up his education, Dell sent for information that would prepare him for a test that would give him his high school diploma. He was eight years old at the time.
Dell did stay in school, but spent a good deal of his time looking for ways to earn money. At age twelve, he started a business that sold stamps by mail to collectors. He earned $2,000. In high school, Dell sold subscriptions for a local newspaper. He figured that people just married or who had just bought new homes in Houston would be likely customers. So, Dell hired friends to help him check courthouse records for newly married couples, and he scanned the listings of new home purchases. By selling to those two specific groups, Dell made $18,000 in one year. His income amazed his history teacher—she made less that year than Dell did.
Dell was interested in computers, and he soon realized that selling them was a gold mine. The parts inside a typical IBM PC only cost about $700. Retailers bought the machines for $2,000 and sold them for $3,000. Dell figured that someone could make money building their own computers and selling them directly to customers, at a much lower price than the retailers charged. Dell began buying machines, adding new parts, and selling them locally. He continued this business in 1983, when he began taking classes in Austin at the University of Texas.
According to an 1991 article in Forbes, young Michael Dell once said his goal was to "make more money than any other kid in school." By the time he was seventeen years old, he had earned enough money to pay cash for a BMW automobile.
From College to Corporation
At his first apartment in Austin, Dell's business did not sit well with his roommates. They dumped his computer parts against the door and told him to move out. In November 1983, Dell's parents learned about his computer business and that he was skipping classes. His father asked what he wanted to do with his life. Dell's reply, as he recounts in Direct from Dell was: "I want to compete with IBM!" To satisfy his parents, Dell tried to quit the computer business; he lasted only a few weeks. "I knew in my heart," Dell later wrote, "that I was onto a fabulous business opportunity that I could not let pass me by."
Dell officially launched his own computer company, PC's Limited. A few months later, he incorporated as Dell Computer Corporation, investing the $1,000 minimum required by Texas law. Before the end of 1984, he hired a local engineer to build a computer for him, instead of reselling upgraded IBM machines. At the end of the fiscal (financial) year of 1986, sales of Dell-produced machines hit $34 million.
As a new company, DCC had to win customers with more than low prices. To overcome the reluctance to buy a computer by mail, Dell offered a 30-day money-back guarantee. He also made sure the company used the best parts available. And he encouraged his engineers to build faster machines than IBM or other competitors. As Dell computers won more attention from PC magazines, sales continued to rise.
Despite their early success, Dell and his company were not perfect. The company bought more chips than it needed right before prices for these computer "brains" fell. "For the first time," Dell says in Direct from Dell, "I started thinking I might be in over my head." Still, the young CEO survived the crisis and learned from his mistakes. He told Forbes in 1991, "I'm guilty of doing too much, and I'm guilty of not seeing mistakes coming. What I'm not guilty of is making the same mistake twice." During the early 1990s, Dell hired several experienced executives to run his company's day-to-day operations, freeing him to focus on long-term strategy.
During one tough stretch at the company, Dell workers attended a rally wearing army fatigues—a sign of their determination to keep fighting. Dell joked with his employees, telling them his daughter's first words were "Daddy, kill Compaq. Daddy, kill IBM."
A Computer Fortune
By the late 1990s, Dell's shares in his company made him worth $16 billion. Employees and investors who had bought stock early on also became rich; in Texas, they were sometimes called Dellionaires. Dell appeared on the cover of national magazines and spoke often about his direct sales model, which had so successfully cut out the middleman and made DCC a world leader in computers. Dell, however, was reluctant to discuss his wife, their four children, and their private life. In 1995, the media wanted to talk about the 33,000square-foot home Dell was building outside Austin. He seemed bothered by the attention, telling Fortune, "Fame isn't everything it's cracked up to be."
Mort Topfer: Dell's Right-Hand Man
In 1994, when Michael Dell persuaded Mort Topfer to leave Motorola and come work for him, Topfer only planned to stay a few months. Topfer was fifty-seven, and he and his wife had just built a retirement home in Las Vegas, Nevada. Serving as vice chairman at Dell, however, proved a welcome challenge, and Topfer stayed in that position for five years. He helped Dell realize a prediction he made to PC Week soon after joining the company: "We are going to drive Dell to be the top 2 or 3, and maybe even No. 1 in the business."
Born in Brooklyn, New York, in 1936, Topfer earned a degree in physics from Brooklyn College, then took a job at RCA Laboratories, where he worked in both research and management. In 1971, he joined Motorola, where he eventually became president of the company's Land Mobile Products Sector. Dell and Topfer first met in January 1994, and the two men discussed their business philosophies for several months before Topfer came to Dell as vice chairman. In that role, Topfer handled the company's planning and manufacturing. Topfer and Dell worked together to split DCC's market into smaller segments, targeting specific products to meet each segment's unique needs.
Topfer also served as a mentor to Michael Dell, helping him cope with the demands of running a multibillion-dollar company. Even after Topfer stepped down as vice chairman in 1999, he remained one of Dell's closest advisers. He also stayed on the board of directors. In 2000, Topfer founded a new company with his sons Alan and Richard. Castletop Capital manages a $60 million fund to invest in small technology firms, mostly in Texas. Topfer is also active in civic affairs in his adopted hometown of Austin. He and his wife have given millions of dollars to local charities.
For a time, Dell was also questioned about his lack of charitable giving. In 1995, that changed when his company launched a foundation. Four years later, Dell and his wife Susan started their own foundation. The company's charitable giving focuses on children, particularly health and education. Dell's personal donations—numbering in the tens of millions of dollars—have gone to Texas libraries, theaters, and other organizations.
Observers say that Dell has matured since he began his company as a nineteen-year-old college student. Unlike some entrepreneurs, he has been able to manage the huge corporation that grew from simple roots. Part of his skill was hiring the right people. One Dell executive told Texas Monthly in 1999 that Dell has another important trait: "His willingness to listen is unbelievable. He detects insight, mines it, absorbs it all, and immediately puts it to use." Just like earlier great "self-made" business owners, Dell has inspired a new generation of Americans to follow their dream and take risks when they come across a new idea.
For More Information
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Michael S. Dell is the founder, CEO, and chairman of Dell Computer Corp., the largest personal computer (PC) vendor in the world and also the leading commercial seller of PCs via the Internet. Dell has served his firm—which boasted sales in excess of $32 billion and employed more than 38,000 individuals in early 2001—as CEO since its inception in 1984. His stint is the lengthiest of any CEO at a leading American computer firm. While PCs, half of which are sold on the Internet, account for roughly 55 percent of sales, Dell has worked to move his firm into the more lucrative Internet-based server and storage markets since the late 1990s. He retains a 12-percent stake in the company.
While a student at the University of Texas, Dell began selling IBM compatible computers from his dorm room. He bought parts at wholesale prices, constructed the machines on his own, and sold them to bargain PC shoppers. The success of his venture prompted Dell to quit school in April of 1984 and establish his own business, Dell Computer Corp., with $1,000 in capital. Dell advertised his low-cost custom built PCs in computer magazines, targeting savvy PCs users. Customers were able to call an 800 number to places orders, and Dell shipped completed PCs directly to customers. What set Dell's firm apart from competitors was his practice of direct selling. The elimination of middlemen allowed Dell to price his computers well below market prices.
To facilitate his firm's rapid growth, Dell hired investment banking executive E. Lee Walker as president in 1986. The following year, he launched an expansion of manufacturing facilities and developed a national customer support center. Dell also began offering on-site services for Dell products. International expansion was initiated by the creation of an office in the United Kingdom. The firm also published a catalog for the first time and expanded its sales force. In 1988 Dell completed a reorganization that was designed to facilitate improved customer service. New PC launches included 100, 200, and 310 models. That year, Dell took his company public, offering 3.5 million shares at $8.50 each. Dell's firm also began offering leasing options to customers and furthered international expansion by establishing units in Canada and West Germany. In 1989, Dell became one of the first firms to license the UNIX trademark from AT&T Corp. The firm also began selling several new Epson dot matrix printer models and opened a unit in France. Record sales were marred by a 64-percent plunge in earnings, which Dell blamed on higher costs and an inventory glut.
Early in the 1990s, Dell intensified international expansion, overseeing the establishment of various operations in Ireland, Italy, Sweden, Poland, the Czech Republic, Belgium, Finland, Spain, Norway, Luxembourg, the Netherlands, and Mexico. Dell was the first personal computer manufacturer to offer applications software installation as a free standard service option. Copycat competitor Gateway 2000 usurped Dell as the top direct seller of PCs in the U.S. in 1992. To express his determination to reduce expenses at his firm, Dell reduced his pay by five percent.
Sales exceeded $2 billion in the mid-1990s. By then, Dell had grown into the world's sixth-largest desktop PC maker and seventh-largest notebook PC maker. The firm's success was due in large part to its ability to use the Internet to take and fill customers orders quickly and inexpensively. According to a May 2001 BusinessWeek Online article, "Michael Dell was e-business before e-business was cool. During the boom in technology spending, he used the Internet to reach out to customers and sell $50 million worth of computers a day." Dell's business model, which allowed for easy tracking of customer purchases, also allowed the firm to keep inventory at a minimum.
Wanting to reduce his company's reliance on PCs—which were being discounted by many rivals—Dell pushed his firm into the server market in 1996. Within two years, servers accounted for 16 percent of the company's $12 billion revenue, and within three years, Dell was second only to Compaq Computer Corp. in U.S. server sales. In 1999, when competitors began cutting PC prices further, Dell responded with its first PC under $1,000. That year, Business Week listed Dell among its top 25 managers for the third consecutive year. Stock grew roughly 140 percent, a rate it had maintained for the past four years.
As the PC market slowed in 2000, Dell began working to reposition his firm as a provider of Internet technology, focusing on servers and storage systems similar to those offered by Sun Microsystems Inc. The firm also began offering various Internet services such as Web hosting and wireless access to the Internet. Sales growth slowed nearly 10 percent to 38.5 percent, and stock prices began to falter, prompting Dell to reduce his bonus by 36 percent. Despite these troubles, Dell dethroned Compaq Computer as the leader in PC sales in April of 2001. That year, Chief Executive magazine named Dell CEO of the Year, adding to his list of previous awards, which included PC magazine's Man of the Year and Inc. magazine's Entrepreneur of the Year.
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Shook, David. "The Winner of the PC Price Wars: Dell." BusinessWeek Online. May 1, 2001. Available from www.businessweek.com.
SEE ALSO: Dell Computer
Dell Computer Corporation
Michael Dell started his company, Dell Computer Corporation, when he was a college freshman in 1984. By the early 1990s, the company had exceeded $500 million in annual revenues, and Dell had become the youngest CEO of a Fortune 500 corporation. Although he experienced troubled times in 1993, he developed new corporate strategies, and by 1997 he was predicting that his company would lead the personal computer industry by the year 2000.
Dell was born in Houston, Texas, in February 1965, the son of Dr. Alexander Dell, an orthodontist, and his wife Lorraine, a stockbroker. In October 1989, Dell married Susan Lieberman, a commercial leasing agent. The couple have two children. At one point, Dell would often tell his employees that his daughter's first words were a plea to beat the competition: "Daddy, kill Compaq. Daddy, kill IBM."
When Michael Dell was only eight years old, he sent off for information on a high-school equivalency diploma, hoping he could avoid putting in a full 12 years in school. His parents, however kept him in school and later sent him to the University of Texas at Austin, hoping he might become a doctor. With his fledgling computer company (which he operated from his dorm room) making $80,000 a month, however, he had other plans. After his freshman year, he told them he wanted to spend the summer working in his business, and if things did not work out with his venture, he would return to school. He never went back.
If there is such a thing as a born entrepreneur, Dell surely is one. When he was only 12, he made $2,000 through a stamp and baseball card trading enterprise that he operated through the mail. In high school, as a newspaper delivery boy for the Houston Post, he aggressively sought out new subscribers by obtaining mailing lists of newlyweds, then sending them a trial offer of two weeks' free service, which he then followed up with phone calls. The extremely enterprising young man made over $18,000 this way, which he used to pay cash for a fully loaded BMW—even though he was not yet able to drive.
This period in his life is also when Michael Dell discovered computers and found that he enjoyed taking them apart and putting them back together. He soon realized that he could make money by adding components to units and selling them for a profit. Soon he started doing business through magazines, as he had earlier operated his stamp and card trading business. In college, he operated his business out of his dorm room, which irritated his roommates so much that they barricaded his door with piles of his computer equipment.
Soon after he left the University of Texas in the summer of 1984, Dell incorporated his company, PCs Unlimited, and began operating out of a storefront. The company marketed equipment made by such computer companies as IBM and Compaq, to which they added various features. By early 1985 it had 30 employees, and in July 1985 introduced its own model, the Turbo PC. He borrowed money from his family, but soon repaid it as his company grew to annual sales of $30 million. In 1987, PCs Unlimited became Dell Computer and in 1988, Dell began selling stock. Its sales that year reached $159 million, and by 1993, the figure was $2 billion. Then came a period of challenge and a slump in stock prices, prompting Dell to change his strategy. In 1994, the new Dell Latitude XP laptop model was launched and confidence in the company soared. From 1990 to 1997 Dell's stock has increased by 20,000 percent, from $0.39 to $80.00 a share.
Michael Dell has played a great deal on his image as a "whiz kid," but the 1993 downturn showed the Dell Computer leadership that it was time to adopt a new corporate attitude to replace the brash image that had attended the company's beginnings. Dell was a billion-dollar company, and it had grown big and unwieldy. Before Dell suffered the fate of other pioneers who have lost control of their own companies, he brought in a number of older executives with proven records, reorganized operations, and put his CEO Mort Topfer in charge of running Dell on a day-to-day basis. Dell recognized that his own strengths lay in maintaining an eye on the company's overall vision, rather than specific details.
Among the most successful strategies employed by the Dell Computer Corporation is the direct-sales model, which provides a made-to-order personal computer that is shipped within 36 hours. Customers can place orders by calling a toll-free number or by logging on to the company's web site, where models can be customized on-screen, priced, and ordered with a credit card. To ensure timely shipping, Dell maintains close relationships with suppliers, some of whom have built new facilities near Dell headquarters outside of Austin, Texas. According to an April 1998 article in InternetWeek, "The combination of direct sales and the Internet have made Dell Computer a fierce competitor that has kept heavyweights like Compaq and IBM scurrying to keep up."
Dell's sales strategy has been to market to large corporations and computer enthusiasts rather than to first-time buyers, reasoning that a consumer is a first-time buyer only once. Among its largest customers are Shell Oil, Boeing, and Toyota. Another aspect of the company's business success stems from the fact it only manufactures units it has already sold. Therefore, it maintains no inventory and is free of storage and other overhead costs associated with maintaining a large warehouse stock.
Social and Economic Impact
In 1991 Michael Dell said that he hoped to make his company a billion-dollar-a-year enterprise, a goal he has surpassed significantly. In September 1997 Andrew E. Serwer asserted in Fortune that "Dell Computer has become the driving force in the PC business." By fiscal 1998 Dell's revenues topped $12 billion, according to InternetWeek, which also reported the company's income at $944 million for the same period. Dell has also announced that he hopes to remain CEO for the next 60 years, and his 1993 reorganization helped to ensure that he would maintain power. Describing the position of Dell Computer in the year 2000, Dell told an InternetWeek interviewer, "We don't want to be all things to all people. We only have six percent of the PC market share. Some analysts have said that by growing at 40 percent a year for five years, we'll have 12 percent share. That would be a good position to be in." He has said that he is not afraid of dire predictions that the personal computer market will be saturated, since his focus is on repeat rather than first-time buyers.
Chronology: Michael Dell
1984: Founded Dell Computer.
1988: Took Dell Computer public.
1990: Named "Entrepreneur of the Year" by Inc. magazine.
1992: Became the youngest CEO ever to make the Fortune 500.
1993: CEO of the Year, Financial World magazine.
The success of Dell Computer has brought numerous awards and distinctions to founder Michael Dell, including an Entrepreneur of the Year citation from Inc. magazine in 1990. In addition, he was named "Man of the Year" by PC magazine in 1992 and "CEO of the Year" by Financial World in 1993. Dell is also the richest man in Texas with earnings of up to $10 million a day. Comparing his own success with that of Dell, whose company is an important Microsoft customer, Bill Gates noted in Fortune, "We have both stuck with our convictions, and learned from our mistakes . . . Michael has the same passion for the industry I do."
Sources of Information
Contact at: Dell Computer Corporation
1 Dell Way
Round Rock, TX 78682-7000
Business Phone: (512)338-4400
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Serwer, Andrew E. "Michael Dell Turns the PC World Inside Out." Fortune, 8 September 1997.
Michael Dell (1965–) started Dell Computer from his dormitory room in 1984, when he was a college freshman. In only 14 years, Dell's revenues zoomed to $12 billion and the company became the third-largest computer maker in the world.
Born in 1965, Michael Dell appeared destined to be an entrepreneur from his early youth. When he was only 12 years old, he worked as a water boy and dishwasher at a Chinese restaurant and saved enough money to start a stamp collection. He turned the collection into $2000 via a stamp-trading enterprise he operated through the mail. In high school, while he worked as a newspaper delivery boy for the Houston Post, he expanded his roster of subscription clients by obtaining mailing lists of marriage license applicants. He then mailed personalized letters offering two weeks free service to newlywed couples. The enterprising teenager's paper route made between $18,000 and $20,000, which he used to buy his first BMW.
Dell's parents hoped their son would become a doctor. His father Alexander was an orthodontist. But soon after Dell entered the University of Texas in 1983, he was operating a business adding components to remaindered IBM and IBM-clone computers and selling them for a profit either by mail order or door-to-door on campus.
The summer following his freshman year at Texas, Dell was able to devote his full attention to his rapidly growing computer business. In the final month of his summer vacation he sold $180,000 worth of personal computers and convinced his parents to agree he could quit school. He incorporated his company, PCs Unlimited, and began operating out of a storefront. By the end of 1984, the company's sales reached $6 million.
By early 1985, PCs Unlimited had 30 employees, and in July of that year the company introduced its own computer, the Turbo PC. By the end of its second year of business, company sales reached $34 million. The company was renamed Dell Computer Company in 1987, and went public in 1988. By 1993 sales surpassed $2 billion.
Dell built his business by adhering to a few basic concepts. First, he realized that if he bought parts directly from suppliers and assembled computers himself, he could sell the finished products more cheaply. Dell also eliminated the middleman—the retail dealer—by selling directly to the consumer. This was another way to lower the price of individual units. He advertised in computer trade magazines and established phone numbers that customers could call to order a computer. Competitors scoffed at the idea that prospective buyers would make such a major purchase without first seeing the product. Dell, however, believed that experienced computer users would be comfortable ordering equipment over the phone or through the Internet, and those buyers comprised the market he was seeking to capture. Direct sales also appealed to corporations and government organizations, which comprised 90 percent of Dell's customers.
Dell backed up his direct sales model by guaranteeing that customer service on Dell PCs would be first-rate. He also made a practice of never manufacturing a computer until it had been ordered, thereby eliminating backlogs of unsold merchandise. Finally, because each component ordered indicated a user preference, he used customer orders as an automatic form of market research.
The path of Dell's success was not without its twists and turns. In the early 1990s the company tried to introduce a high-end product, the Olympic, but it proved to have little customer appeal. Dell canceled the line entirely, revamped the way the company approached new products, and used the best of Olympic's new technology in other products. As Dell wrote in his 1999 autobiography, Direct from Dell : "Thanks to our customers, we turned a potentially disastrous mistake into a great opportunity, and pushed the company to the forefront of technological development."
After steady growth over 14 quarters, Dell Computer posted two consecutive quarterly losses in 1993. Dell moved quickly to bring in experienced managers to reorganize the company's operations. The company again began to focus on the bottom line. By the end of 1993 Dell Computer was again turning a hefty profit, and in the next three years its revenues grew 50 percent a year. By the end of 1997 (after 16 consecutive quarters of growth in revenues and earnings) the company expanded into the server business to better compete in the corporate market. Michael Dell led his company in an international expansion during the late 1990s.
See also: Computer Industry
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