Michael Dell's Two-Billion-Dollar Dream
One afternoon in 1977, as his parents and
two brothers fished in the Gulf of Mexico, 12-year-old Michael Dell sat on the
beach, painstakingly putting together a trotline, a maze of ropes to which
several fish hooks could be attached. "You're wasting your time," the
rest of the family called to Michael, as they pulled in fish. "Grab a pole
and join in the fun. "
Michael kept working. It was dinnertime
when he finished, and everyone else was ready to call it a day.
Still, the youngster cast the trotline far into the water, anchoring it to a
stick that he plunged deep in the sand.
Over dinner his family teased young
Michael about coming away empty-handed. But afterward Michael reeled in his
trotline, and on the hooks were more fish than the others had caught all
together!
Michael Dell has always been fond of
saying, "If you think you have a good idea, try it!" And today, at 29,
he has discovered the power of another good idea that has helped him rise in
just a few years from teen to tycoon. He has become the fourth-largest
manufacturer of personal computers in America and the youngest man ever to
head a Fortune 500 corporation
Growing up in Houston, Michael and
his two brothers were imbued by their parents with the desire to learn and the
drive to work hard. Even so, stories about the middle boy began to be told
early.
Like the time a saleswoman came
asking to speak to "Mr. Michael Dell" about his getting a high-school
equivalency diploma. Moments later, eight-year-old Michael was explaining that
he thought it might be a good idea to get high school out of the way.
A few years later Michael had another
good idea, to trade stamps by advertising in stamp magazines. With the $ 2000
profit he made, he bought his first personal computer. Then he took it apart to
figure out how it worked.
In high school Michael had a job
selling subscriptions to the Houston Post. Newlyweds, so he figured
were the best prospects, so he hired friends to copy the names and addresses of
recent recipients of marriage licenses. These he entered into his computer, then
sent a personalized letter offering each couple a free two-week subscription.
This time Dell made $18 000 and
bought a BMW. The car salesman was flabbergasted when the 17-year-old paid cash.
The next year Dell enrolled at the University of Texas in Austin. Like most
freshmen, he needed to earn spending money. Just about everyone on campus was
talking about personal computers. At the time, anyone who didn't have a PC
wanted one, but dealers were selling them at a hefty markup. People wanted
low-cost machines custom-made to their needs, and these were not readily
available. Why should dealers get such a big markup for so little added value
Dell wondered. Why not sell from the manufacturer directly to the end user?
Dell knew that IBM required its
dealers to take a monthly quota of PCs, in most cases more than they could sell.
He also knew that holding excess inventory was costly. So he bought dealers'
surplus stock at cost. Back
in his dorm room, he added features to improve performance. The souped-up
models found eager buyers. Seeing the
hungry market, Dell placed local advertisements offering his customized
computers at 15 percent off retail price. Soon he was selling to businesses,
doctors' offices and law firms. The trunk of his car was his store; his room
took on the appearance of a small factory.
During Thanksgiving break, Dell's
parents told him they were concerned about his grades. "If you want to
start a business, do it after you get your degree," his father pleaded.
Dell agreed, but back in Austin he
felt the opportunity of a lifetime was passing him by. "I couldn't bear to
miss this chance," he says. After one month he started selling computers
again--- with a vengeance.
The quarters he shared with two
roommates looked like a combat zone- boxes piled high, computer boards and tools
scattered around. One day his roommates heaped all his equipment into a pile,
preventing Dell from entering his room. It was time to come to grips with the
magnitude of what he had created
The business was now grossing more than $ 50 000 a month.
Over spring recess, Dell confessed to
his parents that he was still in the computer business. They wanted to know how
classes were going. "I have to quit school," he replied. "I want
to start my own company. "
What exactly is it that you want to
do?" asked his father.
"Compete with IBM," he
answered simply.
Compete with IBM? Now his parents
were really worried. But no matter what they said, Dell stuck fast
So they made a deal; over summer vacation he would try to launch a computer
company. If he didn't succeed, he would have to go back to school in September.
Returning to Austin, Dell risked all
his savings and incorporated Dell Computer Corp. on May 3, 1484.
He was 19. Under a deadline, his pace
was frantic. He rented a one-roam office on a month-to-month lease and hired his
first employee, a 28- year-old manager to handle finance and administration. For
advertising, he grabbed an empty pizza box and on the back sketched the first ad
for Dell Computer. A friend copied it onto paper and took it to the newspaper.
Dell still specialized in direct
marketing of stripped-down IBM PCs to which he added custom features
As orders came in, Dell rushed around gathering up the right parts to assemble
each order. First-month sales topped $180 000; the second, $ 265 000. Dell
barely noticed when the new school year arrived.
Within a year, he was selling 1000
PCs and hired more staff. Customers phoned orders to an 800 number, and then the
staff assembled the units. Parts were ordered only as needed, keeping inventory
and overhead low. UPS trucks picked up daily that day's production for delivery.
It was very efficient-- and very profitable.
Just when it seemed the sky was
the limitand sales had topped $3 million, the manager that Dell had hired quit. But, as
Dell always told himself, " Every time you have a crisis, something good
comes out of it. " From necessity, he learned accounting basics- experience
that would prove invaluable in the years ahead. "It's a lot easier to learn
something if it's important to you," he says.
Unlike other manufacturers, Dell gave
his customers money-back guarantees. He also realized that when a computer is
down, the customer wants it back up and working right away. So Dell guaranteed
next- day on site service for his products, and introduced a 24-hour-a-day toll-free
line for customers to talk directly with computer technicians. Ninety percent of
computer technical problems, according to Dell, can be solved over the phone.
Constant telephone contact with
customers kept the company close to the market. Customers let Dell Computer know
directly what they liked or didn't like about a particular model. "My
competitors were developing products and then telling customers what they should
want, instead of finding out what the market really wanted and then developing
products," Dell says.
By the day Michael Dell would have
graduated from college, his company was selling $ 70 million worth of computers
a year. Dell quit dealing in souped-up versions of other companies' products,
and started designing, assembling and marketing his own.
Today Dell Computer has wholly owned
subsidiaries in 16 countries, including Japan. The company has revenues of over
$2 billion, employs some 5 500 persons, and Dell's personal fortune is between $
250 million and $ 300 million. To encourage even greater productivity, Dell
Computer gives its employees awards for ideas worth trying even if they don't
pan out. "Our success has forced the giants to become more
competitive," Dell says. "That's good for the consumer. "
Dell, his wife and their two-year-old
daughter lead a pretty normal life. His charity is generous but quiet. Recently
the couple announced the donation of a parcel of land for a civic center
to Austin's Jewish community. Dell also regularly lectures on entrepreneurship
to MBA students at the University of Texas Graduate School of Business in
Austin.
What concerns Michael Dell is that
our country is losing its competitive edge. "There's
too much of an entitlement attitude nowadays," he says. "' I deserve
this' needs to he replaced with 'I earned this.' "
He credits his own success to the
fact that Alexander and Lorraine Dell expected their three sons to learn and
work hard- and draws a lesson. "The reason our schools are failing isn't
because classroom sizes are too big. I can show you schools in Thailand where
kids study in unbelievably crowded classrooms - and yet they're learning much
more than our students. Why? Because they want to learn. Because they want to
work hard. Because their parents and their teachers expect that of them. "
Back when his firm was two people in
one room, Dell told his friends his dream was to become the world's largest
personal-computer maker. He was unrealistic, they said.
Why would anyone want to be second or
third or tenth?" he replied. His message to us all: why not at least try to
realize your dream, what deep down you would truly love to achieve? |