Dell Computers: Michael Dell. The College Dropout Who Took on IBM (2018)

Guy Raz introduces Michael Dell as the founder of Dell, which had sold more than 650 million computers since 1984. Dell recalls being fascinated by his father’s Victor adding machine as a child, buying one of the first semiconductor calculators at age seven or eight, and lingering at a Radio Shack near his route home to study early personal computers until employees asked him to leave. Although his parents expected him to become a doctor—his father and older brother were doctors—Dell was already drawn to numbers, electronics, and figuring out how machines worked.

As a teenager, Dell sold Houston Post subscriptions and noticed that customers were more receptive if he matched their speech, especially with a Texas accent. He also learned that newly married people and people moving into homes were unusually likely to subscribe. Because marriage-license applications were public, he hired high-school friends to enter names and addresses from courthouses across 16 counties into Apple II computers, then mailed offers to applicants. He also approached new apartment and condominium developments with a two-week free-paper offer. At about 17, the operation earned him slightly more than $18,000; he spent it on a BMW.

Dell says the Apple II invited experimentation because its discrete circuits could be understood, modified, and reprogrammed, so he took computers apart and put them back together. When IBM introduced its PC around 1981, he studied it closely and found that a machine selling for about $3,000 appeared to contain roughly $600 in parts. At 16, he attended the National Computer Conference in Houston’s Astrodome, a fortunate event that also influenced future Compaq founder Rod Canion. Dell remembers recognizing IBM’s dominance and the importance of the emerging personal-computer market before he had any formal business plan.

Dell entered the University of Texas at Austin as a pre-med student, partly following family expectations, but became absorbed by what he saw as an inefficient computer market: technology took too long and cost too much to reach customers. He bought new IBM-compatible computers, added memory and hard drives, and sold the upgraded systems. His main product became a kit combining a controller card, cables, software, and a hard drive, turning IBM’s two 160K- or 320K-floppy configuration into a 10-megabyte system. Installation took roughly 30 to 45 minutes, often between classes, while Dell admitted he was neglecting his schoolwork.

To find customers, Dell advertised in the local newspaper and bid on state contracts, discovering that the Texas state purchasing office was only three or four blocks from his dorm. He also sold to nearby universities, doctors, lawyers, and architects; students generally were not interested in computers yet. Dell says those early adopters cared more about whether he understood the technology than about his age or appearance. By the time he was 18 or 19, the dorm-room operation was doing $50,000 to $80,000 in business per month. His parents eventually demanded that he stop and focus on school, but after about ten days he realized the business was a passion.

Dell initially described the company as “we,” joking that the word made it sound larger, even though he started alone; he hired about one person each week during the first year. The business first centered on hard-drive subsystems and memory kits. A major customer, Martin Marietta, wanted 150 kits and asked to inspect the operation, forcing Dell’s growing but messy office to clean up and dress professionally. During the visit, the customer saw the computers Dell had assembled merely to format the drives and asked why Dell did not sell those machines. Dell says the question made him realize the company should build complete computers.

Dell hired engineers and began making computers from scratch. IBM sold a 6-megahertz 286 system for $3,995, while Dell introduced a 12-megahertz 286-based computer for $1,995—twice the speed at half the price—while still earning a decent margin. Dell attributes this to clever engineers and a supply chain built out of necessity because the company had little capital. When it sold about 200 computers in a day, the company transmitted that demand to suppliers, who delivered parts every few hours. Fresh parts, lower costs, and rapid delivery let Dell pass newer technology to customers faster.

Dell sold directly, mostly to businesses, governments, and small and medium-sized companies rather than primarily to consumers. Its ambitions were to expand globally, win large corporate and government accounts, and differentiate through service. Its on-site program let customers call for help and receive a technician with parts when phone support could not solve the problem; sales doubled after about three months. At 21, Dell’s company recorded $66 million in sales. By 2001, Dell had surpassed Compaq and IBM in PC market share, though Dell says the team quickly turned to servers, storage, services, software, and emerging markets instead of dwelling on the milestone.

Dell rejects the idea that the company succeeded without setbacks. In 1989, Dell Unix was a costly misadventure, an ambitious engineering project called Olympic failed, and early inventory controls caused problems. His lesson was to fix problems as soon as they appear and learn by experimenting when no playbook exists. Dell became chairman in 2004 while Kevin Rollins became CEO, but changing markets—including the rise of cloud computing—contributed to lost momentum and market share, so the board asked Dell to return as CEO in 2007. He says the company needed more innovation and describes his lifelong goal as helping it outlast him. Asked about luck, he names being born in the United States, where a 20-year-old could sell something without being dismissed.