From the Archives: Michael Dell

UPDATED: January 6, 2009
PUBLISHED: January 6, 2009

In 1992, computer entrepreneur Michael Dell was the youngest CEO running a Fortune 500 company. He and his wife, Susan, formed the Michael & Susan Dell Foundation in 1999, now with an endowment of more than $1 billion. Dell stepped down as CEO in 2004. But the company’s fi nancial growth and overall customer satisfaction began to decline, and in 2006 competitor Hewlett-Packard surpassed Dell as the largest seller of PCs worldwide. The following year, Michael Dell returned to the helm. Since then, Dell has been remaking its production process and has seen gradually increasing operating profits.

As the cover story for the January 1999 issue of SUCCESS, Dell shared the secret of how he built his billion-dollar empire.

Michael Dell was speaking to an entrepreneurship class at the University of Texas business school when a bold student stood up and asked the young multi-billionaire why he still kept going to work. “You’ve got so much money,” he blurted. “Why don’t you just sell out, buy a boat and sail off to the Caribbean?” Dell stared at him and said, “Sailing’s boring. Do you have any idea how much fun it is to run a billion-dollar company?”

Few people could actually answer that question. But more important than the answer is what Dell’s question reveals about the founder and CEO of Dell Computer Corp. and how this mega-entrepreneur was able to achieve so much, so fast. In 1984, Dell started his company with $1,000 and the premise that he could beat his competitors by building computers to order and selling them directly to consumers. It was a simple, radical idea, and it shook the computer world to its foundation. Fourteen years later, Dell’s direct model guides an estimated $18 billion global corporation.

How did he do it? By keeping his mind fi rmly focused on doing business as opposed to making money. Walk into the hushed executive suite at Dell Computer Corp.’s headquarters in Round Rock, Texas, and you’ll see a man standing behind a podium desk, both absorbed in and invigorated by his work. Michael Dell’s office has chairs only for visitors. Dell works standing, appropriately enough for the CEO of a manufacturing company that has slashed inventory turnover to an astonishing seven days, compared with 80 days or more for much of his competition. (In the computer industry, inventory loses 1 percent of its value every week that it sits on the shelf; Dell’s world-beating inventory management is thus critical to the company’s bottom line.)

Society expects visionaries and innovators to be eccentric. Consequently, Michael Del l ’s sheer normality is a bit deceiving. To put it mildly, Dell is not a wild or crazy guy. He is dark, soft-spoken and reasonably handsome, with the slightly puffy look of one who puts in long hours running a multibillion- dollar company. He lives in an enormous house in Austin Hill Country, guards the privacy of his wife, Susan, and their four young children and gives generously to various charities. He is not especially keen on small talk; his only discernible quirk is that he is particular about his neckties—or so say sources close to Dell.

It’s easy to marvel at Dell’s success, but it’s more important to understand the strategy that took him from the dorm room to the executive suite. When he talks about his beginnings as a University of Texas computer wonk, you realize that it all started with the basic entrepreneurial act of spotting a market niche. “At the root of it, I was probably just opportunistic,” Dell says. “I had and still have a great interest in computers. There was a business opportunity [with] this product that I really liked, and it all kind of lined up together.

“I saw that you’d buy a PC for about $3,000, and inside that PC was about $600 worth of parts,” he continues. “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.”

The Power of “Mass Customization”

When asked whether he understood at 19 how he was revolutionizing the marketplace, Dell responds, “Well, we started the company by building to the customer’s order. And, interestingly enough, we didn’t do it because we saw some massive paradigm in the future. Basically, we just didn’t have any capital (to mass produce).”

So Dell caught a lucky break in the beginning, but he hardly abandoned his business model once he got a few nickels together. Instead, he expanded it on a mass scale, using information technology to customize millions of computers individually. Today, business pundits have anointed “mass customization” the industrial paradigm of the next century, just as mass production was the paradigm of the 20th century. And while many companies are turning to mass customization (anybody can now order made-to measure jeans from Levi-Strauss or a personalized car from BMW), Dell’s brilliant and, more important, consistent, execution of this model sets the computer apart from the crowd.

One hundred years ago, Thomas Alva Edison told SUCCESS magazine that the first requisite of success was the ability to concentrate on a single problem. “If you get up at 7 and go to bed at 11, you have put in 16 good hours, and it is certain with most men that they have been doing something all the time,” Edison said. “The only trouble is that they do it about a great many things, and I do it about one.” Dell and Edison are kindred spirits in this regard. For the past 14 years, Michael Dell has concentrated on building better computers and selling them at a lower price. While he may not be a world-altering inventor like Edison, Dell has managed to reinvent his industry, build a world-class company, and enrich thousands of employees and shareholders along with himself. For a 33-year-old college dropout, that’s not too shabby.