Michael Dell has recently stepped down as chief executive officer of Dell Inc., the company he founded 20 years ago. After visiting the company’s Texas headquarters, writer Mike Drach gives his impressions on the high-tech empire.
AUSTIN, Texas (djc) Features — It all began with 1,000 bucks and a little business savvy. Today, Michael Dell’s direct-sales empire is nothing less than a uniquely American phenomenon.
In the heart of Texas, that great state known for its semitropical climate, retro-conservative politics and anachronistic cowboy culture, lies Austin, its capital. The fourth-largest city in Texas, Austin has always been regarded by Texans as a sort of wacky younger cousin. A popular bumper sticker implores locals to “Keep Austin Weird.”
Being home to the second-largest university in the country, the University of Texas, means there’s never a shortage of intellectual or creative minds floating around. This is where the celebrated South by Southwest music festival takes place each year, earning the city its “live music capital of the world” tag. Vinyl fiends flock here twice a year for the Austin Record Convention. This city also provided the backdrop to such classic slacker-generation flicks as Dazed and Confused, Office Space and, of course, Slacker.
But Austin ain’t no slouch when it comes to technology. Neither is the state of Texas, occasionally nicknamed “Silicon Hills.” You’ve got Texas Instruments producing your kid’s calculator in Dallas, EDS providing all manner of high-tech services out of Plano, and NASA controlling space shuttles with Compaq workstations from Houston. And in Austin, specifically the northern suburban sprawl named Round Rock, Dell Inc.’s direct-sales empire is the master of all it surveys.
By now, the legend is fairly well known, at least in business circles: Michael Dell, a precocious 18-year-old who had already amassed a tidy sum selling newspaper subscriptions, sold computers out of his University of Texas dorm room with the intention of eventually beating out IBM. With an initial investment of just $1,000 to incorporate Dell Computer, he dropped out of school when his profits hit more than $80,000 a month (all figures are US). This was in 1984. Within 15 years he transformed Dell into a multinational, $12 billion company with 16,000 employees, and he became the richest man in all of Texas.
And Dell hasn’t slowed since, aside from a couple of speed bumps. Almost 45,000 employees consider Dell, the largest personal computer seller in the world, home. The company expects to pull in about $40 billion in revenue this year — half of it from online sales. Growth, especially in new Dell product lines like their branded printers and hugely popular flat-panel displays, has been skyrocketing for the first half of 2003, impressive for a company this size. Their only strategy is to get even bigger.
The secret? It’s not really a secret. Dell’s business model has always been appallingly simple and incredibly effective. First, they always sell direct, whether it’s to corporations or to individuals. This cuts out the middleman, reducing costs and creating a trust relationship. Second, they never stock more inventory than they need. They got bit badly once, after buying too many low-end memory chips in 1989, and vowed to never make a mistake like that again.
But the crux of their strategy, it would seem, one that’s kept them alive and flourishing while their competition struggles and seethes, is to always, always play it safe. Dell may be a leader as far as efficiency, business sense, and marketing — they don’t actually publish their advertising expenses, though it’s been estimated to be more than $300 million — but when it comes to technology, they prefer to enter a market that is already turning out profits.
Dell sells a wide range of products, but will only affix its brand to something that can be standardized, differentiated or marked down in price. For instance, Dell has been admittedly slow to enter the handheld market, despite the rapidly growing demand for all things Wi-Fi. The simple reason is that a suitable standard has yet to emerge.
This cautious adherence to stocking “only the hits” may conflict with the indie-rock culture in Austin (Blender magazine’s “Fourth-Most Rock N’ Roll Town in the U.S.A.”) but it’s what makes Dell’s return on investment so much higher than the competition’s. Compared to other technology companies, Dell spends only a fraction of its revenue on research and development, leaving that chore for third-party affiliates like Intel and Microsoft. Instead, Dell spends its time meticulously investigating existent products for bugs and interoperability issues, which ultimately reduces the need for tech support.
A conservative business strategy for a conservative company, right? Not really. When I visited Dell’s sprawling Round Rock campus in June for a media conference and tour, the relaxed nature of its business environment surprised me. Perhaps it was the foosball, billiards and air hockey tables enhancing the lunchroom/mini-mall, or the simple fact that nobody wore a tie. I even noticed a prominent company sign celebrating Gay Pride Month. (That same day, coincidentally, I read in the paper that the Supreme Court had struck down the state’s sodomy laws.)
That’s not to say that Dell is a completely open book. Touring the facilities, it was obvious which rooms were off-limits and not for public eyes. None of the executives dared to even hint at a new product launch, for fear of being gagged, bound and dragged into a padded vault, as one speaker joked. But while they may be secretive about their future moves and advertising budget, their recipe for success remains fairly obvious: giving good folks good computers, at a good price.
“I have a simple law of economic redemption,” Michael Dell told a University of California audience back in May, “which suggests that if you do something that is valuable, you should be able to earn a profit. The reason that our unit volumes grew 29 per cent last quarter, and the rest of the industry declined minus one, is because we delivered more value to our customers. We don’t have some magic secret sauce, or mind-control techniques, or something weird like that.”
Dell’s modus operandi is a combination of sage, traditional business savvy and modern corporate thought, with a devotion to customer satisfaction that tries to go beyond good old-fashioned American hospitality. Their step-by-step process to reduce “customer anxiety,” for example, is unbelievably thorough. Dell’s technical support is also known to be exemplary, employing phone operators, built-in troubleshooting programs, online community boards and live expert chat to quickly handle issues.
And in an age of high-profile corporate scandals, Dell has still managed to retain an image of the “good ol’ boys.” In early 2001, Dell president and COO Kevin Rollins coined “The Soul of Dell,” an outline of the company’s ethics that stresses the importance of individual development, minimal bureaucracy, morality, and an unremitting concern for the customer over profits. Written during one of Dell’s rare slow periods, it was inspired by the sometimes spiritual texts of America’s founding leaders, like Washington and Jefferson.
It could be considered a uniquely American corporate philosophy. Then again, Dell — the man, the company — was a uniquely American phenomenon from the get-go.
- 1980 – Young Michael Dell gets his parents to buy him his first computer, an Apple II. Soon after bringing it home, he completely dismantles it to see how it works.
- 1983 – Dell, 18, begins selling rebuilt and upgraded PCs from his dorm at the University of Texas.
- 1984 – Dell incorporates his new company as Dell Computer Corporation, a week before final exams. The $1,000 registration fee is the extent of his entire start-up investment.
- 1986 – Dell releases the industry’s fastest computer, a 286/12-based system, at the spring Comdex. The company also introduces its 30-day money-back guarantee.
- 1988 – Dell manages to raise $30 million in its initial public offering; the company already posts sales worth $159 million.
- 1992 – The company’s sales for the fiscal year ending January 1993 are slightly over $2 billion, a 127 per cent increase over the last cycle. Dell is included in the Fortune 500 for the first time.
- 1994 – Dell.com starts shipping custom PCs, and sales exceed $1 million per day.
- 1997 – The company celebrates its 10-millionth computer sale. Dell stock climbs to $100 per share, up from $8.50 in 1988.
- 1999 – Dell becomes the number one PC company in the United States, prompting expansion of its manufacturing facilities.
- 2001 – The company’s growth freezes following the worldwide tech implosion. To stay on top Dell resorts to slashing costs — as well as 5,000 jobs — a strategy depressingly similar to Compaq, Intel, WorldCom, Cisco, JDS Uniphase, BellSouth and Siemens.
- 2002 – Dell rebounds slightly, making modest gains along with the industry, although the competition from Hewlett-Packard and IBM is getting tougher than ever.
- 2003 – Dell shows rapid growth in the first and second quarters, leading analysts to predict a stronger year than expected for the company.
Dell Through the Years
