The Reassembling Of Dell Computer

Captains

With a vision born in a dorm room-and a $1,000 investment-in just five years, Michael Dell has seen his creation, Dell Computer Corp. become one of the top 10 microcomputer companies in the country

John P. McPartlin
InformationWeek

May 15, 1989

Michael Dell was once combing his stamp collection, or perhaps practicing magic tricks as he used to do in his living room, when he came to the realization that he wanted to skip ahead, graduate from college and get on with his life. Soon after, he sent away for a college diploma equivalency exam. He was eight years old.

Michael Dell's enfant terrible past has become legendary, fueling almost all profiles published about him. Any child who sends away for a college-equivalency test at the age of eight is automatically suspected of dwelling in the precocious zone. He says now that he wasn't expecting to get it, but was merely seeing what would happen if he tried.

"He was always very curious, very creative, and very determined," says his mother Lorraine Dell, a stockbroker in Texas. His father, Alexander, is an orthodontist. He is the middle son of three.

Growing up, Dell never lost that spark of curiosity, and it resurfaced during his first year at the University of Texas in 1984. He was not exactly the Big Man On Campus; in fact, he spent a lot of time taking apart and putting together IBM PCs in his dorm room. His curiosity paid off when he realized there was money to be made from this peculiar hobby.

"While I was still going to school, I started selling upgrade parts to IBM computers, and then selling IBM computers that I had upgraded with these parts, and I had a business that was $50-60,000 a month with one part-time assistant. It looked like there was a pretty good market out there," he says.

An Idea Is Born

It was then that Dell hit on the idea that made-and still makes-his company unique. "I recognized that retail dealers essentially were not really adding value to the service they were providing to the user," he says. "So, I decided to start a company that sold a box directly to the end user and that didn`t use a dealer. It was a more efficient and effective manner."

Dell, now 24, is enjoying the fruits of that seemingly simple realization as chairman and CEO of Dell Computer Corp. In the five years since he began with an investment of $1,000, he has seen his creation become one of the country's top 10 microcomputer companies, with annual sales of $159 million and a five-year growth rate of 822%. Today, 86 Fortune 100, and more than half Fortune 500, companies are Dell customers.

Dell is a quiet man, who sits in his bright, spacious office in the Dell building in Austin, Texas, and has a distant view from his window of the University of Texas campus. He's the kind of person everyone makes it a point to say nice things about, so much so that after a while it becomes unconvincing, and doubts begin to creep up.

In person, he is seemingly unimpressed with himself and his achievements. He jokingly refers to himself as the "see-through CEO" and is not flashy about the money he makes. No one is really sure what his house looks like, and very few people know what car he drives. He keeps his private life private; when he was approached by the producers of Lifestyles of the Rich and Famous, he politely refused.

In fact, when questioned about his childhood antics and money-raising schemes, he seems impatient to get them out of the way, seeing danger in spending too much time looking back. Although he is already worth more than $100 million, he still works 16 hour-days (at the office and at home) as well as the occasional weekend. "He's a person that couldn't retire. He's put in a lot of hard work, continuous work. He sees an opportunity and he seizes it," his mother says.

Dell says he is tired of being the sole subject of articles about his company. "My focus is to make sure that people understand the company and what we're doing, as opposed to stories about just me, because that`s really not what this company is all about," he stresses. This company is 1,200 people; this company is 16 vice presidents; this company is five directors;this company is a quarter-billion dollar company that has a lot of people behind it. It is not a one-person company."

New Management Team

Late last month, the company went through extensive reorganization, during which its executive staff was doubled to include Andrew Harris, senior VP of marketing and G. Glen Henry, senior VP of the product group. The two joined Dell and COO E. Lee Walker in the executive suite.

While Dell is reluctant to talk about himself, there are others who will, including some who have worked for or with him. They keep saying what a nice guy he is, but become more reticent when asked about his skills as a leader and visionary. Some point to the loss of five senior level sales and marketing people in the past year as a sign that Michael Dell's plans for the company may be setting it off course.

Graham Beachum is a former senior VP of marketing and sales at Dell who left last year and is now executive VP of Northgate Computer in Plymouth, Minn. "In all fairness to Michael, he's a good guy, bright, and can be a lot of fun. But Dell was a marketing company when I joined it and now he wants it to be a technology company. Those of us in sales and marketing saw no reason to stay on," he says. "In the grand scheme of things, I don't think the company has the potential to do what he wants."

Dell is philosophical when asked if he reads or hears the sometimes-unflattering reports, though he denies much of what they contain. "If they are true it doesn't bother me, but they don`t tend to be true very much," he says. "If we screw up and someone writes a story that we screwed up, that doesn't bother me."

Like everyone else interviewed inside the company, Kent Roberts, 49, Dell's VP of product marketing, says he sees only the good side of the CEO, and calls press reports and rumors that depict the other side "terribly distorted".

"He is one of the most unusual people I have ever been around, [and! by that I mean his perspective on things such as customer service and support. Every company talks about taking care of the customer-it's like God, mother, and apple pie. But Michael actually means it," Roberts says indignantly.

He adds that during a recent trip to London for a product rollout, he found it almost impossible to keep up with his boss. "He lives two days in one. He is an intensely high-energy guy with an enormous bandwidth of interests: advertising, customer support, manufacturing. It's part youth, part curiosity that drives him."

In Touch With The Users

The most unique aspect of the company is the direct pipeline to the customer, a factor that has its roots on the phone in Dell's dorm room. Even critics admit that the company is constantly in touch with its users, who call every day to place their orders. "There's a danger at other companies that are separated from the user by value-added resellers and dealer channels. They begin to think they know what the customer wants," says Roberts.

At New York's Continental Grain Co., that pipeline from Dell to the customer paid rich dividends. A few years ago, when Dell started putting new standard monitors on its machines, Continental decided it liked the old ones better and told the company about it; soon after, it began receiving new models of the old monitors. "We don't buy hundreds at a time. We're not even one of their big customers," says Continental's MIS chief Hilarius Fuchs. But they really service their clientele, way down into the small numbers."

Dell's reluctance to fully commit to competing Extended Industry Standard Architecture or the Micro Channel buses is a reflection of his company's concern for what users really need and want. "The added performance, with the extent that there is any, in EISA or Micro Channel, appears to be not particularly important to a large number of users. At least, that's what we've found in our research," he says. Because of this, the founder says his company has put its Micro Channel clone on indefinite hold and will not go ahead with EISA plans until users call for it.

As for overall plans, Dell takes out a diagram that neatly graphs his company's direction for the next five years and beyond. "Our basic strategy is to take our PC base and move it into other markets," he says, and for this there is a three-tiered plan of action. The first is to maintain the company's current PC power base. Second, Dell wants to lay a solid Unix base for new business and future expansion and take it from PC workstations and power servers to what he calls "small commercial multi-user Xenix-type systems." The third phase is a "PC server thrust" which he says eventually will evolve into multiprocessor systems.

In the past few months, the company has made several moves that point it in the direction of global expansion and heavier competition with the big guys. Last month's reorganization made Dell USA and Dell subsidiaries in the United Kingdom, Canada, and West Germany all independent business units reporting to COO Walker. Dell also cut prices on its 286 machines and jumped into the hot Intel 386SX market with a new lower-cost version of the popular System 310, the System 316. It also made a move into the Unix market with its Dell Unix System V/386 Release 3.2.

For the future, the founder is looking toward both the 486 and N10 chips from Intel to help the industry make the leap into the next level of processing. Dell says the company is working on both and feels that there is a strong potential market out there for RISC machines using the N10. "I don`t think users want RISC machines in particular, but I think they want machines that are very powerful. To achieve the kind of power that we want to compete in those new additional areas, the N10 is a good base to look at," he says.

Like many other industry gurus, Dell sees simple coexistence being the rule in the industry for the time being, whether it be of buses, operating systems, or platforms. He gets animated when the conversation moves around to the future, both that of the industry as a whole and his company in particular.

"Our strategy is to provide the user with a choice. You can buy a 386 machine or a 286 machine, you can buy an SX, you can buy a 486, you can buy OS/2, you can buy Unix, you can buy DOS. If you want a RISC processor- you can buy that too. You may want Ethernet, you want Token-Ring, you want a 2,400-baud modem, you want a 9,600-baud modem. You just tell us what you want and we build the system. We'll configure it, ship it out, install it," he says.

Almost out of breath now, he sits back and seems proud of the kind of spectrum Dell Computer Corp. can now cover, proud to hear himself talk about it. But a second later he is leaning forward again, lest he seem too relaxed, or perhaps too arrogant, and sits ready for whatever comes next, eager to see what will happen.