On Michael Dell and Dell Computers
In 1984, a then 19-year-old Michael Dell founded the company that would become Dell Computers with only one thousand dollars, abandoning a college education in favor of selling mail-order hard drive upgrades to corporations out of his condo. Within a year, Dell was making millions, and tens of millions a year after that. Thirty years later, in what Forbes called “the nastiest tech buyout ever,” Dell the man would spend billions to take Dell the company off the publicly traded market and get a majority share in a company that now makes billions of dollars in revenue every year.
Michael Dell’s sales model grew out of the way his business began, as a direct seller of upgrades to corporations. Dell was one of the first companies to use a “virtual integration” model, said Michael Dell at the 1998 World Congress on Information Technology. In addition, Dell Computers was one of the first companies that allowed customers to buy computers that were made-to-order, instead of sold as complete packages with unchanging parts. By allowing the customer a view into the process of the construction of their custom computer, with status updates available online, Dell was ahead of the curve in offering customer service that all computer companies offer today. Customers could place orders for computers online, instead of with a paper form that had to be mailed in, which allowed Dell to receive the orders they needed to build and shave time off the process of delivering the product to the customer.
In the early days of personal computers, companies were vertically integrated, designing and manufacturing all the hardware for the computers that they sold themselves, and building specific models of computer in specific configurations that were not open to change by the customer. Dell’s virtual integration model abandoned this in favor of working with companies outside Dell to buy individual parts, then assembling computers from these parts according to the customer’s order, up to and including the installation of the operating system so that, as Dell said in a 1998 interview, “the user gets that machine and instead of having to go through this long complicated install process, they turn on their computer and enter their name and it’s ready to go”. Dell foresaw the need for other computer companies to shift to a virtual integration model, which almost all of Dell’s competitors such as Compaq eventually would.
In terms of direct manufacturing of the computers it sold, Dell Inc. drew from Michael Dell’s experience assembling computers in his college dorm room. Since 1997, the company replaced the assembly lines that had become standard in all types of manufacturing with a team-based manufacturing structure where a group of workers would be assigned to a single workstation and set of customer specifications, which “doubled the company’s manufacturing productivity per square foot of assembly space, and reduced assembly times by 75%”.
All of this advancement led Michael Dell’s company to become one of the largest in the market, the third-largest producer of personal computers in the world in 2013, with 60% of its revenue coming from sales of those personal computers even though the company has absorbed various software and services providers, unlike companies such as Apple that moved heavily into the mobile and premium products markets. Competitors in Dell’s early life as a company, such as Compaq, were quickly surpassed thanks to Michael Dell’s head for business and innovation.
In Texas, Michael Dell’s home state, he became well known for creating “so-called Dellionaires”, investors and employees who became rich by way of owning stock in Dell as it rapidly grew in the early years. However, Dell would not allow these stockholders to take control of the company out of his hands, as they focused on the negative of declining PC shares and market sales even as the company grew in value, and pushed for Dell to back off of the research, development, and innovation that had made it what it is today, focusing instead on products like tablet computers and smartphones which were in demand in other markets.
Michael Dell disagreed, and this resulted in the 2013 buyout in which he spent billions of dollars to get a seventy-five percent stake in the company, making him the majority shareholder. As Dell said in an interview with Forbes shortly after the buyout, “The only investor conversation he has to have, he says, is with ‘self.’”.
