Taking The Direct Approach
October 9, 2008
Founder of Dell Computer Corp.
"You don't have to be a genius or a visionary or even a college graduate to be successful. You just need a framework and a dream."-Michael Dell
Michael Dell wasn't the only young entrepreneur to ride the computer boom of the late 1980s and early 1990s from rags to riches. Like Rod Canion of Compaq and Steve Jobs of Apple, Dell turned a fledging start-up into a multibillion-dollar computer empire. But unlike the ill-fated Canion and Jobs, who lost control of their creations as they grew, Dell has managed to hold on to the reins of his maverick venture and achieve the unique distinction of being the computer industry's longest-tenured CEO.
Following the simple idea that by selling customized personal computer systems directly to customers he could best understand their needs and provide the most effective computing solutions to meet those needs, Dell has made Dell Computer Corp. the world's leading direct computer systems company.
Dell's parents wanted him to be a doctor. But by the time he was in junior high, Dell was hooked on computers. While most of his classmates were tinkering under the hoods of old cars, Dell loved to tinker with his Apple IIe.
To please his parents, Dell enrolled as a premed student at the University of Texas in 1983, but by then his only real interest was in computers. During his first semester, Dell spent his spare time buying up remaindered, outmoded PCs from local retailers, then upgrading and selling them from his dorm room. He was so successful, that one day his roommate piled his ever-growing inventory up against the door of their dorm room.
Dell took this as a sign it was time to move his burgeoning business off campus. His parents were furious when he told them he wanted to drop out of college, so to appease them, Dell agreed to go back to school if the summer's sales proved disappointing. In his first month in business, Dell sold some $180,000 worth of PCs. He never returned for his sophomore year.
While looking for ways to expand his fledgling start-up, Dell concluded computers would soon become a commodity, and with commodities, what matters most is price and delivery. Dell saw that the quickest way to achieve both goals was to cut out the middleman. He realized that he could buy components and assemble the whole PC himself more cheaply. Then he could sell each machine over the phone directly to customers at a 15 percent discount to established brands. This technique, which came to be known as "the direct model of selling," would revolutionize the industry and make Dell a multibillionaire in the process.
The 19-year-old Dell dubbed his venture PCs Ltd., and the Austin-based company soon became one of the fastest-growing enterprises in the country. Rather than flooding the market with hundreds of thousands of "plain brown wrapper" computers, the company would focus on what it did best-creating customized machines to order.
The strategy worked. During its first year in operation, PCs Limited pulled in more than $6 million in sales, and Dell quickly gained a reputation as a "boy wonder." To cash in on his growing fame, he changed the company's name to Dell Computer Corp. in 1987. Sales continued to soar, topping $159 million by the end of 1988. That same year, Dell made an initial public offering which raised $30 million, about $18 million of which went directly into Dell's pocket.
For many start-up entrepreneurs, that would have been a pinnacle signaling it was time to move on...
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