Direct from Dell

Food For Thought? - from May, 2022

“A company’s success should be defined by its strategy and its ideas, and it should not be limited by the people who are running it. As the manager and CEO, I know my strengths and limitations.”

-Michael Dell

When Michael Dell was a student at the University of Texas, he became interested in Computers, which had just become small enough and inexpensive enough for the public to buy in retail stores specializing in electronics.?

Dell bought several IBM computers, took them apart, and discovered he could buy the parts for much less and create customized computers at a fraction of IBM’s selling price.

The word spread throughout the campus, and students and professors sought him out to fix or make their computers. Dell’s computers were faster, more user-friendly, and held more data. The demand grew daily, and his room was packed from floor to ceiling with computer parts, wires, equipment, tools, and countless computer orders.

Due to the business demands, he rarely went to class, and his grades were terrible. Someone tipped his parents off that Michael was doing poorly, so they decided to make a surprise visit to the campus to see what he was doing.

Michael learned about their visit at the last minute and hid his equipment and inventory in his friends’ dorm rooms.?When his parents met up with him, his exasperated father asked Michael, “Son, what do you want to do with your life?”?

Michael’s answer has become legendary. He said, “Dad, “I want to compete with IBM.” How’s that for a BHAG or Big Hairy Audacious Goal?

Michael left the University of Texas and started Dell Computers in Austin, where his marketing strategies revolutionized the industry.

Dell saw that the traditional retail distribution of manufactured goods was a disaster for selling personal computers, and he decided never to sell indirectly.

Technology was moving so fast that by the time a computer hit the shelves of retail outlets, it was already obsolete, and the costs of newer computers were cheaper. Dell’s ingenious solution was to offer consumers computers “direct from Dell” that were cheaper, customized, and state-of-the-art.??

Dell rapidly grew from a nine-million-dollar company to a three-billion-dollar company, and it was clear that its functional structures needed to be more scalable.?

He hired Tom Meridith to manage finance and Bain and Company to take an objective look at strategies.

?

Merideth created an ingenious financial model in which:

• Dell gets paid upfront when it takes the order
• Only then do they order the parts?
• and the terms of payment to their suppliers are between 60 and 90 days.

This model gives them a positive cash conversion cycle of close to 100 days on each sale.?

Bain and Company assessed the industry and Dell’s operations and strategies and helped Dell recreate itself to keep up with its growth and opportunities.

I recommend every entrepreneur read Michael Dell’s book “Direct from Dell” to learn more about this remarkable story. You’ll receive great ideas and insights directly from Michael Dell.

“I’ve long admired Dell’s pioneering use of the World Wide Web. In Direct from Dell, you’ll find strategies for using the web to enhance your sales and empower information throughout your business. If you want to capitalize on cyberspace, you should read this book.”

-Bill Gates

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