Business • Michael Dell
From boy wonder to grown-up CEO, he’s changed personal computing forever.
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Just as Dell was beginning to regain control of his ever-expanding business, he missed a boom period in the notebook-computer market; the fiasco wasn’t as serious as slowing the company’s growth, but it was a public stumble in a very competitive industry. In 1993, realizing that the laptops his company had been developing weren’t going to match up with the more powerful products being introduced by other companies, Dell decided to scrap the line of machines he’d been planning. For twelve painful months, an eternity in the computer industry, he watched the notebook market take off without him before he finally introduced his own revised version. In retrospect he views the experience as enlightening. “In some ways it was hard, but in some ways it was easy, because it was the obvious thing to do. I mean, once you get past the emotion of Gee, we think this is a good product, we spent a lot of time doing this, we put our heart and our energy into it,’ and you go to the cold reality of Is this actually going to be something that a customer would want to buy? Is it going to allow the company to succeed?’ then the decision becomes pretty clear. A lot of people make mistakes, not just in the computer business but in a lot of things, by using emotion when emotion just is not really going to help.”
Ultimately Dell launched a sleek, efficient line of notebooks. He had help from John Medica, an executive lured from Apple who had designed the popular Powerbook laptops. Dell has often hired people who are more experienced than he is to help him run his business. The more successful he has become, the more he has been able to cherry-pick talent from the top ranks of rival companies, the more successful he has become, and so on. Aside from its CEO, the most important person at Dell Computer today is vice chair-man Morton L. Topfer, who was recruited from Motorola, a company known for being disciplined in its planning for future growth. At Dell Topfer has introduced a more deliberate approach to expansion.
It seems to be working. Today Dell Computer has grown into a sprawling multinational company with offices around the globe; sales topped $3.4 billion in 1994, $5.2 billion in 1995, and $7.7 billion last year. The company’s European sales force now generates as much revenue as the entire company did three years ago, and its Asian sales force generates as much as the entire company did six years ago, and revenues from both divisions continue to climb. “Our business last quarter grew ninety percent again in Asia,” says Dell. “The potential for growth is enormous. You have two thirds of the world’s population living there, and very low usage rates for computers.” U.S. sales keep multiplying too. Under the direction of Kevin Rollins, who was hired away from the corporate consulting firm Bain and Company, Dell’s domestic sales division has been reorganized into teams that focus solely on particular customer markets. For example, Dell is the second-largest supplier of computers to grade schools, high schools, and universities across the countrya specialized market with its own needs. “We have this whole team of people who are very, very focused on the education market,” notes Dell. “That’s all they do.” The same is true for the federal government market, the small-business market, and the medical market. Dell will soon apply this theory of niche salesmanship to his foreign markets.
For a time, Dell’s rivals clung to the consoling thought that surely the upstart’s growth would be limited to the individual and business personal-computer market; conventional wisdom held that while big clients might turn to a company like Dell for everyday machines, they would never look to the company for more-sophisticated equipment. But as if he couldn’t resist the challenge, last year Dell dove into the market for servers, powerful machines that act as the linchpins of linked computer networks. “There were several reasons,” he explains. “The first reason was that our corporate customers wanted one vendor for all products. So if you had just desktops and notebooks, you were going to get in trouble with those accounts. The second problem was that our competitors had enormous profits in servers, and they were overcharging customers for servers and using those excess profits to compete with us in desktops and notebooks. So we said, We’ve got to put an end to this. We’re going to go into the server market and take away the profit havens of our competitors.’” Dell Computer is now a close third in the domestic server market, behind Hewlett-Packard and industry leader Compaq. Flush with that victory, in July Dell introduced a line of low-priced workstationscomplex tools used for engineering and design purposes.
Dell’s latest coup has been selling computers over the Internet, a medium fortuitously suited to direct-sales tactics. Since the company started hawking computers on its Web site last July, equipment and software sales have snowballed to an average of $2 million a day. “I think you have a combination of factors causing it to take off right now,” Dell says. “Internet usage inside companies has increased at a huge rate, so everybody has access. We’ve driven visits to our site through aggressive communication in our advertising. Look at any Dell advertisement anywhere in the world and you’ll see www.dell.com.’ And computer users know that the experience on the Web is going to be much richer and much more interactive. They get all the information they want, it’s twenty-four hours a day, and it’s not intrusive.” Selling over the Internet is also cost-effective. “There’s no telephone call, there’s no person answering the phone, and all the people at Dell are getting much more efficient, because when people do call, they already know exactly what they want,” says the CEO. “Now we’re creating custom Web pages for large customers and putting the support tools that our own help people have right on the Web, which for a lot of users is really fantastic.”
This past year, in a concession to Dell’s steady onslaught on their market shares, the company’s three main rivals, Compaq, IBM, and Hewlett-Packard, all announced that they too were going to adopt the direct model of selling to some of their customers while continuing to sell indirectly. Michael Dell finds this development highly amusing: “Think about it. You have fifty thousand dealers who are selling your product. They represent all of your revenue at the moment, and now you’re going to go to each one of them and tell them you’re going into competition with them. It’s wacky.”
To date nobody has been able to master the fine art of selling both directly and indirectly, though several computermakersincluding Dellhave tried. (In the early nineties Dell attempted to reach additional consumers through retail outlets like Wal-Mart but abandoned the effort after deciding the costs of maintaining two routes to market outweighed the benefits.) Dell knows that even if his adversaries ever figure out a way to sell both directly and indirectly without alienating dealers, it would still be a long time before they became as good at direct sales as he is.
Which raises a final question about the place that history will someday accord Michael Dell: What exactly does it mean to be really good at direct sales? The computer industry prizes technological wizardry above all else, and for that reason Dell has always been viewed as suspect by his own kindas little more than a Sam Waltonwannabe in a lucrative niche market. Dell shrugs at the idea that he is doomed never to achieve true greatness in the eyes of his colleagues and suggests that this attitude explains his constant trouncing of the competition. “I’d much rather design the winning system to sell and support customers than design an incredibly technically proficient microprocessor that nobody wants to buy. I mean, that’s the problem with our industry: There are a lot of technologists who will create wonderful things and then go try to find people who want to buy them. We started with the customer, and then we worked our way back.”
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