Staying Number One

Michael Dell built a successful computer business. What will it take

to remain on top?
From Reader's Digest
July 2007

A Novel Idea
When he was just 19, Michael Dell started the company that would
dominate the industry. The computer whiz had $1,000 and a novel
idea: to eliminate the retailer and sell directly to the consumer.

At the time, IBM personal computers sold in stores for about $3,000. After
taking them apart and rebuilding them, Dell realized the components could be purchased for one-fourth
the price. Even with added memory, bigger monitors and faster modems, the PCs could still be sold at a
handsome profit. Soon he was buying components in bulk to reduce the cost. A good business decision,
but it meant his room was starting to look like a mechanic's shop.

If Dell was a curious kid, he had his parents to thank. With his mother, a stockbroker, and his father, a
Houston orthodontist, dinner conversation frequently turned from what Michael and his two brothers were
doing in school to discussions of the economy and business opportunities.

"I was quite excited about the possibilities for personal computers and how they could change society.
Meanwhile, as a customer, I was disappointed that when I went to a computer store, the salespeople didn't
really know about computers. I had this idea to sell the products directly to the user over the phone. The
Internet," he adds, "was an unimaginable gift from heaven that came ten years later."

College plans and his parents' expectations intervened. But Michael Dell was determined. He drove off to
the University of Texas at Austin in August 1983 in a car he'd bought with earnings from selling newspa-
per subscriptions. He was surprised that his mother wasn't suspicious about the three computers in the
backseat. By November, rumors reached his parents that he wasn't attending classes. On a surprise visit to
Austin, they caught their son red-handed. Michael's father read him the riot act, then asked him what he
wanted to do with his life. He told his dad that he wanted to compete with IBM.

Although Michael agreed to focus on his studies, the business possibilities were too compelling to ignore,
and the timing couldn't have been better. The public was becoming more interested in computers and
wanted more sophisticated models, but no one was producing them. In early May, a week before his final
exams, Michael started Dell Computer Corporation with $1,000. He took his exams, then dropped out of
college at the end of his freshman year. It was time to try out his direct-to-the-customer business model.

Three years later, the company did a private placement, a stock offering to a small group of investors. "By
then," Dell says, "we had already achieved annual sales of about $150 million. I was 22 years old."

Tackling Tough Issues

Dell found out soon enough that necessity is the mother of invention. "I learned by doing and by making
mistakes. And I got smart people to help," he says. Today Dell is a $57 billion company, with the leading
market share in the United States.

In March 2004, at age 39, Dell stepped down as CEO (he remained chairman) and continued to focus on
research and technology. But soon there were signs of trouble. The company began losing market share
because of competition from much more aggressive rivals such as Hewlett-Packard and Lenovo. Dell was
also criticized for poor customer service. It's now facing investigations into its accounting practices by the
SEC and a U.S. Attorney.

This past January, the struggles forced Dell, now 42, to return to the company he founded, to tackle the
issues head-on. In 48 hours, he'd put in a new management team.

Of his marketing brainchild -- sell directly to the customer -- Dell told employees in an e-mail: "The Di-
rect Model has been a revolution, but it is not a religion." He intends to improve it and look for new
manufacturing and distribution models. The goal is to give customers what they need and make the tech-
nology simpler and easier to use.

As a technology leader, Michael Dell wants to use his position to solve society's bigger problems, like
health care. "If you go to your grocery store, there is more technology there than at your doctor's office.
Imagine the last time you went to the doctor, you see all those files. What is all that about? That is non-
sense. Try to take your medical information from one doctor to another. It is a system that can be dramati-
cally improved. Our industry has a big role to play."

Dell is also looking overseas, specifically at the needs of the next billion PC users. "We have a number of
new things going on in emerging markets in India, Poland, Brazil, the former Soviet Republics and
China."

Most importantly, Dell says he will deliver the kind of support his customers expect, both in tools and
technology. One new tool, called DellConnect, enables the tech staff to connect to the customer's com-
puter and fix problems on the spot or show the customer how to do it. In February, the company rolled out
IdeaStorm, a forum for users to brainstorm what works, what doesn't and what new features they'd like to
see introduced. "We take the customer's input and design the products and services," says Dell.

As for how long the reorganization will take, Dell says, "It took us some time to get into these challenges,
and it will take us some time to get out of them. I think 18 months."

If Dell needs any reminders that he can take the company to new heights, he can think back some 20
years earlier. "No one told me that we couldn't do it, and if they did, I wasn't listening." Recently he chal-
lenged employees. If they are to be competitive, they will need to make significant changes and take "well
thought-out risks." That's exactly what made Dell a success story.