Young, Rich, And Seldom Off His Feet
ROUND ROCK, TEXAS — The first thing that strikes you about Michael Dell is that he seems awfully young to be a billionaire. That's billion with a "b." The second thing is his seeming inability to sit down. He even has his computer terminal set on a chest-high stand, so he can answer e-mail while standing up.
"I don't like to sit down a lot," says the founder of Dell Computer Co., during a recent interview in the wood-paneled board room of his Round Rock, Texas, headquarters. "You think slower when you sit down."
Clearly, a strong work ethic is part of the reason Mr. Dell has become the richest man in Texas, and how his company grew to be the nation's second-largest personal computer maker. The driving force for Dell's success is a single good idea: bypass retailers and sell good, fast computers directly to customers. Through direct sales, Dell has shaken up the computer industry, forcing larger competitors like IBM and Compaq to cut prices and, in some cases, start selling direct, la Dell.
"It's not unfair to say that Dell has changed the face of the industry, especially over the past 12 to 18 months," says Bob Tasker, senior vice president of the Yankee Group, a consulting firm in Boston. "For consumers, he's made tremendously powerful machines affordable." Now Dell has taken his direct model one step further, selling $4 million worth of computers over the Internet each day. "Everyone else is playing catchup, trying to move to the Dell model," adds Mr. Tasker.
Not bad for a thirtysomething college dropout. In 1983, when Dell was a pre-med freshman at the University of Texas at Austin, he used to make extra money by buying old PCs and upgrading them. By that first summer, he had made $180,000.
Dell quickly realized he could take his dorm-room business around the world, providing better technical support and cheaper products than local stores. "Businesses started to say, 'Gee, this is all fine and good that we're buying a PC from our corner computer store." Dell says. "'But you don't understand, we want to buy a thousand of these things ... and, oh, by the way, we're running a business here, so we're going to see who has the lowest price.' "
Dorm-room business no longer
Today, Dell is a $12 billion company, with 16,000 employees in factories in Texas, Indonesia, and Ireland. Still more factories are planned for South America and China.
Dell's confidence about the future was shown this month when company executives announced that they would stop selling their machines at a discount, betting that customers will buy Dell computers for their quality, not just their low prices. In addition, Dell is putting major hopes into the Internet, expecting as much as half of its sales to come from the Web in the next five years.
And while most computer makers are starting to delve more into direct sales, few are prepared to abandon their ties to retailers like CompUSA or Office Depot.
"The problem they have is that essentially they're a prisoner of their own history," says Dell, dispassionately. "Because if you want to sell direct, of course you're immediately alienating all the people who sell your product. This is a very hard transition to make."
In terms of personal style, Dell has always been somewhat of an outcast in the computer world. To friends and coworkers, he's not a techie, he's a driven businessman: aggressive, focused, and no-nonsense.
"He's the quintessential Texas wildcat entrepreneur," says Tasker. "If it were 50 years ago, Dell would be drilling oil wells - and being very successful at it too."
To understand the advantages of Dell's build-to-order model, walk into Dell's Metric 12 factory in Austin. Computer assembly takes less than seven hours, and shipping usually occurs within three days of an order. The process is so fine-tuned that workers can customize each order, loading special-ordered hard-drives or software, and verifying their work by scanning the bar code of each part. Dell even allows customers to track the progress of their order on the Web, from sales department to assembly floor to the FedEx truck.
Such a knack for efficiency may be as much a reflection of Dell the man as Dell the company, but it has also been good for profits. For instance, as the value of Asian currencies fell last autumn, Dell swept in to buy Asian components cheaply, while larger competitors were stuck with 10-week inventories of older, more expensive parts. Dell then passed those cost savings on to customers, a factor that caused many corporate consumers to switch allegiances to Dell. The net result: While competitors announced cutbacks and lower earnings, Dell's profits surged.
The road to success has not been without bumps. In 1993, profits dropped precipitously, after the failure of Dell's notebook and as a brief flirtation with retail outlets and computer superstores turned sour. Many in the industry felt that Dell's 15 minutes of fame were up.
But by 1994, Dell had returned to profits. Dell hired a new team of managers to handle marketing and manufacturing, hired away many of the key developers of Apple's successful Powerbook, while Dell himself focused on longer-term strategy.
"One of the key things that happened with Michael, he had to come to terms with the fact that he couldn't do it all himself," says Mike Kwatinetz, managing director of DMG Technology in New York. "When problems come up, he says, 'Let's find the best people in the world to handle this situation.' In that sense, I see strong parallels between Michael Dell and Bill Gates."
Dell has his detractors, of course, and chief among their complaints is Dell's close relationship with Mr. Gates, the founder of Microsoft. Dell has been chastised for loading Microsoft's Internet browser instead of Netscape Navigator on his machines. Dell says this is just good business. "You can get Netscape for free on the Internet, so why would you want to buy it from us?" asks Dell, sipping a Diet Coke.
Here in the Austin area, Dell wins points for good corporate citizenship. When building new factories, he consults neighborhood groups first, avoiding wars over traffic congestion or endangered salamanders. This attitude is also apparent in Dell's philanthropy, with large donations to the Austin Children's Museum and Austin's Jewish community.
While Dell maintains a high profile in the business world, he is careful to keep a low profile at home. He and his wife, Susan, unwind out of the klieg lights with their four children: Kira, Alexa, Zachary, and Juliet. Reporters who delve into personal questions tend to receive only a polite "back off" smile.
When asked about his youth, Dell often quips that the PC industry is 17 years old, and as a 14-year veteran, "I'm probably considered an old timer."
But when asked about the future of Dell Computers, Dell sets the jokes aside. "About 3 or 4 percent of the people in the world have PCs," he says with a glint in his eye, "so I look at this as more the beginning of the industry and what it becomes in the next 10 or 20 years."