After all these years they still don’t take young Michael Dell seriously and he seems to like it that way.Although press reports about his childhood business acumen are contradictory, they go something like this.At seven little Michael was ready to make his first big move. According to one story he tried to enroll in a correspondence school to get a college diploma. Another account has him taking mail order courses for his high school diploma. One thing is sure. He was in a hurry to get somewhere.Press reports say that at 12 (some say 13) Michael earned $2,000 selling stamps on consignment out of a rented post office box. Still other stories have him starting a mail order stamp-trading business by publishing his own list of stamps and auctioning them off. At 15 (or some say 16) he bought up lists of newlyweds from Town Hall, called them up to offer a subscription and supposedly broke sales records at the Houston Post. Other reports say he recruited high school buddies a year later to do the same over the phone netting Michael a cool $18,000 (or some say $17,000) which he then invested in a brand new BMW.Michael Dell told PSP: In most counties in Texas, when you get married you have to register at the county courthouse. I had the idea of sending a direct mail offer to these addresses. I got this idea because I was selling subscriptions on the phone and people buying were often newlyweds. The other group that I found bought a paper most often had just moved to a new house. So I got lists from banks of people who had just gotten a new mortgage. Even as a teenager, Dell instinctively saw the hidden power of using solid prospect lists and the telephone to close sales.

Whether any of these accounts is the absolute, whole truth we’ll never know. By now the factual stories are likely forever buried in Dell Computer Corp.’s instant nostalgia file. Yet one fact remains. At 27 Michael Dell owns 30 percent of a company that currently does $2 billion in sales worldwide. At this writing, that computes to a stock value of $500 million.

In the computer field even upstarts have no business turning the billion dollar corner until they are at least 25. But this legendary dorm room computer entrepreneur seems to have eclipsed even Steve Jobs’ 20th century American started-in-a-garage success story. And it’s not over yet.

The Hunter (Not Yet The Hunted)

With sales figures climbing above $2 billion and competitors running for cover, Michael Dell has all but declared war on the way computers have always been sold and serviced. In fact, some industry pundits believe that Dell has fueled a raging fire that will consume every also-ran in the business leaving the computer consumer at a banquet with only four plates left on the table-

IBM, Compaq, Dell and Apple.

Other management gurus claim that Dell has nowhere to go but, eventually, down. Nervous computer and peripheral dealers are looking over their collective shoulder to see whose neck will feel the ax next while rival PC clone Compaq has dropped prices so fast would-be buyers have hardly been able to rewrite their checks.

To make the computer market even more itchy, on the day PSP was to interview Michael Dell, remarks by a Wall Street analyst at Kidder Peabody that Dell Computer Corporation had accounted improperly for foreign currency trades sent Dell stock sliding nearly ten percent. With Dell one of the hottest stocks around, the rumor sent paroxysms through Dell Computer Corp.’s headquarters in Austin. Managers scurried, spokespersons grabbed for phones, legal arms stretched across the country. By day’s end, the Wall Street analyst had suffered a slapped wrist, Dell had solidified its backing in the financial community, the foreign currency flap had been clarified and Michael Dell had emerged-once again-the winner!

The Best Target To Shoot At

To those who have watched Dell’s rise from college hacker to corporate tycoon in just shy of nine years, this comes as no surprise. For Michael Dell is a fierce competitor. Willing to take on the biggest guns in the fleet, he sails into harm’s way with nothing more than a sleek plan to outfox even the most entrenched armada.

What’s his secret? Well, that competitive spirit doesn’t hurt. Add to that the crystal clear thinking of a visionary, the keen sense of what the market wants, a willingness to learn what he doesn’t yet know and the desire to surround himself with the brightest minds to handle specific tasks and you have one entrepreneur who is redefining the way America, and the world, buys computers. But there is just one more thing. Michael Dell is a brilliant salesman.

Taken as individual units, none of these qualities would add up to the success story folks are spreading about Dell.

Is he a genius? Well, not technically. That is, he didn’t come up with any technological breakthrough. He’s no Jobs or Wozniak. Did he sell out his year’s quota at IBM in one month and then sit around looking for something else to do? Well, not exactly. He never worked for anyone else. So, he’s no Ross Perot.

Has he taken the systems that other people developed, looked at them in a fresh way, analyzed what the customer wants, cut margins, streamlined production, cut out the middleman and turned telemarketing into an art form? Yes, that’s closer. Dell may be a new age industrial cousin to Henry Ford. What Ford did for the assembly line, Dell has done for the marketing line. Dell’s delivery systems also may be the logical offshoot of Fred Smith’s predictable overnight service at Federal Express.

An Old Strategy Pays Dividends

Let’s take a look at Dell’s theory and how he put it into practice.

One: Retail stores are not the best places to buy computers. Why? Because most of the people who work there know little about the computers they are selling. In many cases they know even less than the buyers.

Two: Retail stores charge more for the added value that they rarely give the customer.

Three: Retail stores sell end users off-the-shelf products that may or may not suit their needs.

So here are lessons one, two, and three from Michael Dell on how to build a billion dollar business selling computers.

“First”, he told PSP, “build the organization around the customer. When you look at this business, it’s been one of customer responsiveness and being able to satisfy the customer. Second, create a spirit of innovation within the business. We always look for ways to change things and ways to make things better. Customer responsiveness, innovation and change and ongoing improvement. Third, set objectives that stretch goals for building the organization.”

That sounds simple enough. Dell goes on to describe the initial stages of his computer sales revolution.

“The idea in my mind was that selling personal computers and related equipment through the dealer was very inefficient and the service was very poor. If you could sell the part directly through to the end user and talk directly to the end user you would have better support, more efficiency and a happier customer and you would have a great business,” he explained.

That was in the beginning, way back in, oh, let’s see, ’83/’84 when Dell Computer Corporation was doing business out of Michael Dell’s University of Texas dorm room under the name PC’s Limited. Dell, who had taken to hanging out in computer stores during his high school years, one day went home and ripped the guts out of his Apple to see what made it tick. Now a college man, Mr. Dell began buying up surplus parts-disk drives and the like-from local dealers with an excess of inventory they were only too happy to unload on the bespectacled kid with a dream. (He wore thick glasses then-today he sports contact lenses and $600 suits.) Little did the dealers know he’d one day be cutting them right out of the picture. Color me outdated and overpriced.

A Brilliant New Marketing Plan

With the parts, Dell began to assemble-and sell-his first PC clones. By souping up stripped down IBM machines, he could produce more speed and power at a fraction of the cost. He sold the first units to friends on campus and word of mouth spread. It was an underground of undergrads, smaller than the Elvis thing but with gestalt-the Beatles and MIT rock and rolled into one mighty marketing concept that must have burned brightly in the brain of young Mr. Dell. He even offered specific souping up on demand service for businesses that were beginning to hanker after the speed Dell could offer. He became a man with a mission.

And what about Mom and Dad, and the tuition they had shelled out? Well, Mom’s a stockbroker who understands the value of solid sales and Dad’s an orthodontist who, by the way, showed up at sonny’s dorm unexpectedly one day and caught Michael and his cronies in mid business transaction. It was time for a talk. The armistice they worked out looked like this:

At the end of his first college year-May, 1984 — Michael would take his profits — $20,000 — and set up shop in an Austin storefront. If by the end of August things did not look bright and promising, the three Dells would redeal and Michael would return to his pre-med studies.

Dell shifted into second to begin the long uphill climb. He offered custom built computers to doctors, lawyers and small businesses, always getting half the money up front to buy components. These cash, credit card or check deals kept Dell’s cash flow healthy.

In the first month Dell and his minions sold $180,000 worth of computer hardware. By plowing every cent back into inventory and salaries, after nine months sales had soared to $6 million. By the beginning of 1985, Dell was employing 39 people and set to launch a national advertising campaign to attract small and medium sized PC users.

It’s War!

The ads, a concept that the big guns in the business were too slow witted to grab, offered an 800 number service to order customized machines. Users could select speed, memory, drives and other peripherals. Since they were buying direct from the manufacturer (Dell was still assembling parts that he bought all over the place. As every hacker knew, they were, in fact, the same parts everyone else in the business was using), customers got more performance for a much lower cost — up to 30 percent. What’s not to like?

Well, for starters, customers didn’t want to have to lose their newer, faster, souped up machines for two or three or more days when they needed service. Since Dell was an over the phone we’ll ship it out right away and if anything goes wrong you ship it back and we’ll fix it and then ship it back to you shop, customers were getting a little hot under the keyboard. This wasn’t service. It was tease and trap and decidedly ungood for business at both ends.

Now here’s where the Dell competitive spirit really shines. A problem you say? Let’s fix it. NOW!

Dell made a service deal with a national company that already had a computer repair force all over America and, almost overnight, these techies were appearing at Dell customer sites to repair or replace broken boxes. In March, 1989, Dell made the same deal with Xerox Corporation which took over the Dell repair contract.

Interactive Customer Communications

Dell also set up a toll free customer support service which today registers calls in the tens of thousands. Such calls also serve to keep Dell aware of just where the market’s heading and what it’s hot for. By keeping records of all the order and support calls in a database, Dell engineers can call up anyone’s record instantaneously, offer a temporary solution, and then move right over to R & D to research the problem and come up with a permanent solution or new component. But we’re getting ahead of our story. That’s the way it is with Dell. Things always seem to move faster than you expect.

Take the critics. Dell told PSP, “Early on, the company was always winning the editor’s choice awards.” Take advertising: “I can remember the first ad that we did. An ad guy literally sketched it out on the back of a pizza box. We just learned by what worked-by trial and error.” The ads that followed took direct aim at industry leaders IBM and Compaq. Again, that competitive drive. Take service: Dell has established an unbeatable reputation by being ranked number one for customer satisfaction by the J.D. Power & Associates survey of small- and medium-sized businesses.

Well, OK, here we’ve got a whiz kid who’s not quite out of the whiz mold. He’s not just a techie, not just a businessman, not just a salesman, not just a fierce competitor. So what is he and what exactly does he do that’s breaking all the growth and sales records across the computer industry?

To sum it all up, he’s a margin cutter. He’s cutting production margins, price margins, delivery margins, service margins, research and development margins, sales margins and even time margins. He’s found a way to look at literally every function within his company and industry and cut the time it takes to perform it. As he said in an interview way back in 1987, “I’m fascinated with the idea of eliminating unnecessary steps.”

Price Alone Won’t Cut It

And that’s what rival companies failed to realize about the Dell phenomenon. Dell is not just taking orders by mail and cutting out the dealer. He has concepted an entire new way to approach a market, discover what it wants and then respond to its demands quickly and effectively. He has invented and trained his sales and service army to use the marketing equivalent of a high-tech Gatling gun. He even has a name for it-direct relationship marketing.

Yes, Dell has also made mistakes. The lack of effective service early on-and later, in ’89, Dell got caught with too many pricey memory chips for a less than hungry market; and there was an ambitious but abortive attempt to build an engineering workstation. Stock slumped and Dell regrouped in characteristic fashion-fast.

This year Dell stock has been an upward spiraling record of beat out everyone in the fleet. As sales approached the $2 billion mark, profit margins hovered within five to six percent. So competitive is this boy brain trooper, that at one company party Dell showed up in army fatigues signaling no let up in the combative stance he has always promoted toward the competition. And this after the company won every bout in a knockout. It’s good to be king! It’s better to keep your forces on the alert for the next salvo.

Maintaining high growth and profit at the same time takes, in Michael Dell’s own words, “A balance between the growth activities and building of a structure to support those. They have to be in concert because when one gets ahead of the other there is trouble.”

“What we did is actually build our team based on our capabilities. We had pretty well agreed to standards of performance and things that we would watch and identify. We carefully watched if we were not executing the business in a way that was correct. Today, obviously in a business like ours, inventories are watched very carefully, the margins, our expenses are watched very carefully, there is a very good understanding throughout the ranks of what the parameters are of success.

“I think you must constantly have well established and well agreed to goals, especially when you are operating in a crazy environment, because you don’t necessarily have the time to sit down and have long meetings and develop strategies. But if everyone knows what the targets are, then you have a better chance of hitting some of them. My role now is to set the direction for the business. What markets should we expand to, what strategies should we pursue, what are the objectives we should have for our business?”

Aggressive and Competitive

Michael Dell has managed to weather stormy seas and chart a clear course to the future by relying on some very sage advice: “My father used to say, ‘Play nice, but win.’ Basically the idea is that there a lot of people out there who don’t necessarily play fair, but use tricks, or don’t use the highest ethical standards.

“One of the things that are important when you have a very aggressive company, and a very aggressive strategy, you have to have very clearly established guidelines of what is acceptable and what is not. Sometimes in the pursuit of winning some people cross the line of what is acceptable, so it is very important to have clear, ethical guidelines for the company. So that someone does not do what he thought was the right thing for the company, but was wrong, or harmful or not legal. (Dell Computer Corp. also has written guidelines that employees sign.)

“I think healthy competition is more than winning. Healthy competition is when all players in the same market are playing by the same rules.”

To become a successful salesperson, Dell stresses “…understanding the needs of the other person, and the ability of communicating the value of what you have to offer. Motivation plays a key role. In a business like ours, where there is ongoing growth and a lot of opportunities, it is easy to get excited by the success of the business. At the same time we have to leverage that excitement and energy towards the process of continuing that success. The key is to provide an environment that allows for growth and convincing our people that they can indeed achieve great, great things. Giving them the tools they need and having parameters for setting goals that are very aggressive.”

An Amazing Corporate Culture

Michael Dell once said that he wanted to grow at outrageous rates and do amazing things. “We are pretty much on track,” he told PSP. “Obviously we can’t grow at a 150 percent rate all the time. But this year many things happened, a whole series of things, the international expansion, the growth of our channels, our growth rate in mature markets, our ability to expand our internal cost structure. By 1987 or 1988 we realized that by 1992 we could do a billion.” As everyone now knows, Dell hopped over that mark to make it an even $2 billion.

Corporate culture at Dell is clearly defined. Says Michael, “It’s very simple. Responsive, customer focused, high intensity level.” How does Michael Dell handle rejection? “You stand up and fight back.” To recover after a disappointment, “Get back and fight harder.” How has Michael Dell handled the shift from teenage tycoon to mature CEO? “There are a number of issues you have to deal with as a CEO that don’t directly relate to the business of producing and selling products. That’s stuff you have to learn. My philosophy is to have all the advice I can get from the most talented people I can find. I think you have to be confident, not arrogant. There is a big difference between confidence and arrogance. Confidence is belief in your abilities, and arrogance is disregarding reality.”

Being on the inside of Dell Computer Corp. is similar to residing in the brain of Michael Dell. “One thing I will tell you,” says Dell of the company he has nurtured, “inside the company we are very self-critical. Especially within the top 100 managers in the company. We are very frank and very open about our problems in the company. And we are quite objective in the pursuit of an answer and I think that this is extremely helpful. You need to insure that active and objective discussions are going on.”

For Dell moving forward is a process. “I try to get people to think about the process that I go through to come up with ideas instead of just saying, here is an idea. For example, when we were talking with CompUSA, a software house, I came in one day and said to someone, ‘We should be working with them. Go look at it and see what you think. And gradually he saw the learning process I would go through. I think you can teach people to be more innovative. Because we accept change and innovation, and people are encouraged to argue, we have incredibly inventive and creative people, and that’s very positive.”

At Dell Computer it’s not unusual to see signs that exhort you to take a risk. “The message is for everybody,” explains Dell. “Everybody is supposed to think about risk. The problem is not my taking a risk, the problem is that as the company grows, you want people to continue to take risks and be inventive and to think about ongoing improvement.”

Going Global

What about the future for Dell Computer? “I think that the information technology business is going to undergo huge restructuring from a technological standpoint, in the products that follow from that, in the ways that products are sold and the companies that sell them,” Dell told PSP. “I believe that the traditional companies like IBM or DEC are going to be faced with a mammoth restructuring. That provides great opportunity for some fast and flexible companies that can provide the products and services required. They have an exceptional opportunity for the next few years.

“To cash in on these opportunities,” Dell went on, “we’ll be building a global distribution system and relationships with our customers. I think it is having the production capability required to deliver those products to the customer, and growing the services we provide, and not just providing a box, but providing a complete computer or complete networks of computers and services and support that go around those computers. So, in essence, we will be delivering total solutions as they relate to all parts.”

In fact, Dell has already made significant inroads internationally. After entering the European market in ’88 with zero sales, by February 3, 1992, Dell was doing $240 million. European sales constituted 30 percent of Dell’s total sales.

“We opened up directly into about 20 countries and we have distributors in 50 other countries. We are running at about one country a month in terms of direct distribution and in the last quarter in every country we grew over 125 percent including the UK, Germany, France and Canada,” Dell told PSP. How does he reproduce his American success-over there? “I think you don’t necessarily transplant it,” said Dell. “You take an idea or a concept and then you mold it to the specific market. Get talented people from the particular market that you are entering, to execute that concept and then you leave them alone and let them do their thing. For example, if you look at our business in Germany there is a much higher content of eye-to-eye selling with large accounts, than there is in the U.S. That is really a top requirement.

“I think cultures are very different and there is no such thing as the correct way of doing business all over the world. It has to be a molded image in each market, but it should be equally positive and easy to any customer in any market. It’s just going to be slightly different according to the environment. For example, we’ve got the best service and support in Czechoslovakia, but it is different from service and support in the U.S.”

To be successful in foreign markets, Dell suggests building partnerships. “Basically, the idea is, get a bright person, an entrepreneur, or a businessperson who understands the computer industry, and looks at the model, understands why these concepts and ideas apply to that specific marketplace and has qualified objectives. The primary objectives are to establish the direct selling model and have a high level of customer satisfaction. The financial objectives are really secondary, because if we reach the financial objective, and not the customer relationship objectives, you get off to the wrong start. You start with getting the model in place and later on you reap the rewards.”

Meet customer objectives and financial objectives will follow? Wall Street has to take a back seat to Main Street? What is this? Blasphemy?

“It’s pretty obvious,” Dell told PSP. “Lots of companies have gone through a lot of problems and we’ve learned from them. I have done a lot of reading and I have a lot of curiosity. I’ve listened a lot.” And after all the studying and reading and listening, Dell came back to basics. The customer is always right.

Dell is actively selling in western and eastern Europe, and the company already has plans to start up in China; and, according to Dell himself, he has traveled to Japan twice a year for the past seven or so years.

“Every time I go, I learn something,” Dell said. There is a respect for the customer that is very, very strong. It’s the most interesting country in terms of contrasts. Japan is very precise. There is a great respect for excellence and a great respect for the future.”

The same seems to be true at Dell Computer. And why not? Dell continues to stun his rivals and delight his customers. That seems to be an unbeatable combination.