One of the most successful executives in the highly competitive personal computer industry, American businessman Michael Dell (born 1965) has shepherded his company—Dell Computer Corporation—from an idea hatched in his college dorm room in 1984 into one of the world's largest PC manufacturers. The company, launched by Dell with an initial investment of only $1,000, has generated revenue of tens of billions of dollars since its creation. The company has prospered while adhering to Dell's original concept of selling computers directly to its customers and avoiding middleman markups in order to keep costs down. Along the way, Dell has expanded its product line to include not only personal computers but network servers, storage systems, handheld computers, and a wide array of computer services as well.
Michael Saul Dell
Dell, who dropped out of college at the age of 19 to pursue his dream of a direct-sales PC empire, had a net wealth hovering around $20 billion at the beginning of 2003. As chief executive officer of Dell Computer, he successfully steered his company through the treacherous economic waters of the early new millennium. To keep his company at the top of its game—a neck-and-neck competitor with Hewlett Packard for the title of world's largest PC company—Dell has launched a number of marketing innovations, not the least of which has been his skillful use of the Internet as a sales tool. As of late 2002, Dell Computer was recognized as the largest online commercial seller of PC systems with average online sales of more than $50 million per day. Dell has also used the World Wide Web to deliver faster and more efficient service to its customers.
Bitten by the Computer Bug at an Early Age
Michael Saul Dell was born in Houston, Texas, on February 23, 1965. The son of Alexander (an orthodontist) and Lorraine Dell (a stockbroker), he first got interested in computers when he was in the seventh grade. In an interview with Esther Wang of the Daily Texan, Dell recalled: "Computers were just starting to come into being in terms of the personal computer in the late '70s, early '80s. I got some exposure to the first personal computers, became really interested in the product and what I could envision about how that could change society and business and culture and education and everything else, and that caught my interest pretty early." He got his first computer—an Apple II—in 1979 when he was 14. Dell also was a born entrepreneur, earning a quick $2,000 from a stamp and baseball card trading enterprise he operated through the mail when he was only 12 years old. He also found innovative ways to drum up business for the newspaper delivery route he operated while in high school. Dell would obtain the names and addresses of newlyweds in his delivery area and mail them an introductory offer of two weeks' free service. His clever sales strategy earned him more than $18,000, enough to buy his own fully-equipped BMW even before he was old enough to drive.
Although he was a fairly good student, Dell grew impatient with the slow pace of school and at the age of 8 sent by mail for information about obtaining a high school equivalency diploma, hoping that he might be able to bypass the rest of his public school obligation. His parents, however, balked at this notion and insisted that Michael complete his schooling conventionally. After he graduated from high school, Michael was sent to the University of Texas at Austin, where his parents hoped he might eventually study to be a doctor. It was during his freshman year in college that Dell launched his direct sales computer business. He had already gained some experience in taking apart and then reassembling computers and soon realized that he could make money by adding components to basic units and selling them for a profit. With an initial investment of $1,000 he began operating his business out of his dorm room, much to the chagrin of his roommates, who at one point barricaded his door with piles of computer equipment. His roommates' enmity notwithstanding, Dell's business skyrocketed. By the end of his freshman year, he was taking in roughly $80,000 a month.
Incorporated as PCs Unlimited
In the summer of 1984 Dell incorporated his business as PCs Unlimited and moved its headquarters from his dormitory room to a storefront in Austin. In its first year of business, the company sold computer equipment manufactured by other computer companies, such as IBM and Compaq, to which were added various optional features. In July 1985, PCs Unlimited introduced its first proprietary model, the Turbo PC, which featured the Intel 8088 processor and operated at 8 Mhz. To help expand his business, Dell borrowed money from his family but was soon able to repay it as his company's annual sales climbed to the $30 million mark. In 1987 Dell renamed his company Dell Computer Corporation and a year later took it public with an initial offering of 3.5 million shares at $8.50 each. By the end of 1988, Dell's annual sales had reached $159 million.
The late 1980s brought some major changes in Dell's personal life, even as his fledgling computer company continued to expand at an exponential rate. In February 1988 he was introduced to Susan Lieberman, a real estate agent who had recently relocated to Austin from Dallas. The daughter of noted Baylor University Medical Center cancer surgeon Zelig "Zeke" Lieberman, Susan had grown up in the affluent North Dallas neighborhood of Russwood Acres. After graduating from W.T. White High School, she enrolled at Arizona State University to study fashion design and merchandising. Returning to Texas, Lieberman decided against a career in fashion and following the lead of her older brother Steve got into real estate, moving to Austin to work for Trammell Crow, a major real estate company. She and Dell met at a North Austin bistro for lunch and in the spring of 1989 they were engaged. They married on October 28, 1989.
Direct-Sales Strategy Key to Success
At the heart of his computer company's success has been its adherence to Dell's original concept of a direct-sales model. Customers can place their orders by calling Dell's toll-free number or by logging on to the company's Web site. Their orders produce a made-to-order computer that is shipped within 36 hours. Because the company builds only to order, it has managed to keep its inventory to less than 6 percent of sales. Further slashing its inventories, Dell maintains a close relationship with most of its suppliers, many of whom have built new facilities close to Dell's headquarters outside of Austin.
By 1993 Dell's annual sales had climbed to $2 billion, although the company reported a loss of $36 million for the fiscal year, which ended January 31, 1994. That same year, Dell joined the ranks of the top five computer system manufacturers worldwide. The following year the company powered back with a profit of $149 million.
Dell was quick to recognize the potential of the Internet as a marketing tool. By 1996 the company's Web site (http://www.dell.com) was booking orders from customers. In the late 1990s Dell appeared on the company's television commercials to plug the company's newly created online technical support called "E-Support-Direct from Dell." Of the company's new advertising strategy and its growing use of the World Wide Web as a selling tool, one Dell executive said "it will leverage our position on the Internet and show how it's easier for customers to do business with us." Dell's Internet strategy paid off well, favorably impressing major customers like the Ford Motor Company. In September 1999, Ford's CEO observed: "We can interact much, much more efficiently with them [Dell] than with their rivals."
Kept Close Ties to Suppliers
Dell has continued to refine his company's Internet strategy, moving aggressively to maintain close communications with Dell's key suppliers. By the dawn of the new millennium the company had connected 90 percent of its suppliers onto Dell's factory floors via the World Wide Web, allowing suppliers to see current information on orders and thus replenish supplies only as needed. Using this and other techniques, Dell was able to cut its inventories to a mere five days' worth in 2000, a sharp reduction from 13 days' worth in 1997. By contrast rival Compaq Computer (since merged into Hewlett Packard) had more than three weeks of inventories on hand in the first quarter of 2001.
Another important element in Dell's growth strategy has been its expansion into overseas markets. As early as 1987, the company opened a subsidiary to serve the United Kingdom. In 1990 Dell opened a manufacturing facility in Limerick, Ireland, to build computers for sale in its European, Middle Eastern, and African markets. In 1993 the company expanded into the Asia-Pacific region with the opening of subsidiaries in Australia and Japan. This was followed in 1996 with the opening of an Asia-Pacific manufacturing center in Penang, Malaysia. To serve its growing market in China, Dell in 1998 opened a production center in Xiamen, China. The following year saw the opening of a factory in El Dorado do Sul, Brazil, to serve Dell's growing Latin American market.
Interviewed in October 2002 by Esther Wang of the Daily Texan, Dell was asked what it was that set his company apart from its competitors. In response, he pointed out that "we took a very different approach to customers. Our business, I think, understood and anticipated customer needs much better than our competitors," most of which sold their products through intermediaries and dealers, "which certainly was the industry started, but it's not the way it's evolved. Our business system has proven to be more responsive and more efficient in providing what customers want."
Expanded Product Line
Although Dell's initial success was in marketing customized personal computers, Michael Dell recognized that to continue to grow, his company would have to look beyond PCs. Underlining the need for a broader product line to reinvigorate company results was Dell's fiscal 2001 decline in sales, the first in company history. The decline was relatively small, falling from $31.9 billion in fiscal 2000 to about $31.2 billion in fiscal 2001. To diversify its product line, Dell in May 2002 introduced two new non-PC products—a big screen projector and a new line of the company's most popular server, a computer that runs PC networks. Late in 2001, to broaden its line of business devices, Dell began reselling data-storage machines manufactured by EMC Corp. It also began selling computer-network switches to compete with 3Com Corporation and Cisco.
Interviewed in November 2002 by Maria Bartiromo of the CNBC cable television network, Dell was asked how his company had managed to do so well during the economic slump of the early new millennium while the rest of the industry continued to struggle. "I think it's pretty simple," Dell replied. "We deliver better value to customers with a business model that's really focused on direct relationships. We've got a very efficient supply chain. We turn our inventory 99 times during the quarter. And so when you've got great service, great products, great value, customers beat a path to your door."
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