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Michael Dell: Born to Sell

My apologies for the rhyming title, but it seems to me to be absolutely true: Michael Dell is the entrepreneur’s entrepreneur, who started selling stamps at 12, when his friends were swapping them; whose high school teacher was shocked to find, in an economics assignment, that Dell’s income really did exceed hers and that he had not made an arithmetical error; and who founded a fortune 500 company that enjoyed 80% annual growth for its first eight years, leaving him one of the richest people alive.

Short Biography

Michael Dell was born in Texas, in 1965, and was already a successful salesperson by the time he left school, having sold stamps to auction houses and newspaper subscriptions to newly weds. In his first year at The University of Texas, he founded PCs Limited, rebuilding and selling computers. A year later, in 1984, he dropped out of University to set up Dell Computer Corporation, on a shoestring, at the age of 19.
With little capital, Dell kept little stock and built computers to order. This has been a core plank of his business strategy and one of the main drivers for profitability. The business grew rapidly:

  • in 1988, trading revenue exceeded $250 million and the company was floated in an IPO valuing it at $30 million. It ended the year with a market capitalisation of over $80 million.
  • in 1992, the company entered the Fortune 500, and Dell was the youngest CEO ever of a Fortune 500 company
  • in 1994, Dell moved online, launching dell.com, starting online sales in 1996
  • In 1997, online revenues exceeded $3 million per day
  • This rose beyond $70 million per day in 2000, with annual revenue of $27 billion
  • In 1999, Dell and his wife established the Michael & Susan Dell Foundation to offer philanthropic support to a variety of global causes
  • In 2003, the company diversified into managed networking services
  • In 2004, Dell stepped down as CEO, but stayed on as Chairman
  • in 2007, Dell returned to the role of CEO, at the request of the board
  • In 2013, Dell led a successful campaign to buy out shares from the market place and de-list the company, returning it into private hands under his own control. After many years of troubles caused by narrow margins and the decline of its core market – PCs – Dell wants to be able to invest for the future, without worrying about the effect of quarterly performance on share prices
  • In June 2014, Dell was named the United Nations Foundation’s first Global Advocate for Entrepreneurship

What we can learn from Michael Dell

Like all great entrepreneurs, we can see a gritty determination and ruthless commercial acumen in Dell. But there are more specific lessons that made the business great.

  1. Dell valued effective execution above all. His low inventory and rapid turnaround were not just a strategy, they became an art form. Delivery is as important to Dell as selling.
  2. Customer loyalty is key for Dell, and the problems his business ran into in the early years of the century following off-shoring their call centres (when ‘Dell hell’ became an internet meme), led him to spend over $100 million in 2006 to roll out new customer service processes.
  3. Rapid recognition of the potential offered by new technology – the internet – for profitably transforming his business, and new products – servers and networking – for defending volumes. Arguably, this is his intent in the leveraged buyout of 2013.
  4. Early on, Dell allowed himself to be persuaded to withdraw from seemingly fantastic deals to place his product with huge retailers like Walmart. This turnaround and its effects illustrate three things:
    1. the brilliance of his sales acumen to tie up huge deals with vast retailers,
    2. his wisdom in allowing himself to listen to counter arguments and publicly change his mind at last minute, despite the loss of face it must have involved
    3. the long-term success of this decision, in moving out of low margin supply to retailers and into high margin direct supply to customers

Michael Dell has recently said

‘I’ll care about Dell even after I’m dead. So this is a pretty personal process. And when you’re doing what you love and it’s working, you don’t get tired working what other people might consider long hours or crazy schedules.’

This, of course, is one of the things that allows a great entrepreneur to succeed.

Dell has recently done an interview with Inc.com: ‘Michael Dell: How I Became an Entrepreneur Again

 

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The Value Chain

The Management Pocketbooks Pocket Correspondence Course

This is part of an extended management course. You can dip into it, or follow the course from the start. If you do that, you may want a course notebook, for the exercises and any notes you want to make.


The Value Chain is the complete set of processes that link everything an organisation does. Let us say you make widgets. The value chain starts with the process of sourcing raw materials, which you then purchase from a supplier, who then delivers them to you, which you process into finished widgets, that you market and sell, after which you deliver them to your customers, who incorporate your widgets into their value chain.

Most often, the value chain is represented as links in a single chain. I think that this is unrealistic. Instead, it is better to think of it as links in multiple chains, all joined up…

Value Chain

Understanding the value chain is essential for any manager who wants to step beyond their parochial role within it. Understanding and analysing your value chain will allow you to:

  • spot opportunities to create efficiencies within your part of the value chain
  • improve hand-offs with other parts of the value chain
  • appreciate the full strategic scope of the value chain and where you fit into it
  • determine where most and least value  is added and review how to improve the value to cost ratio
  • find where your competitive advantages lie
  • benchmark your performance against industry norms and best practices

Michael Porter distinguished primary business activities (the value generating activities described in the value chain) from secondary business activities, which are necessary in supporting the primary activities. These include:

  • technology and systems infrastructure implementation and maintenance
  • personnel and human resource management, including recruitment, development, appraisal, remuneration, succession, discipline
  • financial planning and management

We can view these as further side links to the value chain.

Porter was clear that a successful business must ensure that all links between elements of this full value chain are strong, if it is to thrive under the pressures of competition.

Further Reading 

Two previous Pocketblogs will add to your understanding of the Value Chain:

  1. On Competition: Internal Forces and the 7-S Model
  2. On Competition – The Far End of the Value Chain

You may also like The Strategy Pocketbook

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