A Moment of Insight is Worth a Lifetime of Experience
Posted by Trevor on 3 September 2013 | 1 Comment
In 1983, student Michael Dell’s great idea was to sell computers directly to customers, which would allow them to be configured according to individual desires. Speaking twenty years later he said of the idea “”No one told me that we couldn’t do it, and if they did, I wasn’t listening.” He had a pretty good mentality shield in place, and that is essential if any idea is to become reality. It is important to work on step one of Three Simple Steps for a good few weeks before trying to run with a brilliant idea.
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 a car he’d bought with earnings from selling newspaper 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. His father read him the riot act, and someone without strong mentality control might have caved in.
Michael agreed to focus on his studies but his intuition gnawed away at him. 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.
His family members were all successful business people, and they were well used to turning vague concepts into real ventures. Until it becomes tangible, a business remains nothing more than an idea. Taking their advice, Michael Dell invested all he had, which was a total of one thousand dollars, and incorporated his concept as the company PCs Limited.
When the paperwork arrived, he suddenly had a real thing rather than a vague concept. His company became something he couldn’t help but notice and think about every day. His thoughts became a business plan. The more he worked on the business plan, the more he realized its potential. With the support of his family, he decided to run his company full time from home.
In 1985, at a time when the US economic growth slowed to a sluggish 1%, the company produced the first computer of its own design. In early 1988, and in the aftershock of one of the biggest stock market declines in history (Black Monday, October 1987), he had an initial public offering that valued the company at nearly $80 million. The name was then changed to Dell Computer Corporation. Proof here that there is never a bad time to start a great idea.
In 1992, at the age of 27, Michael Dell became the youngest CEO ever to head a Fortune 500 company; he was a billionaire at the age of 31. In early 2000, he owned about 14 percent of Dell Computer’s common stock, worth about $12 billion.
In the first year of his company, Dell spent a lot of his time learning about the other aspects of running a business. It was constantly changing and he learned to be adaptable. He said:
“There were obviously no classes on learning how to start and run a business in my high school, so I clearly had a lot to learn. And learn I did, mostly by experimenting and making a bunch of mistakes. One of the first things I learned, though, was that there was a relationship between screwing up and learning: The more mistakes I made, the faster I learned.
“Since we were growing so quickly, everything was constantly changing. We’d say, ’What’s the best way to do this?’ and come up with an answer. The resulting process would work for a while, then it would stop working and we’d have to adjust it and try something else. The whole thing was one big experiment. From the beginning, we tended to come at things in a very practical way. I was always asking, ’What’s the most efficient way to accomplish this?’ Consequently, we eliminated the possibility for bureaucracy before it ever cropped up, and that provided opportunities for learning as well. Constantly questioning conventional thinking became part of our company mentality. And our explosive growth helped to foster a great sense of camaraderie and a real ’can-do’ attitude. We challenged ourselves constantly, to grow more or to provide better service to our customers; and each time we set a new goal, we would make it. Then we would stop for a moment, give each other a few high fives, and get started on tackling the next goal.”
Dell was at one time the largest seller of personal computers and servers in the world, and was ranked 41 on the Fortune 500 in 2011. Revenues were over $60 billion with an income before taxes of $3.5 billion.
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. The struggles forced Dell to return to the company he founded, to tackle the issues head-on. In 48 hours, he’d put in a new management team.
Dell’s history has many key turning points, and there is a reason Michael Dell is respected as an exemplary entrepreneur. Early in their story, we can see his willingness and ability to adapt, which surely was a key to their survival in the first few critical years. In my opinion, however, there was a more significant moment, and it is right at the birth of the company when a person takes a great moment of insight and reacts positively to it. In this case the simple act of incorporating an idea turned a dream into reality.