Michael Dell Built an Empire by Thinking Small

Michael Dell built an empire by thinking small.

Dell, a multibillionaire and the founder of the PC company of the same name, transformed a dorm room operation at the University of Texas to one of the world's largest corporations in part by focusing on concrete issues--such as improving delivery time, cutting operation costs and maintaining customer service--rather than trying to establish new markets, according to analysts and former employees.

The Round Rock, Texas-based company now regularly trades the top spot in the PC market with Hewlett-Packard, but that situation wasn't always on the cards. Packard-Bell, Compaq Computer, Osborne, Zenith, and AT&T were all bigger--or had access to greater funding through corporate parents--than Dell had, at times over the past 20 years.

"They were the first to pretend that (the PC) wasn't a specialty thing. They've always taken a pragmatic approach to things," said Roger Kay, an analyst at IDC. "He (Dell) doesn't see it as a personal quest."

This pragmatic ethos also explains a lack of surprise at the news that Dell will step down as CEO in July in favor of current chief operating officer, Kevin Rollins. Rollins, who is also the company's president, has been largely running the corporation, and his promotion has been expected.[pic 1]

Still, the industry is littered with examples of No. 2 executives who didn't get a CEO spot when a founder decided not to give up the role. Sun Microsystems and Oracle both had to face questions from analysts and investors, after the departures of their second-in-command executives (Ed Zander and Ray Lane, respectively). Gateway, for its part, fired former deputy Jeff Weitzen, after he became CEO.

The PC maker's patent portfolio bears out Dell's practical streak as well. Critics often point out that the company doesn't do a lot of independent research. As of August 2003, the 20-year-old company had only been awarded 867 patents in 19 years--less than the total many of its closest competitors receive in a year. In response, the company says it doesn't need to take that route: Because it relies on standardized components, it doesn't need to spend money on research and development.

Dell was also one of the first early PC companies to seek and integrate outside help. Over the years, it has recruited a number of established executives to fill positions and mentor Dell himself. Lee Walker, an investment banker, served as the one of the company's early senior advisors. In 1994, the company recruited Mort Topfer, a 23-year Motorola veteran. Topfer eventually became vice chairman and was instrumental in recruiting Rollins, sources said.

Not all of those recruits stayed long. IBM veteran James Vanderslice joined Dell in 1999. Two years later, he announced his retirement. In addition, different executives have run Dell's European operations over the past few years. And internal restructurings and new departments often are not announced until long after they are set up.

Emphasizing accomplishments
Former employees generally agreed that the company has placed a strong emphasis on recruiting and promoting individuals based on their previous accomplishments. "It was very fluid," one ex-Dell worker told CNET News.com.

At the same time, it remains an intensely competitive environment. "Dell is pretty ruthless," another former staff member said.

According to Dell's 1999 book, "Direct From Dell," the PC company wasn't the company head's first venture. He started his first business, Dell's Stamps, at the age of 12. It netted him $2,000. "I learned an early, powerful lesson about the reward of eliminating the middleman," he wrote in the book.

At 16, Dell sold newspaper subscriptions to the Houston Post by canvassing mortgage and marriage license lists, thus showing an interest in phone solicitation that somehow escaped the eye of guidance counselors. He made $18,000 in his first year--more than some of his high school teachers earned. By graduation, he was driving a BMW.

On a leave of absence from the University of Texas during the second semester of his freshman year, he moved into a condominium and sold $80,000 worth of computers.

Now, the company Dell founded in May 1984 takes in billions of dollars a year, a meteoric rise for the 39-year-old entrepreneur.

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