Monday, June 9, 2014

Lessons from Michael Dell

Michael Dell

Michael Dell, 49 years old, started selling computers from his dormitory room at University of Texas in 1984. He dropped out of college to start Dell Computer Corporation, and was its CEO of the company for all but 3 of past 29 years. Only $4.5 billion of his fortune is held in Dell stock and the rest is managed via MSD Capital with investment in banking, property, dental practices and landscaping companies. Together with his wife, Susan, their foundation has committed $1 billion on urban poverty and childhood obesity. He has a mansion and ranch in Austin, Texas, worth more than $100 million combined, plus a $58 million estate in Hawaii. Dell is No. 25 richest person of the USA with a net worth of $18.5 billion (2014) according to Forbes. In his book, “Direct from Dell,” he reflects invaluable lessons learned:

  • It had always made more sense to me to build a business based on what people really wanted, rather than guess at what we thought they might want. For us it was partly a necessity, because we started out with so little capital and didn’t have the extra time or the resources to fool around with excess inventory. That marked the official beginning of what we call the “direct model.” From the start, our entire business – from design to manufacturing to sales – was oriented around listening to the customer, responding to the customer, and delivering what the customer wanted. Our direct relationship – first through telephone calls, then through face-to-face interaction, and now through the Internet – has enabled us to benefit from real-time input from real customers regarding product and service requirements, products on the market, and future products they would like to see developed. Direct relationship marketing also eliminates the 25% to 45% dealer mark-up, thereby enabling the Company to price its products aggressively.

  • Believe in what you’re doing. If you’ve got an idea that’s really powerful, you’ve just got to ignore the people who tell you it won’t work, and hire people who embrace your vision.

  • We had built the company around a systematic process: give customers the high-quality computers they want at a competitive price as quickly as possible, backed by great service. … We learned that improving the speed of our inventory flow is not only a winning strategy but a necessity: It combats the rapid decline in the value of materials and requires less cash and has less risk. We also made a greater commitment to understanding and utilizing forecasting.

  • We’ve always seen mistakes as learning opportunities. The key is to learn well from the mistakes that you make so that you don’t repeat them. Fortunately, the lessons we learned helped us identify and implement the practices that gave us a secure foundation for future growth. Growing a company much faster than the industry is growing is great, but when your company grows by as much as 127% in one year, you can quickly outstrip you ability to manage it effectively.

  • The three golden rules of Dell: (1) Disdain inventory (2) Always listen to the customer, and (3) Never sell indirect.

  • When you’ve got a huge market opportunity facing you, the only way to handle it is to divide and conquer. That’s the basis behind our concept of segmentation. It ensures that as we grow, we are able to serve each individual customer more effectively, and it has become the organizing philosophy of our company. Most companies segment by product. We decided also to segment by customer. Segmentation initially started as a sales concept to most effectively meet the needs of different groups of customers. We created different sales organizations that specialized in understanding the needs of these customers, and as we grew, we split those customer segments into large and medium-sized companies, educational institution and government organizations, and small businesses and customers.

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