ALL: Here is the Worth article on Mikey, named best CEO in America:
By Robert X. Cringely
The importance of being direct Why is Michael Dell the
top CEO in American business? Because he leads change
in the industry that is changing everything.
1 Michael Dell
Dell Computer
3-year return: 4,200%
age: 35
CEO since: 1984
It's often said in business that some event-- good or
bad--happened on a particular chief executive's "watch." It's a
nautical expression suggesting that the enterprise is a ship and
that this particular chief executive took the helm at some moment
mid-journey, just in time to land a great white whale or hit an
iceberg. Good or bad, that course and the event that followed
were already set before the CEO entered the pilothouse. The
idea is that CEOs come and go, but great companies go on
forever.
This model does not apply to Dell Computer, a ship that Michael
Dell designed, built, launched, skippered, re-directed, ran
aground a couple times, overhauled, and has kept sailing for 15
years and counting. Dell, who is still only 34 years old, has run
his company longer than any other CEO has run any other major
computer manufacturer. During Dell's watch, Compaq Computer
has had two CEOs, Hewlett-Packard has had three, IBM has
had three, Apple Computer has had four. Michael Dell can be
held directly responsible for everything that has ever happened in
the history of his company. It's all his fault.
And a lot has happened on Michael Dell's watch. He founded
the company and led it to $18 billion in annual sales, from one
employee to 24,000, from operations in one country to 33
countries. He took Dell public and made it the single most
successful stock in the history of the Nasdaq. A $100 investment
in Dell stock at the 1988 initial public offering is worth more than
$56,000 today--three-quarters of that increase coming last year
alone. So if we decide to make the somewhat subjective
declaration that Michael Dell is the number-one CEO in
America, please humor us.
The Dell saga is well known. The son of a doctor and a
stockbroker, he was raised in a business-savvy home in
Houston. After an extraordinary success selling subscriptions to
the Houston Chronicle (he was able to buy himself a new BMW
while still in high school), young Dell discovered and fell in love
with computers. He bought an Apple II to celebrate his 15th
birthday, and took it apart. Soon he switched to IBM PCs. He
took those apart, too, and came to the conclusion that Big Blue
was charging $3,000 for around $700 worth of disk drives,
motherboards, and RAM chips. He went into business. Dell
souped up IBM's own computers for less than IBM was
charging to do the same thing. He took advantage of IBM
distribution anomalies to buy PC overstocks below cost from
IBM dealers. He upgraded those computers and sold them in
direct competition with the very dealers they came from--first
from a dorm room at the University of Texas in Austin and then,
by the end of his freshman and only year of college, from an
off-campus condominium.
There were no Dell stores or dealers. Right from the start, the
PCs were sold direct to customers who called Dell on the
phone. Sales were $50,000 to $80,000 per month even before
Dell moved the operation out of the condo, incorporated (this
was 1984; he did business for a time as PC's Limited), and
started making his own computers. The company was profitable
in its very first quarter, and has been profitable all but one
quarter ever since.
It's a great story, sure, but the personal-computer industry was
built on companies that started fast and were headed by college
dropouts. The real miracle of Dell Computer is not that the
company started so well but that it has endured. With the
exceptions of Compaq and IBM, most of Dell's competitors
from 1984 are no longer in business. The only stories even
remotely comparable to Dell's come from Bill Gates at Microsoft
and Ted Waitt at Gateway. The miracle of Michael Dell is not
that he started an important PC company at age 19, but that he
is still running it today and happens to be the richest man in
Texas.
Or maybe it is not a miracle at all. The first time I met Michael
Dell was at a business meeting held during his honeymoon. Ten
years, four Dell children, and many Dell billions later, this profile
could probably end with that sentence and still give a fair image
of what makes Michael Dell America's top CEO. Here is a man
who loves his work and sometimes fails to see where the
business ends and the man begins. After all, it's his name on the
building.
At the heart of Dell's success is the word "direct." The company
sells direct to customers, eschewing distributors, re-sellers, and
dealers. It deals direct with vendors, again avoiding middlemen.
Dell builds no computer until it is ordered by the customer who
pays for it, often in advance. This way Dell holds no inventory,
or at least not for long (an average of five days, according to Dell
himself). And since the computers aren't built until they are
ordered, the company likes to say that it has perfect market
research and builds exactly the computers its customers want.
Whether this is precisely true or not, Dell's operation is the
ultimate extension of the Japanese ultra-efficient just-in-time
production management pioneered in the 1970s. For the most
part, Dell doesn't even buy the parts for your computer (or at
least doesn't pay for them) until you place your order.
This hyper-efficient manufacturing operation, with plants in the
U.S., Ireland, Malaysia, and now China, can build PCs that are
as reliable and as inexpensive to build as any in the world, yet
Dell has hardly ever been the absolute price leader. The
company sells a high-quality product with great support and a
30-day money-back guarantee, but don't look for a sub-$1,000
PC from Dell, a company that is fixated on manufacturing
efficiency not for its own sake but because efficiency is the route
to higher profit. As the rise and fall of companies like Packard
Bell have shown, low-margin PCs intended solely to build
market share don't contribute to profits. And it is consistent and
growing profit that has fueled Dell's success. That's why the
company still sells more than 80 percent of its machines to
businesses.
It is in the business market that Michael Dell has always seen his
major competitors--Compaq and IBM. "From the first day I
interviewed with the company in 1987, Michael made it clear
that our goal was to be mentioned by customers in the same
sentence with IBM and Compaq," says Brian Fawkes, one of
Dell's first hundred employees. "This focus has never wavered.
There was a time when another Austin-based PC manufacturer
called CompuAdd reported higher revenues than Dell, and
people started saying, 'We have to attack CompuAdd.' But
Michael kept us concentrating on Compaq and IBM, which was
the right thing to do. CompuAdd is gone."
Everybody calls him Michael. Everybody.
While Dell was always focused on the bigger companies, it took
a while for Compaq and IBM to notice Dell. "In 1989, Michael's
company was growing from PC's Limited to Dell Computer,"
recalls Patrick Dryden, who was then a reporter and is now an
analyst for the Giga Information Group. "I interviewed Rod
Canion, one of the Compaq founders, about growth plans and
targets; at that time, Compaq still had its sights set on surpassing
IBM, and it was considered a very ambitious goal. What about
Dell Computer and its early success with the direct-sale model?
Canion sneered and referred to PC's Limited as a novelty that
wouldn't last. Later, I recounted the episode to Michael. He was
hurt, genuinely pained to be dismissed in such an offhand way by
someone he respected as a competitor. Not long after that, Dell
Computer pointedly attacked Compaq in ads that depicted an
empty-headed sales guy in a chain store."
Don't offend a 24-year-old CEO with a large ad budget. While
Compaq is still the PC sales leader, Dell is a close second in the
U.S. and actually beats Compaq in corporate desktop-PC sales.
And Rod Canion is long gone.
Not even the savviest twentysomething CEO knows everything,
so Dell imported over the years a variety of older experts from
other companies. It was a cheaper alternative to Compaq's
tendency to grow by acquisition. Dell just bought the people,
sometimes discarding them when he had learned what they had
to teach. This was the case when Dell recruited Graham
Beachum, an experienced executive from IBM and Tandy.
Beachum arrived in the year prior to Dell's initial public offering,
bringing with him a number of experienced associates just in time
to bulk up (and make older) Dell's executive ranks for the IPO.
Two years after the IPO, Beachum and his people were gone.
Dell, the company, has faltered only when it has veered from the
purest form of its direct model. There was a flirtation with retail
sales when Dell machines were sold in Staples stores and some
others. But building speculative retail inventories and then having
to share profit with the retailer wasn't to Dell's taste, and the
relationships ended.
Dell's reluctance to hold inventory was briefly overridden in
1989, when the company bought millions of extra memory chips
in an attempt to stay ahead of an expected shortage. It is a
mistake to speculatively buy commodity products like memory
chips that typically go down, not up, in price. Dell gambled and
lost. Worse still, the industry was in transition from 256-kilobit
chips to 1-megabyte chips, leaving Dell with too many of the
older chips.
One more goof: After raising $30 million in the 1988 IPO, Dell
blew at least $10 million in 1989 trying to technologically
leapfrog IBM and Compaq with a super-advanced computer
code-named Olympic. This was a violation of the direct model,
in that Dell would have been trying to tell its customers what to
buy--that is, if the project had even made it that far. Olympic
produced a few custom chips and a writeoff for Dell before it
was declared a failure and canceled.
Since then, the company has made mistakes, sure--the design of
its notebook computers got so off track at one point that Dell
canceled most of the line, leading to the company's only quarterly
loss, in 1993. But Dell quickly recovered by again hiring a top
gun from outside, this time raiding the group that designed
Apple's PowerBooks.
In the 1990s, the bywords for Dell have been "international
expansion" and "increased economies of scale." In the U.K. and
Japanese markets, Dell has caused the same ripples among
established manufacturers and had the same quick success as at
home. The direct model seems to work everywhere. Even the
mighty Compaq is emulating Dell by building some machines to
order. IBM is trying to share Dell's success by becoming a major
component supplier to the company. Japanese manufacturers are
looking to Dell for tips on how to build PCs.
And Dell owns the Internet--it has by far the biggest presence as
a direct online seller of PCs. Dell was selling $1 million per day
over the Net in 1996, when some PC makers were still trying to
get basic Web sites up and running. By 1998, Dell's online sales
were $14 million per day, and the company had increasing sales
and profits during a year that was flat or slightly worse for most
of Dell's competitors.
Somewhere along the way, Michael Dell turned big rich--about
$13 billion worth of rich. The guy who didn't think the company
could afford a corporate jet was suddenly putting $1 billion into
a private high-tech venture fund called MSD Capital. The kid
who started a company in his dorm room was building a $22
million estate on a hilltop outside Austin. True, it's not as
expensive as Bill Gates's $60 million digs, but around Austin it
takes a major effort at conspicuous consumption to spend even
$22 million.
Dell wrote a management book (Direct from Dell) with Andy
Grove's co-author, then went on a book tour. This was the same
guy who turned down an appearance on my PBS-TV miniseries
Triumph of the Nerds because his PR people claimed he was
"too shy."
"For all the money, Michael really hasn't changed at all," claims a
longtime Dell employee. "He's still trying to think of new ways to
make the business run even better. Our new Gigabuys section on
the Web site, which sells software and accessories not made by
Dell, is an example of just that. Michael was knocking around on
the Web site in the middle of the night and found there were
things he wanted to buy but couldn't. Now we have Gigabuys."
Among Dell executives, this is a good example of what's called
"Michaelmanaging"--Michael Dell's fascination with the minute
details of running his business. For 15 years he has set a work
ethic for the company and demanded that the rest of the
company meet it. Those who don't are asked to leave. Those
who do may eventually join the "Dellionaires"--fully vested
employees, often in their 30s, often early retirees. Austin is filled
with Dellionaires, though the biggest of them all--Dell
himself--has no plans to retire. Like Bill Gates and unlike almost
everyone else in the industry, Dell really likes what he does for a
living. And at 34, with a greater net worth than Gates had at the
same age, Dell looks to be a force for decades to come.
I, too, have been Michaelmanaged. He called me once, furious
at a story I had written. "Next time check your facts!" Dell
ordered.
"Who can I check with who will get back to me in enough time?"
"Check with me," said the billionaire, who sometimes has trouble
delegating. "I'll get right back to you." And he always has.
But Dell seems to take orders as well as give them, sometimes
acting as the closer on major sales. "I talked to a salesperson
today," said a Dell sales executive. "He got Michael in to meet a
customer to close a medium-sized bid. Michael sat at the table
over lunch with the customer and was just
enthusiastic--passionate even--about his company and products.
The salesperson was amazed at Michael's incredible knowledge
of products, even down to known glitches in hardware. We won
the sale, against Compaq."
The only problem with this image of corporate bliss is that it is so
bland. Dell the corporate titan is also Dell the love-struck
husband and father of four. "What you see is what you get with
Michael," says an early Dell employee. "There are no surprises."
And it's true. The most controversy a reporter can dig up on
Michael Dell is a property-tax dispute that doesn't deserve press
past the Austin city limits.
"No one has a bad word to say about the guy," says a recent
Dell hire. "In fact, they think he's just a regular guy who has built
a great business that most people really love working in."
The ultimate test, of course, is jokes. Visit Microsoft and ask
about Bill Gates jokes. Visit Intel for jokes about Andy Grove.
Drop by Oracle for Larry Ellison jokes. Even Compaq has the
odd Eckhard Pfeiffer joke. There are no Michael Dell jokes,
none.
This can hurt in the publicity department. Charismatic leaders are
supposed to have rough edges. The Dell story is so compelling
that several years ago a movie was planned starring actor John
Cusack as Michael. But they couldn't come up with a good
script--not enough conflict. He must have been too busy making
money. |
