Setting Priorities in a Sluggish Economy
Twenty-five years have passed since a then 19-year-old Michael Dell launched his eponymous computer company from his University of Texas dorm. Back then, all he had was $1,000 and a plan to transform the way people bought computers. By cutting out the middleman and selling reliable computers directly to the customer, Dell transformed his industry. But lately the Austin area company has faced its share of difficulty, as corporate spending on new hardware has been tepid. How is Dell and his company coping with adverse market trends? He outlined his strategy for Inc. reporter Kasey Wehrum.
In an interview with Inc. in 2002, you said, 'The worst thing you could do to a new business is to give it too much capital.' These days, not many companies are having a problem with too much capital. What are the advantages of being forced to be lean?
What we learned in our business is that by being forced to come up with new ways of doing things, we actually invented a business process that was superior to our competitors and created all kinds of opportunities for us. The advantage that a new business always has is that it can attack established companies with a new approach. The good news is that there are so many more tools, methods, and techniques available now to do that. It is an exciting time. Of course, right now you have a bit of fear that is in the air, where people are cautious and not really sure what is going on. So new business formation is down a bit. However, if you go back and look at previous recessions and down economies, some of the very best businesses were started in the midst of the worst economies. As was Dell. Those that are brave enough to wander into this territory will at least find that it is a very interesting time to start a business. From all these challenges, I'm sure there will be opportunities that are created that are big and significant.
What sectors do you view as the most promising?
There are so many to look at. Certainly IT is a field where we're in the business of productivity and efficiency. If the economy is not all that strong, people still want to be productive. In fact, they want to be more productive because it makes all their operations much more efficient if they can automate.
What's really interesting is the way people are combining different technologies together and creating entirely new businesses. You see that a lot on the Web. There are all kinds of new businesses popping up all the time. These new tools are making it easier and easier for small companies to be global and access global resources much more easily. It used to be only the really big companies that were global. Now you have small global firms that are distributed all over the world, and which are pulling on resources from far away places. Supply chains are much more global. That creates all kinds of opportunities in any number of businesses.
Speaking of adjusting to a changing world, how did Dell adjust to this difficult economy?
We definitely saw changes in our business. Customers got more interested in pragmatic solutions that delivered cost savings. There were delays in investment that went on with a number of customers. Cost savings became a real central focus for customers. But that quickly moved on a bit to also include productivity and efficiency because you can't just cut your way in costs to excellence. You quickly conclude that you want to be more productive, not just have lower costs. Because if all you do is cut costs, then you have nothing left. So now we're starting to see signs of growth coming back into focus. People are saying, 'Well, there are real opportunities out there.' Some are investing and some aren't. Companies are beginning to wonder where are the new places they can go into and expand.
If you were running a small business in this economy, how would weigh the desire to be cautious with the desire to pursue growth opportunities?
It's hard to answer that generically for all businesses. Each business has to find the right balance. If you grow too slowly, is somebody else going to take that opportunity away from you? Is this an opportunity that you have to seize right now before it disappears, or can you wait until later? What are your resources? Even if you want to go after a number of opportunities at the same time, you won't be able to, so you have to set priorities. Of all the things you can possibly do, some of them are easy, some are hard, some are big, some are small. Find the ones that are easy and big. Do them first and, once you get them done, that will give you more fuel in the tank so that you can go do more.
Does that thinking still come into play at Dell?
Sure. That's a bit of an oversimplification. We look at a number of other factors, but every company has to prioritize and sequence and figure out, of all the available opportunities, which opportunity do we want to tackle first.
So how do you choose the opportunities for the company to focus on?
We look at what our customers are telling us they want, what are the larger opportunities, and which ones fit with our capabilities. If we have 10 million customers buying products from us, we know we can offer them more services and solutions. In fact, they are asking us for that. Well, that's a good place for us to grow. We look for those adjacencies. We also focus on how do we evolve our capabilities to be more significant. Strategy is all about where have you been and where are you going. You have to reflect on what strengths you have and also how the world is changing. What new requirements are out there and what differentiated thing can you deliver to customers that no one else can deliver.