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HOW I DID IT

Michael Dell: How I Became an Entrepreneur Again

Twenty-five years after Dell went public, Michael Dell took it private in 2013. Now, he aims to transform the business.
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For a guy who doesn't broadcast his emotions much, Michael Dell is positively jolly. In faded jeans and a starched gray button-down, he settles in at the head of a massive conference-room table and lets out a long belly laugh; his communications executive has just told a story about a recent family-vacation mishap, and Dell rolls back into his laugh like a man who's deep in his comfort zone. He has reason to be happy. It's a week before the 30th birthday of his namesake company, and six months ago he completed the largest corporate privatization in history.

If Dell's famous founding story is an American legend, the blueprint for so many tech companies started in dorm rooms, the company's more recent history is also a cautionary tale. In the past decade, the company missed the switch to mobile devices and lost its spot as the world's largest PC maker. But lately, Michael Dell has been leading his company through a sweeping transformation.

Of Dell's roughly $60 billion in revenue last year, one-third came from new lines of business in the enterprise market, including cybersecurity, networking, Big Data services, and cloud computing. The big idea: to become the industry leader in modern IT solutions, and to do it much the same way the company revolutionized the PC industry in the '90s. Dell, who likes to say he runs "the world's largest startup," points to the company's new private status as key to making the kind of aggressive, long-term bets that could catapult it past its competitors. --As told to Tom Foster

Booting Up: In 1989, five years after launching a computer company out of his dorm room, Michael Dell––seen here at his production facility in Austin––was already a multimillionaire at 24.

Change or Die

Back in 2007, when I returned as CEO, the core business was beginning to deteriorate, and the data was piling up showing that the things we'd been doing before were not going to be the answer. That's a very hard position to be in. It's like someone saying to Colonel Sanders, "This fried chicken thing is no good anymore."

In the '90s, companies were buying servers and PCs as fast as they could. That was the biggest problem a lot of our customers had. A decade later, it wasn't such a big problem anymore. They knew how to do that, and the decision-making process within those companies drifted down from the CIO to the vice president of infrastructure to, you know, the director of desktops. The people higher up in the organization were focused on new problems.

The point is, you can't keep doing the same thing and expect it to keep working. We had to do something different, but the really hard question was, What is it? We made plenty of mistakes along the way to answering that question, but the most important thing we identified was that we needed to know more about our customers and what problems they were really trying to solve in their businesses--even if they didn't neatly fit into an existing category of ours.

Have Big Ears

The best customers for us are the ones that present us with a new problem, because chances are, if one customer has that problem, 100 more have it, or 1,000, or 10,000. So you start thinking about solution development rather than product development. That can mean anything from a new feature or capability to a new way to finance purchases or a new way to link things together. Invariably, those solutions come not from guys sitting in a room by themselves saying, "Hmm; what would I want if I were a customer?" or, "What are our competitors doing?" They come from actual customers.

So when it comes to sales, we've tried to change the conversation from, "Let me show you what I have to sell you" to, "What are you trying to do in your company? What problems can I help you solve?" We've found that customers are very open. They'll tell you what's going on, what's working and what's not. They're looking for help. That kind of conversation not only yields good information to help us build a better business, but it builds better relationships.

"You can't keep doing the same thing and expect it to keep working. We had to do something different, but the really hard question was, What is it?"

Get to the Truth

I can't ever remember being struck by lightning when making a big decision. It's always about taking in more and more data points and making tack adjustments as you figure it out. I call customers, suppliers, industry analysts and try to get as much information as possible.

But sometimes you've got to make fairly big calls, and you need to act quickly. When we decided to buy the company EqualLogic for $1.4 billion in 2007, we'd never really done a big acquisition before--and we had to make the decision right away, a day before EqualLogic was set to go on its IPO road show. We were going to literally steal it out of the hands of the IPO market.

At the time, we were selling data-storage technology in partnership with another company, but it was clear we needed a bigger hand in that business--either by building something ourselves, merging with our existing partner, or acquiring EqualLogic. I needed a way to get good insights fast in order to make a decision. So I headed over to our lab and started talking with the engineers there. They were midlevel people, but among our brightest talent in that area.

At the end of the conversation, I asked each of the seven engineers, "OK, now, let's say that you had $1 million. And you could put your money in this product or that product. You can't keep the money. And you get to keep whatever you make over the next five years. Maybe your million turns into zero; maybe it turns into $10 million. Where are you going to put your money?" I went around the room, person by person. Six out of the seven said they would put their $1 million in EqualLogic. The seventh guy just couldn't deal with the exercise; he didn't have an answer.

I've repeated that technique a few times since then, as a way of discovering what our teams really think about things.

Born to Lead: Michael Dell on the cover in 1990. "My goal is to be CEO for 60 years," the 24-year-old told Inc. at the time.

Go Long and Move Fast

I go to a lot of forums with some of the biggest companies in the world, and after we went private last year, a lot of my colleagues there were giving me high-fives and saying, "I wish I could have done that!" Customers seem to really like it, too, because a lot of them are private, and now they can relate to us more. People see that there is a problem of too much short-term thinking in the financial markets; it's a real affliction. That we were able to extract ourselves from that and think much more about the medium and long term, that's an idea people get excited about.

We can be on offense all the time as a private company. We're investing aggressively in knowledge and talent and resources--and we don't see our competitors investing to the degree that we are. If you are running a public company, you've got to deliver short-term results. You need to deliver this amount of earnings this quarter, so your investment approach is going to be modified. On top of that, there's always the threat of shareholder activism. People saying, "Oh, you have too much cash on your balance sheet; why don't you give us a dividend? Why don't you do a share repurchase? Why don't you spin off that division or split the company up?" That's a very different approach than I can take as the founder-owner-operator, the ultimate long-term investor.

"When you found a company, you feel a deep sense of responsibility for it. I'll care about Dell even after I'm dead."

At the same time, we can move more quickly as a private company. Our former CFO came to me in January and said, "Hey, I'm thinking I might leave the company." If an officer is going to leave, that's a big deal for a public company. Had we been public, we would have had to plan the timing of the announcement, think about all the questions that might arise, and get all these opinions from different people. We might have waited 90 days to make the decision official. That kind of thing happens all the time, and it's total nonsense. As a private company, though, we knew exactly what to do. We had a successor ready to go, and we announced it almost instantly.

When you found a company, you feel a deep sense of responsibility for it. I'll care about Dell even after I'm dead. So this is a pretty personal process. And when you're doing what you love and it's working, you don't get tired working what other people might consider long hours or crazy schedules. It's just fun. It's energizing. 

Michael Dell was on the cover in January 1990 as Inc.'s first Entrepreneur of the Year. He appeared on the cover again in April 2005, as one of the "Entrepreneurs We Love."

IMAGES: Jill Greenberg, Rebecca McEntee/AP
From the July-August 2014 issue of Inc. magazine

TOM FOSTER

Tom Foster is an Inc. editor-at-large. His work has also appeared in Popular Science, Fast Company, Details, and Men's Journal, among others. A longtime New Yorker, he is a recent transplant to Austin.




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