Staying Number One

Michael Dell built a successful computer business. What will it take to remain on top?

From Reader's Digest

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A Novel Idea

When he was just 19, Michael Dell started the company that would dominate the industry. The computer whiz had $1,000 and a novel idea: to eliminate the retailer and sell directly to the consumer.

At the time, IBM personal computers sold in stores for about $3,000. After taking them apart and rebuilding them, Dell realized the components could be purchased for one-fourth the price. Even with added memory, bigger monitors and faster modems, the PCs could still be sold at a handsome profit. Soon he was buying components in bulk to reduce the cost. A good business decision, but it meant his room was starting to look like a mechanic's shop.

If Dell was a curious kid, he had his parents to thank. With his mother, a stockbroker, and his father, a Houston orthodontist, dinner conversation frequently turned from what Michael and his two brothers were doing in school to discussions of the economy and business opportunities.

"I was quite excited about the possibilities for personal computers and how they could change society. Meanwhile, as a customer, I was disappointed that when I went to a computer store, the salespeople didn't really know about computers. I had this idea to sell the products directly to the user over the phone. The Internet," he adds, "was an unimaginable gift from heaven that came ten years later."

College plans and his parents' expectations intervened. But Michael Dell was determined. He drove off to the University of Texas at Austin in August 1983 in a car he'd bought with earnings from selling newspaper subscriptions. He was surprised that his mother wasn't suspicious about the three computers in the backseat. By November, rumors reached his parents that he wasn't attending classes. On a surprise visit to Austin, they caught their son red-handed. Michael's father read him the riot act, then asked him what he wanted to do with his life. He told his dad that he wanted to compete with IBM.

Although Michael agreed to focus on his studies, the business possibilities were too compelling to ignore, and the timing couldn't have been better. The public was becoming more interested in computers and wanted more sophisticated models, but no one was producing them. In early May, a week before his final exams, Michael started Dell Computer Corporation with $1,000. He took his exams, then dropped out of college at the end of his freshman year. It was time to try out his direct-to-the-customer business model.

Three years later, the company did a private placement, a stock offering to a small group of investors. "By then," Dell says, "we had already achieved annual sales of about $150 million. I was 22 years old."