There are very few consistent details between all of the companies that we’ve featured on Garage Greatness. Sometimes, the people responsible for these international powerhouse companies don’t pursue their passion until later in life. Sometimes, they spend years or decades toiling with their idea before finding worldwide success. Sometimes, these companies are momentary successes that then see their sales decline, dropping in popularity as time passes them by. None of these are true about the company we’ll be examining today, Dell Inc. Dell had a mercurial rise to success, going from an unknown name with $1,000 of startup money to being the 51st company in the Fortune 500 list in 2014. And just like the rest of the companies that we’ve covered, Dell got their start in a garage. The year was 1984, the place was Austin, Texas, and the mind behind the company, Michael Dell, wanted to fill an expanding niche in the consumer computers market.
Almost all computers sold in 1984 were sold by large stores or sales magazines, shipped to consumers or companies who were expected to assemble them themselves. Michael Dell had a different vision in mind. He wanted to cater to the specific needs of his primarily business customer base, so he started a company to sell custom-built computers made from stock IBM parts directly to these customers. He named this company PC’s Limited, and dropped out of college to pursue this new venture. At first, he was running his company out of his dorm room, number 2713 at the University of Texas at Austin. It didn’t take long, however for him to outgrow the dorm room and move into his nearby garage, where he had more room to construct the computers for his growing list of clients.
After less than a year of growth, Dell decided that PC’s Limited was profitable enough to expand further, and he left college to work out of an office center in North Austin he bought with the profits from his operations so far. By cutting the middleman out of his operation, Dell was able to sell IBM-compatible computers more cheaply than the competition. He was only 19 when he took this leap of faith, putting himself on the path to be the youngest Fortune 500 CEO of all time. Although Dell has since shifted their business practices to sell directly from retail outlets like Walmart and Staples, they still do a considerable portion of their business through their own personal store online.
The first complete computer to be designed and built by Dell himself was the Turbo PC, in 1985. It included an Intel 8088 processor, a 10MB hard drive, and a floppy disk drive. The Turbo was very popular with business clients, and in 1986, PC’s Limited went on to produce the fastest consumer computer on the market. Just within the first year of Dell’s operation, the company grossed more than $73 million. Dell had realized that the company was quickly outgrowing him, and brought on a mentor in the form of Lee Walker, who worked with Dell to implement his plan for growth of the company. Dell himself wasn’t content with this success, and turned his eyes overseas to open his company’s first international subsidy in the United Kingdom in 1987. They set up 11 more international operations centers within the next four years.
It was also in 1987 that PC’s Limited changed their name to the now-familiar Dell Computer Corporation. Dell went public in 1988, and the company’s market capitalization grew to $80 million. The company’s success continued to grow in to 1992, when Fortune magazine officially added Dell Computer Corporation to their famed Fortune 500 list, making Michael the youngest CEO on the list.
The company’s next leap forward came in 1996, when they switched to selling their computers primarily through their website. Their website generates $1 million in sales every day for the first six months of going live. It took them less than a year more to sell their ten-millionth computer, and by 2000 Dell had reached the astounding number of $40 million a day in sales, just through their website. By 2001, Dell had become the Number 1 computer systems provider worldwide, but Michael wasn’t done yet. The competition, including Compaq, Gateway, IBM, Packard Bell, and AST Research were all struggling, and many were bought out of the market completely. Only the merger between Compaq and Hewlett Packard contested Dell’s spot at the top, but in time HP slipped back as well.
The early 2000s were a time of constant change for the company. President and COO Kevin Rollins wanted the company to diversify so that they were less dependent upon the PC market, but Michael Dell contested him at every turn. Still, in 2002, Dell did move into televisions, handhelds, audio players, and printers. This diversification was not fully supported by Michael Dell, but it did prove beneficial for the company. By 2004, Michael Dell decided to step down as CEO, but kept his title as Chairman. Rollins became the new CEO in addition to his other titles, and he took the company in bold new directions. Dell moved away from Microsoft and Intel, their two largest partners and the companies likely responsible for Dell’s complete control of the PC market. Instead, Dell acquired Alienware, which has since run as a separate entity but remained a subsidiary of Dell.
The second half of the 2000s were not as successful for Dell, as sales growth slowed down and company stock fell considerably. The PC market continued to mature and prices fell across the board, reducing the marginal advantage that Dell gained from being their own retailer. Further, the average quality of computers increased, which reduced the likelihood that Dell could up-sell a consumer onto a more expensive product. These changes, along with more complicated problems such as the decline of Dell’s customer service branch and the lack of in-house innovation that resulted from Dell’s particular business model, led to the company’s gradual shift out of the public eye.
In 2006, Dell reinvented themselves as Michael Dell returned to the company, resuming his spot as CEO, and the administration of the company also went through considerable restructuring. With aggressive new business practices, a diversification of products, and a large round of layoffs, Dell’s “Dell 2.0” campaign tried to set Dell back on the track to success. Since computers had become a disposable consumer product, Dell’s personalized products were not longer as desirable to consumers, so the company stopped focusing on specialized or local care, moving both call centers and production efforts to Mexico and Asia.
These efforts were met with modest success, but as the market continued to change and foreign competitors like Lenovo, Asus, and Acer continued to muscle their way into the US market with incredibly thin operating costs and profit margins, Dell slipped back to only owning 13% of operating profits in the PC industry, trailing first place Macintosh’s dominating 45%. Dell was no longer the top dog, although they remain a company to be reckoned with.
The most exciting news since came in 2013, when Michael Dell and some investors bought out Dell in 2013, taking the company private again after 25 years as a publicly-traded company. Since the company’s departure from the private eye, they have allegedly been working to rebuild their business free from the public eye. Estimates guess that Dell’s value has doubled since then, although it is anyone’s guess how much Dell is changing behind-the-scenes. [bctt tweet=”In October 2015, Dell announced their desire to acquire EMC Corporation, a storage and enterprise software company.”] This would be the largest tech acquisition in history, with a $67 billion pricetag. As far as anyone can tell, Dell is making a bid to return to the top of the electronics world.
Dell rose to greatness from their simple start in a garage, with only $1,000 of capitol, and although they have declined since then, they may very well be on their way to return to the top of the pile. Dell is a great example of a company that found a market niche and filled it. Next week, we’ll explore a local man’s invention that he now sells out of his garage in Apex, North Carolina. Steven Walther was serving as a Green Beret in Afghanistan when he realized that he could prevent much of the gum and enamel damage that he saw among his patients by inventing a toothbrush that people would use more gently, with better overall brushing technique. This revelation led Walther to develop the Toof-inger Brush, the product that he’s been campaigning for ever since. We’ll bring you Walther’s whole story next week, on Garage Greatness.
