Okay, FAMGA.
I see you.
👀
And Michael Dell.
I SEE YOU TOO.
If we’re gonna talk about the five biggest stocks on NASDAQ. (Facebook. Apple. Microsoft. Google. Amazon).
We’re gonna talk about Dell too.
FAMGAD! If you will.
;)
Okay.
His origin story.
The year is 1982. And Michael Dell is a senior in high school. (I normally think an early interest in entrepreneurship is overrated).
But that’s not the case with Michael Dell.
He sells the morning paper.
And yeah! He doesn’t *just* make cold calls.
Michael learns that couples getting married are more likely to buy the Houston Post.
🤑
So he drives to the Houston courthouse. (Where marriage licenses are public records). And he creates a direct mail campaign with the associated home addresses (also public records). For the 16 closest counties.
We call this. Segmentation, BABY.
And this mentality.^
Brings us to Michael’s relationship with computers.
Specifically - IBM PCs. They’re super expensive. And they’re built on discreet circuits. AKA. “Easy” to take apart. “Easy” to put back together.
🙄
I wanna level set the situation. Michael isn’t a genius.
But he’s curious.
And he’s willing to bet on that curiosity.
So yeah!
Michael starts a two-pronged business.
He buys a bunch of hard drives and disk drives and memory chips. And he upgrades the base-model IBM. (With more memory and storage).
Okay.
IBM has no issue with demand. Lots of SMBs want their PCs.
But they do have an issue with supply. (Specifically - their ability to predict/fulfill orders from retail stores). To compensate, the retail stores over order. One ComputerLand gets too many. One gets not enough.
We call this. Arbitrage, BABY.
So Michael (a senior in HIGH SCHOOL) drives/flies to the stores with too much inventory. And he buys that inventory at a discount. (To then upgrade and sell at a premium).
Which takes us. To his dorm room. UT Austin. 1984.
He’s supposed to be pre-med.
Instead.
He iterates.
To version 2 of a newly incorporated biz.* Rather than individually upgrade each IBM/Compaq PC, he creates “kits,” so you can DIY. And he can scale!
Okay.
Michael Dell drops out after freshman year.*
And he starts iterating. A LOT.
First. With customer service.
AKA. Same day shipping and free over-the-phone technical support. (A total competitive mote considering his competitors offer no support).
Then. Dell Corp builds their own computer.* (The “Turbo” PC).
Here’s the irony.
The richer you get, the more expensive things become.
Michael starts Dell Corporation with a thousand bucks.
He keeps a lean supply chain out of force, not will.
He sells DTC because he doesn’t have the capital for a finished-goods inventory.
And it proves advantageous.
Remember. This is an industry where parts are always changing (prices dropping, quality improving). Selling DTC means sending signals to a supply chain in real time!
That’s all good and great.^
But Michael NEEDS more cash.
💸💸💸
The traditional PE/VC model doesn’t really exist yet. But IPOs do!
So Dell goes public.
In 1988.
To raise money from shareholders. And reach bigger customers. (Like Exxon. And GE. And emerging markets).
Okay.
Dell starts selling servers to compete with Compaq (server market leader).
The project ultimately fails. But Michael doesn’t give up. (Unlike the PC market, servers aren’t frequently replaced).
Innovate or die, BABY. Michael has a high risk DELLta!!!
Oof.^ Sorry guys.
He re-enters the server market in 1994. This time, with a connected IT mote.
(Servers have a lot higher profit margin than PCs. Michael Dell knows that if he doesn’t get it right, Compaq will eventually use the revenue driven by servers to double down on PCs. His willingness to reinvent is why Dell still exists and IBM/Compaq don’t).
Okay.
PCs account for the majority of Dell’s revenue but only a fraction of their profit.
Hence.
The transformation!
🦋
Starting in 2007. AKA the same year that Michael returns to Dell as its CEO (after stepping down in 2004).
We’re talking. Investments in software, storage, services, security. (Nobody wants to be a systems integrator. And his investments make Dell Corp a complete business suite).
Which sounds great.
Like super smart! But shareholders value consistency. Not long-term growth strategies that result in short-term revenue loss.
Okay.
Literally no one can disassociate Dell from the Dell PC.
(Probably because his last name is on our laptops and hardware is a lot easier to conceptualize).
Michael wants to take Dell private.
However.
Michael Dell can’t just buy back all of Dell’s stocks. It’s bad optics, and the Dell board has a responsibility to its shareholders to get the best price and vet out other bidders. (Like Carl Icahn. Who pulls a ridiculous PR stunt to make Dell & Silver Lake Partners increase their bid). They fight the fight.
And Dell goes private.
After a long, strenuous process that has literally everyone doubting him. But hey! He wants to double down on growth. And he can’t do that with a board and shareholders.
BTW. The go private WORKS.
Dell is currently valued at $77 billion. Up from $25 billion at the time of its go private. (In large part due to the biggest tech acquisition ever. AKA. Dell’s $67 billion acquisition of EMC/VMware).
I repeat.
FAMGAD. ✊
So take one from Michael Dell. We make our own realities. Now go make yours!
And that’s the skinny.
* The “Turbo PC.” Michael learned from his days of upgrading IBM PCs that parts are purchased from middlemen, so he flies to Asia to establish direct relationships with suppliers. Making his PC cheaper and better than IBM/Compaq!
* Carl Icahn, is that you?!
