#385 Michael Dell

0:00 There's a book that Ken Griffin recommends reading. It's called Hardball, and the subtitle of that book is Are You Planning to Play or Are You Playing to Win? It is a book about extreme winners and some of the best operators in business. There is a line in that book that sounds like it could have been written by any of the almost four hundred founders that you and I have studied on the podcast so far. And the line says, If you have not examined your cost in detail, It is very likely that there exists. Lurking somewhere in your cost structure, a major opportunity to improve your profits, weaken your competitors, and expand your influence. The first move.

0:33 is to drive down your costs faster than your competitors can and use that cost savings to upset their strategy. That sounds like the author was describing Dell, as you will hear me mention. In his autobiography, Michael Dell says that one of the ways he was able to out compete his better funded competitor compact was with a structural cost advantage. Compact's operating costs were thirty six percent of their revenue.

0:57 compared to Dell's eighteen percent. of their revenue. Forty years later. Dell is thriving and compact no longer exists. There is something that history's greatest founders have in common. They know their business from A to Z. And their costs down to the penny.

1:13 Ramp makes doing this effortless. Ramp gives your business easy to use corporate cards for your entire team. Automated expense reporting and cost. control All on a single platform.

1:23 Rams corporate cards are fully programmable. That means you can set limits so the spending of your team never gets out of hand. Most companies only find out about excessive spending after the fact. with ramp, you can stop it before it happens. Matt Paulson. who listens to founders and is the founder of Market Beat.

1:37 recently switched to ramp and this is what he said about it. Ramp is the best. The amount of money that you will save from unwanted renewals and employees who think company credit card equals buy whatever you want will far exceed the best credit card rewards program. Matt is talking about the importance of cost control. There's a line in Andrew Carnegie's biography that says cost control became nearly an obsession. Ramp helps you make it an obsession. If Andrew Carnegie was alive today, he'd be running his business on ramp. Make history's greatest entrepreneurs proud.

2:05 by going to ramp dot com and you will see why many of the world's top founders today are running their company on ramp. Go to ramp.com to learn how they can help your business today. That is ramp.com. One other thing that you will hear me mention this episode is that all of history's greatest founders studied history's greatest founders. And one way to help you do this is by subscribing to Founders Notes for seven years. I've been adding all of my notes and highlights about history's greatest founders to a giant searchable database. There's over twenty thousand notes. in founders notes now. If you subscribe to Founders Notes.

2:36 You get access to all of my notes. And you could search for them by keyword. Or you can have the AI assistant that I built for Founders Notes, which I call Sage, read everything and summarize it for you. I use Sage almost every day. This is a tool. That I built for myself.

2:51 that you can use too the same exact version of founders notes. that I use is the one that you use if you subscribe. Jensen Wong, the founder of NVIDIA. said that in the future everyone will have a virtual assistant, almost like a brilliant intern. With near perfect memory.

3:05 capable of instantly recalling any piece of knowledge. Sage is that now, except Sage is hyper focused. on the collective knowledge of history's greatest founders. So if you have access to Sage, you now have access to all that collective knowledge on demand. I really believe you should be using it to supplement the decisions that you make in your work. You can do that by going to founders notes.com.

3:27 That link is down below and it's also available at founderspodcast.com. I put a lot of time and effort into making this episode. Took me about twice as long as a normal episode. I think this story is very important. And I hope you enjoy it. Carl Icon was trying to take my company away from me.

3:44 I was sitting at Carl Icon's dining room table with Icon. And his wife. Eating Mrs. Icon's meatloaf. That evening was almost the precise midpoint. In a nine month drama in which the personal computing company I started in my freshman dorm room.

4:00 at the University of Texas in nineteen eighty four. The company with my name on it. Almost slipped away from me. And then changed forever. Changing me.

4:09 Along with it. I'd like to tell you that story. And a couple of other ones. Dell had enjoyed a pretty uninterrupted run of growth in revenue and profits and cash flow. For almost two decades.

4:22 But by two thousand five, Dell was beginning to hit serious. Headwinds. Personal computers and laptops, which accounted for roughly sixty percent of our sales, were no longer the rich profit center they used to be. We needed to build new capabilities. We needed to invest in new areas.

4:39 And we needed to move fast. In two thousand seven, we embarked upon a major merger and acquisition initiative. Starting with the purchase of the data storage company Equologic for one point four billion dollars. We then bought Perot Systems for three point nine billion. And in two thousand ten, we really went on a roll.

4:58 Acquiring storage, system management, cloud, and software companies. But by two thousand twelve all was not well at Dell. We try to enter the smartphone and tablet markets without success. Our PC sales had fallen by double digits. Our market capitalization had fallen below twenty billion dollars.

5:17 The conventional wisdom Shout it through the media. Was that the PC was doomed. And therefore Dell was doom to remember that part for later. In two thousand thirteen, the conventional wisdom.

5:28 Was that Dell was a dead company. I was trying to reassure everyone, we're not really a PC company anymore. In the last five years, we've made a concerted shift in our business towards end-to-end IT solutions, a complete set of capabilities for customers. From their data centers to their client systems to security, software systems management, storage, servers, and networking. Also remember that perfect leader, Jensen Wong, beautifully describes the transformation that Dell pulled off.

5:56 She says I'll freely admit That some part of me smarted at seeing our share price sink so low. The company had my name on it. After my family, it meant everything to me. But my wiser side saw an opportunity for the company.

6:10 Back in two thousand ten, I bought a big block of Dell stock in the open market. Confident. That the share price would rise. Yet it also occurred to me. That if I could buy back all the stock.

6:21 Our transformation as a company Could proceed without the tyranny of a quarterly earnings report. Going private. Would open up the possibility of dramatically accelerating

6:33 the growth of the company and allow us to to have a far greater impact on the world. And so in two thousand ten, Dell floated that idea to a major investment bank and this is what they said. The banker that analyzed the deal told us it didn't hold water. Too complicated. Too much debt. Not gonna happen, he said.

6:50 Forget about it. That is really funny to me because this winds up says take private of Dell winds up being the most successful. private equity deal of all time. And so you have somebody, you know, for years before it happens. No, can't do it. Too complicated. Too much debt. Not gonna happen. So we forgot about it. Then something very interesting happened.

7:09 As I was taking off my microphone backstage at the Aspen QA. A guy came up to me and introduced himself. His name was Egon Durbin. And he worked for Silver Lake Partners. Hey, I'd love to meet with you about an idea I had, he said.

7:21 I have a house in Hawaii near yours. Can we get together sometime? Silver Lake was a major private equity firm with a great track record. And a deep expertise in technology. And whose first font I'd invested in when it started in nineteen ninety nine. So I gave Durbin my email address. This was July twenty twelve.

7:39 I still had no idea why Durbin wanted to meet. But we met in August, a beautiful day. in Hawaii on august tenth. Let's go for a walk, I said. I do some of my best thinking while I'm walking. What's up?

7:51 I asked Durbin as we set out. We've looked at your company and we think you should consider going private, he told me. And we think we may be able to help you. Okay, I said, Tell me why you think this is a good idea. We talked and talked for the next hour.

8:05 I liked him at once. He struck me as very smart. Aggressive and bold. He knew why he wanted to talk to me. He had a pretty strong belief in the idea, yet he wasn't trying to sell me anything.

8:17 He wasn't saying we Silver Lake are ready to commit to this deal. We do feel Dell is significantly undervalued. He continued. Dell has a lot of cash on its balance sheet.

8:29 If your company has a lot of cash, its equity can't appreciate nearly as much because cash doesn't appreciate. If on the other hand you use the cash to buy back stock, the stock can appreciate far more. If you have a business that generates a lot of cash flow very consistently A stock buyback could turn out to be a very good thing.

8:49 A buyout. Durbin said. could turn out to be a very, very good thing. Especially with Dell's stock at these historic lows. Yeah, we were talking about buying back

9:00 All of Dell's stock. We were talking about a great deal of money. twenty five billion dollars. Everything Durbin was saying made sense to me. I knew in my gut.

9:12 It was time to make A big Move. That was an excerpt from the book I'm gonna talk to about today, which is Play Nice but win. A CO's journey from founder to leader and is written by Michael Dell. So I knew for a long time.

9:25 that I was going to Make an episode on Michael Dell. I'm fascinated and obsessed, and this podcast is dedicated to people that do things for an incredibly long time and do it basically better than almost anybody else. And Michael Dell definitely fits that.

9:40 He started Dell had eighteen, as as who you and I will talk about in a little bit. He realized that he was working on Dell for many years before that. But he starts Dell eighteen and he's still at sixty. Still working on it. And still on the top of his game. I think there's a ton of lessons that you and I

9:55 can learn from it. So I read this book. He also wrote a book in nineteen ninety seven. called direct from Dell, which I also read that I'll pull out a few things from. But I want to start by saying that Michael Dell sent me the most incredible DM that I've ever received. This is about a year and a half ago. And I couldn't believe it. Uh he says your podcasts are A plus

10:13 And he put a little trophy emoji. I had to double check. I was like, this has to be a fake account. This can't be the actual real Michael Dell. I found that incredibly, uh one, kind that he took his time out to to tell me that, but two, incredibly motivating that, you know, one of the greatest entrepreneurs of all time. is getting value from the podcast. So Before I even read this book.

10:32 I listened to the audiobook three times. And I'm gonna heavily recommend, you know, try to convince you Uh to to buy the book. And I would start with the audio book'cause Michael also uh is the one narrating it. And it has a very interesting structure. Okay.

10:46 So Every the chapters alternate. The first chapter is about the take private and the transformation of Dell that is happening mainly around, you know, two thousand twelve, two thousand thirteen. Then the next chapter will talk about the very beginning of Dell and it'll alternate back and forth for the entire book.

11:02 I wanna start, I'm gonna focus mostly on the early years of Dell. So I wanna jump right into His childhood. And the family that he came from. And so he says I'm proud I'm a proud Texan by birth. Born and raised in Houston. I gotta also mention another thing.

11:17 Michael's son, Zack Dell, was very gracious. Um and we got to speak for quite a while about His dad? I think the most important lesson is impressive. As I am, uh as impressed I am.

11:29 with what Michael Dell has built. And I think there's a ton of, you know, just useful information here for for the entrepreneurs, current generation of entrepreneurs. At the very end. I'm gonna share with you what I think is actually the most important lesson that I learned. You know, I've spent.

11:43 uh countless hours probably over a hundred hours you know, between listening to the audio book multiple times, reading everything I I could find on Dell, watching all these interviews. Uh, but I'll share the what I think is the most important lesson. At the very end. So says I'm a proud Texan by birth, born and raised in Houston. My mom and dad were ambitious people.

12:00 They relocated from New York City to Houston in the sixties because my father had heard that Texas largest city was rich with opportunity. He chose an office building. An office in a building that was literally right next to the synagogue. So that means if your teeth weren't straight and you were Jewish There was a pretty good chance my dad

12:17 Fixed you. And this is I love this line because I really think he's describing his dad, but he's also describing himself. He became the city's most successful orthodonist. Mainly by outworking everybody else. There's a great interview that Michael Dell just did on a podcast less than a year ago. It's from this podcast called In Good Company. And one of the questions

12:36 that the host was asking him in the early days of Dell. It's like well how many hours Did you, you know, when you starting your company, how many hours did you work? And Douglas All of them. Like, what else is there to do?

12:47 And so he says my parents had a saying for when my brothers and I went out to play. uh street ball with our friends. Play nice but win. My mom was a brilliant woman. with particular skills in mathematics and finance and so she she was so good at investing in stocks and real estate, she actually becomes a stockbroker. And this is really important. This is something we've seen a lot.

13:05 I feel in the last few weeks if you think about the Hess family The Wallenberg family, even Todd Graves. They're really trying to pass on the lessons. They think about their business as a family business. And

13:17 a lot of what they're discussing, what their parents discuss with them and what in turn they're discussing with their children is they make them aware of business from a young age. And I've just seen this over and over again. There's a bunch of uh friends of mine that are wildly successful. And turns out their parents did this with them as well. So I think it's really, really smart. And this example uh what was happening when Dell was a a kid. When my mom and dad talked, it was con they were constantly discussing the economy.

13:40 What were the oil prices and interest rates? What about the stock market? We had Forbes and Fortune and Barons in the house. We had these huge value line books with pages and pages of information on individual companies. I soaked it all. In.

13:55 Soon. My heroes became business people. Especially entrepreneurs who challenge the status quo and build businesses out of nothing. So in that same interview, Dell talked about like, you know, he just loves business. He thinks it's fun. Um, it's because it's an interesting puzzle to solve. This is very similar to what Ken Griffin said.

14:14 on the la I think it was last episode, or maybe the episode before that. If I thought of being an entrepreneur. I just thought I like to solve problems and this seems like

14:23 the area which which I can solve the most fascinating The most fascinating problems. In uh the interview that I referenced the In Good Company episode. Michael Dell says something'cause he was asked about this, like, you know, most kids you grow up there or idolizing, you know, baseball players or football players and like you're obsessed

14:38 with these business people, with these entrepreneurs. And he says this is what Michael D said. There's a history of other entrepreneurs that you can look to. That I look to. And say, Well, they did it, so maybe I can do it. And the maximum I have for this that is obvious in all these biographies is that all of history's greatest entrepreneurs studied history's greatest entrepreneurs.

14:57 So he says, uh I learned about so then he becomes obsessed with computers. And so he's reading, you know, he's he he he's upset with the business side of it, he's learning that from his parents. He's reading Forbes and Fortune and reading About all these uh incredible entrepreneurs. But then he starts to be obsessed with Computers.

15:13 And uh magazines, the influence of magazines is pretty pronounced on the book. Uh, I think maybe we we lost that. Maybe podcasts are where magazine podcast might be today where magazines used to be. I learned about bite. This magazine all about microcomputers and microprocessors. I got a subscription and read every issue cover to cover. Then I read it again.

15:32 One month there was a piece by the co founder of Apple, Steve Wozniak. And he's talking about the Apple two. And this is how Wozniak described that. To me, a personal computer should be small, reliable, convenient to use, and inexpensive. He had my full Attention. I had To have one.

15:49 And the beautiful part about that was I could pay for it out of my own savings. He is he's thirteen years old. Okay. So he discovered early that I like to make money. I thought it was fun.

16:02 So he had a series of jobs, he works at a Chinese restaurant. He was a dishwasher, a water boy. Uh, he went to w doing the same jobs at a Mexican restaurant. And he starts all these businesses. Yeah, from a very young age.

16:14 I thought this was very fascinating. Because there's this maximum that I believe in that true interest is revealed Early. And You start to see him

16:23 start businesses and he's using a same a lot of these same he'll use a lot of these same ideas, you know, five or six years into the future when he goes all in on Dell. But he s he would collect stamps. He goes, Well, I don't want to just collect something, I wanna sell them. So he winds up Not only having his stamp collection but all of his friends. And he buys an ad

16:41 in another magazine that's dedicated to stamp collecting, right? And he calls it Dell's Stamps. He goes, I sold a bunch of stamps and I made pretty good money. So I was sitting on some fonts. For my fourteenth birthday, I was allowed to take almost thirteen hundred dollars of my hard earned savings out of the bank.

16:56 And order an apple too. And then we're gonna see again. True interest is revealed early. So he goes. Picks up the the the apple two.

17:06 Unbelievably excited. Immediately. Takes the computer out of the box. This is beautiful. And then immediately takes it apart to see how it worked. And I love this line here. He goes, My parents were horrified. Uh so he becomes obsessed'cause he wants to see, he starts taking these apart. He's gonna do the same thing with the IBM.

17:23 that and then taking apart leads to, in my opinion, the genesis of the idea for Dell and this is like the slow evolution. So he says I soon began tutoring kids in the neighborhood on how to get the most out of their Apple Is. This became a lucrative sideline, yet another business that a young Steve Jobs or a young Michael Dell starts. I said just at Steve Jobs because on the very next page He's obsessed with

17:45 The Apple two. He's about ten years younger than Steve. Okay. And he's part of all these like user groups, these like dedicated user groups to Apple. He's gonna do this for IBM as well. And so Steve Jobs is twenty five years old the first time

17:57 Michael Dell. Meet'em. Because I read that Steve Jobs was coming to Houston to speak to our user group. It was nine. eighteen eighty.

18:05 Jobs fascinated me. Not just as a computer pioneer, but as an entrepreneur. I'd read about him in the business magazines with intense admiration. Jobs that started with little But an idea.

18:17 An intense drive. To bring that idea to fruition. That is so That that line hits me right in the heart. Think about that. He starts with little but an idea. And an intense drive to bring that idea to fruition, he's describing Steve Jobs, but he's also describing himself.

18:35 Jobs was just twenty five. Jobs in person was even more compelling than he was in print. When he entered the room at our meeting, It was as though the waters parted. He spoke with passion.

18:47 About the how the personal computer His personal computer. was revolutionizing the world He spoke in soaring metaphors. With his personal computers

18:57 People would have the capacity To accomplish The unimaginable and Soaring metaphors, charisma. Passion is infectious.

19:05 There's w without a doubt, how many episodes I've done in Steve Jobs? I don't know, ten, fifteen. I'll probably do another ten, fifteen, twenty. A hundred by the time I'm done. Hopefully, I'm you know working on this podcast when I'm eighty. Without a doubt, he believed in what he was saying. So that is nineteen eighty. Th the the usually I don't throw out years, right? This isn't a history class. But I think it's really important. So that's nineteen eighty. Nineteen eighty one.

19:26 IBM. introduced its PC. Okay. That's gonna change Michael Dell's life. It is also remarkable.

19:35 There's a you know, I'm obsessed with Game of Thrones, right? I I I've watched it it Read all the books, watch it through. I don't know, probably six times. I literally watch it and take notes on the show and I have like this list of lines from the show that I want to remember because I actually think you can learn about humans from there. There's a line that's really important. It's called it says those on the margins often come to control The center. That is a description of Michael Dell.

19:57 I I was shocked. I went back uh and and read about IBM in the nineteen eighties at this time it's going on is the most valuable company in the world. In this kid in Texas with an intense drive and a thousand dollars. is going to take it on and beat it. It's incredible.

20:14 So nineteen eighty. Apple two. Everybody's obsessed with it. IBM biggest company in the world. says okay, nineteen eighty one, I'm gonna uh we're gonna release the PC and this is gonna change Michael Dell's life forever.

20:26 Says uh in the nineteen eighties, IBM was by far the most successful and valuable company in the United States. I'll I'll give you more information on this later. IBM's entry into the personal computer market would effectively sweep away the competition and they would have the field to itself. This is what Wired magazine said at the time. Okay. And this is really r just remarkable because the media and and and people and people around you, they always say the same thing about big companies. People have a hard time, just like companies make this mistake of having a hard time envisioning a future different from the one that it in which they succeeded in.

20:55 People are the same thing. Where it's like, Oh okay. Biggest company in the world, most successful company in the world. They're gonna release a P C. They're gonna be the only game in town. They're just gonna beat everybody, okay? So he he winds up buying the the PC and you know, taking it apart. This is I think in my opinion a turning point in Michael Dow's life because it's just he he's gonna realize, Oh wait

21:13 biggest company in the world just made a PC. It's just a collection of parts from other companies. As soon as I took apart my fifty one fifty, I discovered a couple of striking things. First of all As with the Apple two, the fifty one fifty's architecture was open. You could literally understand what every chip was doing. The other thing I found when I disassembled the IBM PC was that there was nothing inside from IBM.

21:34 It was all parts from other Companies. It's it's incredible like how you know you can be the w the most successful company in the world and yet you you let other people dictate and force you into errors that you didn't have to. And what do I mean by that? IBM had created the PC quickly. With off the shelf components.

21:52 out of expediency. Because they were secretly worried. about Apple's inroads into the consumer and education markets. So instead of creating their own operating system, which they certainly knew how to do, and creating their own microprocessor, which they certainly knew how to do. They chose DOS for Microsoft and Intel eighty eight uh eighty eighty eight. They were such a huge and powerful company, such an American institution, so completely synonymous With the word computer.

22:17 That I don't Think They thought anyone Could ever Challenge them. So now he he had this uh he has

22:24 Both the Apple Two. and the IBM and he's got this little idea in his mind. And you know, I'm just going through the book over and over again. And it just jumps out. It's like Michael was a born entrepreneur. He was a born entrepreneur.

22:35 Right, so that summer I got a new job. I sold subscriptions to the Houston Post, a local newspaper. So how does he sell subscriptions? He would call random people on the phone. No, I think he's like fourteen, fifteen years old when he's doing this. And try to talk to them into getting the paper.

22:49 Being naturally ambitious as an understatement. In fact, one of the the pieces of advice that he gives is make no small plans. So if you could see the book that I'm holding my hand. I had this constant in the margin. I'm constantly writing that over and over again, make no small plans. It's just naturally ambitious, naturally competitive, naturally bold. I wanted to sell as many subscriptions as possible, and I observed three things. If you sounded like the people you were trying to sell subscriptions to, they were much more likely to buy from you.

23:15 Okay, so essentially what he's doing in his little fourteen or fifteen year old As a young man He's trying to say, How can I find an edge? Yeah. And what everybody everybody else is selling subscriptions? They're probably all doing the same thing. I'm just cold calling a bunch of people.

23:28 Maybe one out of fifty, one out of a hundred buys. This kind of sucks. How can I find an edge? The second thing I noticed peop that people who were moving into a new residence were more likely to subscribe to the paper. And the third thing I observed. was that people who were getting married were much more likely to buy a subscription.

23:43 And what he does next is this is what I mean he's just a born entrepreneur. This is obvious. He's like, Oh, I have a plan that's gonna pop into my head. He goes down and realizes like all that information is public information in the state of Texas. So if I go down because I'm a Texas citizen, I can go down. And go down the county courthouse court courthouse. And I can pull all the marriage license applications. And that's exactly what he does.

24:03 In one stroke, I had gone from hit or miss of cold calling to discovering a gold mine of people who were far more likely than not to subscribe to the paper. At first I had to sit and then again relentlessly resourceful. And uh you know, a recurring theme in the history of entrepreneurship, invest in technology. The savings compound can give you an advantage over your slower moving competitors and sometimes it can be the difference between a profit and a loss. That idea comes from and there's a very old idea. It comes from Andrew Carnegie's autobiography, you know, 150, 200 years ago. We see Michael does the same thing here. Okay.

24:32 I have I have found my edge. I have You know, all these interested prospects, but I'm writing all this stuff down by hand. This sucks. There's like no one almost no one on the planet has computers at this time. What does he do? goes, Well, I would sit there and write down every name and address, but then I realized I can bring in my Apple Two, which was much lighter and uh than the IBM PC. Plug it in and type in all the info. So that's exactly what he does. This this kid is showing up to the courthouse with his computer, typing in you know, his list of prospects. I love this. And then it hit me that there were sixteen counties surrounding Houston, and they all had courthouses, and every courthouse had records records of marriage applications. Jackpot times sixteen.

25:07 Then what does he do? Born entrepreneur. Then I hire my high school buddies to travel to all those courthouses and get all that info. And then he realizes okay. So I have all these consumers, right? This is like one I'm selling individual subscriptions. And you'll see the reason I'm I'm talking about this because He uses all these ideas at the beginning of Dell too like start out selling directly to like just an one individual, one rich architect. or one rich, you know, dentist in in Houston.

25:31 And then he moves to the enterprise. And so the the enterprise version of this, he goes, Hey, I'm gonna go And because there's a building boom in Houston, they're building all these huge condos and apartment complexes. I would go to these places and say, Hey, I'm from the Houston Post and we've got this great offer where all your new residents can get the paper free. For two weeks, just fill out this little form.

25:50 So now I went from selling One at a time. Right, to maybe grabbing two hundred, three hundred at a time because of all the young married people and all the new apartment dwellers. I made a little over eighteen thousand dollars. That

26:03 Summer. Now the funny thing is In his high school class. They have to like do a sample Tax return. And he does it for real.

26:11 and his teachers just like no you you obviously got this wrong Like you didn't make eighteen if you made that much money, Michael, you would have made more money than me. And he's like, Well, that is exactly how much. So he's making more money in high school than his teacher. Now Here's a clue there's always a sign.

26:26 about what you really should be doing. Right? What did Jeff Fasis say? We don't choose our passions. Our passions choose Us. You would sit in His high school classes, he's gonna do the same thing for the one year or half a year he goes to college. And he goes, I would come in, go to the back of the room, sit down and read computer magazines.

26:44 That's a sign that you found what you should be working on. So he says, uh the moment that I opened up my new IBM PC and looked inside, I thought, how do I soup this thing up? Thanks to my steady intake of Bite and P C magazine, I had plenty of ideas to try. He'd put in extra hard drives, I'd put in extra memory. The new I and then this new IPM user group I joined gave me even more ideas.

27:06 Because the I the difference he he talks about the difference between the people uh that had Apples and the people that had the IB and PC. IBM PC leaned way heavier towards business. So they that user group was like, Well, how do we use this as like a productivity tool? How do we use this as a way to get better jobs to make more money? And so he says I was fascinated by how empowering a tool the PC was for business. He was seventeen.

27:29 He says then a miraculous thing happened in June of nineteen eighty two, the National Computer Conference came to Houston. Right, this huge multi day. I think there's like thousands of uh people going to this computer conference. And this is hilarious. Again, a sign that he's on the right path. To me, this was like Disneyland.

27:46 I saw so many beautiful things in all these booths, peripherals and terminals and systems and software. New horizons were opening up for me. And then this is really, you know, the start of his computered business. Slowly and surely it's gonna turn into dough. So after I soup up a P C an interesting thing happened.

28:04 The lawyer father of one of the kids I was uh tutoring about computers got wind of what I'd done with the machine and asked if I could do the same thing for his. So I tricked out his PC. He paid for the parts and added a nice fee for my time. The lawyer was pleased pleased enough that he soon talked me up to a couple of other lawyers and doctors he knew, and I got more work. Then an even more interesting thing happened.

28:25 One doctor called and said he wanted to buy an IBM PC. for me to customize what model should he get? I told him do not bother. I'll buy the computer. Put in everything you need.

28:36 and sell it to'em at a reasonable markup. I delivered that doctor a Michael Dell special. Then it happened again. And again, and suddenly I was in business. And he's making a ton of money.

28:48 He loves fast cars too, which is really funny. There's a couple examples in here and stories that are I found humorous. Uh so my senior year of high school, I went to my parents I went with my parents to a BMW dealership. When it came time to pay, the salesman naturally looked at my mom and dad. I got to enjoy the shock on the guy's face. When I took out a cashier's check.

29:08 For fiftin thousand dollars. And then it had a wad of cash to pay for the rest. Thanks to my newspaper subscription funds and my new Custom computer. Business.

29:19 That is the end of high school. He says the only college that I applied to was a University of Texas at Austin. And my life was pretty much planned out for me. I would go and take pre med courses and become a doctor. This is such an important part. I haven't I I guess I haven't even talked about yet. There's a track.

29:35 laid off for him. In one interview I heard him say, like uh becoming a doctor is like the family business. It's like you know uncles are doctors. This is w what was expected of them. And essentially his parents like this is what your life is going to be. Think about this. We're we're like thirty pages into the book. Th there's no path or track.

29:52 for the for the entrepreneur. It's impossible that this personality type that this person would ever stay on a track laid out by somebody else. And you're see that because there'll be this uh, you know, back and forth, and then he His parents are crying about this and y we'll we'll get into it. But I I I remember hearing him say something that's very fascinating where he's just like, you know, I was able to convince finally was able to convince my parents that, you know

30:13 I'm gonna go all in on Dell. And he has like the financial uh uh like record of what he's doing so far. He's like look how well it's working and I'll make you a deal. If you know, if it doesn't work out, I can always go back to school, University of Texas will we Oh will accept.

30:27 And he says his parents agreed, but then he says something so important. And I think y if you're listening to this, you obviously understand this. It's like But even if they didn't agree, I would still do it. I was still going to do this. I was not going to let somebody else decide how I spend my life and lay out a track and a path that I'm supposed to follow.

30:45 Entrepreneurs don't do that. This is the fascinating. G go back to like just following your curiosity, following your interest. I I maybe I don't even Tell you about this later, but I wanna tell about it now. Michael's one of the most curious people You can possibly fine.

30:58 He just wakes up every day fascinated, curious about business and about life and about being better. And so he's like listen, you know, I'm supposed to have this this path. And so far I'm going with the program. I was on autopilot. Meanwhile, there was this other thing, computers, that I was passionately excited about.

31:15 And that I couldn't really tell my parents about because it was so far from what they had in mind. I love and think about the Ken Griffin episode. Most successful hedge fund of all time. And he he he he says this thing where she's fascinating. He's like, Listen For reasons I don't fully understand. I was obsessed with the Star by the time I got in third grade.

31:31 I was just completely obsessed. With the stock market. And how to make money in it. For reasons I do not understand. And I think one of the reasons that resonates with me is'cause that's how I feel about reading.

31:41 I remember somebody asking me a time, like when did you get in the habit of reading? It's like I don't have any memories. Before I just read I always read Obsessively. Since I age of five before my mom died. I remember her telling me like I'd read I'd go in every room and read every single thing on like the walls.

31:55 And When I ran out ran out of books to read. I'd read the back of cereal boxes. Uh you know, when you're a seven, eight year old kid, nine year old You're not sitting here thinking like oh this is gonna be good for my f future self development. You're just obsessed

32:08 And drawn to this activity. It's very clear. that Michael was drawn both to computers and electronics And then business as well. So He graduates high school. And again, relentlessly competitive, relentlessly driven. Some kids take the summer off after they graduate high school. As you can probably guess by now, this wasn't my way.

32:25 I was still upgrading IBM PCs, still buying disk drives and hard drives and memory trips and installing them in the in the base model IBMs that I bought at retail. than selling the improved computers for a profit to doctors and lawyers and architects. As soon as I arrived in Austin, I started putting little ads in the local paper. Remember, go back to that stamp business. Right? You just see it over and over again and he's learning. And I got responses right away, which provided me with the working capital I needed to buy more PCs to meet what appeared

32:49 To be an ever growing need. And then there was my other business. Relentlessly resourceful. I don't know how many times I'm gonna have to say that today. It's just like Just jumps off the pages. IBM this is remarkable. He's just like paying attention to these opportunities and he's Se uh seventeen, eighteen years old, maybe.

33:06 IBM PC sold like crazy from the moment they were introduced. But what the huge demand led to was all kinds of supply disparities. among the retail outlets that carry the product. Houston Might order ten thousand units. Dallas, another ten thousand, Phoenix, another ten thousand, but IBM could not Push out all the supply and time.

33:24 Wind up getting only four or five thousand units at a time. What do they do? Right, they're they're learning too. In response to dealers start over ordering. They asked for twenty thousand or fifty thousand computers at a clip. Just so they could get what they needed. The result was retail chaos.

33:38 One city would have way too much stock, another not nearly enough. I picked up on this. I figured out I can make some money from these supply incongruities. I'd go to a city that had a surplus of V C PCs, buy a bunch, and then take them to another city that had a shortage and sell them. He calls these fli he calls this flying bys. I love this. I would locate a big retail outlet that had way overbought IBM PCs, say somewhere in Phoenix. And then I'd call them up and ask if I could take some off their hands.

34:03 In many cases They would agree to sell some of their surplus. For below their cost. I'd get on a southwest airlines flight to Phoenix. Rent a U Hall truck.

34:13 And then load the thirty or forty PCs into the truck and drive to some store that was under supplied. Say one in Tucson. And then it'd sell them. My truck full at fifty or seventy or eighty dollars per machine machine. over what I pay. This is the result.

34:30 Instant profit. Of a couple Thousand. Buck. So it's it's wild. And the direct from Dell book, which was published I think in ninety nine.

34:39 thinking pretty sure he says in that book that Dell was profitable. for every single quarter of its existence. It's just incredible. So he he's like

34:49 You know. you can do the math. Like I'm buying, you know, a couple of hundred machines, these are very expensive. Like, where am I getting the money for this? So it says an eighteen year old who wasn't dealing drugs, did they really have fifty or sixty thousand dollars at a time to lay out on these new computers? And the answer is Yep.

35:04 My PC upgrade business was doing well enough that I had steady cash flow and my computer reselling business was profitable. From the jump. And then before I move on, I just want to share something with you that I think It may be a little unusual that popped my mind when I was reading this section. And by this point it it it th I had read the section I don't know three or four times'cause I go over my notes and highlights multiple for a few days before I sit down and talk to you.

35:27 And it's this idea where it's like people are like, Let's we're gonna find the next like Steve Jobs or like Uh you know, the next Mark Zuckerberg or something like that. And there's something that Michael Jordan said. That I think I I think it's important.

35:39 Great people. They reveal themselves. They make themselves known. This guy was going to be undeniable. He was going to you didn't have to like I'm gonna discover the neck next Michael Dell. If you have the talent level of Michael Dell, you're make yourself

35:54 No, there's a great line that I heard in a video one day. uh Michael Jordan talking about, you know, towards the end of his career. When especially when Kobe Bryant came along, everybody's like, Oh, who's the next Michael Jordan? And he says something that's very fascinating. Michael Jordan said, Don't be in a rush to find the next Michael Jordan. First of all, you didn't find me.

36:09 I just happened to come along. And you won't have to find that next person. It's going to happen. And I think the reason I'm obsessed with it. Especially autobiographies in particular.

36:20 Right. In this book that you could pre cut for I don't know, twenty bucks. You have The best ideas, the most important ideas. From four.

36:28 Five decades of excellence. And there's somebody out there right now. That is The same age, maybe even younger than Michael Dell was when he started. That's gonna pick up the book.

36:39 Build a product that makes somebody else's life better,'cause that's all a business is. And become one of the the greatest entrepreneurs in history. Remember. First of all, you didn't find me. I just happened to come along, and you won't have to find the next person. It's going to happen. All right, so let's go back to this. He starts he starts a school, okay?

36:56 Uh in college. In theory, I was a pre med biology major. On a smooth track. Remember there's that word again, track, path. On a smooth track to becoming a doctor. that my parents wanted me to be. The reality was somewhat different. I was running a thriving business out of my Austin apartment. The apartment was packed to the ceiling with computers and computer boxes.

37:15 I went to my classes. At first. I would listen to the pr Professor Drone on But Mostly I stared out the window.

37:24 Thinking about when I could get back to what I was really interested in. There is an excellent uh essay called How to Do Great Work Dritten by Paul Graham. I think I did an entire episode on just that essay. I think it's up episode three fourteen. There's a line in that

37:38 that essay that I've never forgotten that I think is really important. I think describes exactly what's going on here. Hey, I'm sitting here in these pre-med classes. I'm bored to death. And I'm looking out the window and I'm thinking about what I'm really interested in. And in that essay, Yeah, there's a line that says If you're interested, you're not astray. If you're interested, you're not astray.

37:55 My newspaper ads were building word of mouth among knowledgeable computer users around Austin. An interesting side note is that I didn't sell any computers to any students. Ever. The students at U T knew nothing about computers and couldn't have cared less about them. This is great. It was a very different time.

38:12 And then as you guess, he's always looking for ways to expand his business. And so he goes, he goes, Hey, you know what? There's another thing that's public. If I go down to Now he's in the state capital. And the government, the the the state government's always bidding on things and these bids are public and anybody can bid on them. And so like for example if the highway department needed four PCs And they would say, We need four PCs with such and such specifications.

38:34 And so they would issue a request for bids and the bids are public. So anyone could walk into the office and say, I'd like to see all the requests for the bids for equipment in the following categories. I started combing on these and winning these contracts. Soon I was racking up revenues. between fifty and eighty thousand a month. I was spending almost every cent on new inventory. So then he moves into His dorm, and this is the dorm room in which Dell was going to be born. Dobie was a high rise, twenty seven stories tall. By the luck of the draw, I was assigned

39:04 to a room on the top floor. Dobie twenty seven thirteen. My roommate now, there's a lesson in here. My roommate, to my great fortune, was a member of the US Olympic cycling team. That means he spent every day, all day training.

39:18 He literally just used the room to sleep. Every evening he'd return from his training sessions and and drop into his bed exhausted. Every morning he'd vanish before I was awake. He was the perfect roommate. So the lesson there, interesting.

39:32 Olympic. Level athlete. Trying to be the best at what he does, best in the world at what he does, and look at how he spends his time. Training. Working.

39:39 And then sleeping. And there's another thing that Michael Dell's gonna have in common with Phil Knight, the founder of Nike. His parents find out about what he's actually doing. They want him to be a doctor. This is so, so important. I absolutely love this.

39:52 My mom and dad were hearing more and more about what a terrifically successful business I was running. Say return to Austin. They were both very upset. Michael, my father said. Are you going to school here or are you running a business? А комп'юр бізнес

40:06 He made it sound kind of unsavory. So I'm gonna pause there, I'm gonna put this book down. There's a line from Phil Knight's excellent autobiography, Shoe Dog, which I covered, you know, I don't know, several years ago. It's probably like episode one eighty, one eighty one, something like that. Almost exactly.

40:20 Word for word. So He I'm gonna read from from shoe dog. His this is a conversation he's having with his dad. Phil's having with his dad. He hadn't sent me to Oregon and Stanford to become a door to door shoe salesman, he said. Jackassing around.

40:35 That's what he called it. Buck, which was Phil Knight's nickname. Buck, he said. How long do you think you're going to keep jackassing around? With these shoes.

40:45 I shrugged. I don't know, Dad. And a note I left myself when I read that. is listening to his dad's advice on what to do for a living. Would have cost

40:54 Phil Knight. Forty billion dollars, which is what his net worth was at the time I was reading. that book, we're gonna see something very similar here. You're running a business. a computer business. He made it sound kind of unsavory. Later on His father.

41:08 unbelievably proud of Michael. I think he says he's the founder of the founder. Okay, so these things can change. If you're not if you're interested, you're not astray. I could see that my mom was about to cry. My dad shook his head. Michael, he said. You've got to get your priority straight. You've got to get your head screw on straight.

41:24 This computer thing. It could be a nice hobby for you. But your life, Michael, your life. I was staring at the floor, ashamed and proud at the same time. Obedient.

41:34 And rebellious. What do you want to do with your life, Michael? My father asked. I wanna compete with IBM, I said. My dad wasn't amuse. Go back to that line from Game of Thrones. Those on the margins often come to control the center.

41:47 This is a Think about the confidence, the self confidence, the self belief that Michael young Michael Doe had. The idea that like, you know, I have a a a little business out of my dorm and I'm compete with the most valuable company in the world. Incredible. I love it.

42:00 You are here for one thing and one thing only, he said, and that is to get your education To put you on the right path. There's that word again. The right path in life. Path Track. These are not words for founders.

42:12 I muttered something about not being so sure the path he was talking about was the right for me. I looked at my mother, her tears We're flowing. I caved. Okay. No more computers.

42:23 Only school. Only school. I promise. And he tried. He really tried. For the next ten days. I went cold turkey.

42:30 I literally didn't touch a computer. I went to my classes and tried my hardest to pay attention. Didn't work out. In fact, with those ten days of intense longing. really did for me was focus my mind intensely. I realized that the pros prospect of practicing medicine h held Absolutely no appeal for him.

42:46 And then the prospect of building my working life on computers. Was Absolutely. Thrilling. By the time

42:54 The second semester began. I was back in business. Big time. Upgrading. Flying and buying.

43:00 and reselling. And in addition to his initial success, he gets another sign that oh I might be on the right path. They go he travels with his family, they go to England to visit his brother. And realizes, oh, like the same like fervor for personal computing that we're seeing in United States is happening in the UK. That's interesting. And another thing was like wait, like these people she

43:18 They're terrible. The stores are terrible. uh the salespeople are terrible and yet the computers are flying off the shelf. So it says the other thing that impressed me was the profusion of computer stores. And just like in the US, the profound ignorance of the people who worked in them. Salespeople knew little to nothing about how these computers worked, nor did the stores offer much in the way of service and support. But everybody wanted

43:38 computers and the pounds and shillings were flying. He says after we returned to Texas, I broke the news to my parents. Uh it would take a few years for my relationship with my mom and dad to heal. Again, this is somebody that was gonna w follow his own path in life no matter what. I think obviously it's the right choice. I wanna st go back to the the idea it's like Well

43:54 This is kinda funny. Like the stores suck. The salespeople suck, almost no differentiation in product line, and yet the th they just can't stay stock. The money keeps flowing. Mark and Dreesson had this blog Uh there's a blog archive. I think I did it uh back on episode fifty. And he wrote something in there that I've thought about and he talks about like what are the factors for uh startup success. Is it the product, is it the people, is the market?

44:17 And he Mark's point is like, you know He would pick market. uh above almost anything. And there's a reason why. And he says in a great market, a market with lots of real potential customers. The market pulls product out of the startup. This is exactly what's happening.

44:30 In the book, right? The market is pulling the product out of the startup. The market needs to be fulfilled and the market will be fulfilled. But the first Viable product.

44:39 That comes along. I think that's what we're seeing. Where we are in the story. Now Tells his parents, Hey, I'm doing this.

44:46 Damage the relationships takes a few years to heal, okay? But in nineteen eighty four, my little one man operation formally became Dell Computer Corporation doing business as PCs Limited. I left school. Forever. This is

44:59 Really important. So I'm gonna spend some time here because this is something that's very obvious to me. And yet when I talk to other people, it's not obvious. They literally have this backwards. So I always say belief comes before ability. People tell you, Oh, you wanna be have confidence like produce evidence. No, that's absolutely wrong. You're a hundred percent wrong. It's in this book over and all these books over and over again.

45:17 The self belief comes before any evidence. It becomes before even the ability to do so. Here's another example of this. This is super, super important. I spent some time at a store called Compu Ad, this is in Hu uh in Austin, and I met the owner. A guy named Bill Hayden. Hayden told me that thanks to Austin's tech boom, he was really making big bucks. I guess he thought He was just impressing some punk kid.

45:37 But when I sized them up, I thought I could do everything he was doing and a lot more. Was I a little full of myself at nineteen? Sure I was. I think you have to be to do anything important. I'm pausing right here.

45:49 I'm gonna go to Nolan Bush now. Founder of Atari. mentor to Steve Jobs. He wrote a book about me. about what it was like to mentor Steve Jobs to know Steve Jobs. This is what he says.

46:00 This is he talks about s you know, Steve's critique about being arrogant, about being, you know, overly self confident, whatever the case was. He says everyone has this is Nolan Bush now. Everyone has creative potential. But only the arrogance. Are self confident.

46:14 Now, I think he's using the term Aryan there. To be intentionally provocative. Only the self confident, only those with an abundance of self belief. Like a Nolan Bush now, like a Steve Jobs.

46:25 Like a nineteen year old Michael Dell. Only the Be self confident or Only the the people with full self belief. Are self confident enough to press their ideas

46:35 On to others. Bill Walsh wrote this excellent Excellent book called The Score That Takes Care of Itself. I think I did it all the way back on episode one oh six or something like that. I need to re read the book because it's it's really good. And he says this about this. Don't let anybody tell you that a big ego is a bad thing. Here's a big uh big ego.

46:53 Really is. Pride. Self confidence, self esteem. Self assurance. Ego is a powerful and productive engine.

47:02 Without a healthy ego. You've got a big problem. Now, obviously, you're smart. I don't have to. Explain this to you. Obviously have a you could have a di uh an ego so big and so unrealistic

47:13 Right, that it can damage. It can get you in big trouble. That's not what Bill Walsh is talking about. That's not what Nolan Bushnell is talking about. That's not what Michael Dell is talking about. That's why I think that line is a little bit of a little bit of a healthy ego, you've got a big Problem. So belief comes before ability. Was I a little fool of myself at nineteen? Sure I was. If you I think you have to do have to be to do anything important.

47:34 You have realise by now that I'm pretty competitive person. That's an understatement. I'm gonna pause there again. Uh so I I love this'cause uh you know Having listened to the audio book three times.

47:45 already f read this book, already read Direct from Dell, I already read all this stuff. There's something that jumps out. That I didn't see till after Till after. That

47:54 It's really funny'cause it's Surprisingly, shockingly. accurate assessment and description of Michael Dell from Matthew McConnell. The actor and I guess I think uh what I've heard is he's friends with Michael. They uh they both live in Austin.

48:09 And This is the blurb that Michael or that Matthew did for this book and I didn't see it till after. says Michael Dell is the gangster protagonist. Never looking for a fight. But relishing every brawl once he's in it.

48:23 It has such a good description. Uh, based on everything I've read. Matthew uh McConahe nailed that. All right. So it's just you know, you can figure out, hey, I'm I'm pretty competitive person and I thought I had all kinds of ideas that Bill Hayden could never even begin to imagine. One of my ideas was just an expansion of what I was already doing, placing ads and taking orders over the phone. Constantly on the lookout for lowest prices for computer pronuts, saving customers the trouble.

48:46 Of comparison shopping. And then passing along the savings to them and I'd still make a profit. This is how he knows he has edge. My upgraded machines were both better and less expensive than IBM or Compaq. Compact's gonna be his main competitor. he's gonna wind up overtaking them as well. And they raised way more money. Michael Dell starts coming with a thousand dollars.

49:05 Compact starts with twenty five million and then they raise I think another seventy five million. So he's like, you know Guy starting with a thousand, you're starting with a hundred million and he waxes them. I love stories like this. Yeah, I'm obviously always on the side of the founder. I'm always on the side of the underdog.

49:18 The Wright Brothers, episode two twenty eight. That that book, if you if you want a book to read this week or a book to read this weekend after you hopefully finish Michael Dell's book, I would pick up Bright Brothers by David McCullough. For centuries, humans were talking about how do we solve The issue. And a lot of different people when the Rape brothers had were trying to do it at the same time.

49:36 were way better funded. They had better they had all the top experts, all the top scientists of the day. They had the backing of like the Smithsonian. One guy was back by like five hundred thousand dollars. The right brother solved the problem. With T.

49:50 eighteen hundred dollars. They solved a century old problem with just two brothers. Being relentlessly resourceful. And the modest profits of their Bicycle shop.

50:02 Don't ever let somebody tell you because you have a better funded comp uh competitor. or more uh credential competitor that you can't still win. It's the business is is full of examples like this. This is such bullshit. Back to this. My upgraded machines that I'm making with no money. In my dorm room. Are better and less expensive than IBM or compact. And so he says, Okay, well

50:23 I have this advantage, how do I press that advantage? So he was started on uh in in Austin. Now he's like, Hey, I'm gonna f advertise nationally. uh and P C Week and con Computer Shopper, so essentially say, Hey, like Who's gonna buy computers? Well, people that are reading computer magazines. Not like a stretcher, right? Uh customers could call in. They would tell us how much memory they wanted in their machine, what size hard drive, and how fast a processor.

50:45 They give us a credit card number. And then we could put together I customized computer for them. In an hour and ship it out the same day. It sound this is and one of the most important sentences in the entire book.

50:58 It sounds simple, yet nobody else was doing it. So he we start hiring technicians and salespeople right away. Uh again, it doesn't have to be perfect. Just has to work, especially at the beginning. Or or here's an example of that. Our order entry system consisted of three clothes lines hung between cubicles. The top line. Was orders that needed to be filled.

51:19 The middle one was for orders waiting for parts to be delivered and the bottom clothesline was for orders that we had no idea how to fill. Everyone in the company wore several hats. The office was busy and noisy from morning to night. It was fun. It was stressful. It was all consuming. I was nineteen. Years.

51:33 Old. Now what I want to focus on Is the building of Dell. But I do wanna just pull out when I find them in the book. Just these other lessons I think Michael Dell has for us.

51:43 that happened while he's trying to fight, has this fight with Car Icon and he's going through this really big struggle. To take the company private. Um and to really transform it. You know, he he successfully navigated. One of the things that's so fascinating about this is when you know, why there absolutely had to be an an episode of Michael Dell's like He's successfully navigated.

52:02 so many different technological revolutions from PC, the internet, Mobile, cloud, and now AI. I can't think of anybody else that has done that that is still active to this day. So he's fighting with Carl Icon and he says some things here that I think are really important and the there's a lesson, there's a punchline at the end of this. Activist investor was a euphemism for what Carl Icon really was. Corporate rater was more to the point. And maybe trouble making opportunists.

52:29 was closer still to the truth. Since the late 1970s, Icon had shown great skill in gaining significant positions in companies in trouble or flux. And then either forcing them to buy back their stock at a premium or pushing the company leadership to make decisions that would boost the share price. He liked to present himself as a great defender. Yeah. The ordinary shareholder. In fact, he was a great defender of Carl Icon. He seemed to be a

52:53 To have little or no interest. What a target corporation made or did. The game was everything to him. And so he's to me, what he's what Michael Dell's doing there is he's comparing and contrasting. Different chain.

53:05 you know a pre a troublemaking opportunist or corporator. First a founder. Somebody started their company when they're eighteen, somebody put their name on the company. that they gave their the majority of their life energy over to And I think the way you describe this like the Todd Graves episode, the founder of Racing Caines.

53:21 I did a few weeks ago. He has this line, he goes founder he was talking about like more founders need to stop selling their business. Especially in his Industry. He's like, I'm competing all the founders are gone.

53:31 They sold out some of them passed away, they sold out. And he's like, We need more founders because founders care, care, care, care. And that line came to mind when I'm reading this. So here's the punchline.'Cause he's talking about the fact that Icon was building up this position in Dell and really trying to So he steals company from like he started the book. In business, this is the punchline.

53:50 This is the lesson that d the Dell's teaching us. In business, you can surround yourself with the smartest people. You can plan ahead with the greatest care and intelligence, but one thing you can count on is that from time to time you're gonna get smacked in the face. With a flounder. With something that you never anticipated. And this Was one of those times.

54:06 So back to the early days of Dell. I was sitting in the back of a police car. Wearing handcuffs. My crime? Going ninety two in a fifty five mile an hour zone. Plus a big enough pile.

54:18 of unpaid speeding tickets that a warrant had been issued for my arrest. The vehicle that had helped me earn all those root tickets was a red Porsche nine eleven. I had just turned twenty. I was a young man in a hurry. Dell generated over six million dollars in sales in our first nine months of operation. That number would turn to thirty three million dollars.

54:38 at the end of our first full year. Thanks to national advertising and community magazines, we were selling to doctors and lawyers and architects all around the country. We started to land orders from some fairly big companies like Texaco. Ford. Monsanto and many others. Remember what I said?

54:53 About When he was selling Subscriptions, you know, starts with individuals, consumer, and then goes to the enterprise. The enterprise version of that being the condo and apartment. You just saw he did the exact same thing here. Now There, I gotta read this to you'cause it's it's so wild. Dell put out

55:07 Uh, Michael Dell put out the craze one of the craziest treat of our scene. Yeah, all it says Dell's revenue during our first sixteen years. Okay. So it's gonna start in nineteen eighty four. At six million. It's gonna end in nineteen ninety nine at twenty five.

55:21 Billion. Just gonna read this to you, right? In order. First sixteen years. Six million, thirty three million, sixty seven million. Hundred fifty nine million.

55:28 two hundred and fifty eight million, three hundred and eighty eight million, five hundred and forty six million. Eight hundred and ninety million. Two. billion. Two point nine.

55:36 billion. Three point five billion. Five point three billion, seven point eight billion, twelve point three billion. eighteen point two billion. twenty five billion the first sixteen years of Dell. Uh, ninety nine I also stinks when the the book direct from Dell came out as well. So

55:53 started saying, Hey, you know, what work locally is obviously going to work nationally, so he drastically expands And Now people all over the country are buying his machines. And he talks about what this was like. It was j it was just a little bit make it up as you go along. Maybe more than a little bit.

56:09 And then he makes a really important point, the fact that constraints are your friend. Is gonna sound a lot like Sam Walton. We didn't start building to the customers order because we saw some massive paradigm in the future. We started that way because we didn't have the capital to mass produce. It turned out to be a pretty lucky handicap.

56:25 And many of the biggest lessons we learned in the company's formative years came about in the same seat of the pants way. We experimented improvised our way to success. So Let me read this to you. from Sam Walton's autobiography. Many of our best opportunities were created out of necessity.

56:43 The things that we were forced to learn and do because we started out underfinance and under capitalized. Just like Dell. Uh, so we said we started out in these remote small communities, they contributed mightily to the way we've grown as a company. Had we been better capitalized, Or had we been an offshoot of a larger corporation we might not have ever tried. The Harrisons or the Rogers or the Springdales, and all those other little tiny towns we went into in the early days.

57:05 It turned out Та ферст бій лесін ми лен. was that there was much Much more business out there in small town America than anybody, including me. Had everyone.

57:16 Dream of constraints are your friend. Michael Dell, we experimented and improvised our way to success. So I wanna read you Michael Dell's explanation. of he he beautiful in this interview that he gave, he beautifully summarizes

57:31 why this was so fundamental their to their success. The idea that constraints are your friends. And he's really describing like why the the series of advantages that he he discovered. He you know, he improvised and experimented his way to success. He says something interesting occurred with the personal computer. There was always new technology and the cost of the material was always coming down. And so if one company has ninety days of collective inventory in its various stages, going from the manufacturer to the ultimate customer. So he's talking about his competitors. His competitors

58:00 We're selling indirect through retail. He was the only one selling direct. So it says a and so if one company has ninety days of collective inventory in its various stages, going from manufacturer to the ultimate customer. And another company has five days of inventory between the manufacturer and the customer, which is his setup, right? And the material costs are coming down.

58:18 Well, there's only one company that's going to win. Because that company has a structural Cost advantage. And that is what we had.

58:27 That also he's stacking One advantage on top of another. This business model. Also had a way better return on capital. Because we didn't have to have all the capital employed there in excess inventory, right?

58:41 The way we came about this is because we didn't have any capital. So we had to invent something. That was way more efficient. This direct to the customer model. Also gave us incredible fidelity in the signal of the demand. If somebody walks into a store

58:54 You would have had to have guessed what they were going to buy before they walked in. But if somebody calls us on the phone We know exactly what they want because they're telling us. And that signal. can go back to our supplier in a nano second.

59:08 And so you get this very efficient supply chain. That's also very efficient. in its capital return. And what is even more remarkable is his competitors look down upon him. Wait till you hear this.

59:18 says IBM and Compaq failed to notice us. To them we were just a mail order company. In fact, in this book, I'm gonna pick up the book in the company of Giants real quick. I'm gonna read this f this uh interview. What he said about this in in ninety seven. And he talks about the fact that Uh, they have underestimated he's talking about his competitors, they have underestimated the business model and continue to do so even to this day.

59:38 A lot of people just totally misunderstood what we were doing. I remember Rod Canyon, the founder of Compact, telling PC magazine that he didn't compete with so called garage shop operations. It's a wonderful quote. I love There you go. You see a little competitive drive in Michael Dow.

59:56 Yeah, you know, this quote that that I'm reading is almost thirty years old. He's like, Oh, it's a great it's a wonderful quote. I love that you call me a garage shop. operation. He continues. Being this is such good advice. Being detached from the customer is the ultimate death. And a lot of these guys, they think their customer is the dealer. Which is still amazing to me.

1:00:14 Again. Hey, your little garage shop. you know, operation, we don't actually compete with you, we don't actually care. Being being underestimated by IBM and Compaq was a wonderful And powerful

1:00:26 motivating force on the face of this is kinda what I was getting at, what I was hinting at. When I brought up when the Wright broth came to mind. On the face of it, it made no sense. Here I was, twenty years old. A college dropout.

1:00:39 with a capital base of a thousand dollars saying Hey, who wants to come work in this company? We're in a Okay. We're in a

1:00:47 B minus C plus industrial park. Not in the nicest part of Austin. Where the rents were low. I was working sixteen hour days. I had a bed in the back of my office so I could grab a little sleep on the nights I was working not stop. And again it says

1:01:03 You know on the face of this. It made no sense. But what I jotted down on the margin was Those other companies don't have a Michael Dell. There's a great line that I that I

1:01:13 firmly believe in I think if you use it as a metaphor, use it as a distraction, it's really powerful. It's from Napoleon. Napoleon said. In war men are nothing. One man is everything. So his business is succeeding while he is being underestimated.

1:01:27 And then something really important happens'cause remember, he damages the relationship with his father and mother temporarily. His grandfather was a successful entrepreneur. And He comes down and he visits Michael. And he says I proudly showed him

1:01:39 The controlled chaos that was our headquarters. He started laughing and laughing and laughing. What is it, Poppy? I asked. Michael, he said. You're a businessman. It was the highest praise he could have given me. Words of encouragement really, really matter. Uh I like

1:01:55 A young Henry Ford, okay? Henry Ford built the most successful Uh American Automobile Company. People forget that he his first two c auto companies failed.

1:02:06 And so a young Henry Ford idoliz an older Thomas Edison. before he knew Thomas Edison at the time Thomas Edison's probably the most famous person in America, right? Most famous inventor in the world. Young Henry Ford meets him. Tells Thomas Edison about this idea.

1:02:21 I'm gonna mass produce the car. for the car for the every man and I'm gonna do it with an internal combustion engine. Which was everybody was like the the the the gas engine has no future. Everybody knows the cars are gonna be electric or steam, so'cause most of the cars manufactured at the time were not manufactured, they were handmade at the time.

1:02:36 Where steam. Either steam powered or electric powered. But So he tells He meets Edison.

1:02:42 And I think Henry Ford's probably late twenties this time, maybe might be thirty years old by the time. And tells Thomas Edison. Words of encouragement matter. He talks about this over and over again.

1:02:53 And'cause Edison says to him, Young man, he Edison got his idea immediately. Young man. That's the thing. You have at it. keep at it. And so Ford would talk about

1:03:03 You know, he had a lot of Mistakes and trials and tribulations from the time Edison said that to the time he was successful, but he would think back on those words of encouragement. He would push him. Yeah, it it would motivate him and push him. And so like I you know, I the reason I started the podcast talking about the fact that I I cannot believe I got this this incredible DM from one of His greatest entrepreneurs saying like hey, you're good at this. So again, words of encouragement matter.

1:03:23 I try to do this t as much as I can to all the people around me'cause I just see this over and over again. I just love the idea. It's like you know It's going to hell. I don't think Michael Dell's gonna stop no matter what. But just to have your grandfather, somebody you love and trust and admire and respect. To say you're doing it.

1:03:37 You're you're doing it. It's the highest praise he could have. Give'em me. There's another idea on this on this this page I think it's important to point out for you and I. It's something that remember the Jensen Wong episode I just did, it's episode three seventy six. He has this idea ship the whole cow. Jensen was obsessed with the book Innovator's Dilemma and he realized that the threat comes from below.

1:03:56 And so his his way to offset that was he had this idea of ship the whole cow, I talk about it more in that episode. But we're starting to see that the threat is gonna come from below with Michael Dell. w in relation to compact and then IBM because he says we were undercutting them on price. Way undercutting them. We introduced our first brand name computer. So now he's not just souping up other machines, he's making his own. Okay.

1:04:18 It was seven hundred and ninety five dollars. If you got the same configuration from IBM, you would have to pay between fifteen hundred and twenty five hundred dollars. So then we see his total dedication to this idea. Hey, we're gonna cut out the middle man, right? It's how he started his business. We're gonna go to the source. In fact, let me read something from you. Uh to you rather. In direct from Dell.

1:04:40 Which is you know, published twenty years before the book that I'm holding my hand. He says since an early age I've been fascinated with the idea of eliminating unnecessary steps. So I guess it's not surprising that I started a company based on eliminating the middleman. He keeps pushing that advantage. He's just obsessed with then eliminating unnecessary steps from uh from a very young age. So he says we uh to keep growing quickly, we need to establish direct relationships with the suppliers of all of our principal components. I knew the supply chains for the parts we were ordering were full of markups.

1:05:07 that I could radically reduce if I went straight to the source. I wanted to go to the factories where these things were made. To Taiwan. Japan. Korea and Hong Kong.

1:05:16 So I got on a plane. And flew out there. I was twenty years old. Full of energy.

1:05:23 And curiosity. I was excited. My God. I was excited.

1:05:30 There was a whole new world out there. Just waiting for me This is Again, it I it it's very obvious if you study no one could start a business at eighteen, still work on it, you know, f four decades later. And you know, refusing to quit.

1:05:44 Refusing to s he just R refusing to stop. Like what are what are you gonna do? You retire? What there's the entrepreneurship is the best game in the world. And so it's obvious from um But

1:05:55 I loved my conversation that I had with Michael Son Zach. And w one of the main themes there. I think is super important and and something that that motivating to me is just like He just has a love of the game. He just loves the game. He loves business. He loves talking about it. He loves

1:06:10 Computers He loves working on difficult problems. It's the love of the game. And I think there's a line where Kobe Bryant was you know, Coby Bryant studied all kinds of top performers and and greats in, you know, art and business and sports. And he's like the one thing that we have in common is it's like Love.

1:06:26 And it's a pure love. It's not a love for the the awards For the money. For the adulation. It's a love of the act.

1:06:34 the activity of itself. And you see that it's just like I was excited, my God. I was excited. And so When I got to the section, it's one of my m my favorite sentences of the entire book. My God, I was excited.

1:06:47 Made me think of Phil Knights. You know, Phil Knight is I think it's his eighties by now. Maybe late eighties. And he when he writes that autobiography At the very end he talks about this and he says

1:06:59 My secret regret is that I can't do it all over again. God. How I wish I could relive the whole Thing.

1:07:08 It's such a powerful moment in the book. There's something he also says that uh the advice of future generations of entrepreneurs that I that that Phil Knight gave and I've heard a couple of people Give us a second. You're in we're in this right now. You and I are in this Right now.

1:07:22 Right down. the experiences you're having, write down what you're thinking, take pictures. Phil Knight's like the one thing I wish he's like we had so many conversations about the company we were building and he says something like They they disappeared. Uh in time, you know, they just like

1:07:35 Disappeared. Like I I they were ephemeral. And he's like, God, how I wish I kept a journal. I wrote more of this down, I documented more of it because we're we're we're in this right now and we're gonna feel Exactly. I can just imagine Michael sitting there

1:07:48 Writing that. Line. Might. God. I was excited.

1:07:52 Just the way Phil Knight saying, you know, my secret regret is that I can't do it all over again. God, how I wish I could relive the whole thing. That's a life Well spent. It's not regret. The regret is I wish I could do it again.

1:08:05 Where so many people I think the vast majority of humans have ever lived. get to the end of their lives with with the opposite feeling. With man, I I wasted this. I I m it's just so such an important again, I I'm just like super hyped up that that we we we just have there's just this thing.

1:08:20 With entrepreneurs. They're willing to share because they understand that there's another them. That's just like me. That is gonna go through the same exact stuff I went through and just writing it down and passing on to the next generation is just like one of the best things you could do. Think about you know I say this a lot, sorry, repeat myself. Sam Walton.

1:08:36 Sam Walton. Knew he was dying. He was in pain, he talked about it, cancer all over his body. Knows the end is near. And yet spending

1:08:45 Some of his Very, very limited. Time left on earth. Writing. his autobiography and documenting.

1:08:51 Everything he learned. It's an incredible act of service. Alright, so he says uh discovering the inner workings of how the supply chain worked was like peeling an onion and going all the way to the center. Ever since I was thirteen, I'd been taking computers apart and examining the pieces inside. Now I was actually visiting the plants where these things were being made. By the time I flew back home. I felt like I jumped ahead several levels in the game.

1:09:13 No. They're gonna have this idea where they're gonna build their first this this is really important. It was the first two eighty six Based P C He needs a really talented person. They can build an Intel based two eighty six microprocessor that's compatible with an IBM PC.

1:09:29 Now he's gonna tell a story here, but I I wanna talk about the the lesson I think is behind it. this idea that you hire for spikes David Ogreby noticed half a century ago that talent is likely to be found around uh among nonconformist dissenters and rebels. And what happens is the corpor corporation grows, they kinda like even it out. They want like the the the middle and they miss all the the the spikes of talent. I'm gonna read this to you and then I'm gonna tell you a story that I think is absolutely fascinating. So he finds this guy named Jay Bell.

1:09:59 says the better I got to know Jay, the stranger I found him. I think he might have been manic depressive. He would get these huge bursts of energy and work for thirty six or forty eight or seventy two hours straight. And then you'd crash daytime or nighttime. meant nothing to him. So he is going to be the one that builds this prototype and it's gonna be a a a massive success.

1:10:17 And so I heard this story and I I've heard this from a few founders, but there there is a story that I found incredibly fascinating. And it's on An app. That is one of the most successful consumer apps of all time. You have highly likely used this app.

1:10:32 The story was There was a world class designer, maybe the best designer that they could have found in the world at the time. Also either manic depressive or schizophrenic. But definitely alcoholic.

1:10:46 But he was so gifted. That the founder realized that the only way he could get this designer to work is he'd have to sit down next to him. While he works. And if the founder got up and went to a meeting with us, the guy would disappear, he'd fly out to the wind.

1:11:02 Sounds like J Bell. There's there's stories in this book where this guy's like the cops are coming to the o to the office because He's tripping out alarms and it just happened to be because Jay decided he just wanted to go to work at three in the morning. And he'd have you know go for forty two shenty two hours straight. So everybody around this founder was saying like this this is a bad use of your time, like the CO just has to sit there and babysit them. And the founder knew that, you know, talent wins.

1:11:24 Talent always wins. And so he's like, No, it's actually a great use of my time. Because this guy's gonna design, you know, every single pixel that In the future, hundreds of millions of people are going to see. And so it's actually a really good use of time. Now he also understood that What's the the chance that this guy's working at the company five, ten years from now? Zero.

1:11:39 Zero. But I'm able to get an immense amount of talent out of him. And so if I just sit next to him, and that's what happened, like actually sat next to him. and completed the and completed the job. And then of course when that stopped happening, the guy like disappear and like flew to the wind. They try to help him as much as possible, but

1:11:54 you know, some of the best talent is very spiky. Let me go back to Nolan Bush now, who I mentioned earlier. You know, he knew Steve Jobs and Wozniak were really talented. uh they had two things. He's like I Steve's like I'll work at Atari but I have to sleep in the office. And everybody around Nolan told him, No, you can't let this guy sleep here. He's like, No, I think that like They're talented. And so we he we just realize like oh this guy's spiky.

1:12:15 And he smelled really bad'cause he he when we're deodorant and stuff when he was younger. I'm gonna make an exception and I let the two Steves sleep at the office. So again this wind up working out really well because J the uh thing that J Bell created, says the circuit board became the basis of the two eighty six computer that we introduced in March nineteen eighty six, which was an instant Hit. So again.

1:12:35 I think a big corporations like J You're kinda crazy, what's going on? Startups, founders like no, this guy's talented. Like we're going to, you know, make exceptions here. We're gonna we're just gonna deal with We have to take the good with the bad. Uh Steve has this great line again. Steve just has this great line where it's like people are package chills. You have to take the good with the bad. You can't isolate them.

1:12:52 And so as crazy as seems, our hot little company was also in big trouble. Though our sales were booming, our finances weren't. Almost all the revenue that came in. Went right into payroll and parts. Our bank credit was stretched very thin. In reality, far thinner. Then I knew. This is how Michael Dell and Dell saw this problem. I owned a hundred percent of the stock of the company. There were no other founders, there's no venture capitalists or no other board of directors. I needed somebody with the kind of experience running a company that I didn't have. So he meets this guy, he's very successful businessman.

1:13:20 Sometimes he's described as an entrepreneur, sometimes he's described as a venture capitalist. His name's Lee Walker. He is Forty five, I think, at this time that Michael is twenty one. So he's gonna recruit Lee Walker to be present. This is this is very important as a turning point for the entire company. So at the time Michael meets Lee, Lee was trying to take it easy. He's like, you know, had a very stressful, high strung career, very successful. They went a meeting.

1:13:40 Uh, they have dinner with a uh a few other people and then a day or two later Michael just shows up, pops up at his house, decides to have a conversation with him and then says, Hey, would you like to be president of my company? And this is one of the reasons why. Lee was the first person I'd ever encountered who could understand the business, really understand it. He got it. He instantly grasped our supply chain advantages and disadvantages. He grasped our entire business model. So I was very curious.

1:14:05 It's like whatever happened to Lee. And so I found this interview with him. Lee is now in this interview is eighty three years old. Okay. And I'm just gonna pull out Uh a few

1:14:14 Uh he's asked question, did you think that Dell the company would ever get to be forty years old when you first talk to Michael. This is really important because on the Ken Griffin episode, if you remember, he's talking about that book Hardball. that you are you planning to play or you're planning to win?

1:14:28 And Ken's Thing is, like no, you you're not you you want to win by a landslide. You wanna take what you're doing very seriously. And he talk he was talking about one of the entrepreneurs Ken was talking about one of the entrepreneurs he had mired was Michael was manufacturing Computers in America.

1:14:41 And he won. You know how hard that is? And so now we have Lee Walker, first president of Dell. And he's asked.

1:14:49 You know, now he's let's see, he's forty five when he starts and then he leaves the company at forty nine. So this is you know Thirty years later. Did you think that Dell the company would get to be forty years old when you first talked to Michael? He goes, one doesn't think in those terms. It's not that I didn't think it wouldn't.

1:15:02 The perishability he's again speaking to how difficult it is what Michael achieved. The perishability of companies is so extreme that That if you would bet on any company being around forty years. Especially one in as difficult and competitive an area as the P C That would have been a very foolish bet.

1:15:19 What Michael has accomplished is amazing. Just absolutely amazing. And so Michael talks in the book. I asked Lee to come on, he said no.

1:15:29 And so on the follow up in this interview, it's like well what made you change your mind? And he says, Michael was twenty one at the time, I was forty four. Michael was the son of I never had. So I think there was a paternal insh instincts that came out. I think that's part of it.

1:15:42 I think part of it is also it was a damn fine puzzle. It looked like to many of us The emergence of the automobile industry. This is very fascinating because you know I've I've done like a 13 part series on all the automobile founders. And what you learn about the American automobile f industry is that I think they started there was two thousand car startups and three survived.

1:16:01 So I I didn't even draw that analogy like lead it and I think it's pretty pretty apt. Uh, there'd be hundreds of companies in the beginning. And just maybe several that would emerge. It was just an interesting puzzle as far as who might emerge out of the pack and what it takes. He says, I just love puzzles. And this was a particularly difficult puzzle because Michael had a thousand dollars in capital. There were no resources. It had to be through ingenuity and hard work.

1:16:23 We were up against IBM. And compact. The competition was immense in size. They were sophisticated. And they had tremendous resources. We had two board of directors, Michael and M.

1:16:35 And so one other thing I just want to pull out of this. the most important idea at the beginning of the company was the w the idea that was born out of necessity. So he says the one idea we had, and it was born out of necessity. You know constraints breed imagination. Since we are constrained by finance, We would start building a customer's computer after the order. The constraint of building them to order one at a time.

1:16:55 Turned out to be brilliant. Because we created a system where we were mass producing one at a time. Which sounds like a contradiction in terms. Well when the large corporation corporations came to visit us, they were stunned at how sophisticated we were in terms of our ability to mass produce. Not just generically.

1:17:12 Each computer had an identity. It had a destination. It had a customer. I think in the spirit of your question. The direct thing was key.

1:17:22 So back to this book. Lee Walker changed his mind, and to this day I don't fully understand why in his shy and modest way, He'll mumble something about having once been in the same spot himself. Because I started with a company with only a thousand dollars of invested capital, as contrasted with the only almost a hundred million that compact. our rival had raised from their investors. I had to figure out how to stretch the limited capital we had to the max, and I got pretty good at it. So what he's talking about,

1:17:45 And this is been studied in business schools over and over again, is the fact that Dell had a negative Cash conversion. Cycle Dell receives payment from their customers before they have to pay suppliers. Now here's the problem. When you start selling to enterprises and to governments and to large organizations

1:18:00 You have to extend credit. Dell didn't have any money in their bank account. I I forgot. I can't remember the number, but I think they were doing like I don't know, sixty million a year in sales or some crazy number like that, and they had like

1:18:10 like two hundred grand in in their bank account at one time. It it's just a wild it was a wild, like jaw dropping number. So he says credit card sales, paying suppliers on terms, stripping stripping parts inventory to the bone. All these things kept our cash. conversion conversion cycle. far lower than most other companies. This was very good. On the other hand, our fastest growth was selling to companies, government agencies, and education and medical institutions, entities that were not going to pay us with credit cards. We needed

1:18:36 to extend the terms, which meant we needed more credit, a lot of it. His bank at the time. would only finance about six days of sales. You can't survive on that.

1:18:47 Money was sorely needed and Lee Walker knew how to get it. From the day he walked in the door, we shifted into a brand new gear. Again, this is why The reoccurring theme. When you read these biographies, they keep talking about hey, you really need to work with the best people you can, that you can never ever forget the dynamic range of people. Lee becomes the president and he says he worked quickly to establish his value, bringing his expertise and his business connections to bear.

1:19:08 Lee had recently helped usher a failed computer company through chapter eleven, making sure that the company's financial backer, Texas Commerce Bank. Got back every penny. The president of T C B And a friend of Lee's was so grateful, he happily extended a new line of credit.

1:19:25 To Dell. Lee Walker could go to people like Frank Phillips at Te Texas Commerce Bank and say, Look Texaco, Exxon, Cento, all these companies companies, not to mention the US government, they all owe this company money. Give us a loan based on all these receivables. And the bankers would say

1:19:41 Okay, Lee. We don't know about the kid, but we trust you. So eventually Michael and Lee figure out, hey, we need to take the company public. It's a natural progression and it's gonna g be the only way to access the kind of capital we need. And it says when they were talking these discussions, right about this time, the investment banks start to call.

1:19:57 So they eventually select Goldman to do their IPO. Goldman says we shouldn't go public just yet. They recommended a private placement, twenty to thirty shareholders among financial institutions. high net worth individuals and various funds. Then came Black Monday, October nineteenth, nineteen eighty seven. The stock market lost twenty three percent of its value in a single day. When Lee came into my office to give me the bad news, he was convinced our private placement had gone kaput. I was busy at one of my favorite pastimes, taking apart a competitor's computer to see how it stacked up against ours. That is why you win. Here's a funny thing.

1:20:31 That that sort of reminded me of What Sam Walton was doing on Black Friday. This is the level of commitment and you know, just focus the my business that I w I would want Sam Walton gets i asked a question by a reporter on Black Friday, you know,'cause at the time I think he was worth I don't know, like six billion dollars or something on paper. And his net worth, you know, dropped by over a billion. And he was asked like how do you feel that you've lost over a billion dollars today? And Sam goes, I hadn't heard of it.

1:20:55 Did you see a young Michael Dell doing the same thing. It's like I can't control the stock market, but I'm gonna do what I do best, which is take apart a computer and see how we can improve. As it turned out, out of literally hundreds of financings that were in the process that Black Monday, ours was a sole survivor. There was no one else quite like us. And because you just couldn't argue with the underlying financials, if you got something that's growing a hundred percent a year, that's at least telling you that people like it. At the time they're doing business as PCs limited.

1:21:21 At first he's like really leary. Uh Naming the company after himself. The way I think about it is like some of the people I most admire are some of the businesses I and the business I most admire like they're named after the person. And I think there's something to that. Like James Dyson, Bloomberg.

1:21:35 Dell. It's almost like a way of burning the boats, right? You you can't get another I guess you could get a new l new last name, but you're not going to. So he's like, Well, what if we went under like so many other computer companies in the mid to late eighties? then Dell could have this negative connotation. And so he says, I kept thinking about a a tech entrepreneur named Adam Osborne. who in the early eighties had come up

1:21:53 with a portable computer called the Osborne one. The machine was very popular for a while until he announced the imminent release of an upgraded model. The problem was That the internet release of the upgraded model. Wasn't imminent enough. In anticipation.

1:22:06 Of the new computer, people immediately stop buying the Osborne one. And revenue stopped flowing. With no new product in the pipeline and a lot of suppliers to pay. Mr Osborne went bankrupt. Business writers dub the fiasco.

1:22:20 The Osborn effect. That is not the way that you want to be remembered. So I have a funny Adam Osbourne story that comes from this book that was written a long time ago. It's written by Michael Moritz on like the first the history of the first like six years of Apple when the book ends. Steve is still at Apple the first time.

1:22:36 And Steve Jobs is quoted in that book. with uh his own Adam Osbourne story. 'S Adam Osbourne is always dumping on Apple. He was going on and on about Lisa and when we would ship Lisa and then he started joking about the map.

1:22:49 I was trying to keep my cool and be polite, but he kept asking. What's this Mac we're hearing about? Is it real? He started getting under my collar so much that I told him Adam It's so good. That even after it puts your company out of business.

1:23:01 You'll still want to go out and buy it for your kids. And so let's go back to this idea where he was asked like how many hours are you working? He says all of them We're still human. still everybody has a desire for relationships and you know, not it can't just be all work all the time. I've been happily working sixteen hours a day, eating in the office, sleeping at the office. My work was my life. I had an enormous desire to succeed. But I was human.

1:23:21 And I knew something was missing from my life. A salesman of one of our chip suppliers said, Hey, my dad said You should meet this girl, Susan Lieberman. So he winds up Meeting Susan. They get married. Susan plays a major part in his life, in his company. He's she's his

1:23:37 Biggest confidant. They're still married to this day. They have four kids that love both their parents and talk about the fact that They have such a great relationship and they built a model for a happy marriage for their kids. And Michael tells a story about their first date and he says thirty plus years later, we're still walking and talking. So

1:23:54 Dell files to go public. They've been in business for four years, from founding to pub being public in four years. At the IPO, I think Michael owned seventy over seventy three around seventy three percent of Dell when it went public. In nineteen eighty eight. Now

1:24:10 Got to the part about IBM that I referenced earlier. So a mistake that they're do that they do, I think it's part of human nature, part of, you know, you see this reappearing in a bun a bunch of large c companies or established companies. They just couldn't imagine a future different from the world that they succeeded in. There's a guy named Glenn Henry, who was an IBM fellow. Yeah, it was a distinction of the highest order at one of America's most distinguished companies, okay? Glenn Henry

1:24:34 lives in Michael Dell's neighborhood and just read about his IPO. And he goes to Joe and says hey, I wanna work for you. And so he says offering the jump ship and work for me was a big deal. He had been at IBM for over twenty years.

1:24:47 As Glenn described it to me, IBM management looked down their noses at the PC. They thought the PC would make a great terminal to a mainframe. Period. Glenn, on the other hand, saw the personal computer as a game changer.

1:25:00 At the time there were maybe a couple of million PCs in the world. He saw that number growing to billions. As did I so This is a there's a couple of things to jump out here. So Think about when this is happening.

1:25:13 And I went and looked up market cap. So in nineteen eighty seven, IBM's market cap was a hundred billion dollars. It was the first company. to break the hundred billion dollar market cap threshold, which was surprising to me. I didn't know that. And it was the most valuable company in the world. The most valuable company in the world. was getting it wrong. They could not imagine a future different from the world that they succeeded in. And this is why there's always opportunity.

1:25:36 And there will always continue to be opportunity because a business is just an idea that makes someone else's life better. And there's infinite ways to make somebody else's life better. Then he talks about taking on compact. Play nice but win, especially versus compac. They started out a couple of years before us with a vent with much more venture capital. They had super smart engineers, powerful R D, and a special partnership with Intel. Every advanced

1:25:58 In microprocessors where Intel enjoyed a monopoly When to compact first. Yet compact had no price advantage. Their operating costs were thirty six percent of revenue. As contrasted with our lean and mean eighteen percent.

1:26:12 They sold through retail stores only. We knew we could beat them on price. And with our build to order model on flexibility. We were the cheeky outsiders. With the killer business model.

1:26:23 So they started running ads about this. And they reflect it. has like a David versus Goliath theme. Advertising was crucial to us. I knew from personal experience how much attention tech people paid.

1:26:35 to the ads in PC magazine and PC World because he was one of them, right? So then they says w hiring a world class ad agency would be expensive, but Lee and I deemed the expense to be worth it. And it was. We more than doubled our advertising budget when we signed with Shiot Day, which is the also the firm that Steve Jobs used for Apple. The results were very much worth it.

1:26:56 We went from sixty nine million In eighty seven. to one hundred and fifty nine million eighty eight. And then two hundred and fifty seven milyen in nineteen eighty nine. Competitive.

1:27:07 Lean. aggressive underdog that wants to win. That is where we are in the story of Dell. The next section. The founder is the guardian of the company Soul. It is an extension of who they are as a person. You know, there's a great line where it says Apple was just Steve Jobs with ten thousand

1:27:22 Lives. I used to describe that as it's the importance of building a business that's authentic to you. Michael gave me a better way to describe this. You build a business that's natural to you. So it says uh in nineteen ninety Inc magazine named me its very first entrepreneur of the year. Lee Walker said some very nice things about me in the company piece.

1:27:38 This is so important. What Michael Dell does, he said, is so natural to him. And flow so spontaneously from him. He has so clear a vision of where he is headed. And that he can rise above the background noise and avoid the pitfalls that typically take entrepreneurs down. Lee was also being modest.

1:27:54 He was responsible for getting us past any number of pitfalls. But as winter turned to spring. He told me it was time for him to go. Being president of Dell Computer had been a five to nine job, he later wrote. Michael Doggets

1:28:07 Energy from this. Like look what he said. It's so natural to him. It flows so spontaneously from him. Where the same exact business broke Lee down. And so this is where you talked about it. It required hard personnel decisions, financial attention

1:28:20 trade offs, strategic direction, country by country implementation, and endless domestic tactical operational issues. I had forgotten that I hadn't wanted to do this in the first place. I got caught up in the richness of a multi dimensional puzzle. got swept up in the competitive fray of defeating IBM and Compact. I forgot that once upon a time great clumps of my hair fell out And my back ached terribly.

1:28:43 when I was starting my own business. Michael and I were such different personalities. He was one of those business people who thrived on the stress of international high tech competition. I was not. That impossibly complicated arena gave him energy. It is natural to him. It had beaten me down to the point.

1:29:03 That I wasn't physically or emotionally strong enough to continue. And part of this has to do with the fact that it's not business for founders. It's always personal. And this little anecdote of another run in with Car Arcon. After Dell beats him, he says, Icon really did call. Michael, it's a hard fight, but you won fair and square, he said.

1:29:21 Conveniently forgetting all the times he insulted my leadership. And by extension, me personally accusing me In the most public way possible. Of sheer incompetence. Not to mention all kinds of corporate finagling and malfeasance.

1:29:34 What I was really thinking was you came after this company. The thing that means more to me than anything in the world except my family. And you lost pal. I sincerely hoped to never see or hear from him again. Back to the importance of self belief, back to the importance of making no small plans. In nineteen ninety one, we entered the Fortune five hundred

1:29:53 hundred at number four ninety with sales of five hundred and forty six million dollars. A very proud moment for me. We'd been in business and for just seven years. I was twenty six. Years old. Could I imagine such a thing as a kid

1:30:07 Perusing Copies of Fortune magazine. Okay. I'll admit it. That I could have.

1:30:13 I always did dream big. But I didn't even think. My ambitious younger self could foresee the threshold. Where we stood. Our sales for the year that ended nineteen ninety two.

1:30:23 hit eight hundred and ninety million dollars. The fabled billion dollar barrier seemed reachable. And breachable. And then he mentions again something that I've seen over and over again, founders need a supportive spouse or no spouse at all, is the way I put this. His wife was supporter from day one.

1:30:41 Nineteen ninety three was our ninth anniversary as a company. Susan and I had been married for just two and a half of those nine years. She understood my laser focus on the company. My frequent distraction if you want to win an Olympic gold. You have to be fanatical. It's interesting he used the word fanatical a few

1:30:59 Weeks ago when I did the Todd Graves uh Raising Keynes episode. Todd said, Nothing ever happens unless someone pursues a vision fanatically. And then I think another important reason to to pick up the book and and read the whole thing. It's because he talks about like when you're scaling like this. It's not the same thing.

1:31:18 And it's just you have to constantly be going and and redoing all of your systems, all the different people. And so he says we breached the fabled billion dollar barrier. We posted sales of not one billion, but two billion dollars. The systems and tools required to run a billion dollar company are very different. From those needed to run a hundred million dollar company. We were outgrowing everything, our abilities, our systems, our people, and our capital. Structure.

1:31:40 Our rapid expansion had meant lots of new hiring in every department. In five years, they went from six hundred and fifty people to five thousand. I was just beginning to realize that the people who got us from point A to point B might not be the same people who can get us from point B to point C. So I was thinking about this. When I got to this part,'cause everything's falling apart. Again, from the outside look wildly successful. In the Fortune five hundred, you're entrepreneur of the year inside, you know, everything's breaking. My friend Brent Breeshor has this permanent capital holding company and he buys a ton of he he sees a lot of different businesses and he's got a great quote on this. So

1:32:12 For every like one acquisition that Brent does, he he looks at something like fifteen thousand companies. It's like it's an insane number. And I text him about this. Like, dude don't don't you have like this great uh quote about like all companies being held together by uh duct tape or something. He says all businesses are loosely functioning disasters. Some just happen to make money. Yeah.

1:32:33 If you're reading it's like I think back to the early days of Dell when he's got or orders on clotheslines going through cubicles. Now you know he's hired He's what almost 10X his people in like five years, everything's breaking. And then listen to the story, just hilarious. So we hired a senior VP of human resources. We're gonna call him Ted, right? And so one of his vi other vice presidents coming comes to Michael one day and he goes, Oh, dude, we got a big problem. We have to sit down for this one. And the guy goes, We have a problem with Ted.

1:33:01 Ted has hired somebody on the second shift in IT. And Michael's like okay, so what's the problem? He goes, Well, we don't have a second shift in IT. And Michael Rose, have you asked them about it? He goes, It's a little more complicated than that.

1:33:12 She's a stripper. It turned out that Ted who was married and had kids, had given a no show job to his girlfriend, the stripper, and the girlfriend decided she wanted more money. So she came to the company and said she needed a good chunk of change to go away. Needless to say, it was Ted who went away. And then there's just an excellent, excellent line in the book.

1:33:31 says many people don't reach their greatest potential because they fear failure. In avoiding failure. They deprive themselves of a great Teacher. And so in nineteen ninety three, Dell pushes, he's like, Hey, we we gotta get into servers. This is an existential threat to our company. This is gonna remind me a lot of like Ken Griffin's hardball strategy.

1:33:48 It's discussing that book hardball as well. So he says in nineteen eighty three I gave a presentation on why we needed to go into the server business in a big way. And then why and if we didn't It could be real trouble. One of the most striking things about the server market was how profitable it was. margins much, much higher than those on PCs. Compaq was offsetting the small profits

1:34:05 It made from selling its PCs. with the rich profits its server business brought in. We calculated that if Compaq was left alone in the server sector. They would have so much profit that they could use it to attack the PC market. and put us out of business. Another thing that he got to really, really early and really, really fast. Yeah, so.

1:34:24 We're gonna set up our own website and then sell Uh over the internet. And again. I think one of the main themes when you study Michael Dell is like it it makes sense to me. If it makes sense to me, it doesn't matter that other people aren't doing it. He's very comfortable trusting his own judgment.

1:34:36 So he says in nineteen ninety four, there were just twenty seven hundred websites in the world. And one of them was Dell dot com. At the beginning, customers were unaccustomed to buying this way. They were leery about putting their credit card numbers out there. Our website began selling PCs and notebooks in June nineteen ninety six.

1:34:55 At the end of that year. Online sales reach a million dollars a day. By the end of nineteen ninety six it seemed as just the sky was the limit. So Wanna go to ninety seven. There is a section I think that's really important because he's talking about uh you know, obviously he admired C jobs. They tried to work on a few things together, they couldn't uh get it to work out.

1:35:15 But there's something in this well, let me just read what Dell says first before I I pull up this quote from Andy Grove. And Dell says, it's hard to imagine today. He's describing what was taking place in in ninety seven. It's hard to imagine today. But back then, 10 years before the iPhone. Apple really was an underdog. They were truly fighting for its life. It was rare to see any mention of the company that didn't begin with the phrase. Like trouble plagued or close.

1:35:39 So there's an excellent quote. Again. Highly recommend you buy both this book. And this fantastic book that I'm holding my hand right now called in the company of giants. It's interviews with Two Stanford MBA students from in the n late nineties interview like sixteen tech company founders.

1:35:56 And Michael Dell's in the book, Steve Jobs is in the book, Bill Gates, Bill Hewlett. Andy Grove. It's just absolutely, absolutely excellent. And I wanna pull out one thing that Andy Grove said,'cause at this time he was thought to be, you know, the best Maybe the best tech CEO of all time. And he says the important thing to realize is that a lot of major business decisions

1:36:14 are not that obvious. In retrospect they might be, but not when you're looking forward. Remember, he is writing he is being interviewed in ninety seven. If you read the newspapers about Apple What they're going through is very similar. Nothing is obvious about Apple. Other than the fact that they're in trouble. That's very obvious.

1:36:30 But what to do about it is not obvious. If you lined up three or four of the people in your book and gave them a blank sheet of paper that said, If I were CEO of Apple, I would blank. Each would have a different answer. This is again I think is so important to read from history, especially like period pieces where you could see what their opinion was at the time. Very interesting. All right, we kept winning later that same month in October nineteen ninety seven.

1:36:55 Sales of our servers, PCs, notebooks, and peripherals. kept going ever upward. With over twelve billion in sales, we surpassed IBM and Apple to become the second biggest PC company in the world. Only compact now stood above us. And we had them in our sights.

1:37:11 Our sales climbed to eighteen billion in nineteen ninety nine and twenty five billion in two thousand, and then of course then you're going to have the dot com bubble. January third, two thousand, our stock price was fifty dollars. On the last trading day of that year, it was seventeen dollars. Our earnings fell short of Wall Street and internal expectations for five consecutive quarters. And in two thousand one we had to do our first round of layoffs ever.

1:37:35 Letting up go about fifty seven hundred people in total. But they were very, very hard to kill and had to do with that business model. Yet the truth is the dot com bust hit us less hard than it did other companies. To a great degree, our lean and fast business model and our relative independence from traditional sales channels insulated us from the troubles that befell our bigger slower moving competitors. Our revenues fell only by two percent.

1:38:00 In two thousand two. But our market share grew. And when I got to this section I had a funny thought. I was like, Oh, Charlie Munger would be proud of Michael Dell in poor Charlie's Dominic. Charlie's kids were interviewed and they said that durability was a first rate virtue in their father's eyes. And he has this great line about this. This comes from the book Damn Right, which was a biography.

1:38:19 of Charlie Munger. It says Munger expressed this conviction clearly stating it's a crime in America to build a weak bridge. How much nobler is it to build a weak company? In Munger's view, corporations should be designed with the same engineering principles as physical infrastructure. built with redundancies and back up systems to withstand Extreme

1:38:39 Stresses. That's exactly what Michael Dell just described to you and I. He built a company. that had redundancies and backup systems and a business model. That was lean. That was able to withstand extreme stresses.

1:38:52 So that was the first sixteen or seventeen years of the company. I wanna talk a little bit about Taking the company private and again accomplishing things that no one else had accomplished accomplished before Mike Go Dell. It's really fascinating. Before I get there I always said that if you love what you do, your actu extra strategy should be death.

1:39:06 Michael takes it to a different level. So Says why didn't you just walk away? It was a question more than one person asked me. after the battles of two thousand twelve and two thousand thirteen. Why not simply leave behind all the headaches Of trying to buy back your own company.

1:39:19 I could afford to walk off into the sunset or start another company, build a new legacy. A reporter asked me the question soon after we went private. And I gave her a simple answer. One that came straight from the heart. I didn't want another company.

1:39:31 This was the one with my name on it. I will care about this company after I'm dead. I love this stuff. It's fun for me. So yeah, you're actually One thing to say your extra strategy is death.

1:39:43 Another level to say I'm gonna care about this after I'm dead. So Dell is going to complete the largest technology buyout ever. They take the company private in two thousand thirteen. twenty four point four billion dollars. I it's it's i even hard to comprehend what happens next, just two years later.

1:40:00 In two thousand fifteen Dell acquires EMC. For sixty seven billion dollars. The largest ever acquisition. in the technology sector.

1:40:10 EMC owned VMware. They are going to spin VMware out. has its own separate company. And in two thousand twenty two, after the book is completed.

1:40:19 Broadcom. Is going to buy VMware. For sixty one billion dollars. And what I was told is that Dell took a bunch of This one being like a bonanza for them.

1:40:30 'Cause they took a bunch of the payment in stock and since then Broadcom stock is up. By like three X. So that is where we're going. I I just want to pull out again, the book has a lot more detail. I just want to pull out a couple of interesting ideas that I think are applicable to you and I and just give a sense of what Dell was thinking.

1:40:45 go back to that idea he says make no small plans he goes literally his acquisition target is the number one person, the number one company. Okay. He says to acquire a company that has been number six and he's explaining his thinking, which is very valuable. And I I I've been telling the story a lot at at dinners in the past like week or two. To acquire a company has been number six or seven in its field, and to take it to number two or three. or even vaulted to the number one was almost impossible. Companies with leadership positions, if they continue to invest and serve their customers well.

1:41:12 Are hard to unseat. It is not impossible. But it rarely occurs. I kept thinking about EMC and VMware. who together were well on their way to becoming the most important company in the IT infrastructure universe.

1:41:28 Keep that in mind when Jensen describes what Dell accomplished. That's very important. They were well on their way to becoming the most important company in IT infrastructure. This is he remember, he advised the company in 2015. The biggest boldest prize would be EMC VMware. Make no small plans. He's applying his own advice, right? So we're gonna go for the very top. And so the the other alternative was he calls it a string of pearls. We're like, hey, we could just do a a couple like smaller acquisitions and put'em all together. Would that be better

1:41:54 Would it be a better company, would it be cheaper, how can we do this? He says, Why not just buy a few storage and virtualization startups and integrate them into Dell? People would say it would cost vastly less than acquiring EMC and VMware. And he makes the the great point'cause you'd go and talk to his own engineers, then you talk to uh customers of these people. C and it's a great line.

1:42:12 Customers are always the ultimate judge and jury. I met with each of the companies planning to challenge both EMC and VMware to see if a string of pearls plan might make any sense. And what I found was that while some of these startups had interesting ideas, They were far from being able to deliver them at scale. Nor did they show any evidence of being able to integrate well with each other. All these companies were also losing enormous sums of money.

1:42:36 where VMware and EMC were making a ton of money. At the same time they were valued astronomically. And our acquisition strategy to date had already taught me it was highly unlikely you could acquire a bunch of startups that would challenge an industry leader like EMC VMware. EMC and VMware's price tag had a lot of zeros in it. But relative to the company's current cash flow and our projections of their future profitability. That valuation seemed like a bargain.

1:43:00 Such an important point from the outsiders. That's expensive. to Dell's perspective, it's cheap. And if you factor in, you go back to those numbers we just talked about. He acquires the whole thing EMC and VMware for sixty seven billion. A few years later, spins out just VMware for sixty one billion. And obviously, Dell was right.

1:43:16 And this was a huge swing. They were gonna have to borrow Fifty billion dollars. There's a hilarious story. I need to bring this I wanna tell you. They they were meeting with the EMC board to see if they're gonna approve the merger, right? And Dell brings with him Jamie Diamond. Okay. And so one of the board members stay they're having this meeting.

1:43:36 Jamie sat in there quietly. One of the board members asked a question. gives him a si gives Michael a serious look and he goes, Do you have the money? We're talking about a lot of money. And Dell says, Before I could say a word, Jamie spoke up.

1:43:48 Yes. They have the money. The stature and credibility of the man who had spoken sank. In It was a moment that I will never forget.

1:43:58 And something for which I'll always be grateful to Jamie. And then I think the best description of this radical transformation the devil pulled off and the future value it's going to create the stuff that he was doing. Ten years ago, fifteen years ago, twenty years ago is paying dividends, we'll continue to pay dividends. Well into the future. I actually think the best description of this I found this interview with Jensen Wong and Michael Dell.

1:44:20 And he talks about he g he he does the greatest summary. of this. He says there is no one better at end to end systems at scale than Dell. This is a really important time. We've reengineer and reinvented every layer of computing. From the chip.

1:44:34 To the operating system, to the system servers, to the way these data centers are put together. There's only one company in the world that has the ability to build the computing system, the storage system, the networking system. All of the software that goes along with it and the path to the world's Enterprises. Dell. This is why

1:44:53 To I need to do this episode. I'm trying to build And tell these stories about these great entrepreneurs, these people that found what they wanted to do and they stuck with it for decade after decade after decade as impressive. as every all the early success of Dell in the first sixteen, seventeen, twenty years. Dell is undeniably more successful and will continue to be so.

1:45:14 Forty years after it was founded. There's this great line that Jeff Bezos says where he's like, We're trying to build something. That we can tell our grandkids about. That's We can be proud of such things are not meant to be easy. Think about the level of fulfillment.

1:45:30 Michael Dell must feel today. As I write these words, we recorded our highest ever revenues, profits, and cash flow. If you were keeping score, the value of our equity in the eight years since the announcement of the GoPrivate increased by over six hundred and twenty-five percent, and our enterprise value increased to over a hundred billion dollars. Not bad. For business. That was thought to be dead.

1:45:52 In two thousand. I mentioned earlier. There's very few people have ever lived. That could point to an accomplishment as profound and as impressive as what Michael Dellho's built.

1:46:05 But I wanted to save what I feel is the most important lesson for the very end. When I got to talk to his son. That is the moment when this really crystallised like what to me was the most important Lesson.

1:46:18 The way that his son described their relationship. It's almost like their best friends, the fact that he knows he can call his dad at any hour any any hour of the day. Had is always his dad's running, you know, one of the biggest in Yeah. most complicated business in the entire world and drops everything for his children.

1:46:34 For his son to say that That they talk all the time, that they go on walks. That he's unbelievably grateful for him, that he feels lucky that Michael is his dad. I remember

1:46:47 When I was talking to Zach. I told him this. Like I literally had goosebumps and what I told him was like I want my son

1:46:57 To speak about me this one day. And I think the the important thing is like You start with that end in mind and then like okay. If I want that to happen, how do I work backwards from that? I think it's the the most important lesson I took away from all of this. Just how incredible you really can have it all. You can have a a wildly successful

1:47:16 Career. Doing something you love, doing it better than anybody else in the world. And Be a good father. And a good husband.

1:47:23 And so I wanna end on this quote. that I think is very, very important. It comes from the founder of Kincos. Guy named Paul Orphalia. Okay, he's in his seventies. He was given an given an interview. He's a multi multi billionaire. And he goes, You know what success is?

1:47:38 Success is when your children want to be with you when they're adults. That success. How many people have all that other bullshit? Money. material success and their kids don't come home for the holidays. Come on.

1:47:52 The most cool thing I've ever been called in my life. His dad. And that is where I'll leave it for the full story. Highly, highly, highly recommend Reading the book. I've listened to the audio book three times. I've read

1:48:05 Read the hard cover, re read my highlights over and over again. If you buy the book using the link that's in the show notes, you'll be supporting the podcast at the same time. That is three hundred. And eighty five books down. One thousand ago? And I'll talk to you again soon.

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