Michael Dell Interview (page: 2 / 7) Founder & Chairman, Dell Inc.	Print Interview

So what happened after you incorporated? What was the next step?

Michael Dell: It started with little tiny ads in computer magazines that appealed to business people. Right at the start, about half the business was people in the Austin area, and half was the rest of the nation. Of course, that didn't last very long either. We went all over the nation really fast. We actually started -- not making computers -- but selling upgrade kits for computers.

Get the Flash Player to see this video. This is way back in the beginning of the industry when personal computers didn't even have hard disk drives. So we made a business where we would buy controller chips and cables, and write some software, and buy hard disks, and we would make kits so you could upgrade your computer to have a hard disk drive. So we were making an enormous number of these kits, like hundreds and thousands of these kits. We needed computers to format the hard disk drives. So we kind of designed a really basic computer to format the hard drives. We're busy formatting hard drives, and I remember we had this customer from Martin Marietta who came to see us, and he goes, "I want to buy 150 of these hard disk drives." We were like, "Oh my god!" We don't have ties, our office is not really a place you would want to go and see at the time. So we've got to clean the place up. So I'm showing this guy around and he's going to buy these disk drive kits. He goes, "What are those computers you have?" "Oh, those are the computers to format the hard drives." "Can we buy those?" Oh, good idea! We were so busy formatting these hard drives, we never really thought about that. So about a week later there was this Austin computer fair in the downtown coliseum-type thing. By that time we were sort of the biggest seller of computer stuff in Austin, so we had the biggest booth right in the center. We made this computer in a few days, and got a case, and brought it to the show.

This was a computer that had the hard drive in it?

Michael Dell: Yeah. It was like a fully assembled computer, and we brought it to the show and we just sort of sat it there. We wrote down the specifications, and we said, "Okay, we'll sell this for $795." We had a lot of interest. So within about three or four months, the whole business basically shifted to making these computers, which sounds kind of crazy now. So then we said, "Well hey, we've got to go hire engineers, and we've got to design more computers. We've got to get, got to get more space, and we've got to get a bigger factory, and we've got to go really serious about making computers." And that's what we did.

You were offering customers good value, weren't you?

Get the Flash Player to see this video. Michael Dell: In the spring of '86 we went to the Comdex trade show, which was, at the time, like the biggest trade show in the industry. We had a 12 megahertz 286 computer. At the time, the fastest computer from IBM was a six megahertz 286 computer. So ours was twice as fast. Their computer was $3,995 and ours was $1,995. So ours was twice as fast and cost half as much. We didn't have any problems selling them! There was an interesting twist though. There were two really long lines of people at our booth. There were all the people who said, "I want to run AutoCAD or dBase, and how can I get one of these things really quickly? This is fantastic!" And then there were all the press, who were kind of wondering why in the world would anyone ever need a 12 megahertz 286. You know, "We already have six megahertz, and we know eight megahertz is coming. Those are plenty fast!" Okay. You know, compared to today, of course, children's toys have faster microprocessors than the machines we were selling then.

How much capital did you start with when you incorporated?

Michael Dell: I started with a thousand dollars, almost no capital. The interesting thing about the business that we started was that -- because we were selling directly to the customer -- the customer would pay us, often, right at the time we shipped the product. So we were able to get credit lines from suppliers and we had what's known as a negative cash conversion cycle, which is a very good thing in a business like ours. We still have that today and it helps us generate significant positive free cash flow.

Could you describe what that is?

Get the Flash Player to see this video. Michael Dell: When you look at the complete balance of how fast do our customers pay us, and how fast do we pay our suppliers, how much inventory do we have, the net of all that is that we actually collect money way before we pay the money out. That's a beautiful thing. In fact, it allows a company to grow very quickly, because you have sort of negative working capital. So we didn't require lots of capital. We weren't as efficient then as we are now, but we were able to grow quite rapidly without a ton of capital. Now we were growing at such enormous rates, we needed some capital, 'cause we needed some buildings, and we needed some infrastructure. So we got a little bit of capital. We got a credit line, and we eventually did a private placement, and went public in 1988 on NASDAQ and attracted some capital so we could expand around the world and continue growing.

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