Welcome back, Michael Dell: It’s time to reclaim your name

29 Comments

Credit: Dell

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A lot is being said and a lot will be said about Michael Dell’s decision to take the company he started in 1984 in his college dorm room private (with some cash from Silver Lake Partners, Microsoft and other investors.)

People are also going to point out that karma is a bitch. Others will say that the cloud will prove to be the ultimate undoing of Dell, and that mobile is Roundrock, Texas-based company’s Achilles heel. I would agree with some if not all of those assessments. I would also be hard pressed to ignore the harsh reality of tech-land — turnarounds rarely turn.

And despite knowing all that, I cannot help but applaud Michael Dell, the founder.

Dell is doing what few people do — putting both his reputation and his fortune on the line in order to save and perhaps revive the company with whom his name and legacy will always be intertwined. This is high-stakes poker: he is putting millions of dollars of his own money in addition to investment from his investment firm, MSD Capital, on top of kicking in his stake in Dell.

He doesn’t need to do any of this. If someone else made the very same offer he is making for the company, he stands to be a few billion dollars richer. Dell is filthy rich and his empire is spread wide and far. There is a lot he can do with his time — politics for example. (If HP alums Carly Fiorina and Meg Whitman can think about political careers, why not Michael as governor of Texas.) The fact is that the next three to four years are going to be hell for Dell.

While the company has made some bets on cloud technologies, and there are ways (as Derrick Harris spells out in his article) out of this gloom, Dell is not on the sunny side of the street by any means. The big infrastructure buyers like Google and Facebook are looking to upend the server business. The battle for Dell is not just Lenovo and Hewlett Packard, but it is also Amazon, Microsoft, Cisco and Apple.

This is Dell’s Battle of Britain. This could be his finest hour or it could be him and his ego, like Butch Cassidy and the Sundance Kid’s last stand against the Bolivian army. Who knows.

So why do it? My explanation — you don’t really have a rational choice, so you make an emotional choice. As a founder whose name adorns the shingle outside the door, Dell is playing a high stakes poker to literally save his good name. Just the idea that some faceless Asian company would own “Dell” the brand and his name is anathema.

Every so often people say that its not personal, its business. Nonsense! It is always personal and it will always be personal. If you spend your lifetime nurturing and growing a startup, it is nothing but personal. Outsiders will never understand — for a founder, failure, defeat and ignominy are always personal, just as success and fame. For founders, our identities are intertwined with the companies.

Think of it this way — when you start a company and spend about 15 hours a day on the company, that is more time you spend with your family. I have more memories of my startup than I have of my own life. I can’t remember a single birthday over past seven years, but I can tell you who said what and when and why. And that is just us, a tiny little company. That is why I disagree with the theory offered up by the otherwise admirable Ashlee Vance at BusinessWeek on why Dell is doing what he is doing:

The worst-case scenario for Michael Dell would have occurred if an activist shareholder had gotten into the mix. Dell would have faced the prospect of being kicked out of the company that bears his name.  I’m certain this is why Dell went private. Dell, Silver Lake, and Microsoft get a company that pumps out enough cash to keep all parties happy, while Michael Dell shields himself from being berated by analysts, investors, and the media. Best of all, he gets to keep his company.

Admittedly, my explanation is tinged with bias of a founder whose name hangs on the door of his shop. And yes, it is a bit of an emotional explanation, but I get it.

And that is why I want to applaud Dell and welcome him back to the founder fold — this is where it starts. Good luck… for you’ll need heaps of it on your mission impossible.

29 Comments

alex

A few points…1) he has about 8b bucks in msd, so the risk isnt huge. 2. A big part of this is the repatriation of offshore funds, not a turn-around. 3. Debt is so cheap right now, it makes sense to lever up. That being said, he misses a key element of tech businesses here. Too much debt and r&d will get ignored.

ricdesan

Om, I have to honestly say that this makes more sense than any other speculation I have seen on the topic. Thanks for the reminder about business being personal when you’re a founder. Whether success or failure there isnt any way to really be emotionally disconnected … unless you walk away.

Jimbo

Dell is essentially a transportation logistics company masquerading as a computer company. Dell knows how to ship boxes efficiently, thats all. This is the reason they have never done any innovation, This is why they have no clue about mobile, cloud, smartphones, computing,…..

Hamranhansenhansen

Apple was never in as bad a shape as Dell is today. But Apple and Dell are polar opposites, not the same kind of company at all. There is no comparison. Microsoft is a copy of Apple, Dell is just a tiny piece of Microsoft, run off the books for convenience until now.

gprovida

Yes! the best of luck to Michael Dell. You live once, so go for it again!

Hamranhansenhansen

Dell is not a company, it is just a division of Microsoft. Being setup as a separate company is just a way for Microsoft to keep hardware on a separate set of books, to keep hardware liability in a separate legal entity.

Now, Microsoft owns as much Dell as Dell. We are just seeing the bookkeeping becoming honest as the line between software and hardware has blurred.

If not for the Microsoft investment, there might be some hope here. But Dell is still part of Microsoft, even now.

alextheukrainian

Great article, I agree. Also, two typo corrections:

1. Should be “I cannot help but applaud” instead of “I cannot but help but applaud”.
2. Should be “for you’ll need heaps of it” instead of “for you’ll need heaps it”.

Have a great day!

ronald

I wonder how is he going to compensate top talent, if he wants it to turn around. Why did Apple not go private, I believe they were in worse condition (a few mth before being bankrupt).

lollipop

“Mr. Gates is very smart and not afraid to let the next generation of BIG BOYS to drive the company.”

Lol and what hapend? Windows 8 is worser than Windows 95

matthew_maurice

And Ballmer has pulled a world class Richard III getting rid of anyone who could threaten his inept management of the company, when not throwing chairs and prancing around stages in Las Vegas many Januaries.

Rajesh

The share holders are the biggest bane of any company. They are the ones in the game for quick bucks. They have absolutely no long-term vision. If they did, they will understand that any major step taken by company top official will involve investment and will take time to show results. By the time the results come, they would have changed the CEO three times. No company in its senses should go public, IMHO.

matthew_maurice

Yeah, and Private Equity guys are well-known for their enormous patience and strings-free largess towards self-absorbed founders tilting at windmills trying to save their “legacy.”

Mark

So when the buyout investors dividend themselves all the cash they “put in” to the deal and therefore remove all the risk, are you still going to feel this way, Om?

Bernard Lunn

I seriously doubt that Michael Dell will allow that old PE game. Nor will Microsoft.

Don Jones

Dell is in somewhat the same place Steve Jobs was in many years ago when Dell famously gave him advice to dissolve Apple. Let’s hope he has the vision and ability to turn his company around, too.

Hamranhansenhansen

No, Dell is in much worse shape. Apple had all the technical and design assets from Mac, NeXT, and QuickTime. Windows 3.1 is a copy of Mac and Windows 95 is a copy of NeXT, and every digital video solution orbits QuickTime in one way or another. MPEG-4 is an ISO standardized QuickTime file. So Apple just had to design and build its way out of trouble. They had all the cool computing stuff and still do.

Dell, on the other hand, is still basically a division of Microsoft. Moreso now than ever. Since Microsoft has dozens of hardware divisions all on the books as separate companies, Dell has nothing unique to offer. They can’t build a Mac OS X out of Mac/NeXT parts, they can’t build an iPod out of QuickTime and Newton parts, and they can’t build an iPhone out of Mac OS X and iPod parts, or an iPad out of Mac OS X and iPhone parts.

You could articulate a practical best-case scenario with Apple 1996. Nobody has one for Dell 2013. That is why no publicly-traded investment.

Bernard Lunn

Apple did not have the best assets till they acquired NeXT. Learn some history. Not saying Dell can do what Jobs did but the analogy holds.

Om Malik

Interesting comments – but I personally am witholding judgement up until Dell outlines his plan and how he wants to tackle the makeover. We (at GigaOM) feel that the answer is to replace some of that box-expertise with cloud-thinking. My colleague Derrick is pretty presctive in his post.

winstuff

Dell had one very little idea. Make the cheapest computers in the world. Eventually other dumpster divers got the same idea. Jobs had one very big idea: Make the best computers for the rest of us. And Apple is still doing that. Today its computers are small, shiny, and superb … iPhones, iPads, iPods. Dell is more akin to Amazon, only Mr. Market got tired of Mr. Dell.

scottwilkins

Yep, and Steve took Dell’s advice. He left it when it was a failing PC company. Only came back to make it a leading consumer products company instead. That is if you are going to compare Apples to apples….

Sal Rez

What he needs is to bring back Mort Toffer or somebody the size of Mort.
He lost a lot of top level performers at different levels.
He got very poor strategist with no vision.
As everybody knows, The first step to solve a problem or illness is to acknoledge and find out the root cause.
Hiding from public is a way to avoid critics for poor performance.
Good luck.

keninca

Why does he have to take the company private to save it? Do you think investors will call for him to be fired if they don’t like what he’s doing? Or, more likely, if they drive the stock price down because they are upset with his new strategy, he could then buy the company for even less.

This isn’t about anything other than trying to make a few billion dollars. Sure, he’s putting up some of his fortune (he’s already cashed in a lot of stock), but the deal is largely being financed by debt, which will be able to be paid off by Dell’s earnings, resulting in a big gain when the company is re-floated.

He’s no here. He knows he’s not smart enough to win in politics nationally, and wouldn’t be happy being governor of Texas, so there’s not much else for him to do. I don’t see him doing what Gates is doing, using his billions to make the world a better place. He’s just trying to make more billions.

Sal Rez

Keninca,
I guess he is driven by his EGO.
With that networth he can enjoy life.
Agree with you. Yes, Mr. Gates is very smart and not afraid to let the next generation of BIG BOYS to drive the company.
I wished I have the same money in my savings account like Mr. Gates :( :( :(

Hamranhansenhansen

They went private because nobody wants to invest in Windows PC’s in any way at all because they are so easily replaced in most cases with cheaper, better, smaller, lighter iPads.

Think of all the Windows PC -based bank machines and point-of-sale terminals, think of all the Windows PC -based Web and office terminals — they are going to iPad full speed. A gigantic number of Windows PC sales will be missing going forward, the market is shrinking.

These days, companies are enabling their users to bring their own device, they don’t just buy 10,000 Dells all at once. That is what Dell is currently setup for: selling 10,000 systems to a corporate customer and then selling individual systems to those same workers as their home PC’s. That is jut not the way the world works today.

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