Michael Dell Shares His First Lesson of the ‘Dell Direct Model’ When He Was 16
Sissi Cao observer.com sissi-cao
Dell's founder and CEO Michael Dell spoke about his early inspiration for Dell's famous direct sale model at SXSW on March 14 in Austin, Texas.
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Observer
Dell (DELL), one of the world’s largest manufacturers of personal computers, is known for inventing and pioneering the “Dell Direct Model,” which fueled its astronomical growth from a dorm-room startup to a global tech powerhouse in the 1990s and early 2000s. Dell didn’t begin pursuing its famous direct sales model until the mid 90’s, but the idea was deeply rooted in the mind of the company’s founder and CEO Michael Dell, who first experimented with it when he was just 16.

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Like many well-known tech founders of his generation, Dell started his company in college (and later dropped out), but his entrepreneurial journey started even earlier. “When I turned 16, the employment opportunities expanded quite a bit because I had a car—my parents handed me down an old station wagon—and I could drive to different places,” Dell, now 59, spoke about his formative years at SXSW yesterday (March 14) in Austin, Texas during an onstage interview with the tech analyst Patrick Moorhead.

That summer, Dell got a job in Houston making cold calls to sell subscriptions to the Houston Post, a now defunct local newspaper. “What I learned from talking to these people was that, oftentimes when people bought the newspaper, they were either moving into a new house or they were getting married,” Dell said. “That sparked the thought of how to find more people who were moving into new houses or getting married.”

After some research, Dell learned that there were public records of people who had applied for mortgages and who had applied for marriage licenses, a requirement in Texas, and these records contain the applicants’ addresses.

“I figured, let’s send them all a direct-mail offer to subscribe to the Houston Post. That worked really well,” Dell said. “It was an early lesson in direct marketing, for sure.” Dell then hired a few friends from high school and expanded the newspaper sales effort from Harris county, where Houston is, to 16 more counties surrounding the area.

Dell started what would later become the Dell Computer Corporation in 1983 when he was a freshman at the University of Texas at Austin. The 19-year-old had been upgrading IBM PCs in his spare time and realized he could just buy components and assemble PCs and then sell them at a lower price than established brands. He soon started advertising in trade magazines and business boomed. Within a year, Dell had to drop out of college to attend to his business full time.

At the time, all PC manufacturers were selling computers to customers, primarily corporate clients, through distributors, who would customize the computers by installing additional components or software. Dell initially operated by this model, too. Though sales were growing, the company wasn’t making money. So in 1994, Dell ditched distributors to sell computers directly over the phone.

The direct model not only eliminated middleman fees, but it also reduced Dell’s inventory cost and allowed it to build direct relationships with its customers. Between 1994 and 1999, Dell saw its sales grow from $3.5 billion to $25 billion and profit surging more than 60 percent annually.