My Conversation with Michael Dell

27:02Charlie Munger has this great line where it's like intelligent people are taken up by three things, ladies, liquor, and leverage. So, like, have you seen any common, like, causes for somebody to sabotage themselves or to not live up to what they should have? Charlie's right about those three things. You know, we stay away from those. Yeah. I sort of go back to understanding things and curiosity. And it's like you've got to know why something is working or not working. And if you're in the middle of a super competitive endeavor and you don't really completely understand what's going on, well, you're going to make mistakes, right?

27:50And so, you know, when I look at the competitors that are no longer around, yeah, they, you know, had either overzealously expanded or made, you know, design, you know, errors or they failed to understand the competitive landscape. I mean, there's lots of ways to fail, right? You have a great example of one in the book with Adam Osborne, where he had a very successful, I think the Osborne one was relatively successful, right? Yeah. Okay. Yeah. And he's like, all right, now we're coming with Osborne 2. It's even new and improved and it's great. And you make the point, it's just like, yeah, maybe, but it didn't ship in time.

28:39And so now you just made this big announcement where you're like, we have this great new product. It's even better than one. What are you telling to the market? The Osborne effect. I don't think people talk about it so much anymore. But back then, the Osborne effect was a thing where you introduce a new product that's better than your first product, and nobody buys your first product anymore, and you're out of business. And so, yeah, don't want to do that. So go make some mistakes nobody's ever made before. Try to make them in small increments. Fix your mistakes as fast as you find them. and you actually want to make mistakes.

29:17You just want to make them small and, you know, iterate and fix them quickly. I mean, one of the things when you're creating a new business in an area that has never been done or with some new technology, new business model, there's no playbook. There's no, like, book you can read. Here's how you do it, right? And if you hire the people from the adjacent industry companies and ask them to go do it, well, they're just going to go do what they were doing before. And so that's not going to work. So you need a lot of creativity and you need to sort of intuit your way to the answer by experimenting.

30:02It's like, okay, here's a theory that we think will work. Let's try it. Right? And, you know, does it work? Great. Okay, let's do 2x that. Okay, let's do 10x that. Let's do 100x that. Does it work? Okay, let's stop, you know, restart, come up with another theory, and just keep experimenting until you find the answer. You're kind of going through that now. In fact, I want to read something that you said that was one of the most interesting things. You said it on a podcast, and you made this essentially talk to your entire company, and you said, I'm just going to read this quote. I stood up and told the company that five years from now, I love this so much.

30:39I stood up and told the company that five years from now, we will have a new competitor. And that new competitor is going to be in every business that we are in, except they're going to be faster, more efficient, and more capable. And they're going to put us out of business. And the only way that we're going to prevent that is we are going to become that company. It's gut-wrenching stuff to reinvent and reimagine your business. But if you don't do it, you go out of business. Yeah, exactly. So, you know, when ChatGPT came out in November of 22, we're sort of looking at this and going, wow, this is a big deal.

31:15This is pretty interesting. And you started to see the rate of improvement in the LLMs. And, you know, in technology, you can sort of look at the rate of improvement in the learning curve and you can sort of plot, well, where's this thing going, right? We're just going to be in a year or two years or three years. And you look at, okay, we're going to have agents and multi-agent systems, and we're going to be able to reason over incredible amounts of information. Well, what does that actually mean for the way knowledge work gets done and the tools that humans are going to have? So you think about that and you go, wow, this is a big, big deal here.

32:01We need to totally reset how we're thinking about the business and reimagine it, reframe it, and understand what the processes are going to look like in five years. And so you do all that and you say, if we keep doing what we were doing before, we're going to be in serious trouble because some new company is going to come along and, yeah, they're going to have all these new tools. They're not going to have this legacy of crap from the past, right, and old ways of doing things. And they're just going to do it the new way. And so we have to change or we're going to go out of business. You know, I also believe in this idea that if you don't have a crisis, make one, right?

32:56You get people excited, motivated, and to drive the necessary change. I mean, in one sense, this is not a technology problem. The technology is there whether you use it or not. It's a question of how do you organize the team and people to actually go and get this thing done? How do you motivate them? How do you give them the right tools? How do you structure, you know, the ways people work together so that you can do it quickly? And it's very hard for people to, you know, if you've been doing something for 10 years or 20 years or 30 years the same way, and all of a sudden it's like some new thing comes along.

33:46You're like, no, I don't want to do that. People don't like to change. But you have to. And so that's what we've been doing. Yeah, this is excessively rare. I mean, think about the story in the book where I think the line that I summarized what you were saying about IBM is like, yeah, the personal computer is, you know, fine. It's going to be a great terminal for the mainframe. And it's just like, oh, you see this over and over again in these biographies if you're studying, you know, something that's occurring over multiple decades. It's like companies and people cannot envision a future that's different from the present that they succeeded in.

34:17So they just kind of like dismiss it or kind of ignore it. I'm trying to think, though, like so you just said, OK, there's no books. Like what you guys are doing right now, though, right? You can't just like you're on the cutting edge. There's no books you can read about it. But you have surfed how many different technological revolutions? You did the microprocessor, right? Microcomputer, sorry. The personal computer. Then obviously the internet was invented. Client server technology a little bit before the internet. How many? So I got four or five. How many have you successfully navigated and had to reinvent Dell over and over again?

34:53How many of these like huge shifts do you think you've now – Yeah, there's probably been six or seven of them. So if you've done that six or seven times and then I think in the book, you know, obviously you say we did really great on this one, not good on this one, but we've fixed that. You're not going to be perfect over that many decades. But do you see like – is there like an echo between all of these like that you can apply like certain ideas you can take away and like form a structure? It was like, oh, that's kind of similar to what we had to do when we had to reinvent for X. Yeah, there are, although the time frames that these things occur tend to be shrinking.

35:30Say more about that. So if you think about the internet, you know, when, you know, first you had the internet, you had the World Wide Web, right? And websites started popping up in the mid-90s. And then, you know, but it took like a decade before there was really a boom in things like e-commerce. And I mean, it was going on in the late 90s and early 2000s, but it really didn't. It took a long, long time. So now maybe it's like five to 10 times faster if you look at the growth in the usage of these tools. And part of it is that each successive wave of technological improvement is built on the prior foundations, and so they're able to go faster.

36:23So if you have 5 billion people connected with all kinds of devices, well, now they can use these tools, and that just goes way faster. I think you have to have this idea in your head that any new thing has some chance of succeeding, right? Say more about that. So there's a lot of wild ideas out there. And if you dismiss them all, you're going to miss some things. So, you kind of have to hold this idea in your head that any of these wild ideas has a chance of succeeding. And let's sort of understand what do all these things mean and figure out what is the point of intersection, right? You know, what should we be doing about this?

37:17and when is it actually relevant, interesting, valuable, and it sort of hits escape velocity. And if you're sort of stuck in a particular paradigm or you're like dismissing things, you're going to miss them. Yeah. And so, you know, you need to be open-minded enough to consider all possibilities. But your ability to do that is so counter to human nature because we're habitual, like we're habitual creatures. You know, it's like, oh, I found what I want or I found like what I like to do. And like, this is the best, you know, like if you look at like what people, what music people listen to, for example, it's like music you listen to when you're like high school and college.

38:04and maybe you've added a couple, but like you're kind of like just stuck on that where you are just like completely open, maybe addicted to, you know, new technology and new ways to think about or new ways to solve like old problems. Yeah, I love the stuff. But how do you not squash new ideas? Like you just said, like, you know, there's a great line. It's like any idea can work now. Everybody's connected and they can grow faster than you can possibly imagine. So how do you like do you have a process for like how do you not, you know, New ideas are fragile and they need some kind of protection and some time to grow.

38:38But most people just kind of snuff them out or dismiss them immediately. Well, sometimes it's a good idea, but it's the wrong time. Sometimes it's a good idea, but it's the wrong company. Sometimes it's just a bad idea, right? And so – but there's no absolutes here, right? You just have to be open-minded and consider the possibility that things are changing fast enough that some new thing comes along. If you took the top computer scientists and researchers in AI or just broadly five years ago and you said, OK, this is what's going to happen with LLMs in the next five years, probably 99 out of 100 would say, no, no, that's not going to happen.

39:35And so that's a pretty good example in contemporary period where you just need to be open to the possibility that things are going to change. And there's also this thing where about every 10 years or so, something comes along and just completely expands the opportunity set for the industry. And that's part of the fun, the excitement, the super interesting aspect of what we get to do every day.

40:35more, you grow more. And that is a pattern that never fails. Visit HubSpot.com today. That is HubSpot.com. I just had a thought listening to you speak tied to something else that you said earlier. It's like basically humans' inability to have accurate predictive predictions about the future. It's kind of tied to the importance of iterating and make sure you're doing a lot of experiments and then having that like tight feedback loop to constantly like get information. Oh, that didn't work. Okay. We ran an experiment. Didn't work. Let's try it a different way. Like those two things work really well together.

41:07It's like we're not going to predict the future. We're going to create the future through iteration. Yeah, and, you know, it's okay to try to predict it as well. It's just really hard to do. And, you know, you might want to have a lot of experiments. I mean, if you go back and say, okay, let's say you had somebody who was supposed to be really smart or supposed to be an expert at something, right? 10 years ago, how good were they at predicting what was going to happen? Not very good. No, terrible. So don't rely too much on that, right? This is why I think entrepreneurs have to, like, study past entrepreneurs too.

41:48And it's, like, obviously very valuable. Like, it's no surprise that, like, you were reading about these people. Like, what I would say is, like, the greats all studied the greats. It was, like, very – like, they were doing it today. They were doing it 40 years ago. They were doing it 200 years ago. So if you took like an average person in normal society and the way they think about experts, okay, and the way it's discussed in all these biographies, it's like they're very dismissive of experts, right? I just mentioned I was reading James Dyson's autobiography. You know, the whole thing is just like he believes in the Edisonian principle of design, just constant iteration.

42:18You learn as you go. You can't predict. Like you just, you know, change one thing and then test it and see how it goes. And he mentions setting Henry Ford a lot in that book. and then James Lyson wrote an autobiography 30 years after that, that he also mentions Henry Ford a lot. And the reason I thought of that is because as you were speaking about, you know, you go and ask an expert from 10 years ago, what's going to happen? Like, they're not going to tell you that chat GPT is absolutely, you know, that my 13-year-old, I use chat GPT all the time, but I'm a nerd. I like to research stuff. I like to read about stuff.

42:47She uses like a therapist, a shopper, a friend, like it's an entire ecosystem of them. There's no way you can predict that. So there's a great line in Henry Ford's autobiography, which was written 120 years ago. It's not a new phenomenon. Human nature does not change. History doesn't repeat. Human nature does. And he says, if I ever want to sabotage my competition, I would fill their ranks with experts. Experts tend to know so much, and they're so convinced that they're right, they'd get no work done. Yeah, at the limit, nobody knows anything, right? And it's not a bad philosophy, you know, when you're thinking about the future.

43:28it's good to have a hypothesis though right and and and ideas and experiments and to keep an open mind so what was when we go back to that hey this they're coming for us they're going to be faster more efficient more capable uh and they're going to put us out of business and we're not going to let that happen because we're going to transform we are going to be that business right what was your hypothesis back then? Do you remember? Oh, it's pretty simple. It's that it will be possible to dramatically improve the way we do things in all the core processes of the business, from software development to support to sales to every major function, our supply chain.

44:13everything can be improved in a dramatic way. And that's what we're doing. And we're finding as we take our data, as we reimagine the processes and simplify and standardize them, we can make them way more effective. So an example would be in support. We have incredible amounts of data. We have telemetry data that the machines are giving us all the time, right, about, you know, soft errors and all these things that are going on, you know, inside the usage patterns from customers. We have warranty data. You know, we have previous call logs. We have all these knowledge bases. We have JIRA databases.

45:03It's like millions and millions of documents. No human could ever interpret all this. And so, we created this tool called Next Best Action, which takes all this data and understands what problem the customer is trying to solve. And it helps either the customer or the agent that's trying to help the customer get to exactly the best way to solve that problem in the fewest possible steps. And so the person helping them feels like, wow, I'm way better at my job than I used to be. Because now I got this genius on my shoulders telling me exactly how to solve this problem. The customer's way happier.

45:45The problem's solved way faster. And the tool summarizes the call. So that saves a ton of time. And so everything gets way better. So you can take that same example and software development with coding assistance. Our sales teams have access to incredible tools. And so we're doing this all over our business. And, of course, our customers are doing it. And what is this doing? It's unlocking the power of data using compute and using all these models, which also happens to be, you know, we're in the business of compute and storage and networking. So it's an enormous opportunity for Dell itself to be able to help all of our customers unlock the power of their data.

46:32You couldn't predict, like, the actual tools that were going to be invented. You just knew that now we have this new – there's this new technology that will transform every single process inside the business. We won't be able to predict, like, all the tools, but we just know that they're coming. If we didn't do that and our competitors did, we'd be finished. All right? And so we're not going to do that. And, you know, even if we did it and our competitors did it, let's say it just neutralizes. You have to do it. You have no choice. Yeah, there's a line in Andrew Carnegie's biography. It was really fascinating because, you know, he dabbled in a bunch of different businesses.

47:16He was pretty wealthy before he started the steel company. But once he realized that, you know, think about how important steel was at that time. It's like everything, this is the new product that everything, every other product is going to be made out of. From bridges to roads and everything else, like this is the biggest opportunity in my life. I'm going to go all in on it. To the point where he didn't even want any distractions. He sold all of his stocks because he didn't want to find himself looking at the newspaper and wonder like what the price of stock was. Like fully focused on the greatest opportunity of my entire life.

47:43He went into an existing business that was run by older gentlemen, right? He had this new way to do steel. I think it's Bessemer steel that he got from England. So he took an idea from England and imported it into America, which it's kind of weird how often that is in the history of entrepreneurship where it's like, oh, this idea is working in one geography. Will it work over there? It's like, yeah, because humans are kind of the same everywhere. There's some cultural differences, but our core motivations are very similar. And they were very resistant to change. So they're like, no, that's not the best process.

48:13And then they would ridicule him for investing in the newest technology. He was spending a ton of money. Every time there was a better machine, a more efficient machine, he would immediately rip out the old machine and input and put in the new technology of his day. We wouldn't think about his technology today. It's definitely technology back then. And when you read his autobiography, which, you know, in the public domain, anybody could read it for free. It's an incredible gift to humanity. I remember getting to this part of the biography, which is exactly what you just said. It's like, okay, even if this doesn't give us advantage over our competitors, if we don't do it, like, they will have the advantage.

48:51So even if we're on, like, on the same level and the summary of what Andrew Carnegie was saying, these guys wind up not adopting the technology and they went out of business. So he says invest in – this is not a direct quote. This is me summarizing his idea. He says invest in technology, the savings compound. It can make the – it gives you an advantage over your store-moving competitors, and it can be the difference between a profit and a loss. If he didn't do that investment into the new technology that his competitors were dismissing the stupid young kid with his fancy machine, right, that wind up making his company profitable in a year or two and their company unprofitable.

49:26And then slowly and slowly, they just – they kept losing money, and then they went out of business. It's very fascinating how these, like, themes just keep reappearing. Yeah, exactly. You don't necessarily want everybody to know what you're doing. also. The maximum I have from this I use on the podcast all the time is that bad boys move in silence. And so you mentioned earlier that there's no, sometimes there's no book, you're on the cutting edge. And so I remember there's this great line in this biography of Steve called Becoming Steve Jobs, which I actually think is the best biography written about him.

49:54And Steve's like, I don't even know what the business model of animation is. And they start partnering with Disney. And he has this great line. He goes, you can't go to the library and check out a book called The Business Model of Animation. Because there's only one company that's ever done it well. It's Disney, and they don't want anybody else to know how lucrative it is. One thing that was hilarious that your son, Zach, wanted me to ask about was what he calls dad terminal.

50:23Yeah. So, dad terminal is what he refers to as when he kind of taps in and wants to talk about a particular topic or has a question. And it's one of my favorite times with Zach because we're talking about solving problems or challenges inside his business. And I get to share the mistakes I made, mistakes I saw other people make, lessons learned and hopefully save him some pain and suffering and, you know, steps from, you know, learnings along the way. Yeah. He says, instead of typing in the – I was like, why is it called – I was like, why is it called Dad Terminal? I don't understand what that was.

51:20And he's like, well, Bloomberg Terminal. He's like, you know. Exactly. Yeah. Yeah. He's like, you subscribe, you log in, and you have a question, and then, like, you type it, and you get this really advanced answer. He's like, I don't use Bloomberg. I use that terminal. And I was like, give me an example. Like, what's the last query in your terminal? And he goes, supply chain. He said it like it was, like, obvious. It was like, I don't have a supply chain. I run a podcast. I read books. Like, explain it to me. He's like, there's a handful of things. Not even a handful. He's like, there's a bunch of things my dad is world class at.

51:52and he's just like one of them is supply chain. And I'm curious as like why you think you're – why other people describe you as really good at that. Is supply chain just related back to how we started this discussion is just like another puzzle for you to like direct your curiosity to? It's definitely an important puzzle and a critical puzzle. I mean, I think if we had not figured out how to do our supply chain well, we would not be here today. It's as simple as that. So it's a fundamental thing that is just super important in our business. So it's just you've thought more about this area? Yeah, and made a ton of mistakes and learned a ton of lessons and sort of, you know, figured out what works and what doesn't work.

52:54Yeah, there's a line in the book. I think the first time you realize, hey, I don't like these – your whole thing is eliminating middlemen and like getting as close to the source as possible. And I think you're like 19, you might be 20 years old at the time. But you're taking your first trip to China, if I'm not mistaken. Well, so that would have been 1985. It really wasn't, you couldn't really go into mainland China at that point. There was nothing really to do there. They weren't making anything. So you were going to Asia. You were going to Asia. So, yeah, I went to Japan, Hong Kong, Taiwan, and South Korea.

53:33Yeah, but what I love is just like how excited you were. Oh, yeah. Because it's like something you said earlier. It's like you got a deep love for your business, and then now you get to keep peeling back the onion and getting closer and closer. Now it's like, oh, I'm like spending 16 hours a day. I'm sleeping in my office. I'm working. We have customers. We have our hiring employees. We have revenue growth. But now I'm getting like deeper and deeper, deeper understanding. And like so as I read these biographies to people, I try to like build like, you know, I think I have a good sense of like how you think and like what's important to you.

54:06And what I realized is like that instinct that you had as a 20-year-old man or however old you were at that time, it's like that has not – it's never been alleviated. It's just like this constant like keep going lower and lower and lower to like seek more – a deeper understanding of like the world around you but also how your business like fits in that world and how you can build technology to like enhance everybody else around you. Yeah, of course. I mean that's what you're supposed to do, right? You're supposed to understand things, right? You say of course. Like this is the – this is another thing I told you when we had dinner.

54:41Like – How else would you do it? I don't – But to you, this is – I don't understand. This is why I think like writing a book and having a conversation like this is important because like there's so much shit in your head that is so unusual. And like just it's so valuable like getting it out and putting it like out into the world because I remember like – I wouldn't know any other way to do it. I know because you don't understand how abnormal you are. So we were halfway through our dinner. I looked at you and I was like, dude, I have this paradox in my head that I cannot reconcile between like the crazy career that you've had.

55:15It's like I study uncommon people for a living. You are uncommon amongst uncommon people, right? You have this – so the paradox I couldn't reconcile is between this crazy ride that you had that's described beautifully in your book, this four-decade, you know, mission that you've been on that you've been relentlessly given a lot of your life energy to and just how normal you are. Like, you're, like, not—I'm talking about, like, your affectation, your personality. Like, you're very polite and calm and measured. But it's just like, do you understand how rare this is? No. I know. Because you're like, of course you would.

55:52It's like, this is what I love. It's like— Just wake up every day and go do the thing. This is why you're great. But that's why you're great. So, like— He's pretty normal to me. There's nobody that reads this book like, this guy's normal. No, it's not at all. So, there's—what I love about this, and this is why it's so important, because—and I mentioned this on the episode I made on you, but there's this engineer-turned-turned-turned-founder, Sidney Harmon. You know the company Harmon-Cardin? Yeah, sure. Yeah. So, he has a great line. He said that the founder is the guardian of the company's soul, that it's impossible to separate, you know, the creation from the creator.

56:33And I think over time, like the— I resemble that. Goddamn right you do. This is also, again, how abnormal we are. I used to say it's like you need to build a business that's authentic to you. And then in this book, Lee was, you know, talking about he was only able to last four years, I think. and he's just like, you know, we're fighting IBM. We don't have any money. And he's like, my back's hurting. I'm losing my hair. Like, I can't sleep. And he's just like, Michael's ecstatic. He's like tap dancing to the office every day. And he said a line that changed, like really made me think about something.

57:10He's like, he built a business that was natural to him. Of course, it's not abnormal to you because you built a business that's natural to you. Yeah. And if you've been doing it every day for 41 years, it seems pretty normal, right?

57:47are, and my response in all caps was maximum energy. All of the founders, CEOs, and extreme winners I have studied have excessively high energy levels. If you're going to be the best at what you do, you need to maximize your energy and output. And that is why I've partnered with Function. Function provides access to comprehensive blood tests and other lab testing to help you improve your health so you can perform at your highest level. Function has made it easy for me to monitor and improve my internal health markers so that I feel at my absolute strongest. As a member of Function, you get access to test over 100 of your biomarkers, from hormones to toxins to markers of heart health, inflammation, and stress.

58:28Function gives you a straightforward analysis of all your results, along with advice from expert doctors on how to improve things like your testosterone, your stress hormones, how to reduce toxins in your body, and much more. The platform is absolutely beautiful and provides an easy-to-understand picture of your overall health. Once you try Function, you'll immediately understand why it's the fastest growing health platform in the country. To learn more about Function and to join, go to functionhealth.com forward slash Senra. Right now, Function is offering$100 credit to the first thousand people who sign up for a Function membership.

58:58To get this$100 credit, just visit functionhealth.com forward slash Senra. Again, that's functionhealth.com forward slash Senra. Lee Walker, tell me how important, like, that was, finding a person. Because you were relatively persistent in recruiting him. And you were, like, 21, I think, at the time. 21, yeah. And he was 45 or something like that. Yeah. Like, what's the role that you feel he played at that point in Dale's history? Well, yeah, the company was, I mean, it's like our rocket had sort of taken off. but you know it was it was pretty fragile right and uh you know we had some good ideas but there was a lot of missing pieces and lee helped fill in those missing pieces and, you know, sort of organize the uncontrolled chaos and help us sort of really scale up the business.

1:00:00In like operations? Like what do you think? Yeah, I mean, it was – well, first of all, we were growing so fast, we just didn't have the balance sheet or the capital to support our growth. And so he helped us get some credit lines and that freed up capital and then sort of organized some of the operations and stuff I didn't really know about or have a great interest in because it wasn't the technology or the customers. Yeah. And so he helped sort of get all that stuff on the right path. And then as we needed even more capital, you know, with a private placement and going public, you know, he helped sort of get all that going.

1:00:54And, you know, just basically how do you scale this thing up to get it ready for 10x or 100x growth? One thing that was very fascinating that Lee Walker said, right, is you got to the point where, you know, you had that negative cash conversion cycle, but you were selling to, like, individuals. So individuals are like, oh, I want a computer, Michael. Okay, give me your credit card. You're like, great, I got this money, which we'll talk about in a minute. But now you've moved up and now you're doing enterprise. And some of these companies are huge, like Texaco, like these giant companies. And I remember one point in the book, it was something you were doing, like, 60 million a year in revenue.

1:01:29And you had, like, 200 grand in your bank accounts. It's like there's just no cash there. And what was smart is he went to the banks. And I was curious. It sounds like he had relationships with the bankers. And I always have this maxim that relationships run. He did. Okay. So relationships run the world. You see that over and over again. And so Lee had relationships with these bankers that I assumed in the book. And you just verified. But then what I thought he did was really smart. They're like, listen, we trust you, Lee, but we don't know this kid. And his whole point is like, you don't have to even trust me or the kid.

1:02:04He's like, look at all the purchase orders. Like, do you think Texaco is going to pay us or not? And using the, like, the brand and the prestige and the, you know, essentially the value. Like, Texaco is not going out of business. They're going to pay them. Pay this kid that you say you don't know. Lend us against our receivables. I was like, that's a really good idea. Yeah, it was receivable-based financing. The problem was that as a 21-year-old starting a business with really no capital infusion from the beginning,$1 ,000, right? Yeah. You know, a banker looking at it with no one known inside the business to trust would sort of, their general reaction would be, I think I'll go do something else, right?

1:02:56Yeah. But, you know, Lee had those relationships. He was trusted. And he was able to kind of explain it to them. And, you know, that helped sort of break open that log jam. And that, you know, gave us some of the capital we needed to continue to grow and expand. So can you explain how you stumbled upon the negative cash conversion cycle and why that was so powerful? Yeah. So, you know, we didn't have any capital, right? And so, you know, what we figured out was that if we could dramatically shrink our inventory and get paid from our customers faster and, you know, maybe not pay our suppliers, you know, instantly, pay them a little bit later, Then if you're growing and you have a negative cash conversion cycle, you actually generate a lot of cash.

1:03:56And so you don't need as much capital to raise to be able to grow the company. You have a high return on capital. So we started looking at the business that way. And, of course, we also – there was this really interesting thing where our competitors, who didn't really understand what we were doing, they had these elongated supply chains. They had distributors and dealers. And so they would have, you know, like 90 days of collective inventory from the time that they actually made the product to when it actually got to the customer. And you could actually understand this because if you opened up the computers, the chips had dates on them that showed the weeks they were made.

1:04:44So, you know, it would say like 4292. And that meant it was – that chip was built in the 42nd week of the 92nd year. And so you could literally date how old the inventory was by opening these things up. But anyway, so they had like 90 days in their collective supply chain. And we figured out how to have like five days. I mean, it was crazy. It was like a massive advantage. Now, the other reason this is important is because it turns out that the price of electronic components generally goes down, right? And, you know, it's a pretty predictable thing. And so, if our components are five days old and the competitor's components are 90 days old, well, theirs costs a lot more than ours do.

1:05:42Right? And so, now you've got this structural competitive advantage. Now, another element of this is that you also have the freshest and the newest and the best technology. You're not selling the 90-day-old fish or bananas, right? You're selling the new chip, the latest capability. And so now you've got even another advantage, right? And then you've got this feedback loop because you're getting signal from the customers of, oh, I like this. I want that. Change this. And so you're able to create this dynamic feedback loop. So that was what we created, and it worked. And we kept iterating it and evolving it.

1:06:30The competitors, you know, they kind of dismissed it. And one of the best things was they just didn't understand it. They like misunderstood it, which was fantastic. How is that? It's like you don't want them to understand what's going on. You don't want to explain it. But how do you explain their inability to? Now you can explain it. Yeah. But back then, you don't want them to know what's happening. You just want them to maybe not even see what's going on. So I have a funny story about this, and then I want to get back to Compact and IBM. So I had dinner with one of the wealthiest people in the world.

1:07:15He's 76 years old. He's been in the family business. He's the second generation of this privately held, like, dynasty. And he started working in the business since he was six. And it was like crazy stories. It started on the shipping. They own one of the largest privately held shipping companies in the world. And he's this raconteur. He's like super charismatic and just like I was – it was an incredible dinner. But I had found out – same reason where you're like, hey, I'm writing this book because I want people to come to Dell to understand the history. They had commissioned – the family had commissioned a real author.

1:07:49Right? I have some of these books in my house, not from this guy, where these family businesses or, you know, these people at bookery companies, they have – they'll hire, you know, an actual author, pay them whatever, a million dollars, write the book, and then they'll print it just like this, but there'll be no ISBN number on the back because it's not available for sale. So I have a couple of these in my home library that people have given me because of the podcast. But he was telling me the story. He's like, yeah, we commissioned a biography of the patriarch who passed away a long time ago, and then we did one for me.

1:08:15And I was just like, dude, give me those books. I leaned in. I was like, I want those books. I was like, I'll crush the episodes. The episodes would be great. Because he had so many crazy stories. Without hesitation, he goes, absolutely not. I was like, why? He goes, I have no desire to educate my competitors. So that you just nailed it. It's like, obviously, if you have an edge, shut up about it. This is what I don't understand. So maybe IBM and Compaq are the two people, two main companies that are not understanding the advantage that you had at this time, right? IBM is a big old stodgy company.

1:08:48Okay, that makes somewhat more sense. Compaq was run by its founder. How do you think he deliberately misunderstood? Like, how is that possible for him to not be able to accurately analyze? Do you think he was just dismissive of you? You didn't think you were a threat? Like, what was going on there? He's still alive. You can go ask him.

1:09:09I, you know, I think when you're, you know, you're in a bubble, you know, people tell you things are working. and maybe you just don't want to believe that there's alternate information. And so you dismiss it. Did you read the new biography of Jensen Wong called NVIDIA? Actually, it's a history of NVIDIA, but he's heavily featured. NVIDIA way? I haven't read the whole thing. Okay. I did an episode on it. I'll send it to you. Yeah. But he has this whole thing where the threat comes from below. And I think he reduces everything to maximums. He's like a really good communicator. And so he's saying he's like, we're going to ship the whole cow because the threat goes from below.

1:09:49And I think I mentioned this in the episode I did on your book where it's just like you at the time came out with a – you just beautifully described. Like you're just stacking one advantage on another advantage on another advantage. You're like, okay, we have the latest technology. We have way better supply chain management than you. we are putting out, I think you put out a computer that outperformed Compaqs, which you sold direct to the consumer for$795, if I remember correctly. It was faster than theirs. And they sold a worse computer for$1 ,500, and it was only through retail stores. It's like that exact, the manifestation of all these advantages you had, you could just look at the market and be like, it's very curious to me how this founder could be like, hey.

1:10:32Yeah, and you kind of hope that they don't even see it. Yeah. I mean, I think there's a human instinct to say, hey, look at me. I'm doing this great thing. Isn't this cool? Right? But actually, in business, it's better if the competitor doesn't understand or doesn't see you. So because you weren't in stores, the only way they would know that is if they were ordering directly from you. And they probably weren't doing that. Yeah, or if they were sort of paying attention. but you kind of hope they don't notice and don't pay attention. I think this is tied back to the importance of following like your natural star and something you're just obsessed with because I didn't know that part where you take these things and see, oh, this is the 42nd week of the 96th year.

1:11:17That's insane. There's a line in the book though. It's not that hard. The numbers are right there. It's not that hard to you. The numbers are just sitting there. It's like they're just staring at you. They're talking to you. I 100 % agree with you. It's like, but this is the difference between somebody that's obsessed and somebody that's not. Like, that guy wasn't taking apart computers compulsively. There's a story in the book, and no disrespect to him. I'm not trying to throw any shade at anybody. There's a story in the book where you guys are doing, I think, the private placement of the IPO, and Black Friday happens.

1:11:47And I think Lee Walker walks in your office to tell you that, oh, shit, there may be some trouble. There's trouble brewing in the capital markets at this point. And he said Michael was in his office taking apart another computer. That's what you do. That's what you do. That's exactly. I think that's the biggest thing, man. It's like it's an unfair advantage if you can direct your energy at something that you – there's no – we talked about this at dinner. We have a mutual friend and Sam Hinckley. And one of the things that's interesting about Sam is if you analyze who he keeps around him, they have different interests.

1:12:24You know, it's like this podcaster dude, this investor guy, this entrepreneur, this like athlete. And he's like, what I'm drawn to, what all these people have in common that may not be obvious to you, David, is that there's no end. Like you can't get to the end of what they're interested in. You think he used the analogy of like a cup. You just pour and pour and pour. It's like it just keeps going. Like they can never get to the end of their curiosity. And I think you're a perfect example of that where if you look at other founders that are doing things for fame or status or whatever the case is, it's like Jerry Seinfeld has a great line.

1:12:59He goes, if you just do it for the money, you're only going to go so far. Yeah. When it's like a passion or an obsession, there's no end to it. Yeah. And you're taking apart chips and analyzing like, oh, I have a 90-day advantage over here. And I'm not worried about the capital markets because we're just going to keep serving our customers. And like eventually that is going to change. It's not going to be a depression forever. So what can I focus on? I can just focus on understanding what I'm working on, what's in front of me, and then following this deep curiosity, you know, and actually taking the curiosity that comes from your head into like an actual product that makes somebody else's life better.

1:13:35It's like the miracle of entrepreneurship. You got it. So, we were just talking about the fact that Compact and IBM, they were almost like essentially you got fuel from being underestimated. You mentioned in the book that like you found it. I think you said something that's like a powerful motivating force. Do you recall why you felt that way? Yeah, it was just like, okay, wow, this is going to be a multiplier for us. Because they underestimate us. They don't understand what we're doing. And so they didn't see us coming because they were underestimating us. You know, I think the CEO of Compaq, you know, would refer to us as a mail order company or, you know, garage operation or whatever.

1:14:33You know, and you'd hear that and you'd go, oh, wow, this is great. They have no idea what we're doing. All that was motivating. You know, anytime, you know, there was sort of a setback and the conventional wisdom or even whatever interpretation was, okay, you know, they're going to fail. They're going to go out of business. All that incredibly motivating. Is it still like that today? Of course. Yeah. Yeah, absolutely. I love that everything is, of course, and of course it is. Yeah. I mean, if it wasn't, I'd probably be dead. I mean, I— And still caring about the company. Yeah. Even from the grave.

1:15:21It's a common, I think, misconception. I'm curious to get your take on this, where people are like, well, you know, if you don't raise all the money at the beginning and your competitor does, like, you're automatically dead. And I hear that a lot. And I was like, I don't know. like Compact raised$75,$100 million, and you had$1 ,000 in a dorm room. Do you feel that, like, it is actually different today? Like, if you were advising, like, a younger entrepreneur? I think it's very situation-specific in terms of the company, industry, et cetera. So I don't think you could give generic advice there.

1:16:00Yeah, that's why I think like the generic advice is you have to do this or you're dead. I'm like, I don't – I'm pretty sure that's not the case. I don't think – you know, like I was saying earlier, I don't think there are ever these absolutes. I think you always have to hold out the possibility that somebody is going to figure out some clever, interesting way to do something that nobody has ever thought of that is different. And, you know, that's just going to happen, right? Yeah, that's actually an interesting area to go down where it's like who else – you figured out by accident like because necessity is the mother of all inventions.

1:16:39Like I don't have capital, so how do I get money? Well, I'll just ask my customers for the money. And then you accidentally discovered all these advantages and had a deeper understanding as you went along. Are there any other examples of like entrepreneurs or businesses that you've studied where it's like, wow, that's like a really clever way to do something effectively and expensively? Well, I mean, you think about some of the retailers, you know, like Walmart and Costco and Amazon obviously came up with super clever ways of winning in that space by, you know, doing things inexpensively, taking out all kinds of costs.

1:17:21Yeah. The other one that came to mind was Sam Zamuri, the Banana King. he essentially you know builds the second largest banana empire and at the time then later on overtakes the first largest which is United Food Company but I guess like one thing that he figured out and he was actually your same age he was 19 years old he had no money and he was trying to figure out a product to sell and so what he did he's just like well I was working the docks down I think in Alabama at the time and he's like all these fruit companies they have these things called ripes which are the bananas that are going to go bad in like two days from now and they just take them off the boat and throw them in the garbage because they can't get it fast enough to the store.

1:18:00And his idea is like, well, I can use this new technology of the day, which is the railroad, and I can buy this for almost nothing because they're not getting anything anyways, and I'm going to put their ripes and get on the railroad with it and then sell it at every single stop. And then he was generating so much cash, and then he could start working down the line all the way to when he had his own banana plantations. It's just like that idea. It's like it starts out with like this little nugget of like, oh, this is like an interesting opportunity, and not understanding as you pull and pull and pull and pull, it gets more and more like you keep stacking these advantages one on top of another.

1:18:32Yeah, I should organize and like look into like more examples of like, is there another example of like what you had at the beginning of Dell? Because I think that's the key. Like I think some degree it's like the easier more path is just to go and like sell part of the company or raise more money or find essentially like solve the problem with money where you solve it with like creativity and hustle and like intelligence. Those ideas are like excessively fascinating to me. IKEA is another one where he, you know, same thing, where he was just selling mail order. He's a mail order company. And he has a great line in – Yeah, there's that mail order thing again.

1:19:13I know. I think it's like still – So, he has that great line where he's like, expensive solutions to any problem are signs of mediocrity. So, he was like, you have to be more creative. We had this whole thing in the 80s and we called it beat the mail order stigma. Really? It was sort of like as we were establishing our brand, you know, sort of the conventional wisdom was a mail order company, which was sort of like a… Pejorative. Like an insult. Yeah. Okay. It's like, okay, it's a mail order company. And it's sort of like a stereotype. It's like, oh, you can dismiss it because it's a mail order company, right?

1:19:59And all the press, you know, for years, they were like, mail order company Dell, you know, mail order company Dell introduces server. You know, it was like, what? It's like, okay, we have 30 ,000 patents. When are we not a mail order company? It's like, what is this mail order thing? So anyway, we had to like get rid of that. How did you beat it? Just kept doing our thing, you know. And eventually people go, I guess it's not really mail. I mean, it's internet and it's not mail order. I was like, nobody orders stuff in the mail. What is it? I think you just may realize something that I didn't understand when I read the book.

1:20:37When you were talking about how important it is to like not squash ideas and that, you know, ideas can come from anywhere and they can like, you know, they seem small, but they can have a huge impact. I think Dell was like one of the first companies to sell on the internet, right? Yeah, well, so we were selling direct, right? You know, like people would call us on the phone. And we used to have these rooms with like a gazillion fax machines. And they would send us their orders on faxes. It was crazy. And we had catalogs, right? And so then, you know, the World Wide Web comes along, new websites.

1:21:13You know, like, oh, you mean we can create a website? And people can go on there and like the catalog is there. And they can like press a button and order the thing? That's the coolest thing ever. We got to do that, right? And so in my first book, you notice on every page at the bottom, it said www.dell.com. I read that book too. Like obsessed with getting people to the website because it just became like the easy way to interact with people. And that book came out in 97, right? 99? I think 98. 98, yeah. Yes, it was 98. But, yeah, we started, you know, with one of the first websites. I mean, there weren't many websites.

1:22:00I remember when there— It was a small number. I remember when you could, like, go to all the websites, like, in the whole world. Yeah, I'm done for the day. Like, there's no more websites. It sounds crazy now, but there used to be not that many websites. You could, like, go to them and, like, okay, I'm done. There's nothing else to see. that obviously changed quickly. So how the hell do you even build a store? Like you were collecting, do they have to like call a number in? Because I remember like taking credit cards online. Well, maybe not 90, if you were doing, do you remember what year you launched the site?

1:22:3297, probably 96? I think it was probably 96, 95, 96. You had to build all the stuff custom. We had to build the whole thing. Okay. Yeah. Yeah, it's funny. I forgot about the fact that Dell.com is on the bottom of every page. But what's fascinating is if you read Bezos' shareholder letters, He never refers to it as Amazon. Every single shareholder letter up until, you know, you don't have to do it anymore. And then every single interview, it's Amazon.com, Amazon.com, Amazon.com. Then it turns into Amazon. It's just like we've got to push you guys to this new thing called the internet where you can buy things.

1:23:07It's such a fascinating, like, thought, like how novel it was. But you kind of saw it like right away. Like, let's just, we should just do this because it's cool. We'd experimented with how do you create an electronic version of the catalog? Even like we're going to send you a floppy disk or a CD-ROM and you put it in your computer and you load it up and the catalog is there. Yeah. Right? Those are some of the ridiculous things that happened before the internet, before the World Wide Web, I should say. Did you ship that? Yeah. Yeah, we did. So you just kind of like what AOL, remember AOL? They just like essentially carpet bombed the entire country.

1:23:41Yeah, we didn't do it like that. Okay. But ours was more targeted. But, you know, you wanted to make it easy for the customer to understand your offerings. And then the World Wide Web just made that, you know, kind of infinitely accessible to anyone. The idea of just mailing out a floppy or a disk of a catalog is just like a hilarious idea. But then people were surprised when people started ordering computers online. And I remember, you know, we sold like a server for$50 ,000 online. People were like, no way. You know, it's like it didn't happen as fast as some of the things that are happening now.

1:24:22Yeah. But obviously for a business that was selling directly to businesses and, you know, individuals, you know, all over the world, it was just total rocket fuel. How soon into Dell were you starting to sell like targeting institutions over individuals? You know, it's really interesting. If you go back to the very, very beginning, like the first full year, like over 80 % of the business was to businesses. Okay. So, it's sort of like doctors and dentists, right? Or lawyers or some of your first, but they were using it for business purposes. An individual doctor or dentist, I would think of them as more like an individual.

1:25:06But, well, first of all, let's level set here. So, if you look at all technology spending, roughly 75 % to 80 % of it is businesses, not consumer. And so, that's kind of been the thing for a long time. So, within the first year, you got the same, similar percentages. Similar percentage, yeah. You know, there were companies, universities, they were buying 5, 10, 20, 15 machines at a time. One final thing that I want to talk to you about that I think is like one of the most important ideas in your book, especially when you're trying to like push these stories down the generations. So, like I see it in a lot of the biographies and I think it's like another misconception how we just talked about the misconception machine like entrepreneurs know be wary of experts and like how they can kill new ideas where like a normal person would revere them, right?

1:26:05So there's like this difference of understanding each other. Another one that I would say is like the importance of ego and self-belief and self-confidence. And my, you know, general society might say, you know, you should generate evidence and then be confident. And I hear this a lot, which is perplexing to me because in the books, this is, no, you have that direct, completely backwards. Belief comes before ability. And so I would go back to this part in your book that I think is super important when you're 19 years old. and your dad's like, what do you want to do with your life? And you're like, I want to compete with IBM.

1:26:40And you sit there and like, again, I don't think you should be reading these books quickly. It's just like, there's no test at the end. Like sit with the ideas and really think about what's happening on this page. And I think it's one of the most important pages in the book. I can actually see the page in front of me. And what you realize, you say on that page where it's just like, was I a little full, you know, the idea is like, I have$1 ,000, I'm in the UT dorm room, I'm going to take on the biggest company in the world. and you said, was I a little full of myself at 19? Sure I was. I think you have to be to do anything important.

1:27:11Can you explain that mindset? Yeah, I think it's a combination of naivete, right? Which is an important element. It's like you don't know enough to know that maybe this won't work, okay? And confidence. but you never sort of want to go over into the arrogant zone because that's really, I think, a dangerous place to be. So it's like, okay, I have not been in this industry for a long time. And so all these reasons why it won't work are unknown to me. Okay, so that's the naive part, right? And that can actually be sometimes a good thing, right? Because you're not sort of bound by those conventional thinking that maybe are no longer as relevant.

1:28:15Or maybe you come up with some clever new way of doing it. And then, you know, the confidence piece is, all right, I'm going to go make it work. I'm going to go figure it out, right? but you know there's always that little voice in your head it's like well what if it doesn't work and you know what about this what about this so you never want to sort of assume okay this is absolutely going to work no matter what then you're going to ignore those little voices about well what about this what about this so yeah it's sort of I think a combination of naivete being real here, and confidence. I think a perfect illustration of that would be your reluctance, initial reluctance to name the company after you because it was PCs Limited, right, at the very beginning.

1:29:12It was officially Dell Computer Corporation doing business as PCs Limited. Right. Yeah, but then you realize, like, why don't we just do Dell? And then that's when I thought of the Osborne thing because you're like, wait a minute, this guy, he named his company after that. Like there's no way to go. What if it doesn't work? But it's interesting because you just said, it's like, yeah, I have a lot of confidence I'm going to do this. But the doubt never goes away. Yeah. And, you know, fear. Thank you. That's actually the last thing I want to talk to you about. When we – one of the first things when we saw each other last month, we talked about – we were like walking around Zach's office.

1:29:50And I don't know how it came up, but it came up almost immediately. And it wasn't a surprise to me because I feel the exact same way. But your fear of failure, in my experience, from studying all these histories of entrepreneurs, but I think you said the same. It's just like the fear of failure to this day is a bigger motivator than like the love of success. Yeah, totally. 100%.

1:30:20But, yeah, you know, you don't want to fail, although failing is how you learn. You know, pain is the best teacher. And so, you know, you have to have some little failures along the way. But that fear of, you know, you can't have it paralyze you where you don't want to make any decisions because you're afraid to fail. How's that happened to you? Not really. No. You know, what you want to do is sort of be incremental. And again, it's back to iterating. It's like, okay, we're not sure if this is a good idea. let's try it, right? Let's experiment. Let's get started. We'll figure it out. And we're not betting the whole company on this decision.

1:31:16We're just experimenting. And if it doesn't work, great. We learned something. We move on. That's perfect. Thank you for writing the book. Thank you for the time. I really appreciate it, Michael. Thank you, David. I hope you enjoyed this episode. Please remember to subscribe wherever you're listening and leave a review. And make sure you listen to my other podcast founders for almost a decade. I've obsessively read over 400 biographies of history's greatest entrepreneurs, searching for ideas that you can use in your work. Most of the guests you hear on this show first found me through founders.