Ahead of Dell World, I had a chance to talk to Michael Dell about a number of things. His competitors had been saying that he’d be buried under debt and I wanted to check on that. I also wanted to find out how the company had changed, how customers were reacting, and if he was enjoying his new Tesla S (I’m kind of a car nut). I got answers to all this and more.https://o1.qnsr.com/log/p.gif?;n=203;c=204663295;s=11915;x=7936;f=201904081034270;u=j;z=TIMESTAMP;a=20410779;e=iThe Economic Power of Being Private
Michael was clearly a bit upset about how his effort, which had been very hard fought, was being positioned as a competitive disadvantage. He went into depth about the massive cost of being a public company of Dell’s size. He would spend up to $2 billion annually on stock buy backs, dividends and the massive amount of compliance efforts required of the firm. This was a massive amount of resources off his bottom line and the debt service he exchanged this for by going private was $750 million. Certainly a significant amount, but the money being saved now by being public could go into R&D, market expansion efforts, acquisitions, and paying down debt.
This last showcases a key advantage to being private: You could pay down the debt and reduce the debt service, but as long as you were a public company, there was no real way to avoid much of the cost associated with being public, and you’d still have to pay dividends and do stock buybacks to support the stock price regularly.
Partnering vs. Competing
The stock analysts like to see firms invest in competing in trendy areas like cloud computing because they know this will drive higher stock values. This can leave the company spread far too thinly in highly contested areas like smartphones, cloud services, and tablets. Being private frees Dell up to adopt a partnering strategy. It doesn’t have to chase every trend; it can partner with the companies that are already successful and, by not becoming a competitor, it can more easily sell to these firms.
You see, companies don’t like to use vendors they compete with, so by taking a partnering stance, Dell can sell more servers and support services to companies like Microsoft. This forms a cleaner partnership, rather than the screwy competition/partner strategy many of Dell’s peers have formed. Microsoft was even comfortable providing a significant amount of funding to Dell to take it private, which should make Dell and Microsoft stronger partners over time.
Apparently, customers have been very happy with the changes they have seen in Dell. I not only heard this from Michael but from actual Dell customers, who report that the firm seems much more interested in their wellbeing since going private. Large investors take tons of executive time to care for and feed, and they drive firms to cut support and client care costs. Without that pressure, Dell was free to focus more time on these customers and they both noticed and appreciated it.
The contrast was Mark Hurd at HP, who cut customer programs and laid off staff aggressively to keep the stock analysts happy; he instead lost the support of customers and employees, who really hated the guy. (I shudder when I think about what he must be doing to Oracle.) Dell doesn’t have to sell out employees and customers to make stock analysts happy and this appears to be positively affecting customers’ satisfaction and employee loyalty.
One of the other things going private has done is freed up the company to make big bets and bold moves. While Michael declined to give details when asked about emerging technology waves like 3D printing/scanning, robotics, and super capacitors (which could revolutionize mobile and wearable products, not to mention electric cars), he indicated he had active programs in most of these areas.
Expect something amazing from the new Dell next year.
We did talk about Michael’s car. I’ve driven the Tesla S on several occasions and it is truly amazing. Apparently, he is very happy with the car. I asked that he watch the inside tread of his rear tires because excess wear there has resulted in a large number of blowouts. This is only on the high-performance model and apparently it is a combination of excessive camber to improve handling and the heavy regenerative breaking and torque of the high-performance model. (I share this for those who have one. This is apparently difficult to catch and a blowout at speed, including on a rear tire, can be catastrophic even in a car as well built as a Tesla S).
The reason I know about this tire problem is that I live in Silicon Valley, where Teslas must breed like bunnies because we are up to our armpits in them.
Wrapping Up: The New Dell
I noticed two other things during our chat. One was that Michael was far more relaxed than I’ve seen him before (thus the car chat). The other was his response when I asked him what Dell would look like when it goes public again. While I don’t recall it word for word, what I walked away with was the impression that he wanted to say: What, are you stupid? Going private has taken away much of what I hated about being a CEO, improved customer and employee loyalty, and made the firm more agile. Why would I ever want to go public again? It was very clear that being private has changed both Dell and Michael’s job for the better, which supports the conclusion that, while painful, it was a brilliant move.
And that, my friends, is the power of being private.