EVERY SPOKEN WORD
85 min read · 17,484 words- 0:00 – 0:18
The Early Obsession: Dell's Beginnings
- DSDavid Senra
[electronic music] I want to jump right into what we were talking about before we started recording. Like you said, somebody was... Uh, you've been obsessed. You know, you've been running Dell for forty-one years. You've been obsessed really since you were, like, eleven or twelve, so you've been running it for fifty years, 'cause you were- it was- there was a Dell before Dell, right? But you were saying somebody was telling you this story about you in middle
- 0:18 – 1:11
Middle School Memories and Early Financial Fascinations
- DSDavid Senra
school.
- SPSpeaker
When I was in, uh, junior high school, in the, in the summers in Houston, uh, there were classes at Rice University for, for young kids, okay? And so you could go to Rice University to take these classes, and my, my mom, you know, kind of signed me up, and it was great. You know, they had these college professors, and they were teaching these classes. And, uh, the, the way I would get to Rice University is I would take the bus from, from, from our house, right? And it would, like, take you downtown.
- DSDavid Senra
Right.
- SPSpeaker
And, and, uh, I was, I was curious, so I was, I was like, "Okay, if I just stay on the bus, it takes me all the way downtown to where the really tall buildings are." [laughing] So, so I go down there, there's, like, really tall buildings, and I'm, like, roaming around. I'm, like, eleven or twelve years old,
- 1:11 – 2:14
The Spark of Stock Market Interest
- SPSpeaker
and I see, like, they've got, like, the stock exchange there and all these tickers going. I'm like, "Wow, that's pretty cool." [chuckles] So I just started, started learning about the stock market. So anyway, it's just something I remembered. [chuckles] And, and, you know, my, my parents were always talking about financial markets, and, uh, it just sparked sort of this, this, uh, interest really, really ear- ear- early in, in life.
- DSDavid Senra
There's a great line I've seen, um, from both Ken Griffin and Larry Ellison describing you. They're like, "Just- this guy was manufacturing computers in America at a time when there was, like, thousands of other people doing the exact or a very similar thing, and he was the only one that survived." And the reason I just thought about that is because I was watching this, um, this talk that Ken gave, I think, at Yale, and he says something. He's like, "For some reasons I can't explain, I don't know why. I've just been obsessed with the stock market, with business, since I was in the third grade, and, you know, sixty years later," or however old he is, like, "I- that obsession has not
- 2:14 – 2:35
Unreleased Products and Unwavering Enthusiasm
- DSDavid Senra
dulled." We were just in your office, and you were showing me one of your new unreleased products, that we can't film or photograph. [chuckles] But you were like... I was like this, this is like a kid on Christmas. Like, you're still, still-
- SPSpeaker
A super cool product. Yeah.
- DSDavid Senra
[laughing]
- SPSpeaker
I'm, I'm very excited.
- DSDavid Senra
I told you I'll buy one. It's, uh, I think it's cool, too. I'm gonna buy one as soon as it comes out. But I just love this enthusiasm that is just not dulling.
- 2:35 – 3:11
Family Conversations and Motivations
- DSDavid Senra
What do you think-- I was just with your son, Zach, last night, and I was... We, we were talking a lot about his business. He's absolutely ripping. He's super intense and-
- SPSpeaker
Yeah
- DSDavid Senra
... like, he's just in it right now, right?
- SPSpeaker
[chuckles]
- DSDavid Senra
And then that was, like, ninety-five percent of our conversation. Then he's like: "All right, I have some things that you should talk to my dad about." [chuckles] And then I- he- it was so good, I was like: "Shit, he just did the outline better than me." So one of the things, uh, he's like, "You need to get on record what motivates him." He's like: "It's one of the most fascinating things." He's like: "Just ask him what motivates him." So what motivates you?
- SPSpeaker
You know, it's all just, like, fun and interesting, and I want to learn.
- 3:11 – 4:50
The Puzzle of Technology
- SPSpeaker
And it's like, uh, it's like a big puzzle to solve and understand. And you think about the impact that technology has on the world, what could be more exciting than to be in the middle of that? And, [chuckles] and, and to figure it out and to, uh, you know, help, help advance it. And it's an infinite game, right? It never, never ends. Love, love to win, hate to lose. And, um, yeah, it's just, it's just, like, the most exciting thing you, you could do, to be in the middle of a business like this and to see it all unfold and play out.
- DSDavid Senra
Yeah, he... That's one of the things. He's like: "He's addicted to puzzles."
- SPSpeaker
[chuckles]
- DSDavid Senra
So that's the way you look at it?
- SPSpeaker
Yeah, I mean, it's, it's, it's like, it's like the curiosity, solving a puzzle, understanding things, and figuring it out. Yeah, that's, that, that's, uh... Y- you always want to do that. I mean, uh, I, I, I would feel unfulfilled if I couldn't figure out a puzzle, a question. So yeah, there's, like, a burning desire to understand things-
- DSDavid Senra
You-
- SPSpeaker
-and to, and to figure them out. Puzzles and, and math have always been, uh, important.
- DSDavid Senra
When did you realize that about yourself?
- SPSpeaker
I never really realized it. [chuckles] I just-
- DSDavid Senra
[chuckles]
- SPSpeaker
... You just asked me about it. [laughing]
- DSDavid Senra
[laughing]
- SPSpeaker
Uh, I- it's just, just, it's just what I did. I just wanted to understand things.
- DSDavid Senra
Mm-hmm.
- SPSpeaker
And, and, you know, when I was dealing with, with, uh,
- 4:50 – 5:52
Taking Things Apart: A Lifelong Curiosity
- SPSpeaker
physical things, the way I would understand them is to take them apart. It's like, how can you understand something if you don't take it apart?
- DSDavid Senra
Yeah.
- SPSpeaker
And like... And, um, my parents would get pretty frustrated, you know, taking apart things in the house. [chuckles]
- DSDavid Senra
[chuckles]
- SPSpeaker
Sometimes I'd put them together. Sometimes they would-
- DSDavid Senra
Yeah
- SPSpeaker
... still work. Um, but it's just the desire, it's to understand things, to, you know, the curiosity.
- DSDavid Senra
Yeah, that's one of your character traits. You have a great story in the book where I think you save up for the Apple II. It was a computer, and it was, you know, relatively expensive, especially I think you were, like, twelve or something at the time. And then you bring it home, and your parents are like: "Oh, he's, you know, he's gonna plug it in and play with it." It's like: No, I immediately took apart, [chuckles] took it apart. I needed to understand how it worked.
- SPSpeaker
Well, it's like this machine, it's like, it does really cool stuff, but how does it work?
- DSDavid Senra
Yeah.
- SPSpeaker
It's like, [chuckles] what's inside it, and, and how do all those things work? How do they fit together, and why did they put these things versus those things? And, you know, sort of getting down to the essence of it.
- 5:52 – 9:19
The Economics of IBM and Early Business Insights
- DSDavid Senra
I had a thought when I was reading your book. You know, at the time, you're, you're taking apart IBM. You know, this is, I'm pretty sure, before... You were in- you're a teenager, so this is before you start Dell officially.... but it's, you know-- I, and I didn't know this about IBM. I had to go back and look it up. This is, like, the most valuable company in the world at the time. It was the first company to ever hit a hundred billion dollar market cap, which also blew my mind. But you take it apart, and you're like: Oh, wait, it's just components. This is the biggest company in the world, and this is their product, and if you take it apart, it's just made of components from other companies. And it's just like, it's implied, or at least this is what I was reading through the lines when I'm reading your books, like, well, I can do the same thing. Like, what are they doing here that I couldn't do? Did you have that thought?
- SPSpeaker
Yeah, absolutely. I mean, so it's, it's back to when you open the thing up-
- DSDavid Senra
Mm-hmm.
- SPSpeaker
-you look inside, what's there? Well, there's chips, right? [chuckles]
- DSDavid Senra
Yeah.
- SPSpeaker
And there's wires, and there's power supplies and disk drives and all these components. It's like, well, where do those things come from?
- DSDavid Senra
Yeah.
- SPSpeaker
Who makes those, right? [chuckles] What's inside those?
- DSDavid Senra
Yeah.
- SPSpeaker
How do they make those? And so you sort of peel the onion, you know, and you understand all the different elements. And, you know, when I, uh, originally got the first IBM PC, you know, yeah, uh, probably took it apart before I turned the thing on, [chuckles] you know, just to-
- DSDavid Senra
Yeah
- SPSpeaker
... just to see what's, what's inside. And one of the really cool things back then was that you didn't have these, uh, sort of application-specific integrated circuits. They call them ASICs, right?
- DSDavid Senra
Mm-hmm.
- SPSpeaker
Or these big sort of, uh, chips that nobody really knows what's inside-
- DSDavid Senra
Yeah
- SPSpeaker
... except the designers. All the chips were off-the-shelf chips, so you could see-- you could sort of, uh, understand what the, the, the logic flow was-
- DSDavid Senra
Mm-hmm
- SPSpeaker
... and what each chip was supposed to do inside the circuit. And i- inside the IBM PC, none of the chips were made by IBM, right? [chuckles] And, and, and, uh, none of the disk drives were made by IBM. The power supply wasn't made by IBM. And, and so, uh, you know, I was also interested in the economics of it. It's like: Well, what does this chip cost? What does that chip cost? And you sort of add it all up, and then you compare it to the cost that they're selling the thing for, and you go, "Wow, this is... They're really charging an incredible markup for, for this."
- DSDavid Senra
That's an incredible insight to have as a teenager, though. It's like, figure out what the, like, actual cost of the components are and then go look up... And it sounds like what Elon did with rockets. This is like, "The, the Russians won't sell it to me. I'm on the flight back." There's this famous story. It's in all of the b- books now. He's just like: Well, what is a rocket made of?
- SPSpeaker
Mm.
- DSDavid Senra
Like, okay, well, there, there's a list of components. How much do those components cost? What you just said is, like, you just kept asking questions, like, "Oh, I'm gonna take it apart." It's like, okay, well, this is all the components. This is what it is. This is, like, where you get them from. This is the co-- Look, the company name is right here. I can just call them up and find out how much this is.
- SPSpeaker
Well, you could go to the distributors-
- DSDavid Senra
Yeah
- SPSpeaker
... and you'd say, you know: "Okay, how much does this chip cost?" And they'd say: "Well, it's this price for a hundred of them."
- DSDavid Senra
Yeah.
- SPSpeaker
Right? Uh, a- and y- you could, you could literally map out the cost-
- DSDavid Senra
Yeah
- SPSpeaker
... of every chip inside the thing.
- 9:19 – 16:36
Cost Control and Competitive Advantage
- DSDavid Senra
There is a book Ken Griffin, the founder of Citadel, recommends reading called Hardball. The subtitle of that book is, Are You Playing to Play or Are You Playing to Win? It is a book about extreme winners and some of the best operators in business. There is a line in that book that says: "If you have not examined your costs in detail, it is very likely that there exists, lurking somewhere in your cost structure, a major opportunity to improve your profits, weaken your competitors, and expand your influence. The first move is to drive down your costs faster than your competitors can and use the cost savings to upset their strategies." That sounds like the author was describing Dell. In his autobiography, Michael Dell says that one way that he was able to out-compete his better-funded competitor, Compaq, was with a structural cost advantage. Compaq's operating costs were thirty-six percent of revenue, compared to Dell's eighteen percent of revenue. More than forty years later, Dell is thriving, and Compaq no longer exists. The best operators in business have this in common: they know their business from A to Z and their costs down to the penny. Ramp makes doing this effortless. Ramp gives your business easy-to-use corporate cards for your entire team, automated expense reporting, and cost control, all on a single platform. Ramp's corporate cards are fully programmable. You can set limits so the spending of your team never gets out of hand. Most companies only find out about excessive spending after the fact. With Ramp, you can stop it before it happens. Matt Paulson, who listens to this podcast and who's the founder of MarketBeat, recently switched to Ramp, and this is what he said about it: "Ramp is the best. The amount of money you will save from unwanted renewals and employees who think company credit card equals buy whatever you want will far exceed the best credit card rewards program." Matt is talking about the importance of cost control. Ramp helps you make this an obsession. Almost all of the top founders and CEOs I know are running their company on Ramp. Go to ramp.com to learn how they can help your business play to win today. That is ramp.com. Something I, I don't even know if I- I've ever, like, verbalized before, but it's in all these biographies that I read. What it feels is like, there's just, like, a lot of common sense, where they just-- the founder tends to just keep asking m- more questions and just, like, going to it, like an e- you just said, I think, peeling an onion. It's like, yeah, just like: "Okay, I got that answer. What's the next one? And then what's the next one?" And there's something in human nature where we just, like, we stop at the first question, but you have this, like, infinite curiosity that was o- very obvious, like, from chi- from childhood, and I think based on what we [chuckles] were just talking about in your office, is obviously still present. But yeah, it's just very fascinating. It's like, it's not rocket science. Just, like, keep asking questions and collecting information and thinking about the answers that you're getting.
- SPSpeaker
Yeah, you want to understand things-
- DSDavid Senra
Yeah
- SPSpeaker
... at a very deep [chuckles] level.
- DSDavid Senra
Yeah.
- SPSpeaker
It, and, and so that's always been a, a-... thing for me.
- DSDavid Senra
Yeah, I think that's what I'm very interested in. It's like, if you read the life story of somebody, like, I'm very interested in understanding who the person is and, like, why they're doing what they're doing. And this is the, the, the genius line from Charlie Munger, where he's just like: "Well, if you just- it's way more effective to tie the ideas to the personality that developed them." And the way you tie it to the personality that developed them, it's like you read about their life story. You read about their childhood, you read about what their interests were. I love the part in your book, I was rereading yesterday, where your parents confront you, okay? You've started Dell [chuckles] in your d- dorm room at University of Texas, and they're just distraught. [chuckles] Which is really funny, given what's occurred over the next four decades. Like, "What are you doing, Michael? You're supposed to be, you're supposed to be, you know, on this path to be a doctor." And I think your mom's crying. Your, you know-
- SPSpeaker
She was, yeah.
- DSDavid Senra
It very emotional.
- SPSpeaker
Yeah.
- DSDavid Senra
And so you, you were like, "Okay." In the book, you said, "I caved." Okay? Which is very unusual, because you have a super strong personality [chuckles] from, from a, from a young kid. But then the very next page, I can see it in my mind right now. You're like, I, I cold turkey, n- didn't even look at a computer for ten days. I tried to take notes in classes, and then when I realized, like, no. Like, it was like you were compelled. Like, I thought working in computers was going to be thrilling. I'm going to drop out [chuckles] with $1,000, and I'm gonna take on the biggest company in the world.
- SPSpeaker
I think the fact that they, they, uh, put all that pressure on me is the thing that caused me to really reflect on it-
- DSDavid Senra
Yeah
- SPSpeaker
... and decide that, no, this is more than a little hobby or a side thing. This is just like, I have to go do this.
- DSDavid Senra
Do you feel it was all-consuming even at that age? 'Cause like you s- at the time, you're, like, sleeping in the office when, when you do start. Like, you start... Yeah, I know, uh, we talked about this last time, it's hilarious, where somebody asked you, it's like: "Well, when you started Dell, like, how many hours did you work?" And you're like: "All of them." [chuckles]
- SPSpeaker
Yeah, I mean, I, I wasn't doing anything else.
- DSDavid Senra
Yeah.
- SPSpeaker
I mean, th- th- there wasn't really anything else that was important to me. [chuckles] And so, yeah, it was, it was totally all-consuming and, uh, super exciting, and wasn't doing anything else, yeah.
- DSDavid Senra
Were you more of, like, before that, somebody that just focused on one task at a time?
- SPSpeaker
I w- I would get pretty obsessed with, you know, individual topics [chuckles] -
- DSDavid Senra
Yeah
- SPSpeaker
... and sort of go, go deep on them.
- DSDavid Senra
Mm-hmm.
- SPSpeaker
Um, so yeah, I wouldn't consider myself, uh, you know, uh, generally interested in a bunch of things. I was, like, super deep on certain things that excited me or interest- interested me.
- DSDavid Senra
Is that still the case today? Or is it just basically-
- SPSpeaker
Yeah, tends to be, yeah. Yeah.
- DSDavid Senra
Yeah, Zach told me, he's like: "He'll call me at, like, five AM."
- SPSpeaker
[chuckles]
- DSDavid Senra
And he was like: "I have an idea." [chuckles] Like, "We should do this product or this acquisition or whatever." He's just like, "He just can't help himself." And I asked him, I go, uh, "What would get him to stop?" He's like: "You have to kill him." [laughing] What made you decide to write the book?
- SPSpeaker
You know, we, we had, we had gone through a whole lot-
- 16:36 – 20:58
The Importance of Storytelling in Business
- DSDavid Senra
I actually think that idea of, like, having, uh, like, a singular piece of media, whether it's a book, there's another idea for you for a podcast, uh, for people as the company grows, to understand, like, this is the decisions that were made, this is why it was, this is what we've gone through. Uh, Spotify has this. Originally, they, they did... Gustav is the head of product at Spotify, and he's the actual one that made this. And originally, um, I talked to them about this, they were just gonna do... It was, like, an eight-part series. Uh, it was gonna be a private podcast inside the company, which tells the history of Spotify.
- SPSpeaker
Mm-hmm.
- DSDavid Senra
So if you come in now, you know, twenty years into its existence, it's like, well, what were- what, what was, like, year one in an apartment? You know, we got a server in a closet. And so what they did is they did this beautiful, like, narrative, and, uh, they would also include the people that were important at the ear- in the early days. Like, you know, some people don't last in the company, but they were really important-
- SPSpeaker
Right, right
- DSDavid Senra
... for two, three, four years. But I listened to the thing, like, two or three times, and thank God that now it's public, anybody could just type in Spotify. "A Product Story," I think, is the name of the podcast. I'm like, why don't more companies do this? Like, I'm not an employee, but if I was coming into Dell or any other company now, and I could have, "Here, here's eight, you know, eight one-hour episodes," and they say, not just, "The, this decision was made," it's like, why? "These are the constraints we were under. This is what was going on."
- SPSpeaker
Exactly.
- DSDavid Senra
Yeah.
- SPSpeaker
So, you know, if we walk downstairs, right below w- th- this room where we are-
- DSDavid Senra
Mm-hmm
- SPSpeaker
... there's a new class of small business salespeople-
- DSDavid Senra
Mm
- SPSpeaker
... being trained, okay? And you would love for those-... team members to be able to understand, okay, how did we get here? What are all the things that, that, you know, we did right and wrong? And to really deeply understand the culture, the values, the beliefs, and then to be able to build on that with their own contributions.
- DSDavid Senra
Yeah, kind of bring them up to speed. And just for the context, I also think there's a, a, an additional benefit for, for it to make it public-facing because humans buy stories. Money flows as a function of stories. And I've experienced this, it's like, if I read-- I spend, you know, forty hours reading about this person that had this idea in their head, they built a company, at the end of that, you're gonna have a way better appreciation. I would wind up buying my-- buying their products that I'd never even would have thought of because now I understand the story. Um, I just reread James Dyson's, uh, autobiography, which is one of my favorite books, probably my number one recommendation out of the four hundred books I've read so far, just because it's like ninety percent just struggle. The first autobiography is just like, "I'm failing for fourteen years." This guy is like a mule. He won't give up. Five thousand one hundred and twenty-seven prototypes. But there's an idea in the book that, that was smart, where he understood the power of storytelling, okay? And so he's like, "You're gonna walk into the retailer, you're gonna see six different vacuum cleaners." His obviously is designed different, so it's gonna catch your eye. But he insisted they wrote, like, a two hundred-word story on, like, a little flyer, right? Maybe, like, a little piece of cardboard, and it-- that you could attach it to the handle of-
- SPSpeaker
Mm-hmm
- DSDavid Senra
... the vacuum cleaner. And what happens? If that person-- humans are attracted to stories, are attracted to people, right? And so they would-- they'd read that, and then they, it would increase their sales because they understood who's behind this, why did they make it, how is it different? Like, it was a very effective sales tool. Um, so I, I think, like, doing podcasts like this, books, anything like this where you can actually tell, like, why you're doing what you're doing. This is a crazy thing. I've heard from, I don't know, I've probably got thousands of messages about the episode I did, uh, on you, and the most common thing was, "I knew the name. I had no idea." Everybody knows Dell, every-- uh, the brand name, right? But they didn't understand just how crazy your story and the, the multiple different transformations you've had to make over forty-one years. And now they're like: "Oh, this guy, like, I'm so glad you, you put that in front of me." I think it's, like, a super important idea.
- SPSpeaker
It's all, it's all been a lot of fun-
- DSDavid Senra
Yeah
- SPSpeaker
... and, and, and still, and still is. And, and it feels like we're just getting started, actually, [chuckles] when, when, when I think about the business and the opportunities we have, and, uh, yeah, it's all fun.
- DSDavid Senra
You mentioned earlier that you benefited from studying people that came before you, and this is, you know, you wanted to pass that forward. Like, wh- who are a few of the people that you study, you feel you learn from, or that influence, like, your thinking about how you're building, how you built your business?
- 20:58 – 25:00
Learning from the Greats: Influences and Inspirations
- SPSpeaker
You know, when I was a, when I was a kid, I, I, I, y- you'd read about entrepreneurs, you know, that, that were starting companies, Charles Schwab or Fred Smith, certainly, uh, Sam Walton, some of the early t- uh, telecom pioneers, uh, people that were doing it right then, like in, in the '70s. And those stories were also... were, were just super interesting to me. And I, I grew up in, in Houston, which was kind of a boom town. You'd see these new companies being created, and my parents were talking about that. And so th- those, those stories were always just interesting and, and compelling, and you'd want to understand, well, how did they do that? And why did they do that, and, you know, what happened? And, you know, I never imagined myself doing anything else other than starting a business. [chuckles]
- DSDavid Senra
Yeah.
- SPSpeaker
You know, the idea just was in my, in my consciousness from, from a very early age.
- DSDavid Senra
There's a great line that Jeff Bezos says, where he's like: "Our passion-- we don't choose our passions, our passions choose us." I think there's multiple mar-- like, my notes myself in the margins, like, "Oh, he's compelled." He's like, "This is coming through him." Like, he's just like, he has no choice. This is going to happen.
- SPSpeaker
[chuckles]
- DSDavid Senra
But is there anybody in particular that you, like, really, like, honed in on and admired and tried to emulate in some way?
- SPSpeaker
I always think you, you can, you can learn from just about anybody, whether they succeeded or failed, and so I tried to just understand, uh, you know, uh, as many people as I could that were entrepreneurs, that were starting businesses. How did they struggle? What, what worked, what didn't work? And those were always the compelling and interesting stories.
- DSDavid Senra
When you were fifteen, you met-- you were, I think, at some kind of conference with... And this is the first time you ever was in-- were in the presence of Steve Jobs. I think Steve was, like, twenty-five at the time.
- SPSpeaker
Yep.
- DSDavid Senra
So when-- was he somebody-- like, when you saw him at fifteen, and you saw, okay, wait, this is a young kid in his twenties building a computer company. Was, like, that a model for you or w- like, what was your interpretation of, like, that experience? I guess, what I'm trying to get at.
- SPSpeaker
Yeah, so you know, in, in the early days of, of the computer industry, i- you know, uh, as I knew it, the microprocessor-based computer industry-
- DSDavid Senra
Mm-hmm
- SPSpeaker
... you know, Apple was a leading company, and Steve was obviously this sort of legendary figure.
- DSDavid Senra
Mm-hmm.
- SPSpeaker
So I was in this Apple user group, which was a bunch of, you know, geeky people-
- DSDavid Senra
[chuckles]
- SPSpeaker
-who would, like, get together and, and-
- DSDavid Senra
You don't say. [laughing]
- SPSpeaker
[chuckles] And... Exactly. [laughing]
- DSDavid Senra
[laughing]
- SPSpeaker
And, uh, and, you know, sort of compare-
- DSDavid Senra
Yeah
- SPSpeaker
... you know, how they had souped up their computers and software they had written and learned from each other. And so, you know, Steve came to speak to our user group, and yeah, I mean, he, h- h- you know, he, he, he, he was, like, using these incredible, you know, metaphors, and you're, like, listening to him and, uh, looking at what Apple's doing and going, "Wow, that's, that's really cool."... and, you know, you, you'd also start- started hearing about Bill Gates, you know, who's also about the same age as Jobs.
- DSDavid Senra
Mm-hmm.
- SPSpeaker
And, you know, they're both about ten years older than, than I am, and you kind of look at them and go, "Well, okay, they did something cool. May- may- maybe, maybe I've got a shot."
- DSDavid Senra
Yeah. [chuckles] That's really cool. There was, uh, something you mentioned to me, uh, when we had dinner that has been rattling around in my head, and I think it's part of the reason that I couldn't sleep. And I don't even think it was, like, explicit advice. I think you were just making an observation. But you said something along the lines that, um, you know, you've seen count- countless different companies and entrepreneurs come and go over, you know, four decades, four-plus decades.
- 25:00 – 29:48
The Challenge of Self-Sabotage in Entrepreneurship
- DSDavid Senra
And you said, said something that terrified me, [chuckles] uh, unintentionally, uh, that most of the entrepreneur-- most entrepreneurs and founders that you, you, you've known were never taken out by competition, that they sabotaged themselves. Can you say a little bit about that?
- SPSpeaker
Yeah, I mean, I think, I think you could, you could make the argument that, that they made mistakes along the way that, that, uh, you know, were fatal and, and, you know, ultimately, uh, you know, the companies didn't, didn't succeed. Um, but it's, it's all of their own doing, right? [chuckles] You know, the, the-- you have to make the right choices in order to, to continue on, and, and survive, and ultimately thrive.
- DSDavid Senra
What do you think are some of the causes of mistakes? You have o- o- obviously smart, talented, competitive people, right? Charlie Munger has this great line where it's like, "Intelligent people are taken out by three things: ladies, liquor, and leverage." [laughing] So, like, what do you-- have you seen any common, like, causes for somebody to sabotage themselves or to not live up to what they should have?
- SPSpeaker
Charlie's right about those-
- DSDavid Senra
[laughing]
- SPSpeaker
... three things. Uh, you know, we, we, we, we, we stay away from those.
- DSDavid Senra
Yeah.
- SPSpeaker
Um, I sort of go back to understanding things and curiosity, and it's like you've gotta, you've gotta know why something is working or not working. And if you're in the middle of, of a super competitive, uh, endeavor, and you don't really, uh, completely understand what's going on, well, you're gonna make mistakes, right? [chuckles] And so, uh, you know, when I, when I look at the, the competitors that, that, that are no longer around, yeah, they, they, uh, they, you know, had either overzealously expanded or made, you know, design, you know, uh, errors, or they failed to understand the competitive, uh, landscape. I mean, there's lots of ways to fail, right?
- DSDavid Senra
You have a great example of one in the book with Adam Osborne, where he had a very successful... I think the Osborne 1 was relatively successful, right?
- SPSpeaker
Yeah.
- DSDavid Senra
Okay.
- SPSpeaker
Yeah.
- DSDavid Senra
And he's like, "All right, now we're, we're coming out 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, and so now you just made this big announcement where you're like: "We have this great new product. It's even better than 1." What are you telling to the market?
- SPSpeaker
The, the Osborne effect. [chuckles]
- DSDavid Senra
[chuckles]
- SPSpeaker
Uh, 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, you're out of business. And, and so, you know, yeah, don't wanna do that. [chuckles]
- DSDavid Senra
[chuckles]
- SPSpeaker
So, so go make some mistakes nobody's ever made before. Try to make them in small-
- DSDavid Senra
Yeah
- SPSpeaker
... increments. Fix your mistakes as fast as you find them.
- DSDavid Senra
Mm-hmm.
- SPSpeaker
And you actually want to make mistakes. You just want to make them small and, you know, iterate and fix them quickly.
- DSDavid Senra
Yeah.
- SPSpeaker
I mean, one of the things when you're, 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, uh, book you can read that says-
- DSDavid Senra
Yeah [chuckles]
- SPSpeaker
... "Here's how you do it," right?
- DSDavid Senra
[chuckles]
- SPSpeaker
And, and if you hire the people from the adjacent, you know, industry companies and ask them to go do it, well, they're just gonna go do what they were doing before, right? [chuckles]
- DSDavid Senra
Yeah. [chuckles]
- SPSpeaker
And so that's not gonna work. So you need a lot of creativity, and you need to sort of intuit your way to the answer by experimenting. It's like, okay, uh, here's a theory, uh, that we think will work. Let's try it, right? And, and-
- 29:48 – 43:09
Embracing Change and Innovation
- DSDavid Senra
company. It's gut-wrenching stuff to reinvent and reimagine your business, but if you don't do it, you go out of business."
- SPSpeaker
Yeah, ex- exactly. So, you know, when, uh, ChatGPT came out in November of '22, we're sort of looking at this and going, "Wow, this is a big deal. [chuckles] This is, this is pretty interesting." And you started to see the rate of improvement in the LLMs. And you, you, you know, in technology, you can-... you can sort of look at the, the rate of improvement and the learning curve, and you can sort of plot, well, where's this thing going, right? Where's this gonna be in a year or two years or three years? And you look at, okay, we're gonna, uh, have agents and multi-agent systems, and we're gonna 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 gonna have? So you think about that, and you go, "Wow, this is a big, big deal here." [chuckles] Um, we need to totally reset how we're thinking about the business and reimagine it, reframe it, and understand what the processes are, are gonna look like in five years. And so you d- you do all that, and you say, uh, "If we keep doing what we were doing before, we're gonna be in serious trouble, because some new company's gonna come along, and, yeah, they're gonna, [chuckles] uh, have all these new tools. They're not gonna have this legacy of crap [chuckles] from, from the past," right-
- DSDavid Senra
Yeah
- SPSpeaker
... old ways of doing things, "and they're just gonna do it the new way. And so we have to change, or we're gonna go out of business." You know, I also believe in this idea that, uh, if you don't have a, a crisis, make one, right? [chuckles] You know. To get people excited, motivated and to drive the, the necessary change. I mean, in one, in one sense, this is not a technology problem. The technology's there, whether you use it or not.
- DSDavid Senra
Mm-hmm.
- SPSpeaker
It's a, 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, uh, you know, the, uh, 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 ten years or twenty years or thirty years the same way, and all of a sudden, it's like some new thing comes along, you're like, "No, I don't want to do that." You know, pe- people don't like to change, but you have to. And so that's what we've been doing.
- DSDavid Senra
Yeah, this is ex- 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, was like, yeah, the personal computer's, you know, fine. It's gonna 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 s- 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. [chuckles] So they just kind of, like, dismiss it, dismiss it or kind of ignore it. I, uh, I'm trying to think, though, like... So you just said, okay, there's no books, like, what you guys are doing right now at Dell, right? You can't just like-- You're on the cutting edge, so there's no, there's no books you can read about it. But you have surfed how many different technological revolutions? You did the microprocessor, right? Uh, microcomputer, sorry, uh, the personal computer. Um, then obviously, the internet was invented.
- SPSpeaker
Client-server technology-
- DSDavid Senra
Yeah
- SPSpeaker
... a little bit before the internet.
- DSDavid Senra
How, how many?
- SPSpeaker
Yeah.
- DSDavid Senra
So, like, I got four or five. How, how many have you successfully navigated and had to reinvent Dell over and over again? How many of these, like, huge shifts do you think you've navigated?
- SPSpeaker
Yeah, there's probably been six or seven of them.
- DSDavid Senra
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 [chuckles] on this one, but we've, we've-
- SPSpeaker
Right. Right
- DSDavid Senra
... we have to fix that." You're not gonna be perfect over that many decades. But do you see, like, uh, is there like an echo between all of these, like, that you can apply, like, certain ideas you can take away a- and, like, form a structure? It's like, oh, that's kind of similar to what we had to do when we had to reinvent for X.
- SPSpeaker
Yeah, there are.
- DSDavid Senra
What we're doing now.
- SPSpeaker
Although, the, the, the, the time frames that these things occur tend to be shrinking.
- DSDavid Senra
Ooh, say more about that.
- SPSpeaker
So if you think about the, the internet, you know, when, uh, y- you know, first you had the internet, and you had the World Wide Web, right? And websites started popping up in the mid-'nineties. 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, it was going on, uh, in the late nineties and, you know, early two thousands, but it, it really didn't-- it took a long, long time. So now, uh, maybe it's, like, five to ten times faster-
- DSDavid Senra
Yeah
- SPSpeaker
... you know, i- if you, if you look at the growth in the usage of these tools. And part of it is that each successive, uh, wave of technological improvement is built on the prior what, you know, foundations, and so they're able to go faster. So if you have five billion people connected with all kinds of devices, well, now they can use these tools, and that just goes way faster. And I, I, I think you have to have this idea in your head that any, uh, you know, new thing has some chance of succeeding, right? [chuckles] And, and-
- DSDavid Senra
Wait. Say more about that.
- SPSpeaker
So there's a lot of wild ideas out there, and if you dismiss them all, you're gonna miss some, some things. So, so you, you, you, you kind of have to hold this idea in your head that, uh, any of these wild ideas has a chance of succeeding, and, uh, let's sort of understand what do all these things mean and figure out what is the point of intersection, right? W- w- you know, what should we be doing a- about this, and when, when is it actually relevant, interesting, valuable, and it sort of, you know, hits escape velocity? And if you're, if you're sort of stuck in a particular paradigm, or you're, like, dismissing things, you're gonna miss them.... Yeah. [chuckles] And, and so, and so, uh, you know, you need to be open-minded enough to consider all possibilities.
- DSDavid Senra
But your ability to do that is so counter to human nature, 'cause 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 peop- what music people listen to, for example, it's like, s- the music you listen to when you're in, like, [chuckles] high school and college, and maybe you've added a couple, but, like, you're kinda, like, just stuck on that, where you are just, like, a completely open, maybe addicted to, you know, new technology and new ways to think about or new ways to solve, like, old problems.
- SPSpeaker
Yeah, I love, I love the stuff.
- DSDavid Senra
But how do you not squash new ideas? Like you just said, like, you know, that- that'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, i- new ideas are fragile, and, you know, they need some kind of protection and some time to, to grow, like, but most people just, like, kinda snuff them out or dismiss them immediately.
- SPSpeaker
Well, you know, sometimes, uh, it, it, it, it's a, it's a good idea, but it's the wrong time.
- 43:09 – 46:55
The Power of Data and AI in Business
- SPSpeaker
way, and that's what we're doing. And we're, we're finding, you know, as we take our data, as we reimagine the processes and simplify and standardize them, we can, uh, make them way more effective. So, you know, an example would be, uh, in support, we have incredible amounts of data. We have telemetry data that the machines are giving us all the time, right? About, uh, you know, soft errors and all these things that are going on i- you know, i-inside the usage patterns from customers. We have warranty data, uh, you know, we have previous call logs, we have all these knowledge bases, we have JIRA databases. It'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's trying to solve, and it helps, uh, 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, uh, the 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, you know, 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, uh, we're in the business of compute [chuckles] and storage and networking, so it's an enormous, uh, opportunity for, for, for Dell itself to be able to help all of our customers unlock the power of their data.
- DSDavid Senra
You couldn't predict, like, the actual tools that were going to be invented. You just knew that now we have this new-- there's g- there's this new technology, that it will transform every single, uh, process inside the business. We not be... We won't be able to predict, like, all the tools, but we just know that they're coming.
- SPSpeaker
If we didn't do that and our competitors did, we'd be, we'd be finished, right? [chuckles] And so we're not gonna do that. And, uh, you know, even if we did it and our competitors did it, uh, let's say it just neutralizes. You have to do it, uh, you have no choice.
- DSDavid Senra
Yeah, there's a line in, uh, Andrew Carnegie's biography. It was really fascinating because, you know, he dabbled in a bunch of different businesses. He was pretty wealthy before he started the steel company. But once he realized that-- you know, think about s- how important steel was at that time. It's like everything, this is the new, the new product that everything el- e- every other product is going to be made out of, uh, from bridges to railroads and everything else. Like, this is the biggest opportunity of my life. I'm gonna 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, wondering, like, what the price of the stock was, like, fully focused on the greatest opportunity of my entire life. He 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 that idea from England, 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.
- 46:55 – 47:22
Cultural Differences and Resistance to Change
- DSDavid Senra
[chuckles] There's some c- you know, cultural differences, but, you know, our, our core motivations are, you know, uh, very similar. And, uh, they were very resistant to change, so they're like, "No, that's not the best process." And 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 it as
- 47:22 – 49:05
Investing in Technology: Lessons from Andrew Carnegie
- DSDavid Senra
technology today. It's definitely technology back then. And when you read his autobiography, which, you know, is in the public domain, anybody could read it for free, it's, it's an incredible gift to humanity. There-- 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. So even if we're on po-- like, on the same level, and the, the, 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. Uh, the savings compound, it can make the, uh... It gives you an advantage over, uh, your slower-moving competitors, and it can be the difference between a profit and a loss." If he didn't do that, the investment into the new technology, that his competitors were dismissing, the stupid young kid with his fancy machine, right? That wind up making, making his company profitable in a year or two, and their company unprofitable. And 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-
- SPSpeaker
Yeah
- DSDavid Senra
... keep reappearing.
- SPSpeaker
Yeah, exactly. You don't necessarily want everybody to know what you're doing, [chuckles] also.
- DSDavid Senra
The maxim 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, uh, 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. And 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."
- SPSpeaker
[chuckles]
- DSDavid Senra
"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
- 49:05 – 50:54
The Concept of 'Dad Terminal'
- DSDavid Senra
it is." [chuckles] One thing that was, that's hilarious that your son Zach wanted me to ask about was what he calls Dad Terminal.
- SPSpeaker
[laughing] Yeah. So Dad Terminal is, is what he, he refers to as when he kinda taps in and, you know, wants to talk about, uh, a particular topic or has a, has a question, and it's one of my favorite times with Zach, you know, 'cause, 'cause, you know, we're, we're talking about solving problems or challenges inside his business, and, um, you know, I get to share the mistakes I made, [chuckles] mistakes I saw other people make, lessons learned, and, uh, hopefully save him some, some pain and suffering and, you know, uh, steps from, you know, uh, learnings along the way.
- DSDavid Senra
Yeah, he says instead of typing in the re- I was like, "Why is it called...?" [laughing]
- SPSpeaker
[laughing]
- DSDavid Senra
I was like, "Why is it called Dad Terminal?" I didn't understand what that was. And he's like, "Well, Bloomberg Terminal." He's like, "You know,"-
- SPSpeaker
Exactly.
- DSDavid Senra
[laughing]
- SPSpeaker
Yeah. Yeah.
- DSDavid Senra
He's like, "You subscribe-
- SPSpeaker
[laughing]
- DSDavid Senra
... you log in, and you have a question, and then, like, you type in, you get this really-
- SPSpeaker
Yeah
- DSDavid Senra
... advanced answer."
- SPSpeaker
Yeah.
- DSDavid Senra
He's like, "I don't use Bloomberg, I use Microsoft." [laughing]
- SPSpeaker
Yeah.
- DSDavid Senra
"I use Dad Terminal."
- SPSpeaker
Yeah.
- DSDavid Senra
And I was like, "Give me an example, like, what is- what's the last query into Dad Terminal?" [chuckles] And he goes, "Supply chain." He said it like it was, like, obvious. So I was like, "I don't have a supply chain. I run a podcast. I read books. Like, explain it to me." Uh, he's like, "My... There's a f- handful of things, not even a handful." He's like, "There's a bunch of things my dad is world-class at," and he's just like, "One of them is supply chain." Um, and the, I'm curious as to, like, why you think you're, why other people describe you as really good at that.
- 50:54 – 56:18
Supply Chain Mastery
- DSDavid Senra
Uh, is that- is supply chain just r- related back to how we started this discussion, it's just, like, another puzzle [chuckles] for you to, like, direct your curiosity to?
- SPSpeaker
It's definitely a, a, an important puzzle-
- DSDavid Senra
Mm
- SPSpeaker
... and, and a critical puzzle. I mean, I think if we had not, uh, figured out how to do our sup- our supply chain well, um, you know, we, we would not be here today. It's as simple as that. So i- it's a, it's a fundamental thing that is just super important in it, in our business.
- DSDavid Senra
So it's just you've thought more about this area over-
- SPSpeaker
And, and made, and made a ton of mistakes, and learned a ton of lessons, and, uh, sort of, you know, figured out what works and what doesn't work.
- DSDavid Senra
Yeah, there's a line in the book, I think the first time you realize, "Hey, I ha- I don't like these..." Your whole thing is eliminating middlemen and, like, getting as close to the source as possible. And, um, I think you're, like, nine- you might be 20 years old at the time, but you're taking your first trip to China, if I'm not mistaken.
- SPSpeaker
Well, so that would've been 1985. It, it really wasn't-- y- you couldn't really go into mainland China at that point. There was nothing really-
- DSDavid Senra
Mm
- SPSpeaker
... to do there. They, they weren't making anything.
- DSDavid Senra
So where were you? You were going to Asia.
- SPSpeaker
You were going to Asia.
- DSDavid Senra
Okay.
- SPSpeaker
So yeah, I, I went to, I went to Japan, Hong Kong, uh, Taiwan, and South Korea.
- DSDavid Senra
Yeah, but what I love is just, like, how excited you were.
- SPSpeaker
Oh, yeah. [laughing]
- DSDavid Senra
'Cause it's like you just said, it's 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 to how... Now it's like, oh, I'm, like, spending 16 hours a day, I'm sleeping in my office, I'm working, I'm-- we have customers, we have-- we're hiring employees, we have revenue growth, but now I'm getting, like, deep, uh, deeper and deeper, deeper understanding. And like, so as I read these biographies of people, I try to, like, build, like... You know, I ha- I think I have a good sense of, like, how you think and, like, what's important to you. And what I realized is, like, that instinct that you had as a 20-year-old man or however old you were in, at that time, it's like that has not, you- it- it's ne- never been alleviated. It's just, like, this constant, like, keep going lower and lower and lower to, like, seek com- uh, 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.
- SPSpeaker
Yeah, of course. I mean, that's what you're supposed to do, right? You're supposed to understand things, right? [chuckles] And so-
- DSDavid Senra
You say, "Of course," and like, this is the fu- so, uh, this is another thing I told you when we had dinner. Like-
- SPSpeaker
How else would you do it? [chuckles] I don't-
- DSDavid Senra
But to you, this is-
- SPSpeaker
I don't understand
- DSDavid Senra
... this is why I think, like, writing a book and having a conversation like this is important, because, like, there is so much shit in your head-
- SPSpeaker
Yeah
- DSDavid Senra
... that is so unusual. And, like, uh, like, just it's so valuable, like, getting it out and putting it i, like, out into the world because I remember, like-
- SPSpeaker
I wouldn't know any other way to do it.
- DSDavid Senra
I know!
- SPSpeaker
[chuckles]
- DSDavid Senra
Because you don't understand how nor- how abnormal you are. So we were, uh, 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, your cr- the, the crazy career that you've had. This is 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, this crazy ride that you've had, that's described beautifully in your book, this four-decade, you know, mission that you've, that you've been on, that you've relentlessly given a lot of your life energy to, and just how normal you are. Like, you're, like, [chuckles] 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?
- SPSpeaker
No. [chuckles]
- 56:18 – 57:59
The Importance of Energy Management
- DSDavid Senra
On the last episode, during my conversation with Daniel Ek, he said one of the most important ideas that I've heard. He said, "I'm not obsessed about time. I'm obsessed about energy management. If you have time but you have no energy, you're not going to accomplish anything anyways." I signed up for Function long before they were a sponsor of this podcast, and when you sign up, they ask you what your health goals are, 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 a hundred of your biomarkers, from hormones to toxins to markers of heart health, inflammation, and stress. Function 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/senra. Right now, Function is offering a hundred dollar credit to the first thousand people who sign up for a Function membership. To get this hundred dollar credit, just visit functionhealth.com/senra. Again, that's functionhealth.com/senra.
- 57:59 – 1:02:05
Early Financial Challenges and Solutions
- DSDavid 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, twenty-one, I think, at the time?
- SPSpeaker
Twenty-one, yeah.
- DSDavid Senra
And he was forty-five or something like that.
- SPSpeaker
Yeah.
- DSDavid Senra
Like, what's the role that you feel he played at that point in Dell's history?
- SPSpeaker
Well, yeah, the company was, was, uh... I mean, it's like our rocket had sort of taken off, but, y- you know, it was, it was pretty fragile, right? And, um, you know, we had some good ideas, but there was a l- a lot of missing pieces, and Lee helped fill in those missing pieces and, you know, sort of organize the, uh, uncontrolled chaos and helped us sort of really, you know, scale, scale up the business.
- DSDavid Senra
In, like, operations? Like, what do you think?
- SPSpeaker
Yeah, I mean, it w- it was, it... Well, well, f- well, first of all, w- we were growing so fast, we just, we just didn't have the balance sheet or, or the capital to support our growth. And so he helped us, you know, get some, uh, credit lines, and, you know, that, that, you know, freed up capital and then, like, you know, sort of organized some, you know, some of the operations and stuff I didn't really know about or, or have a great interest in, you know, because it wasn't the technology or, or, uh, the customers. [chuckles]
- DSDavid Senra
Yeah.
- SPSpeaker
And so he h- helped sort of get all that stuff on the right path. And then as we, as we needed even more capital, you know, with a private placement and then going public, you know, he helped, helped sort of get all that going and, you know, just basically how do you, how do you scale this thing up to get it ready for ten X or a hundred X growth?
- DSDavid Senra
One thing I thought was very fascinating that Lee Walker said, right, is you got to the point where, you know, you had that negative cash conversion cycle where-- 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 and, like, these giant companies. And I remember at one point in the book, it was something, you were doing, like, sixty million a year in revenue, and you had, like, two hundred grand in your bank account. [chuckles] So it's like there's just no cash here. 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-
- SPSpeaker
He did.
- DSDavid Senra
Okay.
- SPSpeaker
Yeah, yeah.
- DSDavid Senra
So relationships run the world. You see that over and over again. And so Lee had relationships with these, these bankers o- 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." He's like: "Look at all the purchase orders. Like, do you think Texaco is gonna pay us or not?"
- SPSpeaker
[chuckles]
- DSDavid Senra
And using the, like, the brand and the prestige and the, you know, the, the, essentially the value, like, Texaco's not going out of business. They're gonna pay the- pay them, pay this kid that you say you don't know. Lend us against our receivables.
- SPSpeaker
Yeah.
- DSDavid Senra
Like, that's a really good idea.
- SPSpeaker
... Yeah, it was receivable-based financing.
- DSDavid Senra
Yeah.
- SPSpeaker
The problem was that, you know, as, as a, as a twenty-one-year-old, you know, starting a business with really no capital, uh, you know, in-infusion from, from the beginning, you know, thousand dollars, right? [chuckles]
- DSDavid Senra
Yeah. [chuckles]
- SPSpeaker
You know, uh, a, a banker looking at it with no one, uh, known inside the business to trust would sort of-- their, their general reaction would be, "Uh, I think I'll go do something else," right?
- DSDavid Senra
Yeah.
- SPSpeaker
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, uh, break open that logjam, and that, you know, gave us some of the capital we needed to continue to grow and expand.
- 1:02:05 – 1:18:17
The Negative Cash Conversion Cycle
- DSDavid Senra
So can you explain how you stumbled upon the negative cash conversion cycle and why that was so powerful?
- SPSpeaker
Yeah. So, uh, you know, we, we didn't have any capital, right? [chuckles]
- DSDavid Senra
[chuckles]
- SPSpeaker
And, and so, uh, you know, what, what we, what we figured out was that if we could dramatically, uh, shrink, um, our inventory and get paid from our customers faster and, you know, uh, maybe not pay our suppliers, you know, instantly, pay them a, a little bit later, then if you're growing and you have a negative cash conversion cycle, you actually generate a lot of cash. And so then you don't need as much capital to raise to be able to grow the company, and you have a high return on capital. So we started looking at the business that way, and of course, we also... uh, there was this, um, 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, ninety days of collective inventory from the time that they actually made the, the product to when it actually got to the customer. And you could actually, uh, understand this, because if you opened up the computers, the, uh, chips had dates on them that showed the weeks they were made.
- DSDavid Senra
Whoa!
- SPSpeaker
So, you know, it would say, like, uh, forty-two, ninety-two, and that meant it was-- that chip was built in the forty-second week of the ninety-second year. And so you could literally date how old the inventory was by opening these things up. But anyway, so they had, like, ninety days in their collective supply chain, and we figured out how to have, like, five days. I mean, it was crazy. It was like, it was like a massive a-advantage. Now, the other reason this is important is because it turns out that the price of electronic components generally goes down, right? [chuckles]
- DSDavid Senra
Mm-hmm.
- SPSpeaker
And, and, you know, it's, it's a pretty predictable thing. And so, uh, if our components are five days old and the competitor's components are ninety days old, well, theirs cost a lot more than ours do, right? And so now you've got this structural competitive advantage. Now, uh, another element of this is that, um, you also have the freshest and the newest and the best technology. You're not selling the ninety-day-old fish or bananas, right? You're selling the f- the, the, the new chip, the, the-
- DSDavid Senra
Yeah
- SPSpeaker
... the latest capability, and so now you've got even another advantage, right? [chuckles]
- DSDavid Senra
Yeah.
- SPSpeaker
And so, and then you've got this feedback loop because y-you're getting signal from the customers of, "Oh, I like this, I want that, change this," and so you're able to, you know, create this dynamic feedback loop. So that was what we created, and it, it worked, you know, [chuckles] and we, and we kept iterating it and, and evolving it. The competitors, uh, you know, they, they, um, d- kind of dismissed it, and one of the best things was they, they just didn't understand it. They, like m- they, like, misunderstood it, which was fantastic.
- DSDavid Senra
How is that... So I, I, I don't-
- SPSpeaker
It's like, it's like you don't want them to understand-
- DSDavid Senra
No
- SPSpeaker
... what's going on. You, you, you don't want to explain it.
- DSDavid Senra
But how, how, how do you ex- how do you explain their-
- SPSpeaker
No
- DSDavid Senra
... inability to?
- SPSpeaker
Now, now you can explain it.
- DSDavid Senra
Yeah.
- SPSpeaker
But back then, you don't want to-
- DSDavid Senra
No, yeah
- SPSpeaker
... you don't want them to know what's happening. You just want them to maybe not even see what's going on.
- DSDavid Senra
So I have a funny story about this, and then I want to get back to Compaq and IBM. So, uh, I had dinner with one of the wealthiest people in the world. He's seventy-six years old. He's been, uh, in the family business. He's the second generation of this privately held, like, dynasty. And, uh, he started working in the business since he was six, and it was, like, crazy stories. Uh, it started on the shipping. They, 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-- he 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, you know, people to come to Dell to understand the history," they had commissioned, the family had commissioned a, a, a real author, right? I have some of these books at my house, not from this guy, where these family businesses or, you know, these people with private companies, they have-- they'll hire, you know, an actual author, pay him whatever, a million dollars, write the book, and then the- 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-
- SPSpeaker
Mm
- DSDavid Senra
... home library that people have given me because of the podcast. But he was telling me the story. He's like, "Yeah, we, we had-- we commissioned a biography of the patriarch, who passed away a long time ago, and then we did one for me." And I was just like-... Dude, give me those books." I, like, leaned in.
- SPSpeaker
[chuckles]
- DSDavid Senra
I was like, "I want those books." I was like, "I'll crush the episodes. The episodes will be great," like, 'cause he had so many crazy stories. And he, without hesitation, he goes, "Absolutely not." [chuckles] I was like, "Why?" He goes, "I have no desire to educate my competitors." [chuckles]
- SPSpeaker
Yeah.
- 1:18:17 – 1:19:39
The Mail Order Stigma and Overcoming It
- SPSpeaker
We had this whole thing in, in the '80s, and we called it Beat the Mail Order Stigma.
- DSDavid Senra
Really?
- SPSpeaker
And it was sort of like, as we were establishing our brand, uh, you know, sort of the conventional wisdom was a mail order company-
- DSDavid Senra
Mm-hmm
- SPSpeaker
... which was sort of like a-
- DSDavid Senra
Pejorative
- SPSpeaker
... like an insult, you know? [chuckles]
- DSDavid Senra
Yeah, okay. Okay.
- SPSpeaker
It's like, okay, it's a mail order company, and, and it's sort of like a stereotype. It's like, oh, you can dismiss it 'cause it's a mail order company.
- DSDavid Senra
Mm-hmm.
- SPSpeaker
Right? [chuckles]
- DSDavid Senra
Yeah.
- SPSpeaker
And all the press, you know, for years, they were like, "Mail order company, Dell," you know, the, "Mail order company, Dell, introduces server." You know, like, what? [laughing]
- DSDavid Senra
[laughing]
- SPSpeaker
Like, it's like, okay, we have thirty thousand patents. When are we not a mail order company?
- DSDavid Senra
[laughing]
- SPSpeaker
It's like, what is this mail order thing?
- DSDavid Senra
Yeah.
- SPSpeaker
It's like, so, so anyway, we had to, like, get rid of that. So-
- DSDavid Senra
How did, how did you beat it?
- SPSpeaker
Just kept doing our thing-
- DSDavid Senra
Yeah
- SPSpeaker
... you know, [chuckles] and, and eventually people go, "Well, I guess it's not really mail. I mean, it's internet, and it's not mail order." [chuckles] I was like-
- DSDavid Senra
That wasn't-
- SPSpeaker
... what, nobody orders stuff in the mail? [chuckles] What is it?
- DSDavid Senra
I think, uh, you just made me realize something-
- SPSpeaker
Yeah
- DSDavid Senra
... um, that I didn't understand when I read the book.... when 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, they seem small, but they can have a huge impact.
- 1:19:39 – 1:28:48
The Rise of E-commerce
- DSDavid Senra
I think Dell was, like, one of the first companies to sell on the internet, right?
- SPSpeaker
Yeah. Well, so we, we were selling direct, right?
- DSDavid Senra
Yeah.
- SPSpeaker
We, 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 the orders on faxes. [chuckles] It was crazy. And we had catalogs, right? And so then, uh, you know, the World Wide Web comes along, and you-- websites, you 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?"
- DSDavid Senra
Yeah.
- SPSpeaker
"That's the coolest thing ever. We gotta do that," right?
- DSDavid Senra
Yeah.
- SPSpeaker
And so i-in my first book, you notice on every page at the bottom, it said www.dell.com. [chuckles]
- DSDavid Senra
I read that other- I read that book, too.
- SPSpeaker
We were just, like, obsessed with getting people to the website-
- DSDavid Senra
Yeah
- SPSpeaker
... because it just became, like, the, uh, easy way to interact with people.
- DSDavid Senra
And that book came out in '97, right? '99?
- SPSpeaker
I think '98. Yeah.
- DSDavid Senra
'98. Yeah.
- SPSpeaker
Yes.
- DSDavid Senra
So you were-
- SPSpeaker
'98. Um, but yeah, we started, we started, you know, with, with, with one of the first websites. I mean, there are-- there weren't many websites. I mean, I remember when-
- DSDavid Senra
Yeah, it was a small number.
- SPSpeaker
I remember when you could, like, go to all the websites- [laughing] ... like, in the whole world. [chuckles]
- DSDavid Senra
Yeah, I'm done for the day.
- SPSpeaker
Like, there's no more websites. There's, like, [chuckles] kind of-- it sounds crazy now, but there, there, there used to be not that many websites.
- DSDavid Senra
Yeah.
- SPSpeaker
And you could, like, go to them and, like, "Okay, I'm done."
- DSDavid Senra
Yeah. [chuckles]
- SPSpeaker
Like, uh, it's just there's nothing re- no- nothing else to see. That obviously changed quickly.
- DSDavid Senra
So how the hell do you even build a store? Like, you were collecting cr-- Do they have to, like, call a number in? 'Cause I remember, like, taking credit cards online. Well, maybe not in '90. If you were doing... Do you remember what year you launched the site? '97, probably, '96?
- SPSpeaker
I think it was probably '90, '96.
- DSDavid Senra
You had to build all the stuff-
- SPSpeaker
'95, '96.
- 1:28:48 – 1:30:39
Fear of Failure and Final Thoughts
- DSDavid Senra
But your fear of failure, in my experience, from studying all these histories with entrepreneurs, but y- 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.
- SPSpeaker
Yeah, totally. [chuckles]
- DSDavid Senra
Yeah.
- SPSpeaker
Hundred percent. Uh, yeah, you, you know, you don't, you don't wanna fail. Although failing is, is how you learn. Uh, you know, pain is the best teacher, [chuckles] and, and so you, you know, you have to have some, some little failures along the way. But that, that fear of, uh, you know, you can't have it paralyze you, where you're, you're-- you don't want to make any decisions because you're af- afraid to fail.
- DSDavid Senra
Has that happened to you?
- SPSpeaker
Not really, no. I, I, [chuckles] you know, um, you know, what you want to do is, is, is sort of be incremental. And again, it's back to iterating. It's like, okay, uh, we're not sure if this is a good idea. Let's try it, right? [chuckles] Let's, let's experiment. Let's get started. We'll figure it out. And we're not, you know, betting the whole company on this decision, we're just experimenting. [chuckles] And if it doesn't work, great, we learned something, we move on.
- DSDavid Senra
It's a perfect way to end. Thank you for writing the book. Thank you for the time. I really appreciate it, Michael.
- SPSpeaker
Thank you, David.
- DSDavid Senra
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 four hundred 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.
Episode duration: 1:30:39
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