STARTING AN IT COMPANY STARTING AN IT COMPANY
Group 8
Mutia Putri
Sona Hovasapyan
William Prada
OVERVIEW CISCO TECHNOSOFT DELL SUMMARY
STARTING AN IT COMPANY STARTING AN IT COMPANY
Emerging of Digital Emerging of Digital Economy 2002Economy 2002
Source: Digital Economy 2002, Economic and Statistics Administration US Department of Commerce, February 2002
Digital Economy 2002
“Despite and economic slowdown and recession, U.S Industries have continued to build the IT capital stock, to marshal the human skill and IT services that make the installed base of IT capital more productive, and to create as a result the enduring foundation of a stronger economy”
- “During 2000, business investment in IT-producing industries accounted for 37% of the U.S. GDP.”
- “By contrast, in 2001 reductions in business investment in IT-producing industries had a negative effect on economic growth.”
Source: Digital Economy 2002, Economic and Statistics Administration US Department of Commerce, February 2002
Highlights in Highlights in Economy 2002Economy 2002
Investment in Information Processing Equipment and Software
1995 1996 1997 1998 200120001999
400
300
500
600
200
700
400
300
500
600
200
700
2000
2001
1999
Percent change 4Q95 – 4Q00:
20% annual rate
Percent change 4Q00 – 3Q01:
-14% annual rate
Billion of 1996 dollars, annual rate
Source: Digital Economy 2002, Economic and Statistics Administration
US Department of Commerce, February 2002
Highlights in Highlights in Economy 2002Economy 2002
“Despite the 1.4 % decline in the total private sector employment during 2001, employment grew by 0.5% in telecommunication services and 1.4% in computer software and service-industries.”
Source: Digital Economy 2002, Economic and Statistics Administration US Department of Commerce, February 2002
Continued Strength in IT Service JobIndex, January 1999 = 100
1995 2000 2001
105
100
110
115
95
130
120
125
105
100
110
115
95
130
120
125
Recession
Computer services
Telecom services
Private nonfarm
Source: Digital Economy 2002, Economic and Statistics Administration
US Department of Commerce, February 2002
Number of employees (in thousand)
- Some estimates indicate that surge in dot.com failures that began in mid-2000 peaked in first half of 2001 and has begun to subside.- 10% of the 7, 000-10, 000 “substantial” internet companies that received some venture funding closed between Jan 2000-December 2001.- Through middle of 2001, these failures, staff cuts at surviving dot.com companies had resulted in an estimated 135, 000 layoffs .
Source: Digital Economy 2002, Economic and Statistics Administration US Department of Commerce, February 2002
STARTING YOUR OWN STARTING YOUR OWN IT COMPANYIT COMPANY
Company Life CycleCompany Life Cycle
Promising Transitional Corporate
Start-Ups Initiatives Initiatives
The Origin and Evolution of New Businesses, Amar V. Bhide
What differentiates What differentiates companies?companies?
Nature of the opportunitiesNature of the opportunities
Different initial conditions:
different level of project uncertainty,
amount of investment,
and likely profit
The Origin and Evolution of New Businesses, Amar V. Bhide
Tasks and StrategyTasks and Strategy - degree to which they rely on prior
analysis and planning rather than
adaptation to unforeseen circumstances
The Origin and Evolution of New Businesses, Amar V. Bhide
What differentiates What differentiates companies?companies?
Personality and TraitsPersonality and Traits Characteristics of founders that differentiate the successful initiatives from the unsuccessful one
Social and economic contributions:Social and economic contributions: different sizes and maturity affect the development of new technologies and market, and the interaction with existing economic structures
The Origin and Evolution of New Businesses, Amar V. Bhide
What differentiates What differentiates companies?companies?
Common Perceptions for Common Perceptions for IT Start-UpsIT Start-Ups
Brilliant ideaBrilliant idea
Breakthrough creativityBreakthrough creativity
High capacity to innovateHigh capacity to innovate
Leadership & Leadership &
Management SkillManagement Skill
Technical educationTechnical education
High tolerance for risk/lossHigh tolerance for risk/loss
The Origin and Evolution of New Businesses, Amar V. Bhide
SUCCESSFUL??SUCCESSFUL??
Initial Conditions:Initial Conditions:IT Start-upsIT Start-ups
most successful business started most successful business started
with the notion of with the notion of no proprietary ideano proprietary idea
and no verifiable human capital and no verifiable human capital
( such as: ( such as: no knowledgeno knowledge, and , and no no
reputation reputation ))
The Origin and Evolution of New Businesses, Amar V. Bhide
““Most promising business started byMost promising business started by
someone who is working for anothersomeone who is working for another
business, who sees a small nichebusiness, who sees a small niche
opportunity. And the person jumps in opportunity. And the person jumps in
with very little preparation and analysis - -with very little preparation and analysis - -
and pretty much does what somebody and pretty much does what somebody
else is already doing, but does it better else is already doing, but does it better
and faster.” – and faster.” – Amar Bhide
Interview of Inc.com editor-in-chief George Gendron with Amar Bhide,
author of The Origin and Evolution of New Business, February 1 2002
Initial Conditions:Initial Conditions:IT Start-upsIT Start-ups
most successful business started most successful business started
with with no exceptional trainings no exceptional trainings
and and no managerial experiencesno managerial experiences
(i.e.: Bill Gates, Michael Dell,(i.e.: Bill Gates, Michael Dell,
Steve Wozniak ….)Steve Wozniak ….)
The Origin and Evolution of New Businesses, Amar V. Bhide
Initial Conditions:Initial Conditions:IT Start-upsIT Start-ups
most start-ups most start-ups do not have do not have
significant up-front investmentsignificant up-front investment
uncertain market niches uncertain market niches
The Origin and Evolution of New Businesses, Amar V. Bhide
Nature of Opportunities:Nature of Opportunities:IT Start-upsIT Start-ups
Entrepreneurs pursue Entrepreneurs pursue highly highly uncertain projectsuncertain projects
Face significant constraintsFace significant constraints
Unlikely to generate large profitsUnlikely to generate large profits
The Origin and Evolution of New Businesses, Amar V. Bhide
Tasks and Strategy: Tasks and Strategy: IT Start-UpsIT Start-Ups
Strategy to face the problems:
Opportunistic adaptation- High uncertainty requires entrepreneurs to extensively adapt to unexpected circumstances and opportunities- High uncertainty limits the value of prior planning
and research
The Origin and Evolution of New Businesses, Amar V. Bhide
Personality and Traits: Personality and Traits: IT Start-UpsIT Start-Ups
Important attributes: High tolerance for AmbiguityOpen-mindednessAmbition “IT takes a really extraordinary individual to
build on a start up business – extraordinary in terms of someone who has an almost maniacal level of ambition,…”– Amar Bhide
The Origin and Evolution of New Businesses, Amar V. Bhide
…… …… ContinuedContinued Resilience Perceptiveness about the wants and
needs of customers
Sales skills
Self-control
The Origin and Evolution of New Businesses, Amar V. Bhide
Proportions about Proportions about
Promising Start-UpsPromising Start-Ups Entrepreneurs with
meager endowments
INITIAL CONDITIONS
No proprietary
idea or technology
+
Limited verifiable
human capital
Unavailability of
outside funding
NATURE OF
BUSINESSES
Low investment
High uncertainty
Low likely profit
… thrive in …
… face the tasks of …
… requiringOPPORTUNISTIC
ADAPTATION
to unforeseen circumstances
TRAITS AND
SKILLS
Tolerance for ambiguity
Open-mindedness
Resilience
Sales Skill
Self Control
…
• the world leading supplier of enterprise internetworking solutions
• expanded from a small startup to an industrial leader with around 19 billion net income
• captured 85.5% of the market for routers*
• one of the most successful companies to emerge from Silicon Valley
Cisco SystemsCisco Systemsone of the World’s most admired companies
http://www.nwfusion.com/news/0516cisshare.html
Nature of Business
Core activities (at the time of start-up):
the first product – the router;
manufacturing networking and communications products;
Currently provides a broad line of products for transporting data,
voice, video over LANs, WANs and all over the Internet provides strategies and solutions that can help solve
critical business problems services associated with the equipment and its use
Cisco SystemsCisco Systems
Cisco SystemsCisco Systems
Nature of Business
Target Market (at the time of start-up):
• higher education and research institutions
• large size corporations
Currently targets also small size businesses
Customers:
“Nasdaq, the world’s largest electronic stock market, is only as good as our network, and we have built this network with Cisco technology”.- Steve Randich, Executive Vice President, Operations and Technology, and CIO, The Nasdaq Stock Market
“At Sprint, the bottom line satisfying customers. We were able to increase Sprint IP network capacity by a factor of nine, positioning the company to quickly meet new customer requirements in Europe and the US” -Bob Azzi, VP, Network Engineering, Sprint
Cisco SystemsCisco Systems
Customers:
“With more than 3.5 billion viewers watching the 2002 Olimpics, the network had to be 100 percent reliable. There was no margin for error and we met our goal”. -Bob Donohoo, Chief Network Engineer for Olympic Operations and Olimpics Network Manager, Salt Lake 2002 Olympic Winter Games, IKANO Communications, Inc.
Cisco SystemsCisco Systems
Since the beginning of 2001, 53 public telecom companies have filed for bankruptcy.
In 2002, publicity held telecom companies announced 165,840 job cuts. In the last 18 months, some 500,000 telecom jobs have been axed.
“We have been stunned as just about everybody else has, by the severity of the downturn in telecommunications business” *Anthony Muller, Chief Financial for JDS Uniphase headquarters in San Jose
Cisco SystemsCisco Systems
Chris O’Brien, Mercury News, Telecom Failure Hitting Home in Silicon Valley", Sun, Jul.7, 2002
Net Income(Loss)(Dollars in billions)*
1.32
2.7
-1
1.9
'98 '99 '00 '01 '02
Cisco Systems, 2002 Annual Report
Cisco SystemsCisco Systems
Cisco’s fiscal 2002 revenue of 18.9 billion resulted in major market share gains compared to their competitors.
Fiscal 2002 net income according to GAAP was 1.9 billion and earnings per share were $0.25, as compared to FY 2001 loss of $1.0 billion and loss per share of $0.14.
Average cash flow from operations(FY 2002) $1.5 billion per quarter
Cisco Systems, 2002 Annual Report
Cisco SystemsCisco Systems
8.5
12.2
18.9
22.3
18.9
0
5
10
15
20
25
'98 '99 '00 '01 '02
Net Sales (Dollars in Billions)*
Cisco Systems, 2002 Annual Report
Cisco SystemsCisco Systems
Key players: John T. Chambers,
President and CEOWidely recognized as one of the great motivators and customer driven chief executives in the technology business.
John P. Morgridge, Chairman of the Board
Donald T. Valentine, Vice Chairman of the Board
Cisco SystemsCisco Systems
2001 – “Best Investor Relations Officer” and “Best Investor Relations by a CEO” - Baron’s and Investor Relations magazines
2002 World Communications Award For Fixed Networks
“Best Trained Sales Force” - Sales and Marketing Magazine
Customer satisfaction rating 4.63 in a five-point scale
Cisco Systems, 2002 Annual Report and http://newsroom.cisco.com/dlls/ts_102402.html
Cisco SystemsCisco Systems
Sandra Lerner of Stanford University Business School and Leonard Bosack of the Computer Science Department wanted to send love letters to each other via university e-mail, but… the local computers at different departments would not talk to each other. So they invented the router – the black magic box
Cisco SystemsCisco Systems
The LegendThe Legend
David Bunnell, Making the Cisco Connection, UpSide Media 2000
Leonard BosackLeonard Bosack
Education: major in electrical-engineering from University
of Pennsylvania Stanford master's degree in Computer Science
Personal Characteristics: Open-minded Philosophical Non-confrontational Hard working Sense of humor
Cisco SystemsCisco Systems
David Bunnell, Making the Cisco Connection, UpSide Media 2000
Sandra LernerSandra Lerner
Education: an Economics major from Stanford University Stanford master's degree in Statistics and Computer
Science
Personal Characteristics: Aggressive Intelligent Notoriously extravagant Hard working
Cisco SystemsCisco Systems
David Bunnell, Making the Cisco Connection, UpSide Media 2000
Sandy – the director of the computer facilities at Stanford University Business School
Len - the director of Stanford's Computer Science Department
Cisco Systems:Cisco Systems:
Behind the LegendBehind the Legend
David Bunnell, Making the Cisco Connection, UpSide Media 2000
Needed to find a way to get thelocal computers networked!
Data could be transmitted more quickly, reliably and safely
BusinessDpt
Computer ScienceDpt
ARPAnet IMPterminal worth of
$100.000
Data Traffic
ARPAnet IMPterminal worth of
$100.000
Cisco SystemsCisco Systems
The Breakthrough Idea:
The Router – allows the two LANs to remain distinct, while being able to communicate.
The Stanford experimenter Bill Yeager developed a crude router based on a DEC minicomputer.
Bill, Len, Sandy, Kirk Lougheed and others created the interface to connect DEC minicomputers to the Ethernet network.
Cisco SystemsCisco Systems
David Bunnell, Making the Cisco Connection, UpSide Media 2000
Started the company in late 1984Start-up Budget:
financed their own start up costs with their credit cards.
Brand Name: cisco Systems (with a lowercase c, as in
the tail of San Fran)1986 - cisco shipped the black magic box named a router
Cisco SystemsCisco Systems
Initial Conditions
David Bunnell, Making the Cisco Connection, UpSide Media 2000
“My take on the Cisco vision: it was a very clever way to sell software by the simple expedient of concealing the software inside hardware. They (Bosack and Lerner) were in the right place at the right time. They also are very smart, very hard working and incidentally, very lucky. They also had the benefit of being in an environment that was on the cutting edge of applying networking on a large scale”.
–Ralph Gorin, Stanford University, former Director of Computer Facilities
Cisco SystemsCisco Systems
Getting Customers:
no professional sales staff or official marketing campaign
founders fired out commercial e-mails to friends and colleagues, asking them to spread the message to others over the Web's early links
have not purchased their first advertisement until 1992
Cisco SystemsCisco Systems
1987 - Donald Valentine, founder of Sequoia Systems agreed to front $2.5 million dollars, recruit management and salespeople for a 32 percent share in the company
"Apple in 1977 solved no problem. It had to create the application. Yahoo! in 1997 had to create a business model. But Cisco in 1987 filled a desperate need. I never met a company that entered the market in such a timely way with no competition”. –Donald Valentine
Cisco SystemsCisco Systems
David Bunnell, Making the Cisco Connection, UpSide Media 2000
- 1987, Congress made a commercial Internet possible
- The demand for routers increased dramatically by the late 1980s
- Cisco's financial success was the need for corporations to find solutions for connecting computer networks. Without the router, they would not be able to connect to other parts of their businesses.
Cisco SystemsCisco Systems
“As more and more people were replaced with employees that Valentine brought in, animosity grew between himself and the founders, particularly outspoken Sandy”-David Bunnell
1988, John P Morgridge, president and chief executive officer (CEO)
Cisco SystemsCisco Systems
David Bunnell, Making the Cisco Connection, UpSide Media 2000
February 16, 1990 - Cisco went public
Cisco stock opened at $18 a share and closed at around $22.50
In August 1990, Sandy left Cisco Systems
In December, 1990, two founders of cisco decided to sell their two-thirds stake in cisco for about $170 million
Cisco SystemsCisco Systems
Len - started a new venture, XKL, producing
server-class computing and networking equipment
Sandy - founded a cosmetics company Urban Decay in 1995.
Cisco SystemsCisco Systems
Ashok Subramanian –
entrepreneur
TECHNOSOFTTECHNOSOFT
Ashok SubramanianAshok Subramanian
EDUCATIONEDUCATIONPh.D.University of Houston, Business Administration,
1992Major: Management Information SystemsMinor: Marketing.
M.B.A.University of Houston, Business Administration, 1987Major: Marketing.
B.Sc.University of Bombay (India), 1980Major: ChemistryMinor: Physics.
http://www.umsl.edu/~subraman/ashokvit.html
EMPLOYEMENTEMPLOYEMENTAssociate Professor
Management Science and Information Systems
School of Business Administration
University of Missouri - St. Louis
Ashok SubramanianAshok Subramanian
http://www.umsl.edu/~subraman/ashokvit.html
Ashok SubramanianAshok Subramanian
How did he conceive the idea of his business?How did he conceive the idea of his business?
“I founded that there was a gap between high level IT Consulting Group and the mid-size company --- Our company provided the IT consulting service with lower cost.”
- Ashok Subramanian
Interview in person with Dr. Subramanian on 10/31/02
Company Initial ConditionCompany Initial Condition
started in August 2000started in August 2000
- story- story start-up budget : $500,000.00start-up budget : $500,000.00
3 founders 3 founders
TECHNOSOFTTECHNOSOFT
Interview in person with Dr. Subramanian on 10/31/02
Company ProfileCompany Profile
TECHNOSOFTTECHNOSOFT
Number of employees11 people (including 3 owners) in US60 employees in India :
- 50 software architects
- 10 administration staff
Interview with Dr. Subramanian on 10/31/02
TECHNOSOFTTECHNOSOFT
Company ProfileCompany Profile
1st year (year 2000) : $200,000
2nd year : not even covered cost
Average Annual Revenue
Interview with Dr. Subramanian on 10/31/02
TECHNOSOFTTECHNOSOFT
NATURE OF BUSINESSNATURE OF BUSINESS
Interview with Dr. Subramanian on 10/31/02
Company core activities:Company core activities:
- providing high level strategic consulting
work
- Offshore software development
- Providing IT engineers
NATURE OF BUSINESSNATURE OF BUSINESS
Interview with Dr. Subramanian on 10/31/02
Company target market:Company target market:
mid-size companies
- more receptive with the idea of
offshore development
Software development clients
TECHNOSOFTTECHNOSOFT
NATURE OF BUSINESSNATURE OF BUSINESS
Interview with Dr. Subramanian on 10/31/02
How did the company get the customers?How did the company get the customers?
Based on personal contact
Word of mouth
TECHNOSOFTTECHNOSOFT
Interview with Dr. Subramanian on 10/31/02
Company shut down, in Nov. 2001Company shut down, in Nov. 2001
Economic slowdownEconomic slowdown
Marketing the product Marketing the product
- hard to penetrate into market - hard to penetrate into market
- hard to find new market - hard to find new market due to lack of reputation
The company could not meet the set targetThe company could not meet the set target
What were the challenges?What were the challenges?
TECHNOSOFTTECHNOSOFT
Ashok SubramanianAshok Subramanian
““We did not have any problem with We did not have any problem with technology. Technology is easy technology. Technology is easy to create.”to create.”
- Ashok Subramanian
Interview with Dr. Subramanian on 10/31/02
Ashok SubramanianAshok Subramanian
Personalities / TraitsPersonalities / Traits
Interview with Dr. Subramanian on 10/31/02
It is important to have high tolerance for ambiguity
Open mindedness
It is important for entrepreneurs to know when to quit from business
“It is not good to say, “well, I will keep doing this business regardless anything.” – Ashok Subramanian
Michael Dell entrepreneur
BACKGROUND INFORMATIONDell was born on February 23, 1965 in Houston, Texas, and attended the University of Texas in Austin. Dell has earned the titles of:“Entrepreneur of the Year” from Inc Magazine“Man of the year” by PC Magazine“Top CEO in America Business” by Worth Magazine“CEO of the Year” by Financial World & Industry Week Was on Business Week’s list of “Top 25 Managers of the Year” from 1997-1999
Dell became the youngest CEO to earn a spot on the Fortune 500. He also sits on the U.S. President’s Advisory Council on Science and Technology.
Source: NCOE-Stories of Entrepreneurs-Michael Dell http://www.ncoe.org/toolkit/stories_dell.html
Education:
Dell enrolled at the University of Texas at Austin after graduating from high school in 1983. (In reality when he was eight years old, he earned his GED equivalent high school diploma). His major was biology, but computers fascinated him. He finished out his freshman year in the spring of 1984, but instead of selecting classes for next semester, he used his savings to incorporate his business as PC Limited.
SOURCE: Newsmakers, Issue 2, Gale Group, 1996
COMPANY PROFILE: Headquartered in Austin, Texas, Dell is world’s most
preferred computer system company and a premier provider of products and services required for customers worldwide to build their information-technology and internet infrastructures.
Dell climbs to market leadership is the result of a persistent focus on delivering the best possible customer experience by directly selling computing products and services based on industry-standard technology.
Revenue for the last quarters totaled $32.1 billion and the company employees approximately 36,000 team members around the globe.
SOURCE: http://www.dell.com/us/en/gen/corporate/factpack_000.htm
THE BIRTH OF BEING DIRECT FIRST EXPERIENCE
Power and the rewards of being direct Dell starts a stamp collection business
Bought stamps at an auction Created his own auction Advertised “Dell’s Stamps” in Linn’s Stamp Journal Created a twelve-page catalog and mailed it out Made $2,000 and learned an early power lesson
about the rewards of eliminating the middleman
Source: “Michael Dell.” Gale Encyclopedia of U.S. Economic History. Gale Group, 1999. <http://www.galenet.com/serviet/BioRC
SEEING THE PATTERN
At 16, Dell got a summer job selling newspapers subscription to the Houston Post
Dell noticed a pattern. He noticed two kinds of people who almost always bought subscriptions to the Post. People who had just married people who had just moved into new houses or
apartments The enterprising teenager’s paper route made $18,000,
which he used to buy his first BMW.
SOURCE: Direct from Dell. Strategies that revolutionized an industry, 1999
ENTER THE COMPUTER Computer interest started at 7, when Dell purchased his
first calculator. Played with the computers at Radio Shack Apple computer the most popular personal computer in
U.S. at the time. Dell got his first computer for his fifteenth birthday and
promptly took it apart to see how it worked Like had happens with the stamps, his hobby for
computers evolved into a business opportunity. Dell enhanced a PC the way another guy would soup up a
car, and then he would sell it for a profit. Dell learned about the latest prototypes and previewing
technology that would soon becoming to market in the 1982 National Computer Conference.
CONT. Dell bought his first hard drive disk, and used it to set up
a bulletin board system on which he exchanged messages with other interested in computers.
An IBM computer that typically sold for $3,000 didn’t make a lot of sense to Dell because he could purchase the same components for $600
Another thing that didn’t make sense was that the people operating the the computer stores didn’t know much about PCs.
Dell started buying the exact same components that were used in those machines and he upgraded his machines and sold them to people he knew.
Dell thought, “Wow, there’s a lot of opportunity here.” and his mind started filling with questions: What did I already know that I could use? What did I need to learn? How could I learn it?
Dell left for college in his BMW with three computers.
THE MAIN IDEA – THE BIG OPPORTUNITY Dell saw a great opportunity in providing computing
technology in a much more efficient way. That was the core idea of what became Dell Computer Corporation, and it’s one that he has stuck with ever since.
Dell also sensed that the demand for personal computers was not being sufficient met (1983).
Retail stores sold computers at high mark-up prices Employee salespeople who knew little or nothing
about the product There had to be a better way, and Dell quickly
thought of one – selling customized computers directly to purchasers through telephone orders.
Direct from Dell. Strategies that revolutionized an industry, 1999
HOW DELL STARTED HIS BUSINESS
Dell started the business with a simple question: How can we make the process of buying a computer better?
His answer was: Sell computers directly to the end customer.
Eliminate the reseller’s mark up and pass those savings on to the customer.
Direct from Dell. Strategies that revolutionized an industry, 1999
HOW DELL STARTED MAKING HIS OWN COMPUTER
Dell called six or seven engineers and a group of engineers that worked as a team and ask them:That he wanted to design a PC, a 286 computerHe asked what it will cost? How long it would take? and what the risks were?
Jay Bell, an engineer replied, “I can do it in about a week, week and a half, for $2,000.”
Direct from Dell. Strategies that revolutionized an industry, 1999
SALES FORCE
His sales force has to set up their own computers This give them a real sense of what the uneducated
customer would go through to set up his system and it help them to develop a more intimate understanding of the product they are selling
That marked the start of his reputation for great service, one of the tools for staying ahead of the competition
Direct from Dell. Strategies that revolutionized an industry, 1999
THE DIRECT MODEL, VERSION 1.0 What marked the official beginning of what they call
the “Direct Model” was: They were constantly talking with both perspective
customers and people who bought their products. It made more sense to Dell to build a business
based on what people really wanted rather that guest at what they thought they might want.
They started with little capital and not extra time to fool around with extra excess inventory.
The direct model is based on direct selling – not using a reseller or the retail channel.
Dell build a product that could meet the customer’s exact needs.
Direct from Dell. Strategies that revolutionized an industry, 1999
How the direct model works
There are two sales forces: Forces from the manufacturer to the dealer, and from the dealer to the customer.
How the indirect model works
There is just one sales force, ant it’s totally focused on the customer, and not just any customer, but specific type of customers.
The direct model it all evolved from the basic idea of eliminating the middleman.
Direct from Dell. Strategies that revolutionized an industry, 1999
Business model Dell believed that by assembling computers to order
he could give customers exactly what they wanted at a price that was superior to what they might spend for a similar system in a retail outlet. (Computer stores example)
The best part of this model is that since the customer is buying directly from Dell, Dell makes more on each unit because they do not have to build a distributor’s markup into their sale price.
Provides a made-to-order personal computer that is shipped within 36 hours.
Customers can place orders by calling a toll-free number or by logging on to the company’s web site, where models can be customized on-screen, prized, and ordered with a credit card.
“Michael Dell” Business Leader Profiles for Students. Vol. 1. Gale Research, 1999
COMPETITIVE STRATEGIES
Speed to market Superior customer service A fierce commitment to producing consistently high
quality, custom made computer system that provide the highest performance and the latest relevant technology to their customers
Early exploitation of the Internet Finally, Dell’s most critical competitive advantage is
becoming a virtually integrated organization.
Direct from Dell. Strategies that revolutionized an industry, 1999
BIGGEST BARRIER TO SELLING
Fear of customers of shelling out $4000 to a company they’d never heard of without a physical store they could walk in.
Dell advertised a thirty-day money-back guaranty for it’s products. This gave Dell a reputation for reliability.
COMDEX ’86 Computer show (CCS) Showed the 12MHz 286 that had broken through the
12 MHz barrier.
Direct from Dell. Strategies that revolutionized an industry, 1999
Target MarketComputer enthusiastsLarge corporations
Boeing Toyota Shell Oil
GovernmentEducational Institutions
When he started the company?- Dell started his company in 1987 How much was the startup budget?- Dell started up his company with a budget of… 1,000
Dollars! Who were the customers?
College students and computer nerds What were the challenges on the way? At the end of 1990s, sales of PCs were on decrease
in the U.S. and Dell’s sales growth has also slowed. Dell has begun offering its products in the stores such as Best Buy and Wall Mart but could not get a foothold in the home computer market when battling against better-known Compaq and lower priced Packard Bell.
INITIAL CONDITIONS:
CONT.
By mid 1993 the Dell Computer Corporation seemed to be coming apart in the following:
Communication between the different divisions of the company was poorThe sales division did not know the manufacturing division could handleProfits and losses could not be tracked by product typePlans for a laptop computer powered by a 386 microchip were scrapped at the last minute when Dell realized the product was already obsolete
“Michael Dell” Newsmakers, Issue 2. Gale Group, 1996 http://www.galenet.com/servlet/BioRC
SummaryFor role models to guide us toward our dreams, we need look no further than Michael Dell. A college dropout, with nothing more than $1,000 in his pocket and a good idea. In just 18 short years, Dell has built a computer empire recognized as one of the top vendors of personal computes worldwide. Dell’s sales have skyrocketed to a whopping #31 billion since its inception with over 33 thousand employees in over 170 countries.
SOURCE: http://www.islandconnections.com/edit/billionaires.htm
Case Study ComparisonInitial Condition Nature of Business
Idea Startup Budget
Getting customers
Target Market
Techno-soft
To serve mid-size companies with lower cost
$500 000 Personal contacts
No advertising
Mid-size companies
Dell sell directly to the customer, bypassing the intermediaries(wholesalers, retailers)
$1000 Fellow students buying from his collage dorm room
Small, medium & large size organizations, home users
Cisco The breakthrough concept of the router
Personal funds -their own credit cards
Through email to the colleagues
large size corporation
Case Studies Summary
Customers and
Projects
Challenges
Technosoft Strategic consulting work,
Off-shore software development
Providing IT engineers
Macroeconomic slowdown
Marketing the product
Dell Assembling computers and selling directly to customers
Building the trust selling computers
Cisco Higher-education and research institutions;
large enterprises;
Projects: connecting networks
Getting funding;
Marketing the product
Ashok Dell Cisco
Ambiguity Tolerance
High High ?
Open-mindedness
High High High
Foresight High High High
Case Studies SummaryPersonal Characteristics
Ashok Dell Cisco
Perceptiveness High High High
Resilience Medium High Medium
Selling Skills Medium High Low
Case Studies SummaryPersonal Characteristic