The Real Battle At Dell

Private or public – either scenario for Dell will be interesting to watch.

One of the most difficult skills I’ve worked hard to master as an entrepreneur is the ability to see the world six months out. Even more difficult is finding that balance between pleasing shareholders and driving innovation forward, which is why I respect any moves management takes that are aimed at improving innovation.

However, I must admit that I nearly spit out my morning coffee when I overheard a rumor that — on the heels of the expectation of going private — that Mr. Dell told his employees: “Welcome to the world’s biggest startup.”

After founding three startups, I can tell you with confidence that there is no way Dell has the culture or the ass-kicking visionary à la Steve Jobs that it needs to be even remotely considered a startup.

The real battle at Dell is not going to be with shareholders – it’s going to be a battle to reform culture.

The entire reason for existence of a startup company is innovation. Employees pull together to create something exciting and magical, while the companies themselves invest most of their time, energy and dollars on developing potentially disruptive products. For startups, that means easily spending over 50 percent of revenue just on R&D. Even when they’re out of the startup stage, innovative companies continue to spend roughly 12 percent of their revenue on research and development. And what’s Dell’s track-record on investing in innovation?

According to its public filings, Dell consistently spent 1 to 2 percent of revenue on R&D — this at a time when Wall Street traditionally likes to see that 10 percent R&D investment. Will Dell suddenly start spending at the levels it needs to? It could, but I’d sooner expect to see a magic unicorn than something innovative from Dell.

In my mind, Dell has become a brand surrounding a hollow shell. Unfortunately for Dell, it’s become the PC equivalent of The Invisible Man. I mean this literally: The rise of cloud computing means companies are buying Salesforce and Workday, for example — and whatever servers those cloud providers happen to be running on. And when companies aren’t buying Macs for their employees, they care more about reliability and cost than they do about the nameplate that’s glued to the machine.

As a SaaS provider, my company spent $2 million buying CPU time and storage on Amazon Web Services last year. We don’t know the brand and we don’t know the type of computer because everything’s virtual and in the cloud. All we do know is how much we pay for the cores, memory and disk space on those machines. Maybe they’re Dell computers, maybe not. I neither know nor care — and that’s about as damning as it gets for a hardware maker.

Clearly, it’s a whole new game for Dell — one that requires a different mindset from its leader and a new (and so far unseen) willingness to create the unexpected. It also needs to introduce and establish a completely new culture among its employees. Desperate times call for desperate measures. I just don’t believe a company mired in inertia can transform itself, especially one as desperate as Dell.