The Entrepreneurial Spirit

In late January 2007, computer maker Dell, Inc. (NASDAQ/DELL) was facing many problems. The company was subject to an SEC investigation into its accounting practices. Dell missed its quarterly financial targets and the stock was down 20% over the previous 24 months.

So what does Michael Dell do? He fires his CEO and takes over the position himself again.

Back on February 5, 2007, in my commentary in PROFIT CONFIDENTIAL, I wrote, “As an entrepreneur myself, I think Michael Dell has what it takes to turn his now huge company around. In fact, Dell is likely the only big capitalization stock I like. Michael Dell could be offering us an investment opportunity right now. I guess you can call it Michael Dell’s profit opportunity for investors.”

Dell made $1.16 per share in 2007. In 2008, with Michael Dell himself back at the helm, the company earned 18% more, bringing profit per share to $1.37. As for the stock price, from the spring 2008 general stock market lows, Dell stock is now up 35%.

My message in this story is this: The person that starts the company is often the best person to continue running the company as it grows. Yes, management textbooks will tell us that, as a company grows, it needs to bring in professional managers. And I’m sure Dell did this as it grew.

But it is the entrepreneurial spirit of the founder of a company that builds a company to be larger and more profitable. Take that entrepreneurial spirit away and companies often founder.

Just look at what happened to Apple, Inc. (NASDAQ/AAPL) when they pushed out Steve Jobs. Apple needed to bring back Jobs to “reinvent” Apple. The rest is history. Today, Apple products are money-making machines.

The computer business is very competitive these days. The economy is soft, consumers are spending less. There are definite challenges for Michael Dell. But I believe that he will deliver stronger profits again this year. When an entrepreneur starts making computers in his garage as a teenager and develops his company to $60.0 billion in annual sales, you know he is on to something.