Slashdot Mirror
Who Wants to be the Next Dell?
cybercomm writes "Tom's Hardware has a very interesting column regarding the future of beige-box manufacturers, such as Dell, gateway, Compaq, et all. I found this article really thought provoking, since the author has raised some really interesting issues, especially concerning the fact that the writer of the column compares reviewers to the lowest ring of the ladder, and asks one simple question: Instead of whining, why not do it? Why should you learn all the specs on the latest processor and slam the competition just because you may happen to own a P4? Why not start the same way that the Dell, Apple, Gateway, and other founders took by forming your own store, getting in touch with Asian suppliers who "are more than willing" to give you discounts, just so that they can get their foot in the lucrative N. American and European markets. Very interesting reading, that raises another what-if scenario (what if you succed and your business is based on Chinas' dragon CPU, XGI card, open-source OS...)."
Can you still GET a beige box from dell these days?
You sold me there on that story. Obviously I'm passing this on to all of those Berkeley, MIT, Carnegie, Harvard, Yale grad CTO's and marketers who work at places like Alienware, Sager, Toshiba, and other smaller comp makers who spend the big bucks. This guy is definitely on to something, and I'm glad Slashdot didn't waste my time posting garbage. Oh yea, that guy's good.
MoFscker
The thing that this jounalist is writing about (very well, I might add) occurs in every industry/walk of life. There are the whiners, and there are the doers. What he doesn't realize is that doers just do it, and ignore these whiners. He ends the article well... "get a grip". Personally, I don't give people like this even that much attention.
Now, you'd better sit down for this one.... but price is NOT the only competitive advantage! In fact any successful businessperson will tell you, it's the WORST way to run a business, because somebody will always be cheaper. Not everybody is looking for cheaper and cheaper. Simple example: MS Windows vs. Linux. Linux is a LOT cheaper, but people still aren't interested. Whatever the reason is, it's very obvious that price is NOT the issue here.
I don't know. Possibly. But I doubt it. You can get a computer that can adequately perform all the tasks that "Joe Sixpack" wants for what, like three hundred or four hundred dollars now. And in all likelyhood, prices will continue to drop.
And if the things you mention - "internet center", "media center" - are so important to your "Joe Sixpack", computers will come with them preconfigured and simple to use.
So ten years out, why would anyone want to buy an "internet center" and a "media center" and an "et cetera", when they can buy all of them (and more) at once, for a low low price of $29.95?
and I've got plenty of advice for those who might want to try it.
1. Don't take on any partners. My company had 3 owners. If it had had one owner and 2 employee's I'd still be in business. Multiple owners means that profit is divided. While you're getting started, you have to live off of whatever miniscule profit you generate. If you have to divide those profits three ways, you're going to have to learn to love Top Ramen.
2. Dealing with local distributors is a great way to get parts quickly, but their prices are awful. Get contacts overseas, and import your own parts, or work with national distributors such as Tech Data or Merisel. Just be aware that their prices will be awful too until your volume comes up.
3. If you're selling computers via mail, etc, be careful with credit cards. Chargebacks come right out of your bank account. Visa/Mastercard/etc. do a great job of protecting the customer because they can steal from the merchants. If you're hit with a chargeback, it doesn't matter that you've been victimized, too. We once had three high-end PCs (marked for signature delivery) "stolen" from a customer's doorstep. Then, when the customer decided he didn't want us to ship replacements and hit us with the chargeback, we were out nearly $10,000. I still believe the customer saw an opening and stole those PCs, but I'll never know for sure.
4. Control support costs. Many small "white-box" PC makers provide top-notch support, but customers will eat you alive if you let them. I realized that when I went over to a good customer's house to help them with a PC problem and ended up looking at a laptop we didn't even sell them. A corollary to this is that if you're going to be providing "personal touch" service, make sure that your pricing reflects it. You can't visit people's houses if you're selling a $500 PC @ 5% margins.
5. Watch inventory. Keep as low a supply on hand as possible, because when component prices drop, customers expect assembled PC prices to drop accordingly, and immediately. Your competitors watch their inventory, too.
6. If you're planning to offer services and support in addition to hardware, consider becoming a VAR instead of a system builder. You can benefit from the marketing opportunities that the Compaqs/IBMs/etc offer, and you don't have to deal with warranty support of your own boxes. If you have a service department, the companies you deal with will pay you to do warranty work.
All in all, I can't say I recommend starting a PC company. Because you're selling what is essentially a commodity, your margins are constantly being squeezed. And that sucks! But, if you have access to Asian manufacturing and can control your costs, you just might prove me wrong. Good luck to all the future captains of industry out there!
Blogging Weight Loss, Distance Education, and more at verlin.com
So, where are the horizntal bar graphs comparing Dell, Gateway, HP, Compaq & Packard Hell? Why aren't there 30+ advertisements for whoever gave Tommy the most dough? Why isn't there a seperate section in the article with benchmarks on a bunch of those brand-name PCs? I want to know how Quake 3 will run at 1600x1200! How good are these babies in overclocking? This isn't Tom's Hardware! Someone messed with my DNS settings!
Untill I see at least 20 useless horizontal bar graphs with various benchmarks that mean nothing, at best, I refuse to believe we're talking about Tom's Hardware.
Hate me!
You see the problem with hardware is all about margin. Unless you are moving a huge amount of goods you will loose your ass. Software on the other hand is all margin, big profit ratio's. Why do you think so many restarants go out of business? Small margins, same goes for grocery stores.
While it's true that the margin on hardware is virtually nothing, your average restaurant will be worrying more about turn-over than margin; the bulk of costs for a restaurant is in the fixed costs (i.e. renting a place, taxes, employees, fresh ingredients that you have to stock in case people do show up, but that expire quickly whether they do show up or not).
Ever notice how just about every "meal" at a fast food restaurant costs about the same? That's because they're in the business of extracting $5 per visitor rather than being interested in the exact margin on stuff. That's also why fries and a coke are thrown in their meals for a relatively low price, and they cost a lot more separately -- it's all about discouraging sub-par revenue customers. (Grocery stores (or Fast Moving Consumer Goods Retailers as they like to call themselves) have things slightly better than restaurants in that they sell a lot of non-perishables as well - stocking more and more non-food items has been an ongoing trend in supermarkets and grocers' for ages now).
Of course, fixed costs are also a big barrier to entry for any would-be competitors of Dell. Spending a few million here and there to set up a plant and do distribution is peanuts to Dell since they're shipping insanely large volumes, so even relatively large fixed costs translate to a small cost-per-unit. Plus, they can get volume discounts from OEMs. Without a large initial investment it's pretty hard to suddenly gain such a big market share that you can compete with the economies of scale that Dell enjoys. Dell is the Wallmart of PC systems.
Added value is the only way to go for smaller would-be competitors; e.g. better after sales service, warrantees, real life expert human salespeople, full-service-one-stop deployment, etc. Of course, it may well turn out that it's cheaper for you to only offer the added value and buy the systems themselves from Dell!
SCO employee? Check out the bounty
Buy low, sell high.
It really doesn't get much more complicated than that when dealing with commodity goods. The rest is just fluff for the VCs and investment bankers.
But when doing something like this take the article's advice. Don't involve the VCs and investment bankers. Do it from the garage or basement. Scrape up whatever funds you can from your own signature, friends and family.
Buy some stuff. Sell it. Roll over the profits into more stuff. Sell some. Rinse and repeat.
Sleep on one of the folding tables you build systems on and eat Ramen noodles for a few years. It's a good experience and gives you stories to annoy the hell out of your grandchildren with. Earn your way up instead of borrowing it.
It really is as simple as just doing it. My last brick and mortar was three months from conception to opening day, starting with nothing in my pocket but a few hundred bucks and credit card with a $1000 limit.
I didn't write a business plan and have it bound in leather, or spend the next 5 years shopping the plan about. I Just did it.
You can too.
KFG
I just finished working 4 years for a Korean firm that makes Dell branded equipment. We lost money dealing with Dell, but we did it to keep them from going to our competitor. No one wanted to handle the Dell account. They are cold and single minded.
Dell always came out as the worst to deal with, compared to IBM, Sun, HP/Compaq. Dell would negotiate for a certain number of units at a certain price, then order 25% of the original quantity, while demanding the original unit price. Sounds like smart business? When they break their original commitment, and then bully their way on, it's bad business.
The end result is their suppliers keep waiting for the 'big' contract that never comes along. They lose money and go out of business. Dell moves to another supplier and doesn't look back. That is one less supplier for the other buyers. Another carcass on the fire. It's called 'hollowing out', and most companies know better than to go down that road.
If you do business with me, you expect a certain percentage of every dollar we handle. Under ideal circumstances, I get 60 and you get 40. This proportion lets us both survive. Dell seeks 70/30...this helps Dell grow, of course, but the 30 means slow death for the other side. Most businesses honor the 60/40 balance, knowing that anything more will be abusive...Dell has long ago decided to cross that line.
The hope is to take the market, and then go back to 60/40...but with no suppliers left willing to take the abuse, Dell will be alone and cutting their own throat.
Consider this: Design a Linux-based home PC targeted at Wal-Mart customers and their kids. The "no nonsense, no excuses" PC for America.