Podcast Summary
Balancing Innovation and Public Pressures: Michael Dell discusses the importance of staying agile and adaptable in a public company, balancing innovation with investor demands, and the ongoing debate between public and private clouds.
Despite the underlying technology platform shifts and the pressures of being a public company, transformation and innovation are essential for businesses as they grow and mature. Michael Dell, the founder and CEO of Dell Technologies, discussed this topic during a podcast episode in October 2021, along with Martine Casado, a 16z general partner and cofounder of Nysara, and Marc Andreessen, a6nz cofounder. They debated the impacts of the Cloud wars and how innovation happens in private and public companies. Dell, who has taken Dell public to private to back to public again, shared insights on the challenges of balancing innovation with the demands of being a public company, including dealing with activist investors. The panel also touched on the ongoing debate between public and private clouds and the future of infrastructure, which is likely to continue to be distributed rather than consolidated in an oligopoly. Overall, the discussion emphasized the importance of staying agile and adaptable in the face of technological changes and business pressures.
Technological shift towards decentralized computing leads to market expansion: This shift towards decentralized computing is driving a significant increase in the Total Addressable Market (TAM) and making technology the fulcrum for various business functions.
We are currently experiencing a technological shift towards decentralized computing, with an increase in apps and data at the edge, leading to a growing market opportunity. This expansion phase in IT history, which includes the rise of edge compute, edge devices, and faster connectivity, has historically led to a significant increase in the Total Addressable Market (TAM) by a factor of 10 to 100. The domain of technology has expanded beyond the IT department to the entire organization, making technology the fulcrum for sales, marketing, product development, and more. This shift has led to the rise of cloud services and the dominance of Software as a Service (SaaS) companies, which have significant infrastructure needs and require flexibility and choice. While some may argue that this is a continuation of the cloud wars, others see it as a new era with unique challenges and opportunities. Regardless of perspective, it's clear that infrastructure will continue to play a crucial role in this technological evolution.
The importance of developer-friendly environments and easy deployment solutions: Companies must make their environments as easy to use as public clouds, large organizations move towards neutral colos, AI and machine learning lead to a shift in software development, and a highly distributed cloud infrastructure is expected due to data sovereignty concerns and nationalism pushback.
The demand for developer-friendly environments and easy deployment solutions is growing exponentially due to the increasing importance of software in various aspects of life and the rising number of software developers. Companies must make their environments as easy to use as public clouds to meet this demand. Additionally, large organizations are moving towards neutral colos for data accessibility and connectivity to multiple public clouds. The rise of AI and machine learning is also leading to a shift in software development, where developers will focus more on high-level APIs rather than writing traditional code, and the demand for processing power will significantly increase. This trend is expected to result in a highly distributed cloud infrastructure due to data sovereignty concerns and nationalism pushback.
Trend towards cloud computing for high-performance computing resources: Large SaaS companies may benefit from handling predictable and scalable workloads in-house to maintain margins, while public clouds offer vast, flexible, and scalable processing power. Competition among cloud providers keeps prices low and profits high, but potential disruptions could impact costs.
As AI and machine learning continue to grow in demand, the need for high-performance computing resources, such as GPUs, becomes increasingly crucial. This has led to a trend towards cloud computing, where organizations can access vast, flexible, and scalable processing power. However, not all companies may be willing to rely solely on public clouds for their data, as they may want to retain control and ownership. Additionally, the competition among cloud providers, including Amazon, Google, and Microsoft, is driving down prices while increasing profits, making it unlikely that margins will significantly erode. For large SaaS companies with predictable and scalable workloads, it may be more beneficial to keep their margins by handling some of these workloads in-house rather than relying on the public clouds. Furthermore, the disruption of the server supply chain by the big three tech companies around 2007 is a notable precedent, and with cloud now representing 50% of the COGS for many large SaaS companies, significant changes could be on the horizon.
Tension between benefits and challenges of cloud services for startups and mature organizations: As companies mature, they analyze workloads closely and look for ways to reduce costs by moving certain functions away from public cloud providers, reflecting a trend towards less reliance on specific infrastructure locations.
As we move towards a more cloud-based economy, there is a tension between the benefits of using cloud services for startups and early-stage companies, and the increasing importance of managing costs and infrastructure for larger, more mature organizations. While the cloud offers numerous advantages, such as cost savings, access to the latest tools, and the ability to scale incrementally, it also comes with new challenges as companies grow and their reliance on cloud providers increases. As more and more software is run as a service, the implications for operations and costs become more significant. The trend we're seeing is that as companies mature, they begin to analyze their workloads more closely and look for ways to reduce costs by moving certain functions away from public cloud providers. The rise of containerization technologies like Kubernetes is a reflection of this trend, as companies seek to become less reliant on specific infrastructure locations. This is a complex issue that the industry is still grappling with, and it's important to remember that we're in a very new economic landscape with a large number of companies that have grown up entirely on the cloud and have yet to face the market pressures that come with significant infrastructure costs.
Balancing Profit, Growth, and Share in Business: Adapting and innovating, even with short-term financial sacrifices, is crucial for businesses to thrive and stay competitive in a changing market.
In business, flexibility and innovation are key to staying competitive. Michael Dell discusses the tension between profit, growth, and share in a public company and how they don't always align. Investing in new technologies or hiring more staff can lead to short-term profit losses but long-term growth and increased share. The Dell EMC story illustrates this concept well, as the company went through the process of taking it private to accelerate transformation and innovation, eventually merging with VMware to create a more powerful entity. Despite the initial challenges and financial setbacks, the long-term benefits outweighed the costs. Overall, the ability to adapt and innovate, even if it means short-term financial sacrifices, is crucial for businesses to thrive in an ever-changing market.
Consolidation in the tech industry and the importance of full stack offerings: The tech industry's shift towards data and cloud computing led to a need for comprehensive solutions, resulting in consolidation and the emergence of neutral players like Dell and VMware. However, mergers like Dell-EMC come with challenges and controversies, including potential conflicts of interest.
The tech industry's shift towards data and cloud computing led to a consolidation of players in the infrastructure market, making it essential for companies to offer comprehensive solutions to stay relevant. This context is crucial to understanding the Dell-EMC merger. The underlying theme was the desire from customers to avoid being systems integrators and the emergence of a few neutral players, such as Dell and VMware, who could provide a full stack offering. However, the merger was not without its challenges and controversies, including the involvement of Carl Icahn and the complexities of going private. The argument against the merger from Icahn's perspective was that a CEO buying their own company creates a conflict of interest, allowing manipulation of the company's appearance and the bidding process. Reflecting on this now, it's clear that the merger had its benefits, but the potential for conflicts of interest remains an important consideration in corporate deals.
The Role of Activist Investors in Go-Private Processes: Activist investors can influence go-private deals, but their intentions and actions should be scrutinized. Some may genuinely seek the best deal for shareholders, while others may engage in misleading practices or greenmailing. Ultimately, the CEO's commitment to buying the company can signal to potential buyers, leading to various outcomes.
During a company's go-private process, the role of activist investors can be significant, but their intentions and actions should be scrutinized carefully. While some may genuinely aim to secure the best deal for shareholders, others may engage in misleading practices or greenmailing. In this specific case, Carl Icahn's attempts to manipulate the situation were unsuccessful, and his lack of knowledge about the company and ultimate unwillingness to buy it were exposed. Ultimately, the CEO's commitment to buying the company at a certain price can serve as a strong signal to potential buyers, and the go-private process can lead to various outcomes, including increased competition and higher prices. However, it is crucial to remain vigilant against deceptive practices and protect the interests of all shareholders.
Effective collaboration between hardware and software creates demand and new capabilities: In business, facts aren't enough. Trust and strong relationships with stakeholders are crucial during challenging times. Be prepared when going public and understand co-investors' perspectives.
Effective collaboration between hardware and software, as seen in operating systems, creates demand and new capabilities. However, in business, particularly when dealing with activist investors, facts alone are not enough. Perceptions, shaped by media and public figures, can be misleading. Building trust and strong relationships with stakeholders is crucial during challenging times. Regarding going public, it's essential to have a clear reason and be fully prepared. In business decisions, understanding the perspective of co-investors is vital. If a CEO of a public company is considering buying back their company, they should seek professional advice, follow proper procedures, and be prepared for complex challenges.
Founders' Unique Perspective in Corporate Transformations: Founders can effectively navigate corporate transformations by inspiring, motivating, and creating a sense of crisis, while maintaining a collaborative approach. Identifying and addressing difficult employees is crucial for fostering a positive work environment.
Founders often navigate corporate transformations more effectively than non-founder CEOs due to their unique perspective and credibility. Founders can strike a balance between inspiring and motivating employees while creating a sense of crisis, which is crucial for driving change. However, it's important to note that this balance can be tricky, and failure to execute can result in lost trust and credibility. Michael Dell, as a founder and CEO with over 36 years of experience, is an exceptional example of this phenomenon. In his book "Play Nice, But Win," Dell shares his experiences and insights on leading a company through various transformations while maintaining a collaborative approach. Another topic that emerged during the conversation was dealing with difficult employees, or "assholes," in the workplace. Dell shared an anecdote about identifying and addressing individuals who were not contributing positively to the team during leadership development programs. Ultimately, it's essential to foster a collaborative and supportive work environment, where everyone's efforts contribute to the organization's success. In essence, the conversation highlighted the importance of founders' unique position to navigate transformations and the need for a balanced approach to managing employees, even those who may present challenges.
Building a good reputation through honest actions: Do what's right for a good reputation, but remember, everyone's path to success is unique. Consider starting small before making big decisions, and remember the importance of timing in entrepreneurship.
Having a good reputation in business is crucial and can be achieved through honest and direct actions, but it's essential to understand that not everyone's path to success is the same. Michael's long-standing reputation for fairness and respect in the industry wasn't necessarily intentional but a result of doing what he believed was right. Regarding leaving college to start a business, Michael shared his experience of feeling compelled to do so and never looking back. However, he acknowledged the risks and warned against blindly following the success stories of a few, as most people who drop out to start businesses don't make it. The real advice, he suggested, might be to get something up and running before making a significant decision, as many successful entrepreneurs already had their ventures in motion before leaving education. Lastly, he touched on the importance of timing in entrepreneurship, as many successful dropouts had their businesses already in progress before leaving.
The right moment for innovation and investment: Determining the right moment for innovation and investment can be challenging, but embracing new technologies early and managing transformation is crucial for success.
Timing and the energy of a moment can significantly influence decisions, particularly in the realm of innovation and entrepreneurship. Michael Moritz shared his experience of the PC revolution and how he knew it was the right time to invest, despite IBM's dominance. He emphasized that it's challenging to determine the beginning or end of something, and the confusion often keeps larger companies from fully embracing new technologies. Michael also discussed the importance of managing transformation in a rapidly changing industry, where the majority of revenues come from new offerings. He advised founders to constantly imagine the successful version of their company in the future and invest accordingly. The go-private strategy allowed him to reignite risk-taking and entrepreneurial spirit, enabling his company to build out the future in areas like edge and multi-cloud, 5G, and AI/ML workloads.
Importance of adaptability and leadership in business: Michael underscores the need for entrepreneurs to evolve from a founder's mindset to a leader's perspective, focusing on team, openness to feedback, embracing change, and staying humorous. Apple's history in the PC market illustrates the significance of understanding market dynamics and competition.
Learning from the conversation with Michael is the importance of adaptability and leadership in business, as highlighted in his upcoming book "Play Nice But Win." During the discussion, Michael shared insights from his journey as a founder and CEO, emphasizing the need to evolve from a founder's mindset to a leader's perspective. He also touched upon the significance of understanding market dynamics and competition, drawing an analogy from Apple's history in the PC market. Throughout the conversation, Michael provided valuable advice for entrepreneurs and leaders, such as focusing on the team, being open to feedback, and embracing change. He also emphasized the importance of staying humble and maintaining a sense of humor, even in challenging situations. The conversation ended with some light-hearted moments, including a trivia question about Apple's highest market share in PCs. Despite a brief technical hiccup, the conversation flowed smoothly, and Michael's enthusiasm and expertise shone through. Overall, the discussion provided a compelling preview of Michael's book and offered valuable insights for anyone looking to grow as a leader in their industry.
