--:-- Sonal Choksi: How do you transform and innovate as your company grows and matures, even as the underlying technology platforms shift beneath you? And what does this look like when you're a private company versus a public one? In this episode from October 2021, Michael Dell, founder and CEO of Dell Technologies and one of the longest-standing founder CEOs in tech, joins a16z general partner Martin Casado, a16z co-founder Marc Andreessen, and host Sonal Choksi on the occasion of Michael's book, *Play Nice But Win: A CEO's Journey from Founder to Leader*. They debate the impacts of the cloud wars, how innovation happens when a company is private and when it's public—something Michael knows well, having taken Dell public to private to back to public again—and whether you can actually play nice to win as a leader.
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--:-- Sonal Choksi: Hi, everyone. Welcome to the a16z podcast. I'm Sonal, and today we have yet another of our special book launch episodes on the upcoming new book titled *Play Nice to Win: A CEO's Journey from Founder to Leader*. The book is by Michael Dell, founder and CEO of one of the world's largest tech companies, Dell Technologies. While his book interweaves the journey of starting, transforming, and keeping one's company, we focus primarily on the how to keep and how to transform in this episode. We also discuss the challenges of being public while trying to innovate, the behind-the-scenes stories with activist investors, and we debate the underlying tech platform shifts from the death of the PC to the current cloud wars.
--:-- Sonal Choksi: Joining this episode is a16z general partner Martin Casado, co-founder of Nicira, which was acquired by VMware. Martin's also written a ton about the trillion-dollar paradox of cloud, which you can find at a16z.com slash cost of cloud. And we have a16z co-founder Marc Andreessen, who joins as well and plays devil's advocate throughout. We begin with the cloud wars, then the company wars, and finally end on leadership.
--:-- Sonal Choksi: For context, Dell's company famously went public, then private, then public again. We also referenced the write-up that we did here years ago called "Making Sense of Dell plus EMC plus VMware" in 2015. There were many analyses of that deal at the time through the tech lens, and many analyses of the complicated financing of the transaction. But we were one of the very few who dug into and analyzed both threads together to reveal a far more interesting story. You can find that at a16z.com slash DellDeal.
--:-- Sonal Choksi: As a reminder, given all the historical events and companies mentioned, none of the following should be taken as legal, investment, business, or tax advice. For more important details, please see a16z.com slash disclosures.
--:-- Sonal Choksi: Michael, when I was reading your book—which is fantastic, I just loved it—
--:-- Michael Dell: Thank you.
--:-- Sonal Choksi: —you're going through your psychology on your belief that PCs still had a lot of legs when everyone else was wrong. I was thinking this is the most extreme form of a founder seeing truth when everybody else doesn't. Normally, founders believe something the world doesn't, but there isn't a lot of data or experts because it's so new. In this case, this is incredibly mature, there's a lot of data, and everybody knew—and still you have this contrarian view. I feel like in infrastructure, we're having a similar kind of dilemma now. There is this consensus view that all of infrastructure is going to be consolidated in an oligopoly of three companies, and somehow all the PCs are going to disappear in the cloud. Do you feel this is a similar situation or a different situation? I'd love your views on that.
--:-- Michael Dell: There are lots of different models that are emerging. But the idea that everything is going to one public cloud—you really don't see a lot of customers doing that. I wake up every day and I look at our daily order report from the previous day, and it tells me, no, that's not happening. From my conversations with customers, they've figured out it's not the public cloud or the private cloud—it's both. And even beyond that, it's really the edge. Infrastructure is going to continue to be distributed. Customers like the consumption models. They like the AI and ML services that the public clouds are building out. But they're not going to all be beholden to one cloud. More and more customers are thinking about what's the right place for any given workload. You've got data sovereignty issues, security issues, certainly cost issues. When I look at what is about to happen with all this embedded intelligence and distributed computing becoming even more distributed and real-time, I don't think all that's going to be concentrated. There are estimates that there will be more apps and more data at the edge, and it's not going to all come back to the center of the universe.
--:-- Sonal Choksi: Our partner, Peter Levine, actually wrote a piece a number of years ago called "The End of Cloud." His point was that all of the computing is moving to the edges, as you note, Michael, and what that means architecturally because of the processing having to happen closer to those nodes at the edge versus going back to some centralized thing. In some ways, "The End of Cloud" was a controversial statement, at least for those not in the know. More recently, this idea of cloud services versus on-prem and this whole debate that Martine and Sarah have been writing about was probably one of our most controversial posts in the last five years. We'd love to hear you guys debate some of these technological shifts.
--:-- Marc Andreessen: It seems like IT goes in these collapse, expanse, collapse, expanse phases. You have mainframes—that's a collapse. Then you have this expanse into PCs. Then you've had a bit of a collapsing that happened into data centers and cloud. And now it's so clear we're in an expansion phase. There's a Cambrian explosion around data, faster connectivity, edge compute, edge devices. Every time you have one of these collapse-expanses, the TAM grows by at least a factor of 10, normally a factor of 100. So it seems to me like the TAM is increasing and a lot of this compute is exploding out of the clouds right now.
--:-- Michael Dell: Another way of thinking about this is the domain of technology used to be the IT department. Now it's the whole organization and the whole company. Basically, everything you want to do—from sales, marketing, product development—technology is the fulcrum. That is driving a tremendous amount of demand and opportunities for the industry. All of these things have to be built on a foundation of some kind of infrastructure. Clouds are infrastructure, and AI is eating software, software is eating hardware, but it's got to run on something.
--:-- Martin Casado: I think it's constructive to go through the historical arguments quickly because the actual argument has shifted. The first cloud wars, which most people remember, was literally the cloud versus internal IT. Internal IT had old technology. Data centers were like really wiring closets, museums of computer science past. You didn't have automated processes. When I was a programmer back in the early 2000s, there was a lot you could do to reform that. Having an alternative that somebody else managed helped. I'd call that Cloud Wars 1.0. But in that time, infrastructure has evolved so much that that's not even really a problem anymore, even if you're running your own IT. So that continues to play out. But something else has happened, which I think is even more significant. We've gone from basically every company is a software company to every company is a SaaS company. Instead of shipping software, now we run SaaS. The economics of the cloud, if you're SaaS, are just really poorly understood. In the last six years, 126 companies IPO'd that were predominantly cloud native—126. This was during a bull market where debt was almost free. We don't even know what it looks like when the market starts seeing what their margins look like. You could argue there's a massive shift to SaaS. I'd call this Cloud Wars 2.0. Now when it's SaaS, infrastructure becomes COGS. It's very, very important to have choice and flexibility, which is why Michael Dell and I have been so aligned on this for so long.
--:-- Marc Andreessen: I'll argue the other side. You guys are agreeing with each other way too much. I'll concede up front there's a bunch that I would probably agree on, but not admit it. There's a counterargument in three parts. Argument number one: you guys have been infrastructure systems guys your whole lives. I've been a software guy my whole life. I took all the hardware design courses and used toothpicks to prop my eyes open. I just couldn't wait to come back to the compiler. The last thing in the world I want to do is deal with any aspect of hardware if I can possibly avoid it. I want to be able to type things in an editor, press deploy, and just want it to work. As software becomes more important and more comprehensively applicable in every sphere of human life, and as more people become software developers, the sheer amount of demand for people who just want to write code and press deploy and run—and certainly never deal with the concept of a server or a private this or anything other than just press and go—that market is going to continue to grow explosively. Let me pause there and see what you guys think.
--:-- Michael Dell: I agree with that trend. That's why we're seeing tremendous growth in creating this developer-friendly environment that allows customers to deploy easily. I actually think the arguments are somewhat compatible given the trends in how infrastructure is now being delivered on a consumption basis.
--:-- Marc Andreessen: The corollary would be, you would view it as a challenge for your company. The environment you're providing as a private cloud has to be as easy to develop on, as easy to click and go, as a public cloud. Is that the way to think about it?
--:-- Michael Dell: Yeah. One of the other things we're seeing is the super big organizations—and I think this will flow down to large and medium-sized organizations over time—have basically said, "I'm going to put my data in a neutral colo that has incredible connectivity, and I'm going to access services from each of the major public clouds." It's just an untenable situation to put everything in one of these. I actually think that colo model is growing faster than the discrete public cloud model itself.
--:-- Martin Casado: Just to follow on this. In the pharma industry, it turned out big pharma would rather erode their own market share than drop their margins. Buyers propped up this company that was just made for generics called Dr. Reddy's, built for 15% margins. Do you think, to your colo model—which by the way, I agree is a massive, massive trend—do you think we're going to see the rise of almost a generics-type cloud that uses merchant hardware in a similar model? Or do you think it's going to be every enterprise doing their own thing?
--:-- Michael Dell: I've seen a number of business plans like that. It feels to me like it's going to be highly distributed, particularly when you think about it globally. Data sovereignty issues are real and significant. With the rise of these enormous tech companies, you're seeing some nationalism push back on their usage, even if they're making significant investments inside those countries. It feels like it's going to be highly distributed. That's what I see.
--:-- Marc Andreessen: Second argument: the consequences of the rise of AI and machine learning. Michael, we'll tell you what we think. The nature of software development is about to change dramatically. It's going to change from people writing deterministic code—first this, then that, then the other thing, in a classic von Neumann programming model—to writing much more software built on ML models. Software systems where you dump in huge amounts of data and neural nets do their thing and come out with answers on the other side. We're already seeing the rise of that kind of development. Large parts of the big internet companies like Google and Apple now run on these systems. Google has re-engineered its entire search engine to run in this model, which is a real harbinger of the future. We're seeing it across many areas of tech, including drug discovery and tons of others.
--:-- Marc Andreessen: As that shift happens, a couple of things occur. One is the whole nature of development changes. As a programmer, you're dealing with software at a different level of abstraction. A lot of programmers writing against AI won't understand the details of how it works. They'll be writing on these high-level APIs that access very complex algorithms under the hood. The related thing is the demand for processing power is going to explode stratospherically. NVIDIA is a major beneficiary of this trend today. It's become hard for a lot of consumers to buy GPUs even for their PCs because those are the same chips you want to run these AI algorithms. You have this massive explosion of the number of cores, processors, and GPUs necessary to support this programming model.
--:-- Marc Andreessen: I think the argument would be that in this model, you really want a cloud. You want a super high-scale environment with a great deal of flexibility to scale your processing needs, with an increasing amount of specialized hardware in the form of GPUs and custom silicon coming along to support AI. You really want higher and higher levels of abstraction for software developers, which lifts them further out of the nuts and bolts of how the infrastructure runs. I'd be curious what you think of this trend for the kind of model you're talking about.
--:-- Michael Dell: I think there are going to be workloads where the scale of the public clouds is super efficient and will work well. But I don't think all the organizations in the world are going to say, "We're creating all this valuable data, and we're just going to give it to you, and then we'll rent it back at whatever price you want to charge us in the future because we don't have any other options." These companies are creating a lot of powerful services that customers want to take advantage of. But a lot of those AI/ML frameworks are not just owned by those three companies or exclusive to their public cloud infrastructure. There's a lot of open source activity there and companies helping companies figure out how to use all their data. We're still at the very beginning of that as an industry.
--:-- Sonal Choksi: Are you seeing AI demand or machine learning demand?
--:-- Michael Dell: Absolutely. It's one of the fastest-growing workloads we're seeing, certainly NVIDIA-driven, and there are many others working in that space too. That's driving enormous demand for sure.
--:-- Marc Andreessen: The third argument would be the nature of competition. It was not that long ago that it was taken as an article of faith, maybe incorrectly, that cloud businesses were not going to be profitable or were going to be only marginally profitable. You guys and Martine with your work have done a great job of illustrating how actually it turns out they're quite profitable. But you have this dynamic: Amazon, Google, Microsoft. These are three gigantic companies with what seems to be a very high level of determination to bash each other's brains out in this market. They're all so determined to win this war. Aren't they going to beat each other to death on pricing over the next five or 10 years? Won't that result in their margins coming down and resolving some of the economic pressure, Martin, that you wrote about?
--:-- Martin Casado: I just don't think oligopolies work that way. If you look at the actual margin profile over the last 10 years, it's gone up from about 18% to 30%. It's actually increased. While price is dropping, that's through internal efficiencies. Margins have been increasing. Whether it's being checked by the public markets or the internal operations of the company, it's a very, very hard thing for them to erode margin. We have examples you can look at. Big Pharma is one of the best ones—they would rather seed market share to generics than drop their own margins. If oligopolies change the way they work, maybe we'll see an erosion of margins. Prices will drop 100%, but I don't think margins will.
--:-- Martin Casado: As workloads become more predictable—say you're a big SaaS company, a billion-dollar SaaS company—your margins are going to be very important. Your workloads will be predictable, at scale. You'll have huge teams that know how to run platforms. You would be silly not to take some of those workloads and collect the margin gain yourself instead of Amazon. You'd just be silly not to.
--:-- Martin Casado: One more thing that's very interesting. When the big three decided to start disrupting the server supply chain, they did it when the servers were 50% of their COGS. That was about 2007. If you look right now at these big SaaS companies, cloud is 50% of their COGS. So something's going to happen.
--:-- Michael Dell: It's all owned by three companies. I just don't really see that scenario happening. Here we are in 2021, and server demand is off the charts strong. If I look at the ship-to addresses for those servers, it's not all to three companies. It's global. It's all these new kinds of workloads. With low-latency networks coming into play, it's likely to be even more distributed in the future.
--:-- Sonal Choksi: On the cloud pricing wars discussion that Martine and Michael were having, it struck me that you guys were actually talking about more mature companies versus early-stage companies. Part of Mark's question, at least the way I interpreted it, is about how you get innovation. The whole point of a startup being able to go cloud is you don't have to worry about the plumbing and all the crap. You can just focus on innovating. Can you guys talk a little bit about the tension between the early-stage model and the transition to mature? Michael, I think this is really relevant to your book because it takes us to the narrative where you're talking about what it means to go from an early-stage to a mature company and how you continue to get innovation. Let's talk about this whole debate about margins and what happens and the tension between innovating.
--:-- Michael Dell: The cloud has a ton of benefits. If you're starting a project, you can do it incrementally. You get the cost benefits of something that's already at scale. You get all the latest software and tools. If you're a new startup, it makes a ton of sense. If you're building a SaaS app, it makes a ton of sense to use the cloud. If you're in a big company doing a new project and the cloud already has tooling that your internal IT doesn't, it totally makes sense to use the cloud. There's a lot of value in the cloud for sure.
--:-- Michael Dell: The issue—and this is where this argument is just a new argument—is we're no longer in the old enterprise world. It's not Cloud Wars 1.0. We're in this world where most software is run as a service. That's a different world because you actually have people that are good at operations in your company. It's a different world because the infrastructure becomes part of your COGS. As you get larger, the implications become more significant. There's a bit of a tension or a paradox right now where early on, it totally makes sense to focus on using cloud workloads for some projects. But as you get larger, you're actually kind of reselling the cloud, and you have to decide what to do about that. This is what the industry is grappling with right now.
--:-- Martin Casado: As I mentioned before, and I think this is something everybody should remember: 126 companies IPO'd in the last six years during a bull market with almost no debt. This is a very, very new phenomenon where you've got companies built entirely on the cloud that haven't had to worry about margin pressures because they're growing a lot and can basically raise money for free. As soon as that shifts, I think all of them are going to have to really look at what it means that 50% of their COGS are coming from one of three companies. It's a very big deal.
--:-- Michael Dell: I agree. The trend we've seen is companies get to a certain size and start to focus on this. The startup ecosystem matures, and at some point in its journey, it realizes, "We're going to be paying enormous rents to these public cloud guys, and we're never going to be profitable given the cost we're paying for infrastructure and egress fees and everything else." Then they get into a more complex analysis of their workloads and start picking off parts. They realize, "This is going to cost us way less than we're paying over here in the public cloud for certain things." I think the rise of Kubernetes is very much a function of this idea. People like clouds, they like cloud-native software development, but they don't want to be locked into a particular infrastructure location. They start to architect to be independent of location. We're seeing that.
--:-- Martin Casado: The important thing is this isn't a categorical anything. It's much more about building anything—you use whatever's best for purpose. As part of this kind of constraint, it's going to be costs and COGS. The more flexible the workloads are, and they're being built to be more flexible all the time, the more, to Mike's point, they're going to be distributed. That means some of them are not going to land on the cloud. I'll leave the whole repatriation debate off the table.
--:-- Sonal Choksi: [Chuckles] I'm just chuckling because I remember that phrase someone shared: "the rise of the repatriarchy" or something ridiculous.
--:-- Sonal Choksi: Along those lines, Michael, in your book, you talk about as a leader of a public company, there's always this tension. In your case, between profit and growth and share. Do you think those three should be aligned and go forward lockstep? Why doesn't profit lead to increased growth, to increased share? Can you talk a little bit about some of the tensions there?
--:-- Michael Dell: If you're going to invest heavily, it drives your profits down. It's always this balance of the three. You can drive share up pretty easily, but that can lower profits in the near term if you're hiring a bunch of salespeople, investing in new accounts, building out new relationships. You have to find the right balance. If you've got a great business model and fantastic margin structure, they can all align very nicely, but that's not the case in every scenario.
--:-- Sonal Choksi: That was great. We're going to shift into talking about the Dell EMC story. You went from taking a company public to private and then back to public again. Mark is the one who made me write the Dell EMC primer with the corporate development team. We did, and I kind of hated him for it. I was like, "What am I writing this weird finance thing? What is the tracking stock?" I was so annoyed because I'd never written anything that was corporate finance. I ended up coming out of the other side in love with the whole topic. It was fascinating.
--:-- Michael Dell: You guys did a great job with that.
--:-- Sonal Choksi: Thank you. You guys gave us a lot of great material to work with. It was Mark's idea. He was the one who gave us the through line because I was like, "Mark, what's the entire point of this?" And it's all about how do you stay innovative in a market environment today. Tell us about that.
--:-- Michael Dell: It was quite a journey. You have to go back to the mid-2000s when things really started to accelerate in terms of change in the industry. It became clear to us that while we'd had a lot of success up to that point, we needed to do some different things. We needed to invest in software and new capabilities. We were going to have to build and acquire a lot more IP. We started acquiring companies. The more we did that, the less the market really appreciated the change that was going on. That was painful and made us sad because we were working really hard at it. But at some point, it became an enormous silver lining because it created this incredible opportunity to buy the whole company back from the shareholders and really accelerate the transformation with no quarterly shot clock. We slammed on the accelerator. We said, "There's no shot clock here. We're just going to hire tons of engineers, hire enormous numbers of salespeople, and just go for it." We did an enormous level of investment organically inside the business, and it started to work pretty quickly. The go-private was going really, really well. Cash flow was coming in. Within 18 months, our net debt was like zero, which was pretty amazing.
--:-- Michael Dell: About a year after that, Egon Durbin from Silver Lake and I started talking about what we could do next. We knew we needed to transform more. EMC had become the leader in data storage, and they had this 81% interest in VMware. We had this idea: if we could somehow combine Dell and EMC and VMware, you would create this amazing company. The only problem was we needed $67 billion. We worked on that and through some very creative structuring, figured out a way to do it with their money, basically, and contributing all of our own equity. We thought it would work, but it turned out to be way better than we thought. That's a quick snapshot.
--:-- Sonal Choksi: Can you put a little bit more in context about the underlying tech shifts besides just the players and the financial part?
--:-- Michael Dell: The backdrop for a super long time has been this incredible growth in the amount of data, and that is only accelerating. But you have to turn that data into something useful. One of the things happening in infrastructure and clouds was this extrapolation of the offering up to a higher level where nobody really wanted to assemble all these components themselves. You had things like hyper-converged infrastructure, converged infrastructure, cloud. If you were just a server company or just a storage company or just a networking company, you would have a difficult time. The big theme there is customers told us they didn't want to be systems integrators. They didn't want to put 20 things together. All the other 20 things were not number one. We were number one in basically all of them, which made it super compelling. It was very straightforward to go to these customers and bring them a much broader offering.
--:-- Sonal Choksi: Martine, we all heard from the market their reactions, but what was your reaction from the inside?
--:-- Sonal Choksi: I mean, you were at VMware at the time.
--:-- Martin Casado: I was, yeah. So I was running the network and security business unit. I actually remember when this happened. And what was clear to everybody within VMware was that infrastructure was becoming a battle of titans. It was companies that owned the entire stack. Every single player was kind of wedded to something pretty serious. And so the only two really neutral players, it seemed, were Dell and VMware. So you have the full hardware side and the full software side. There was a tremendous amount of excitement because it wasn't super obvious how you could play a game this big without being part of a much, much larger offering. In order to stay super relevant, something like this had to happen. But listen, it was also crazy scary because we didn't even know what a tracking stock was. So there was a lot of education that happened along the way.
--:-- Martin Casado: The other thing that was amazing was it was pretty rare that a number one business was ever for sale. And if it was for sale, it was at some ridiculous price. People were saying, "Oh, all infrastructure is going to go away because the cloud is here." And that turned out not to be exactly the case. It's multi-cloud. I think the rise of the cloud also discounted VMware and EMC, just like earlier people had said the PC was going to go away. There was this narrative that kind of enabled us to go private, which was at the time, sort of 2012. The smartphone was really on the ascendancy and the iPad was taking off. And everybody was like, "Oh, you don't need PCs anymore because of these smartphones and tablets." And we always thought it was an "and" thing, not an "or" thing. So that demise of the PC narrative gave us this incredible opportunity to buy the company back. The go private started in 2012 and was completed in 2013. The announcement of the deal was in 2015. It closed in 2016. That was quite a knothole to get through with Carl Icahn and other adventures along the way, which I describe in the book.
--:-- Marc Andreessen: So Michael, you and I have both had the rather rare experience of tangling with Carl Icahn over the years. And I'm very used to arguing your side of things. Let me argue his side, try to steel man his side, and then see what your perspective is on this now that some time has passed. So his side of the argument, if I recall correctly, was basically a sitting CEO of a public company buying his own company is the most obvious conflict of interest in the world because you have all of the inside information and then you control the process. And so you, in theory, as the CEO can do all manner of things to manipulate how the company appears to be doing, what the price should be, what the stock price is, and so forth, and then the bidding process and the buy process itself. You're basically in a position to cut yourself an amazing deal. And I haven't heard him say this, but I would imagine he might even say today, "Aha, I was right in retrospect. Look how well it went post the buyout. And isn't that evidence that the original thesis was right?" So now that some time has passed, what is your perspective on that argument? And what's your perspective now on the role that activists play and your take on how that whole thing played out?
--:-- Michael Dell: Sure. So let's unpack that. First of all, I think if it works, it's easy to say in hindsight that the founder or the management team knew what they were doing and they got a great deal. But if it doesn't work, you wouldn't really say that, right? Of course, there were enormous protections that were put in place by the independent board and special committee that oversaw the process to ensure that the shareholders got the best deal possible. And in the end, Carl Icahn, for all of his bluster — and he went on TV and lied about all sorts of things, which I detail in the book — he never offered one penny more than Silver Lake and I were willing to pay for the company.
--:-- Michael Dell: What I discovered in a dinner at his house over his wife's meatloaf was that he basically didn't know anything about the company, didn't care anything about the company, actually didn't even want to buy the company. He just wanted me to pay a little bit more so he could make a little bit of money and go on to his next adventure. For him, it was just a big poker game. I asked him what his plan was, and he sort of mumbled a bunch of things. So I called his bluff and said, "OK, why don't you buy the company for a little bit more than I'm willing to pay? You're going to totally screw it up. And I'll buy it from you for a lot less than you pay for it. That'd be a great deal for me." And it was pretty clear he was scared of that scenario.
--:-- Michael Dell: It was another interesting thing that maybe very few people were following. Every single share that he bought up until that point was above the deal price. So if the deal had gone through, he would have lost money. Now, he later convinced Southeastern Asset Management, our largest outside shareholder, to sell him a bunch of their stake at a discounted price. How he actually did that, I don't know. But if you sleep with a tiger, sometimes you wake up and your arm is eaten off.
--:-- Michael Dell: Look, I don't have a problem with activist investors. I have a problem with green mailing and basically misleading investors, which is what he did. Specific example, he claimed that you could claim appraisal rights, which is a very arcane aspect of go privates. And there was absolutely no risk. And he was saying he was going to do it, which he ended up not doing. And it was not no risk. And he kind of knew all those things, but that didn't stop him from going on national TV and lying. And that's Carl Icahn for you.
--:-- Marc Andreessen: Right. I steel-manned his point of view, but like I said, I'm where you started on your side. So if I can steel-man your point of view and tell me if you think this is right: I think it would be the ultimate expression of faith by a CEO in the business is wanting to buy the entire business. And so when the CEO stands up and says, "I want to buy this thing and for this price," it should be a massive bat signal to every other potential buyer in the world saying, "This thing is really valuable. This thing really matters. The CEO really believes." And so therefore, anybody with the money to do it ought to really pay attention to it and come in and try to bid more. And the process, in fact, supports that.
--:-- Michael Dell: Yeah, exactly. That's what happens when you start a go private. Effectively, the company is put up for sale. And so any number of things can happen at that point. You can have other bidders come in. The price of the stock could go up. There could be various forms of recapitalizing the company such that a go private is either no longer practical or necessary. So all of that could have happened at any point. Any number of buyers could have come in and said they wanted to pay more than Silver Lake and I were willing to pay. But nobody did.
--:-- Marc Andreessen: Was there ever a moment when you thought somebody else would come in and do that and end up buying the company?
--:-- Michael Dell: I mean, Blackstone was hanging around the hoop and talked about offering, I think it was $14 or $14.25 a share. They ultimately backed out. All the private equity firms took a pretty good look, but all except Silver Lake got pretty scared by what was going on in the PC market at the time. Windows 8 was sort of a failure, and it just played into that narrative of the smartphone and the tablet. But with operating systems, you have effectively hardware and software working together to create systems. You've got cycles that effectively create a refresh and a new source of demand as you get new functionality. That's true with processors, with operating systems like Windows and others, and they enable new capability. We knew that it was just a matter of time before there was a better version of Windows. These machines were getting four, five, six, seven, eight years old, and there would be enough new technology that would motivate people to replace them. I think a lot of the private equity firms basically just looked at the business as cells on a spreadsheet and didn't really understand things like operating system cycles and some of the changes that were going on deeply enough to be able to underwrite the business.
--:-- Sonal Choksi: Marc asked you about lessons learned in fighting an activist. One of the things that really struck me from your book is the narrative side of that lesson. You're not just fighting with facts. In fact, you can't fight with facts because there are many cases where you had media outlets completely misrepresenting the numbers. There were analysts misrepresenting the numbers. At one point in your book, you actually do a calculation that Carl Icahn, for claiming all of his "I'm trying to get more shareholder value," actually underperformed against the S&P 500. And so the facts do not match the perceptions that are out there. So I'd love to hear your thoughts on narrative lessons for founders there.
--:-- Michael Dell: Yeah, look, Carl Icahn's record speaks for itself. All you have to do is look up the stock of Icahn Enterprises and compare it to the S&P 500 over any period you want. But that doesn't really matter. He's a magnet for media. He gets views. He's interesting. He's provocative. He says stuff that causes people to continue to watch, and that's what they care about. So I think you have to be a good person and be someone that people trust and want to partner with and rely on. And when you're going through something like that, you're going to tap into hopefully all of that equity that you've created over time with everyone. You've got to tap into the relationships that you've built to keep customers and team members and everybody focused.
--:-- Sonal Choksi: If you started a company today, Michael, do you think you would take it public sooner than later, or would you wait?
--:-- Michael Dell: We went public in 1988 because we really didn't have any choice. That was the only way we could get capital to grow. I think you only want to go public if there's an objective reason to do it. Companies that go public too early, I think, are in for a bit of a rude awakening in terms of what they're subjected to. You really have to be ready to go public. So I wouldn't be in a big hurry to go public.
--:-- Sonal Choksi: Obviously, one of the big things that comes up is the number one reason to go public is to do mergers and acquisitions. And that was a big part of your strategy in terms of thinking about how to create the company you want. What was the tension in your head between the strategy of M&A and what you were able to do inside? How did you navigate what you build versus what you buy?
--:-- Michael Dell: Ours was kind of a unique situation because we did this massive acquisition. It was highly transformative for the capabilities and the position of the company. And I think if we had been a public company, I don't think we would have been able to do that. We would have had to have votes by both shareholders and public shareholders on the acquiring side. If we were public at the time, they probably would not have accepted that kind of risk that to me looked like a great opportunity. So you have to understand where your co-investors are, whether it's public shareholders or private co-owners, and make decisions appropriately.
--:-- Marc Andreessen: What advice, if any, would you give to the next CEO of a public company that's in the position that you were in to potentially buy your own company? Is there advice you'd give them based on having had that experience now?
--:-- Michael Dell: Well, you better get yourself a really good lawyer and follow the proper procedure super carefully and be ready for something that is way harder than you could ever imagine. The public market doesn't like it when you try to take away their product, the public stocks, and founders are assumed to know more than the average person when it comes to buying back a company. Fortunately, this one worked out, so I guess it proves the case.
--:-- Martin Casado: So what I would love to dig into, Michael, is markets transition all the time. Transformations happen periodically and they almost always kill companies. It's very rare that leadership that gets brought in later can navigate a transformation. They can sometimes, but often they don't. And I would love your thoughts on why you think that is. And then I was also wondering the second part of the question, which is every once in a while you have a leader, and it's normally a founder, that navigates transformation. Reed Hastings famously with Netflix, and you've done it now multiple times. And I was thinking, he might be the last actual of the great founder standing. Is that the case?
--:-- Michael Dell: Larry Ellison's still going, depending on how you count.
--:-- Martin Casado: Well, Jensen and Larry Ellison, the only two others I can think of, but I don't think they've got this level of involvement because I've seen so many come and go in the last 30 years and I think you're it. I have a quote here. You're one of few remaining founders who's still CEO 36 years later. That's amazing.
--:-- Michael Dell: 37, yeah.
--:-- Martin Casado: 37. I've just been so interested, why founders pull this off more than other CEOs? And you can believe it is because founders are special and so they see truth. And then you can also just believe that they've got more credibility because they're founders and they've got more juice. Do you have an opinion? Or maybe it's both?
--:-- Michael Dell: I think founders get some extra permission to drive change that you might not have as a non-founder. If a company is sort of doing okay, but it needs to transform, you have to create a real sense of crisis inside the company and kind of balance scaring and freaking people out — "if we don't do this" — with inspiring and motivating them about what the future can be. That's sometimes a tricky balance, but to motivate change and transformation, you have to strike that balance. If you screw it up, of course, you can lose all that trust and credibility. But if you are thoughtful and are straightforward with people about what we're doing and why we're doing it, they'll run through walls with you.
--:-- Sonal Choksi: Okay. So the title of your book is *Play Nice, But Win*. And the subtitle is *A CEO's Journey from Founder to Leader*. And you have this line that you said that you were never looking for a fight, but relishing every brawl once you're in it, which I think is just fabulous. Do you think that people can really play nice to win? I mean, obviously it's a premise of your book, but do you watch *Ted Lasso* by any chance?
--:-- Michael Dell: I just started watching it because so many of my friends have told me it's hilarious. So yeah, I think I'm in episode four or something like that.
--:-- Sonal Choksi: Okay. So you're still on season one.
--:-- Michael Dell: Still on season one.
--:-- Sonal Choksi: Well, I'm only asking because there's this whole argument now that people are making that we're in the *Ted Lasso* age of management, that managing by nice is the way that people are going to get ahead. But the thing that I find so funny about it is that the show itself is actually more entertaining because of all the assholes that are in it. And the fact that you have this juxtaposition of Roy Kent against Ted Lasso. So I wonder if you have thoughts on how to deal with the assholes in the workplace in this mindset of play to win.
--:-- Michael Dell: So I'll tell you a little story. Every so often I will get a group of people that are not on our executive leadership team, maybe 10 or 12 people that could be the future executive leadership team. And I'll spend three or four days with them, give them each pretty big assignments. They share their work with everybody else. And I kind of see how these people would work together with me as if they were the leadership team of the company. And every once in a while, you'll see somebody in there and say, "OK, this person's not helping the other people, sort of only out for themselves. And thank you very much. You'll be going to work somewhere else." And that's just how we do it. And by the way, this person had a really big job at our company before that. So I won't say who it is, obviously.
--:-- Martin Casado: What's his name? Martin Casado.
--:-- Michael Dell: No, it wasn't. It wasn't Martin. It wasn't Martin.
--:-- Martin Casado: I can confirm that. I can confirm that. Clarify that up front.
--:-- Michael Dell: So now your denial is suspicious.
--:-- Sonal Choksi: Martin, what do you think about this little thread?
--:-- Martin Casado: Well, it actually reminded me of something. I've been in the industry for a while. And when it comes to reputation, Michael, I think you've managed probably to have the cleanest as far as being fair, being direct, being well-respected, and you've done it for a very long time. And I said, actually, honestly, industry-wide, I'm just wondering, is this something that you've intentionally worked on, or is it just kind of a natural byproduct of how you navigate yourself? Because I do think that people's reputations really matter in business. I think business actually follows behavior, and I think you're one of the people that they should model themselves after.
--:-- Michael Dell: Well, thank you for that. I can't claim that I actually did it intentionally. I just woke up every day and did what I thought was the right thing to do.
--:-- Sonal Choksi: A quick question for Marc and Michael. Michael, do you have any regrets about leaving college to start your business? Because I think you said you did it before you were 20. And I wonder, because Marc is always the one who critiques this whole notion that people should leave college. Would you recommend to people that they leave college to start a business?
--:-- Michael Dell: It's not for everybody. You have to be kind of a deviant and mischievous and a rule breaker, and that's clearly not for everybody. And it doesn't always work out. For me, I had nothing to lose, and I could go right back to college a semester later if it didn't work. So understand your risk-reward. I felt so compelled that I really had to do it and never looked back.
--:-- Marc Andreessen: Yeah, so you're very much not doing what I'm about to describe, but a lot of people do do what I'm about to describe. A lot of successful people basically say, "Oh, you should do what I did." And you should do this and that and everything that I did. And of course, that's just massive survivorship bias. You only hear from the people who left college to start a business when the businesses were hugely successful. You don't hear from the people whose businesses crash and burn and their life ran dramatically off course and completely fell apart.
--:-- Michael Dell: Yeah, I think Charles Manson also dropped out of college, but you know.
--:-- Marc Andreessen: A much more succinct way of putting my point. Yes, exactly. And so I always get a little bit uncomfortable with the generalizations of how people should template their lives on extraordinarily successful people. And then I think there's another irony to it. And I think you probably agree with this. You were probably a case study of this, which is the people who are really going to do this are not going to listen to advice anyway.
--:-- Michael Dell: Bingo.
--:-- Marc Andreessen: Right. So for the people who give advice this kind of thing, I'm always kind of curious as to who the advice is actually for.
--:-- Michael Dell: Well, yeah. I mean, if I had gone around and asked people, "Should I drop out of college where I'm on a track to be a doctor and start this company to compete with IBM?" Nobody would have said yes. You have to be crazy. So I didn't really ask anybody, didn't really care what anybody thought. To me it was a good idea. That was enough.
--:-- Marc Andreessen: Now, the other thing, by the time you dropped out, you already had the business up and running to some extent, right?
--:-- Michael Dell: Yeah. I was doing about $80,000 a month in my little dorm room and thought, "Well, if I had an office, I could do 10 times that."
--:-- Marc Andreessen: Yeah. I think that's the other thing that people really underestimate. And your story is not a common story, but Mark Zuckerberg already had Facebook running when he left Harvard. Larry and Sergey already had Google running as a search engine when they left Stanford. I didn't leave, but I just had Mosaic running by the time I started my company. There's this narrative of kid drops out, starts company, and magic happens that often discounts that the kid actually already had the thing working at that time. So maybe the actual really relevant advice is, get something up and running and then basically make a decision like that. That's such a staggeringly hard thing for most people to do that most people can't do it, but that might be actually the true backstory in a lot of these things. Much better advice.
--:-- Sonal Choksi: Is there also maybe a certain pool of timing? Because one thing that struck me as well is that you talk about how there's kind of this frenzy that you were beginning to see when it came to the PC revolution. And frankly, I see that right now with crypto. And we have an intern on our crypto team who dropped out of Harvard to join the crypto team full-time. And part of me is like, I think she did the right thing because there is something about the times that you're in where a lot of excitement and sometimes it can be bubbly, but that community coming together is actually what innovation is. So do you have any thoughts on the pull and the draw of that kind of a moment when it comes to this decision, your decision to drop out at that time?
--:-- Michael Dell: No question about it. I think timing and the sort of energy of the moment are super important. For me, it was sort of the dawn of the microprocessor age. IBM was going strong and it just seemed like that was too compelling to pass up.
--:-- Sonal Choksi: But how did you know that it was ready? What I think is really hard to tell, and you can only tell it in the long arc of history, is whether at the beginning or the end of something, because they look the exact same. And I've been following crypto, working, observing since 2011. And so that to me is, I think, the most confusing part is how to tell. That's the thing that I think keeps people from the FANG companies from joining crypto, for instance. I guess that's maybe another way of asking my question. What was the sign?
--:-- Michael Dell: It was the $80,000 a month I was doing in my dorm room. That was a really big sign. And I was actually still in college. And I was super excited also about the idea that anybody could have a personal computer. This was way back when it was a really new idea. Interestingly, the students weren't even buying PCs. It's just fascinating, the whole timing thing.
--:-- Sonal Choksi: One other thing along those lines. So in your book, you have a scene where you talk through all the arguments that you're going to make to Institutional Shareholder Services that your deal was one of the best ones possible. And some of the arguments — I'm going to quote for a minute — you list it in a list. Number one, "This is a company I started 29 years ago and have guided ever since. It's crucial now to keep it on the right path. And I care about what's going to happen long after I'm gone." Number two, you talk about industry acceleration and then quote, "Transforming as quickly as possible is urgent, change or die." Number four, "Transformation is rate limited for a public company." So I could keep going. There's like more. I think you have like 16 arguments there. And oh, sorry, one more quote in another chapter. It's in a conversation with you and Egan where he says to you, "This isn't really a transformation. You've already done the transformation. That was the risky part. Now is the part where you've got to grow and be on offense, which over time will create more opportunity over a longer period." So the question I have for you, and this kind of goes back to this theme of leading from public to private to public again, how do you manage transformation? Not just fighting to keep your company, but to change your company. What are your biggest lessons learned or advice for founders listening to this?
--:-- Michael Dell: Well, look, the pace of change in our industry is not slowing down. It's only going faster. It's the kind of industry, as you know, where 80% or more of your revenues come from things that you've just introduced this year. So you have to constantly be imagining, "What is a successful version of our company going to be in five years? And how do we drive that change to get there?" And if you're kind of stuck, you don't have the right assets, or you're trying to eke out a certain earnings per share, you can't make the investments, that's a tough place to be. The go private allowed us to reignite a lot of the risk-taking and entrepreneurial spirit inside the company, certainly invest in and acquire a strong capability that put us on a totally different trajectory. And we talk a lot about where's the world going with edge and multi-cloud and 5G and all the AI and ML workloads and how do we build out that future.
--:-- Sonal Choksi: This is a good note to end on. Michael, thank you for taking the time to talk with us. I'm really glad we covered business, finance, capital, innovation. It just kind of all comes together in your new book coming out October 5th, *Play Nice But Win: A CEO's Journey from Founder to Leader*. Thank you so much for joining us.
--:-- Michael Dell: Thank you all very much. This was a lot of fun. I really appreciate it.
--:-- Marc Andreessen: And thank you.
--:-- Martin Casado: Thank you. Michael, thank you for doing this. This is really great. It's really, really great to hear your voice and congratulations on the book.
--:-- Michael Dell: Thank you, guys. Thanks, everyone.
--:-- Sonal Choksi: So you should be in the Zoom app. There should be like a preferences... Oh my God, I'm embarrassed to ask this, but I just realized you might not actually be using a Mac, right? You're using a PC.
--:-- Michael Dell: No, of course not. I don't know what to do with that.
--:-- Sonal Choksi: No, here's a trivia question for you. When was Apple's highest market share in PCs?
--:-- Michael Dell: Oh, my gosh. Maybe 1980? I don't know.
--:-- Sonal Choksi: You're pretty close. 1981, right before IBM introduced the PC.
--:-- Sonal Choksi: Okay, so you were saying...
