Chapter 98: Big, Man, Big!

Friday, March 16, 1984

I took the girls to Kerbey Lane Cafe for breakfast. Angie immediately started questioning why we weren’t going to college in Austin, and whether they might be persuaded to expand into College Station. Paige thought it would make for an interesting business case analysis. I had to agree, though I also made the point that, if we ate here regularly, we’d be battling the Freshman Fifty, not Fifteen.

We tried to avoid the subject of the hour. It would work or it wouldn’t. Being nervous about it would make it more likely to blow up. Calm and steady was the goal.

After breakfast, I gave Michael a call. Another guy answered, then handed the phone over.

“Hello?” Michael said.

“Hey! It’s Steve!”

“Good to talk to you. Having a good Spring Break?”

“Pretty good. We were really busy in College Station trying to get ahead of things on the house.”

“Can’t believe you have a house! I’m jealous!” he said.

“I doubt you’re struggling that badly, Mr. Newspaper Magnate.”

“You’d lose that bet! I’m frazzled!”

“Even over Spring Break?” I said.

He sighed. “Look ... I’ve got stuff going on. You’ve probably guessed that. Anyway, I guess I’ll explain when you come over. You are coming over, right?”

“That’s the idea.”

“Dobie 2713. You know where Dobie is, right?”

“I do. Above Dobie Mall,” I said.

“That’s the place!”

“We’ll be there in a bit.”

“See you then,” he said, then hung up.

I turned to the girls and said, “And we’re off.”

Jas grinned and hugged me, and then Angie and Paige followed suit. The game was definitely afoot.

On the drive over, Jasmine said, “I have to ask, since I’m supposed to play ‘conscience,’ at least somewhat: any qualms about what you’re planning with Michael Dell? If I can ask that?”

Paige said, “I was just thinking about that, more or less.”

“You’ve both got every right to ask,” I said. “I want you to. And ... no. I honestly think I’ll be helping him. I’ll also be taking advantage of him, no question. My five percent could end up being billions, but I’m going to be helping when he needs help the most, and my hope is that I’ll be able to help some more down the road with some subtle nudges in the right direction, or away from the wrong direction. That, and Laura. If Laura’s idea is worth billions again, the odds are high that Dell will — or could — use it and make a fortune on it.”

“So it’s win-win. But that means someone else probably loses,” Jas said.

I nodded. “Perhaps there’s always a loser somewhere. I’m okay with that. We’ll be making fair offers and making them to people who are voluntarily participating. The thing is, we know things. We can’t not know them. Either we don’t play the game at all, or we play it with respect for others, but we also play to win.”

“As one of your representatives from this universe, I concur,” Jas said, grinning.

“I do, too,” Paige said.

Jas said, “If I think you’re taking advantage, I’ll say so. I just had to ask, because if you did think you were taking advantage, Michael might see that.”

“Me, too,” Paige said.

“Got it,” I said. “Thanks, both of you.”

“We are a team!” Jas said. “All for one, and one for all!”

Angie said, “That’s how I’ve felt the whole time. We want this to be win-win, but we definitely want to win.”

Paige grinned. “I definitely want to win. Just ... like Jas implied, I want to win the right way.”

This meeting might be unique. If not, it was very rare. Who knew if anyone had ever negotiated a deal where one party thought it might be a multi-billion-dollar deal and the other party most likely thought a million was a bit of a stretch? It would probably have to be someone like me, Angie, or Laura.

Jasmine’s question was helpful. If I’d been out to rip Michael off, it would have given me pause. He was a friend and I wanted him to always be a friend. Not under false pretenses, either. He was also, hopefully, going to be a long-term business connection, if not exactly a partner.

Well, maybe a partner, but not in Dell, or at least not at first. I fully expected to be a silent partner (or at least very, very quiet) the vast majority of the time, especially until Dell grew into a large, solid company. Who knew what I’d break otherwise?

We drove over and I parked in the garage just east of Dobie. Walking in, we wound up in the Dobie’s little food court. It was a stretch to call it a ‘mall,’ but it did have a small food court, perhaps a dozen little shops, and an art theater. I’d seen quite a few movies here with my ex-wife, particularly during Austin’s South By Southwest Film Festival, which we’d attended regularly before we had kids. We seldom went to the much larger SXSW Music Festival (partly because it was so incredibly big), but we loved the Film side of things.

We found the correct elevators and I hit the button for 27. Up we went, butterflies churning in my stomach. Too many, but I’d be fine.

2713 was just down the hall, and we knocked on the slightly open door. A guy I didn’t know opened the door. The room behind him was filled with boxes, partly assembled computers, and shelves (made from lumber and bricks) holding parts. There were beds, but they were shoved into corners. Clearly, this was a computer manufacturing operation first and a place to live second.

“Hey! Michael! Your friends are here!”

“Steve Marshall,” I said, offering my hand.

“Bill Graves,” he said, shaking. The name rung no bells, but why should it?

Jasmine was introducing herself as Michael came around the corner.

“Hey, Steve!” he said, coming over and shaking hands.

“Hey, Michael!” I said.

“And hi, Angie!” he said, turning to her and shaking hands. “And Jasmine, and Paige, too!”

All of them shook hands and said ‘Hi!’

“So...” he said.

“Yeah,” I said.

He chuckled a bit, weakly. “I kinda found a hobby.”

“I’m assuming it pays well?”

He chuckled a bit more. “Actually ... yes and no. That’s part of the reason we’re all so crazy.”

“Oh?” I said.

“Come! Sit down!”

Sitting turned out to be on the bed. The chairs were piled with components.

“We’re selling about 15 to 25 finished computers a month. That’s about $20,000 to $30,000 in cash flow. It depends on whether people are buying high-end or low-end models.”

“Not bad.”

“Bad,” he said, shaking his head. “I’d hoped to run this as a cash business, but I’ve already had to start taking credit cards, as well as purchase orders from businesses.”

I nodded, not saying anything.

“My plan was to make cheap PCs for students. Most of them don’t want them! The department says buy IBM. They get big discounts at the campus computer store, and it’s mommy and daddy’s money, so they buy IBM.”

I nodded again.

“The problem, and it’s a bitch — sorry, girls...”

“No problem,” Angie said, grinning. “I sometimes use the word myself.”

“Good,” he said, looking relieved. “Anyway ... one problem is that businesses expect to be invoiced and then to have at least 30 days to pay. Credit card companies also expect to have nearly a month before a payment hits our account. That means we’ve got to build next month’s computers with no parts, because we can’t afford parts, because all of the money is tied up in this month’s deliveries. We buy the cheap stuff and assemble that, then assemble the expensive stuff at the last minute. The whole thing sucks!”

“But it’s obviously worth putting up with it.”

He shrugged. “We’re managing. We’ll put aside a bit every month and build a buffer. Of course, then we need space! Bill, Spencer, and Aaron all have boxes at their places, but it’s getting screwed up. We can’t rent anything on the money we’re taking in, though, not and also buy parts. If everyone would just pay cash, we’d be golden, but we’d lose most of our sales if we insisted on cash.”

“Sounds like the sort of stuff I’ll be getting crammed into my ears the next four years.”

“If I was in Business, I might have wanted to stick out the coursework, except I think I’m happier just trying to run one, not learn about them!” he said, then shrugged and looked at the girls.

“How about you, Angie?” he asked.

“I’m double-majoring in Finance and Mathematics,” Angie said.

He blinked. “Seriously? I didn’t even know you were interested in math!”

“The math bug bit me hard over the summer,” she said, smiling.

“Jasmine?” he said, looking at Jasmine.

“Journalism,” she said. “I don’t want to be a journalist, but I can see being a communication specialist.”

“Communications is big. Smart choice! And Paige?” he said, looking at her.

“Business — either Analysis or Management. Probably Analysis. They’re close, anyway. Maybe it’ll be mostly both,” she said, shrugging.

“Cool!” Michael said. “You might have some ideas, then!”

Michael led us into a deeper dive of what he was doing, who was buying, how much they were buying, and so forth. He was, of course, cagey on a few details, but he knew there was no way that I was going to start a rival computer company and muscle him out. If he couldn’t beat me with months’ head start and an established reputation, something was horribly wrong.

He was also clear that he couldn’t do this and also handle his college load — and that this was his priority. He’d built a business that would have at least $400,000 in sales in the first year. That was worth pursuing, even if the margins were paper-thin so far. It wasn’t just ‘making it up on volume’ — doubling his volume would allow him to actually cut some costs, not simply mitigate fixed costs. The higher the volume, the higher his profit margin, at least for reasonable increases.

When the conversation hit a lull, I went for it.

“So,” I said. “We kept talking about investments. It sounds like you need an investment.”

“Man, do I! The family will kick in a bit, once I convince them this is a real opportunity, but I need more, and sooner. No one’s going to invest in someone our size, though. I’ve tried for loans. No one wants to talk to an eighteen-year-old with no track record and a shaky cash flow.”

“I’ve got money.”

He smiled and chuckled. “Yeah, I know, but...”

Then he paused and looked more serious.

“Steve, it’s a risky investment, and I mean risky as hell. One bad month, one buyer who stiffs us, and the whole thing rolls up. I can’t afford to take a slow payer to court right now. So far, so good, but the wheels could come off at any time.”

“But you’re still gung-ho, right?”

He shrugged. “I’ve got the tiger by the tail. All I can do is hold up and hope it runs out of fight before I do.”

“Here’s a proposal,” I said, mentally crossing my fingers.

“Shoot,” he said.

“You said you’re running around thirty thousand in sales a month.”

“Between twenty and thirty thousand,” he said. “It varies.”

“We’ve got no way to value things except by cash flow...” I said.

“There are people who value companies,” he said.

I smiled, then shrugged. “If I was a bank or a financier, maybe. I’m a friend. Let’s be optimistic that you grow and hit $250,000 this year.”

“We might get to $300,000,” he said, nodding, “but I see where you’re going.”

“So, we’ll go with that. Five percent is $15,000. That’s a month or so of cash flow and gets you out of the 30-day cycle for a month, and you should be able to roll your accounts receivable into cash and stay ahead.”

“That’s cash flow, not value!” he said, then shook his head. “That’s your line, I know, but I’m trying to wrap my head around this.”

“It’s your baby, and you’re working on it 24/7, right?”

He blinked, then nodded, and said, “Yeah. Pretty much even in my sleep.”

“Gonna be okay with handing me, say, five percent of your baby for $15,000 if it goes big? I know you’ve got dreams.”

“Everyone’s got dreams,” he said, blushing a trifle. “What do you want in terms of control?”

“Nothing,” I said. “Investment only. You can vote my shares. When you go public...”

He chuckled at that, which was the goal.

“It converts to the same percentage of common stock. Guardrails on it so I can’t sell more than two percent a year, with some waiting period, unless it’s to you or other senior executives, whoever those might be.”

“Heck of a proposal. You just put that all together right now?”

“I’ve got ears,” I said. “You were obviously up to something. I didn’t know what. Seriously, I’m betting on you, not PCs. You kicked ass with the newspaper thing and you’ve obviously got a pretty good handle on this, warts and all.”

“I appreciate the confidence. That...”

He paused, staring out the window for a few moments.

Then he said, “That much would make a difference, but...”

He hesitated, tapped a finger on the bed (which wasn’t very impactful — a desk would’ve been much better), and then said, “You’re right. Thanks for saying it. I’d feel bad if I gave up too much for what turned out to be too little.”

I nodded, trying to stay calm. That was potentially a make-or-break comment, and we both knew it.

“Still...” he said, “Like you said, too, all you’re buying into right now is cash flow, not profit or equity.”

“Obviously, I think you can turn this into profit and equity,” I said.

He nodded. “Fair enough. If I was running much of a profit there wouldn’t be an issue. Ok...”

He paused, then said, “The thing is ... I need a bigger cash infusion. I can double sales tomorrow if I can get the parts, but then I go right back behind the clock. Fifty thousand for ten percent. That is...”

My heart leapt! I was sorely tempted to jump at it, but Michael would hear something off in that, I was sure. Instead, I waited.

“That is ... can you go to fifty? That’s asking a hell of a lot, I know! You’d mentioned a settlement, and it sounded pretty good. Obviously, you can go to fifteen, and fifteen is far better than nothing. But, more...”