Dell Implements an Acquisition Strategy to Fundamentally Transform Its Business Model

As we wrote in the prior post to this blog, “ready, fire aim” as a product development strategy should not be applied to fundamental transitions in a business. “Ready, fire, aim” is a method of entering markets, and, subsequently, effecting very rapid changes in product design. Doubtless, an approach like “ready, fire, aim” can be very effective for product development as it permits businesses to enter markets very early, albeit with some risk to brand should early version of products fail to meet minimum levels of satisfaction in a market.

The key objective that should drive a decision to implement “ready, fire, aim” is timing an entrance to a market. With particular regard to technology products and services, it is generally advantageous to enter markets early. Further, it is generally the case that early entrants to markets for technical solutions are harder to displace by competitors who arrive later. Therefore, “ready, fire, aim” is a sensible approach to the right set of opportunities.

Making fundamental changes to what you sell does not constitute a right opportunity to implement “ready, fire, aim”. On the contrary, it is critically important that this type of fundamental change be carefully thought through, with especial care to consider the negative ramifications of mistakes. We treated some of these points in the prior post to this blog. For the remainder of this post, we think it will be useful to present our view of what Dell is up to with its recent set of acquisitions, given its intention to transform its business. We do need to note that we do own shares of Dell stock; therefore, we have an interest in Dell succeeding at its strategy. The reader has now been warned.

In fact, Dell is looking to make the same type of fundamental change in its revenue model that we have presented in these recent posts to our blog, albeit at a much bigger scale. We are focused on emerging tech businesses. In contrast, Dell is a mature, publicly traded businesses with a major presence in the markets for hardware products like desktop computers, servers, networking devices, printers, backup solutions, and more.

Back in 2007 Dell publicized its intention to enter other markets, namely the solutions markets for enterprise business (we are using this label to include public sector organizations of comparable size, as well as comparable size organizations in the not for profit sectors) needs for software solutions, and, integrated solutions that include hardware and software components, together with the specialized expertise required to put all of these components together into a working system.

Over the last four years Dell has consistently executed on this strategy, albeit with a level of positive effect on its bottom line that has not meant with widespread approval from the investment community. It is not our intention in these posts to opine on why Dell has only marginally benefited from these acquisitions; rather, we make reference to Dell as an example of why a business should consider buying its way into a market, rather than trying to build a presence from ground up. We think Dell’s plan makes sense, and, further, constitutes a safer method of fundamentally transforming a business revenue model.

In the next post to this blog we will look at a typical problem area that can stymie a business looking to buy its way into a market — assimilation.

© IMB Enterprises, Inc. & Ira Michael Blonder, 2012 All Rights Reserved


Entrepreneurs Need to Carefully Plan Significant Transitions Between Types of Products

We have written frequently to this blog on the topic of “ready, fire, aim.” This topic is well known. The core concept is that, for some businesses, it makes sense to plan products by marketing various versions of a product until a winning combination is identified. Despite the fact that this product development approach is well known, we need to note here that entrepreneurs should establish clear limits on the type of business opportunities that warrant a “ready, fire, aim” product development plan, in contrast to those that do not. A blanket application of this approach to any/all business opportunities to develop products is not only dangerous, but potentially disastrous.

Businesses that need to transition from a revenue model based on product sales, to one based on sales of services, should proceed very slowly and carefully. In other words, this type of serious change in revenue, which is the most critical component required for a business to manage its own operating costs (not to mention its profitability), requires a “ready, aim, fire” approach if it is to be successful. Therefore, management should commence planning for this type of change well in advance.

Unfortunately, in many cases necessity is the driver, which obliterates any opportunity for management to plan the transition successfully. If conditions are at hand that threaten the continued operation of a business around a product sales revenue model, it makes more sense to discontinue operations than to rush into a services revenue model. Simply charging into a radically different type of business, that is largely unfamiliar, makes little sense. Nevertheless, lots of early stage businesses follow this dangerous route.

Where there is time to put together a plan of action, it makes sense to engage with as many knowledgeable people as possible to gain insight. Of course, an ability to network with peers, industry spokespeople, and even potential customers is very important. As plans coalesce, it will make more sense to go back to some of these contacts to test assumptions and ensure that plans are, in fact, promising. It almost never makes sense to simply rush, blindly, into this type of transition.

A best case scenario for a radical change in revenue strategy is a business that is expanding; for example, a product manufacturer opting to add a services group. IBM Corporation is an excellent example of a business that successfully implemented this best case scenario. A current example of a business attempting to follow this model is Dell. In the next post to this blog we will look closer at how Dell’s move is actually a hybrid amalgam of product type transition, and business growth through acquisition.

© IMB Enterprises, Inc. & Ira Michael Blonder, 2012 All Rights Reserved