When he was 19, Michael Dell made a smart pivot that turned Dell into a global powerhouse. 35 years and billions of dollars later, Dell explains his latest big bet in the cloud.

• In a conversation with Business Insider, Michael Dell recalled how he started his business in his Texas college dorm room when he was 19.
• He said he actually began by selling hard drive kits for PCs, but a customer convinced him to become a PC manufacturer.
• He has spent the last 35 years guiding Dell through different transitions, including its most recent pivot back into a public company with bold ambitions in taking on the cloud.
• Like other major tech giants, Dell is betting on playing a major role in the evolution of the cloud market and the rise of hybrid and multicloud.
• Dell says that a big driver of the company's reinvention is its investment in R&D - something it was known to skimp on during the height of the PC revolution.
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The story goes that Michael Dell launched his career by selling PCs out of his Texas college dorm room in 1984, when he was 19. That's not entirely true. He actually started out selling upgrade kits for installing hard drives in PCs.

It was a strong business that was growing so fast he had to move from his dorm room into a small office. "The first nine months our sales were $6 million and the next year it was $33 million," he told Business Insider. "It had its ups and downs but the growth was quite dramatic."

He could have just stuck with that business model. But then the plan changed when a customer with a big order paid his shop a visit. "We kind of had to clean up the office because it looked like a big fraternity house and we got some respectable looking clothes," Dell recalled.

During the visit, the customer noticed a PC that Dell's team had put together and was using to format hard drives. The customer asked if Dell made those computers. When Dell said no, the customer had a simple question: "Why not?"

The conversation prompted Dell to shift gears to PC manufacturing. It was a smart move: Dell, the company, quickly established itself as a key player in the PC revolution, and would go on to become one of the largest computer manufacturers in the world.

"We were so busy making these hard drive kits that it didn't occur to us that we should make computers," Dell told Business Insider.

Now, the company is in the midst of another dramatic pivot: 6 years after it took itself private, 4 years after acquiring EMC and subsidiaries led by VMware, and about a year after going public again, Dell is now pushing to establish itself as a major player in cloud computing - where Amazon Web Services, a relative upstart compared to Dell, is the dominant player in the most important market in enterprise IT.

Dell in the midst of another dramatic pivot

It's been a tough journey for Michael Dell, who is now 54 and who has spent the last 35 years reinventing one of the most successful companies in technology.

Dell originally rose to prominence as a tech powerhouse by selling cheap PCs directly to customers, finding better margins by skimping on R&D. Now, with the EMC merger on the books, it's redoubling its efforts in enterprise IT - markets where where innovation and cutting edge technology are key.

"The transformation period, the five-plus years when we were private, allowed us to change the complexion of the company," Dell said.

That transformation began when he took the company private six years ago. It was a big gamble, but one that Michael Dell says gave him and his team the opportunity to rethink their way forward.

"We were evolving the company and felt that we could do it faster as a private company," Michael Dell said. "One of the things we were able to do in going private was reignite the entrepreneurial spirit of the company and change the focus of the company to be more medium and long-term. ... The innovation engine has cranked up on high. We invested $20 billion in the last four years or so on R&D. Relisting allowed to stay on offense and bring in shareholder interest. We're driving the evolution of the company to more software and services."

The changes were highlighted at last week's Dell Technology Summit in Austin. The company that was once called the "Walmart of tech" highlighted a dramatically new game plan that did not involve selling low-cost products at scale. Dell unveiled a new business model, called Dell Technologies On Demand, that would allow businesses to pay only for the computing capacity they use, instead of buying entire hardware systems.

A year since Dell went public again

As Dell marks the first anniversary of its return as a public company, the plan seems to be working based on its initial set of financials.

Its first earnings report in February featured a 15% jump in annual revenue of $90.6 billion. Dell recorded a quarterly loss of $287 million, more than double from the year-ago quarter. But the picture had changed by August when Dell swung to a profit of $4.5 billion from a $461 million loss in the year ago quarter. Dell's stock has climbed 20% since it relisted on the New York Stock Exchange in December last year.

"We've added almost $20 billion in revenue, which was way more than anybody thought - including us, by the way," he said. "I say, a successful reentry into the public markets."

Asked about the biggest challenges so far, Michael Dell paused to consider.

"There are always opportunities, but I'm not sure I'd point to any particular problems," he said. "We have a saying at Dell, 'Pleased, but never satisfied.' There are always opportunities for us to grow faster, gain more share, acquire new customers."

The Round Rock, Texas-based company, he said, is "growing, gaining share and on a very strong footing with a whole different set of capabilities."

The cloud challenge

In fact, the biggest question facing Dell is whether it has enough capabilities to take on its biggest challenge, the cloud - where customers large and small can rent functionally unlimited supercomputing power and networking infrastructure from online platforms run by the likes of Amazon, Microsoft and Google, making it possible for them to scale down or even abandon private data centers.

This was bad news for companies like Dell, Hewlett-Packard Enterprise, Oracle and IBM, which made their money selling expensive gear, software and services to businesses that hosted their own in-house data centers.

Dell has returned as a public company with a heftier portfolio of technologies to compete in the cloud. In 2015, two years after going private, Dell acquired EMC for $67 billion in the biggest tech merger in history. The purchase also gave Dell majority control of VMware, which EMC acquired in 2003.

EMC is a data storage powerhouse, while VMware is a pioneer in virtualization software which enabled businesses to tap disparate computer systems in the cloud or in private data centers, which means lower hardware costs and easier network management. These new technologies, together with its own heavier emphasis in R&D, have given Dell more firepower in the enterprise market and the cloud, he said.

"The organic and inorganic innovation engine continue to be very strong, solving challenges that customers are presenting to us," Dell said. "A lot of this is customer driven. Our big focus is on solving the unsolved problems customers are continually giving us feedback on and that drives our plans and how we spend our R&D dollars."

In fact, he said the new Dell is better equipped to deal with important changes in the cloud. He said Dell is starting a new chapter at a time when views of cloud computing are being transformed.

"There was an absolute time when, if you're talking about cloud, people thought the only cloud was the public cloud," Michael Dell said. "What is clear now which maybe wasn't clear 10 years ago or 15 years ago is that cloud does not equal public cloud. There are many clouds."

The rise of the hybrid cloud and multicloud

Dell, which has more than 157,000 employees, is looking to play a key role in two major trends: hybrid cloud and multicloud. Hybrid cloud allows businesses to set up their networks in public cloud platforms, while maintaining huge chunks of their data and applications in private data centers. multicloud, allows businesses to use different cloud platforms and in-house data centers.

For tech giants, such as Dell, IBM and Hewlett Packard Enterprise, the dual trends point to stronger demand for enterprise systems, including hardware. Public cloud vendors need the gear and systems to set up the huge data centers that power their platforms. With the hybrid and multicloud trends, more businesses, including major corporations, would also buy equipment for their own in-house data centers.

But these trends are in early stages and what they ultimately mean for traditional tech companies like Dell remain unclear, some analysts say.

"Investors no longer debate if the public cloud will take off (it will), but rather how much share the incumbents will lose," analyst Toni Sacconaghi of Bernstein Research said in a note in September. "In general, we believe the rule of thumb is 'the lower down the stack you go, the more it hurts.' Among incumbents, application vendors are likely best off, while hardware vendors have it worst."

He said Dell and another traditional tech player, IBM, appear to be in the strongest position to benefit from the multicloud trend. "But the onus remains on all these legacy vendors to demonstrate that they can generate incremental revenues…rather than merely running faster to stay in place," he wrote.

Other analysts were more upbeat about Dell's chances. With its broader portfolio, Dell is in a stronger position to compete in the changing landscape, said analyst Tim Bajarin of Creative Strategies Inc.

"They now have in place the key building blocks to deliver multicloud and hybrid cloud solutions," he told Business Insider. Michael Dell and his team, he added, "have created one of the strongest tech companies we have today."

Shifting gears

Michael Dell himself has demonstrated an ability to shift gears and reinvent his company and himself, said analyst Roger Kay, who has known Michael Dell since the late 1990s and has done consulting work with his company.

"He has has grown in multiple dimensions," he told Business Insider. "He started out as kind of PC hobbyist and has always been kind of geeky. Over time, he has learned his way from kind of a device-centric view to a much more systems orientation."

IDC President Crawford Del Prete echoed that view, telling Business Insider: "He takes the long view. The world thought that Michael was the guy who would disrupt the PC market - and that was all. But he always had his sights set on something much bigger and you are seeing that play out now."

Michael Dell certainly appeared to be eyeing something bigger at the Austin event when Dell unveiled its plans for the coming years. In his welcome speech, he said: "Dell has always been about a culture of technology optimism."

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