(Inspired by Living in Dell Time)

Dell has a very, very smart way to make money. This proves that it takes intelligence to find a good business model and to make it work. I call this business design.

Normally computer companies maintain inventory. They stock up on parts, assemble computers, and then sell them. Once you buy it, it comes off the shelf in a warehouse and gets shipped to your door.

Not Dell. They don't build, they don't even buy the parts, until AFTER you purchase. When you click the buy button, they have nothing but air in their warehouse. Only after they have your money do they supply and assemble and ship.

Think about stock, it's dead weight. As soon as you have stock, you are losing money. Stock costs money to buy, and you don't get the money back until you sell it. Even assuming that you sell all your stock, you have two problems. (1) cash flow, and (2) interest.

First you have to have to have a float of cash which you probably borrowed or raised for equity from someone. Getting that cash float and maintaining it is a pain in the ass. Secondly, you have to pay interest on the cash until you sell your stock and get it back. Imagine if you could instead invest that money at market rates for whatever your stock turnover time is. You could make maybe 5%, maybe better. If your stock is worth millions, that adds up!

So stock is expensive. Now Dell turns that around, instead, they get your money first, and pay for the goods later. In fact, as of 2004 Dell was paying for their goods something like negative 10 days after they paid for them. Most companies would be happy to be paid reliably within 30 days after.