You’re CEO of a once great company, now beleaguered on all sides by competitors and a rapidly changing industry. How do you get back on top?

That’s the question Michael Dell has been asking himself since 2007, when he retook the top job at the computer company he founded in 1984. And last year, he decided that the answer was to take the company private, to escape the hectoring of the public market. (For more background on the potential deal, click here.) But even if he succeeds in convincing shareholders to let him buy back his company, the real challenges lie ahead.

Luckily for Dell — both the man and the company — the history of corporate turnarounds provides clues as to what the company must do to get back on track.

A Short History of Dell

How Dell went from dorm room startup in 1984, to the world’s largest PC maker in 2005, and then saw its stock plummet precipitously the next year, is the subject of a lengthy Harvard Business School case study by HBS professor Jan Rivkin. The whole thing is a must read for anyone interested in the company’s future, and a quick summary of the history it recounts is worth repeating here.

Dell’s success can be attributed in large part to its “direct model.” While competitors like Compaq and IBM sold PCs through retailers, distributors, and resellers, Dell sold directly to its customers, offering highly customized PCs at a time when the cost of computers was high enough to still require significant tradeoffs. The bulk of sales came from business and government, as big customers appreciated the ability to customize a large number of PCs; Dell also offered these companies customized portals where employees could buy one of several company-approved computers directly.

This simple strategy proved wildly successful. Competitors like IBM and Compaq struggled with the politics of managing their various channel partners and lagged Dell in inventory management. When competitors tried to copy the direct model, their channel partners — fearing for their own businesses — objected, preventing other PC makers from fully going direct.

By the mid 2000s, much of Dell’s competition had faded. By 2007, most had merged (HP and Compaq) or sold some or all of their PC businesses to foreign competitors (IBM to Lenovo; Gateway to Acer).

In 2004, Michael Dell left the company, replaced by Kevin Rollins, a former Bain consultant who joined the company in 1996. Though Rollins held the job for just two and a half years, he presided over a brisk decline, attributable to everything from bad customer service to shoddy batteries to questionable accounting practices. Dell returned as CEO in 2007.

Do Tech Buyouts Actually Work?

Dell’s fortunes have not reversed over the past six years, owing in part to the recession, but more fundamentally to the decline of the PC market. It was against this background that Michael Dell last year hatched a plan to take the company private, with the help of the private equity firm Silver Lake Partners.

So will it work? To answer that, it’s important to first consider whether tech buyouts work at all. The data suggest that they do, and not just in the sense of creating returns for PE firms. In a 2011 paper, researchers from HBS, Columbia, and the University of Chicago looked at the success of 472 tech buyouts based on a novel measure: patents. Their aim was to determine if the companies in question became more or less innovative following the buyout. Their conclusion, as HBS’s Josh Lerner writes, was that “companies that are owned or controlled by PE firms tend to pursue more promising innovations,” and that those innovations tend to be in areas “that reflect the firm’s historical core strengths.”

Lerner has another paper relevant to the Dell case, which looks at the performance of buyout companies’ stock prices after they IPO, including public firms taken private in the deal. He and his co-authors find that these stocks outperform the market, with one exception — when companies are “flipped,” or taken public within one year of the buyout.

Taken together, this research suggests at least the possibility of a Dell turnaround. As Lerner summed it up for me in an interview, “There seemed to be a pretty positive track record in terms of technology companies after buyouts.”

The Case of IBM

That tech buyouts have worked in the past is, of course, no guarantee that it will work in Dell’s case. If Michael Dell and Silver Lake are to succeed, they should look to the case of IBM in the 1990s, what Rivkin calls “the gold standard for turnarounds in the computer industry.” IBM’s transformation under CEO Lou Gerstner is the subject of an HBS case study by Lynda Applegate, Robert Austin, and Elizabeth Collins. Two decades later, it offers hints at what Dell must do to succeed.

There are two basic patterns to a successful turnaround, Rivkin told me in a recent interview. The company must identify some assets from which it can squeeze more cash, in order to improve its short-term position. Then it must pick the right areas to reinvest in, to fuel the company’s longer-term success. Both strategies are evident in the case of Gerstner and IBM.

In 1990, IBM was the second-most-profitable company in the world, and “the world’s dominant player in the growing IT industry,” according to the case study’s authors. And yet by the next year, due to an overreliance on the mainframe computer market and a bloated cost structure, it began posting losses.

While it’s difficult to summarize the changes Gerstner initiated after taking the reins in 1993, a few decisions stand out. Amid aggressive cost cutting, Gerstner’s “One IBM” strategy included shifting resources to IBM’s consulting and services business, which grew rapidly as a source of revenue.

Yet the improved financial position came at a cost. Long-term investments were being de-prioritized, thanks to “the focus on flawless execution and short-term results [that] had intensified under the ruthless cost cutting necessary to survive the 1990’s.” And so, beginning in 1999, Gerstner began reorganizing the company to identify “emerging business opportunities” that could one day become billion-dollar businesses. Of the 18 areas selected, life sciences, business transformation services, Linux, and pervasive computing would each soon grow to over $1 billion in revenue.

Open Questions

Though the history of tech turnarounds suggests some optimism about the future of Dell, the specifics are far from certain. With the PC market in decline, Dell will need to look elsewhere both to improve its short-term financials and to invest in the future. “The markets that they have talked about publicly are all ones with established players that are pretty darned good,” Rivkin told me. “It’s not as if Dell is going to sneak up on IBM in services, for instance.” The tablet space is similarly competitive.

“The marvelous thing about Dell, historically, is that they found a different way to compete. A core lesson of the direct model was, ‘To be better, you first have to be different,'” said Rivkin. “That said, I find it hard to bet against Michael Dell, the guy. If you were to make a list of people who could make it work despite all the challenges, Michael Dell would have to be on your short list.”