How to build your own $23 billion company

I had some time over the weekend with Jonney Shih, chairman of Taiwan-based PC-maker Asus. Shih talked netbooks, the future of our digital lives, and gave a crowd of entrepreneurs and would-be entrepreneurs at Harvard Business School his rules for starting a company. Oh, and watch out Dell (DELL), he’s gunning for you.

Without revealing too much, Shih made it clear to me Asus is plotting a barrage on computing in the home.

ASUS chairman Jonney Shih (photo:Getty Images)

The arrival of Apple’s iPad is making every PC manufacturer think about how different form factors and device types can fit into our homes and our jobs. Shih is of the mind that it is not one-size-fits-all for these “fourth screen” type devices. You can expect Asus to deliver a variety, both for the home, and my guess is for different work environments. Think of folks in the field, taking orders, writing up reports, shooting video, that kind of thing.

Shih thinks of the netbook, which he and Asus pioneered, as the first step toward cloud-computing based devices. It’s a trend he refers to again and again. While some consider netbooks under-powered, if you look at it from Shih’s perspective (Google shares the same point of view) the small, relatively inexpensive notebooks have more than enough oomph to tap into the vastly more powerful web and let corporate servers take it from there.  In that vein, you can bet Asus will be delivering more cloud-computing type devices, not just netbooks, but connected gadgets of all kinds. Will they run Google’s Android and forthcoming Chrome OS? Shih would not spill the beans one way or the other on that topic, but is clearly open to the idea.

An interesting tidbit that Shih dropped is that the desktop is not dead in many parts of the world. Asustek, the parent company of Asus includes a subsidiary that is the largest desktop PC motherboard manufacturer in the world. While I assumed that this was a shrinking part of the $23 billion in sales Asustek does annually, Shih said that was not the case. In the emerging economies of the world, China, India, Africa, Southeast Asia and others, the desktop computer is still ramping as the primary way people get connected to the Web. It’s not in the largest cities, but in third, fourth and fifth-tier towns where the desktop is a growing category. It makes sense. Yes, everyone has a wireless handset, but these aren’t smart phones, so there is still a need for a computer. With notebooks on the pricy side, a single desktop can serve an entire family. That is how they get sold, and how Asustek’s motherboard business is still cranking along.

So how can you build your own $23 company? Shih has five rules.

1)    Sharpen the sword. What Shih means is pick your category, your technology, and your service and obsess about it. In the beginning, Shih and the team of four engineers that launched what would become Asus picked the motherboard, and made the fastest, most reliable motherboards in the business. They dominated there first, before moving into other lines of business. “My advice is don’t jump around, here and there,” Shih says.

2)    Ride the right wave. Asus didn’t have much financial backing at the beginning, about $300,000, much of which Shih put up himself (he is still the largest single shareholder of the company). “But even though we didn’t have very strong financial power, at least we could open our eyes.” What Shih and his team saw in 1990 was that the modularity of motherboards was happening – there would be a standard for PCs that could create a big market. “We just had a gut feeling that the motherboard was going to become a good business,” Shih says.  “Maybe not for a much larger company like Acer, but for a small company like ours. Open your eyes and grab the great opportunity.”

3)    Choose the right partners. And not just the best technical folks you know. “You need to really factor in their innate character,” Shih says. “You are going to work together for a lifetime, hopefully, and their character is as important as their technical knowledge.”

4)    Recruit the best team leaders at the very beginning. Shih found the best engineering school in Taiwan and literally started calling the students who ranked top in their class to lure them to Asus. “I think this is a very important part of what happened with Asus,” Shih says.

5) Drive the right strategy and confront the brutal facts. Shih is the strategic mastermind at Asus, looking at markets, spotting the gaps and figuring out how Asus can respond. Confronting reality is a very Buddhist approach to business (Shih is a devout Buddhist). Shih wants to know everything, the good and the bad. By confronting the bad honestly, Shih says, Asus is able to respond faster and change course if necessary. Asus is very good at trying things, and moving on if it’s not working. A somewhat rare character for a company in the hardware business.

Which brings Shih to Dell. While Asus is a well-known brand in Europe and Asia, it’s a lesser know quantity in the United States, something Shih desperately wants to change. “The United States is the last stronghold,” he says with a smile. Ranked No. 5 or No. 6 in the world depending on whose numbers you use (HP, Acer, Dell and Lenovo are at the top) Shih plans on pushing Asus to No. 3 in 2011 – bumping a struggling Dell lower. How will he get there? It probably has a lot to do with all those connected devices he’s got cooking up his sleeve. Get ready for an interesting year in the PC business.

Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today.