Russ: This is a BusinessMakers WebXtra, a continuation with of the discussion with Rod Canion, co-founder and former CEO of Compaq Computer Corporation, the company with the record of being the fastest to go from startup to the Fortune 500. I can tell that you like doing this mentoring, investing, and getting involved. Is a there a chance maybe that you would be so interested in an idea, or a company, or a technology, that you would consider taking on the leadership position once again?

Rod: I think that it would be hard to get me to that point, just because I've enjoyed the balance I've tried to achieve over the years between being involved and working with full-time leaders and managers of a company. And being able to then play golf, and be with my grandkids and do the other things I like to do. I couldn't rule it out. I think, you know, there could be an opportunity out there that some day I would say, "I just got to go do that," you know, whatever age, whatever time. I think it has more to do with are you motivated to do it? And, and by the way, you should not try to be the CEO of the company if you're not 100% committed, because you can't be there part-time. Things will not work. In my experience of watching other companies try to do it that way, you just have to be there all the time.

Russ: Okay, duly noted here on The BusinessMakers Show. Rod Canion did not turn down the opportunity. But speaking of being a CEO I often describe you, Rod Canion, as being the most modest, most incredible success story I'd ever been around. For those listeners who are pretty young and don't know this, Rod, when he launched Compaq we ended up creating the company that has the highest first year of operations revenue in the history of business. The fastest company to go from startup to a billion dollars in sales in history. And the fastest company to achieve Fortune 500 status. Rod, I know in our interview four years ago, you tried to explain a lot of that away by saying, "Right place, right time," and I think that you're right about that. But so many startups spend so much effort trying to be at the right place at the right time. I mean, that's a huge key part of whether or not you achieve success or not. So, point number one, I might agree with you that you were on the right place at the right time, but it wasn't just luck. I mean, you guys knew what you were doing, so congratulations on that. I've had many guests on The BusinessMakers Show that end up telling me, almost precisely, when it was that this idea that they decided it was the right place at the right time. And it triggered them to launch and to say, "We're going to do this." Share with our audience when you and your partners said, "We're going to do this," and what was it about that time that made you feel like it was worth the risk?

Rod: It's interesting that you asked that, because as long as it's been, 27 years, I still remember vividly the moment when the idea for the Compaq portable gelled in my mind. Now, the background is, we had decided we were going to start a company in the PC business, while we were still working at Texas Instruments. We came up with a very mediocre idea, create a business plan, trying not to conflict with our responsibilities to our employer. And along the way quit our jobs, and it happened to be just before Christmas in 1981. About that time some venture capitalists we'd been talking to told us that they were not going to fund that idea, and so we suddenly didn't have an idea that was fundable, and we had no income. So, we immediately dove in, and I, I mean, talk about full time, around the clock, trying to come up with a new idea.That was about the middle of December, okay? So, about three weeks later, after having gone through Christmas and New Year's holidays, on January the 9th, and it was late morning, I was at my house around the breakfast room table going over some various ideas we had.

And that's when the idea for three things that made a product that seemed like it was a stunner. One was it was a portable computer, and the key thing there was that it had to be styled well. In contrast to the Osborn portable, which looked like an army surplus. It had to fit in an office and, and be respected. It had to be rugged. That is, if it was going to be a portable and be carried around, one of the problems you had to solve was really making it rugged. At the time PCs were very fragile because they were just boards plugged into the slots. But number three, it had to run software, and one of the great pieces of experience I gained at TI, was that all 300 of the companies making PCs were trying to get the software companies to adapt their software to their product, because every PC had a different architecture. And so to have that software on your architecture, they had to do something to it. Now, I knew as a startup company, we were not ever going to get VisiCalc or any of the word processors or any of the important software to run on our computers.

So it became very clear that we had to have somebody else's software. Look around, which is the one company that if you could have their software, you would've wanted it to run. Well, it was obviously IBM, so the, the third and crucial element was that this portable that was styled well, that was rugged, had to also run every piece of software for the IBM PC. Those three things, if you could do them, and at the instant that the idea came, I wasn't sure you could do them. But if you could do them, I thought this would be something that would really do well in the marketplace.

Russ: Now, this was like on January 9, 1982?

Rod: Nineteen eight-two, exactly.

Russ: Okay. Wow, and a lot of this was motivated by what you thought was going to be IBM's PC success, correct?

Rod: Oh, absolutely, when IBM entered the PC market, which was only about six months before that-

Russ: That's my point. It was only early in '81 that-

Rod: That was actually what triggered us to, to leave TI and start a company. We could see-as much as we understood and liked the PC market, when IBM entered, it was like the checkered flag. It was like the race is starting. It's going to grow. There's going to be great opportunity. If you're ever going to start a company, then now was the time to start it in the PC industry.

Russ: Okay, so portable, rugged, and compatible with IBM software, you knew if you could pull those three together, you had a success story?

Rod: Absolutely.

Russ: Okay, and that's exactly what you did, too, right? Because you had to reverse engineer the bios, right?

Rod: Well, and that's what turned out to be hard. You see, even though there were 300 other PC makers, and even though we had no proprietary technology going into this thing, it turns out that to actually do a legal reverse engineering job, and truly be able to run all the IBM software, was almost impossible. And we spent lots of time, lots of man hours, lots of dedicated fanatical focus doing that, and doing it legally. Now, in the end, two things happened. One is, we succeeded in doing it well. And number two is, we didn't violate any laws. There were a handful of PC makers that did violate the laws, and IBM shut them down, out of business. You know, thank you very much, you're gone. Had we done that, no matter how good our product was, we wouldn't have been around. So doing it well, doing it legally, and doing it right was what we had to do.

Russ: So, how was it determined to be legal?

Rod: We went to a very well respected intellectual property lawyer, and we asked the question, "We want to reverse engineer IBM's bios. How can we do it so that there's not a chance that they can actually have a legal argument against us?" And they described it for us. It's simply the fact that you have to have two teams. One that analyzes what they've got, can go into their bios and figure out what the entry points that are important are, and what the functions of these various subroutines are-a, that's what a bios is, it's a lot of subroutines-and then write a spec. They can write that spec in as much detail as they want, but they cannot work on then developing your own. They hand that sort of through a little slot into this other room with another team. They take that spec and they go develop a bios from around that spec, and that can become your compatible bios.

Russ: Did IBM ever officially acknowledge to you, "Hey, you guys pulled it off."?

Rod: No, they didn't. In fact, one of those funny things that happened, one of our big competitors at the time was shutdown. And in the article in the industry magazine he was interviewed, and he said, "Well, I'm sure Compaq is next, because everybody knows they're the most compatible." It was like if you were more compatible, you had to be more illegal.

Russ: Right.

Rod: And, of course, he got it wrong. That was why they were fundamentally wrong to start with not understanding you can't violate the laws and, and have long-term success.

Russ: Right.

Rod: But what we did do was one of our key early guys, Steve Flanagan, software guy, would see IBM engineers at trade shows, and, and he would always the point of explaining to them how careful we were and how we had done it in a very controlled way, and in fact, all this information that described it was locked up in a fireproof vault, and there was no way we were not going to have that information around to prove that we were innocent. And it may have what kept them from suing us, I don't know.

Russ: Did he get a reaction from them when he-?

Rod: Oh, no, no, no, it's just one of those things that you'd want to make sure if you can that they know that you guys, did it right.

Russ: So that was January 9, 1982. How long before you shipped your first computer?

Rod: You know, things happen so quickly. It really was this speeded up time that you hear about. We shipped our first computer in January of '83. So what we had to do was-first, we had to get funding. We had no money, so we got some venture capital funding. Then we had to hire some people. We hired three or four engineers to start with. Then we had to begin to build a company. And so by June we had our first prototype. We began to show that to potential dealers, and, magazine editors, trying to get articles ready for the fall. By September, we started our pre-production. We announced the product in November, and actually then began to ship. And we shipped, I think, about 200 units in January of '83.

Russ: Okay, and '83 was the year where you set these records, right? I mean, I saw on Wikipedia, that you shipped 53,000 computers?

Rod: That's right, so, as fast moving as '82 was, '83 was orders of magnitude faster in the sense that a lot more people doing a lot more things. We went from three people obviously when we started the company, to about 100 people at the end of '82. It was up to about almost 700 by the end of '83. In that year, we went from 200 units shipped in the first month, to 10,000 shipped in December of '83. And the total for the year was 53,000. That was stretching, by the way, because our first factory was nowhere near the size it needed to be to build that many, 10,000 units a month. We had to move our factory twice during the year. So we had three different factories and we couldn't stop things and move it. We had to do it on the fly. We were producing in one factory, while we were bringing up the second factory, and then the third factory.

Russ: Okay, well let's say that you were at the right place at the right time, but man oh man, then to go out and execute like you did. I mean, did you ever feel like in '83 that you were losing control of it?

Rod: No, you know, we never felt that way. That's where one of our key differences to most of the early stage companies really benefited us. We were all experienced engineers, marketing people, manufacturing people, and executives from Texas Instruments. We had 10 to 15 years of experience under our belt. So, when we took on the role of trying to grow this company this fast, it was not flipping a coin. We analyzed it very carefully, and we were betting the company every day, basically, that we were going to be able to achieve this growth. For example, just getting the parts supply. When you start the year and you're planning on building a few thousand units, and then you go back to your suppliers and you say, "By the way, can you ship me tens of thousands of units?" that's not easy, and having the capital. We had to actually raise a third round of capital in January of '83 in order to have enough capital to grow during that year. And by the end of '83, we had used that capital up, so we went public and raised another $66 million. So by that time, we had $96 million of capital raised in, in two years.

Russ: Were you aware in the middle of that year, of the magnitude of what you were doing compared to other startups?

Rod: Not at that point. I can tell you that we didn't have time to think about it, and if I ever caught myself beginning to, I stopped because I was afraid of what might happen to me. You know, I might just like freeze up. The truth is, things were falling into place so well, one thing after another. It's not that everything went well. I mean, we were sued by Texas Instruments in April of, of '83. So, right after we got started, we were sued, and essentially, they were trying to shut us down because we were hiring their people. And there were many other problems that came along the way, but it all worked well enough that we felt very much in control. We could recognize when things were starting to get out of control. And try to make good long term decisions. That's what it was all about.

Russ: When you look back on it now-I mean-obviously, you have to be extremely proud about it. What about it is the most important thing that you're proud of in that era?

Rod: You know, it's hard to come up with one thing. It depends on sort of what angle you're looking at. I guess if I had to pick one, I think one of the things that was very key in Compaq being able to not only have an initial spurt of growth-but we sustained that growth through the decade of the '80s and into the '90s was creating a new type of culture. People like to talk about their culture and their company, and they like to talk about various elements of it. But we really did have what turned out to be a-in the beginning at least-an experiment. Could people actually perform at a high level in an environment that it was okay to make a mistake in? That's not the way TI worked, and the way most companies worked. It certainly wasn't the way IBM worked. Make a mistake, and you'reon probation. Make two mistakes, and you're pretty much gone. At Compaq the idea was we want people to take risk. And so the key is, if you make a mistake, don't hide it. And that's one of those things that's not intuitive to people.

You really would like nobody else to know, but because we had an environment where we had a lot of great people, a lot of very capable people who were willing to help each other, not worrying about who gets the credit. Somebody makes a mistake or discovers a mistake, you get the right people on it. You get it solved, and you go on, and it hardly even shows up. You know, I remember again, a magazine article being written and, and the editor asked me, "How is it you went ten years and never made a mistake?" And I, just like you, I laughed and said, "Surely, you're kidding me. I mean, we made thousands, tens of thousands of mistakes," but because we were able to focus the resources we had on solving them as soon as they happened, none of them ever grew into the size of mistake that really hurt the company.

Russ: Well, you know, I actually spent a little bit of time in some of your actual assembly line processes, and I still remember at the time I was there this QC process that was talked about, and everybody seemed to be proud of it. And it's like that every step along the assembly process, each worker checked their work and the prior worker's work, and it was presented as though it was quite revolutionary, and it seemed revolutionary at the time. And like anybody could stop the assembly line. Is that a version of what you're talking about?

Rod: Well, that grew out of that. You know the truth is, the fundamental idea you just described was not something we invented. In fact, it was invented by an American who couldn't get other American companies to use it, so the Japanese picked it up. And by the time Compaq started, it was clear that the Japanese were doing a really good job of improving their quality and; therefore, we adopted that. As a new company we had the option of sort of picking the way we went. Now, as usually will happen, you get smart people solving problems, they're going to figure out ways to improve it. And that's what happened. There were little tweaks they did that made it work even better.

Russ: I also noticed when I was there that the, it seemed like the company had this culture that when somebody joined Compaq and went to work for them, their self esteem seemed to shoot up about 20% and I'm really talking about assembly line workers. I had actually experienced that myself in the early days at IBM, but it seemed to me, Rod, to be an extremely valuable happening.

Rod: You know, I emphasized that every person is important. If the job's not important, then it shouldn't be there. And that everybody was going to be treated with respect. From the top to the bottom of the company, you made a different amount, you did a different job, but you deserved to be treated with respect, and you were going to be helped if you needed help. So, in other words, it's a team. And I'll have to tell you, Russ, that it was helped, the idea to build a culture like this was helped, because we had no choice. If we had been a slow growing a company in a sort of a lazy industry, we could've gotten away with a lot of other approaches. The only way we had any chance of doing what were setting out to do was if everybody worked together as a team, helped each other, and you treated everybody else with respect. And, and what I observed, just like you did, is that people began to really enjoy coming to work, rather than sort of dreading getting up and going to work on Monday morning-

Russ: That's correct.

Rod: -they would tell me, "I couldn't wait to get in this morning, because I knew we were going to be doing something worthwhile, and we were going to be working together. There was nobody standing around the corner waiting to stab me in the back it was like, "I feel free to go do what I am capable of doing." And that's, that's the culture that allows a team of people to accomplish things far beyond what they could've in a, in a typical company. And, and I'm sure in my own mind, one of the reasons Compaq was able to set these records-because we certainly didn't set out to set those records-we set out to build a good company that people liked working for, and that was sort of deserved to be in existence. The opportunities came along. We reached out to go achieve them, and then we were enabled. We were allowed to achieve them because the team of people worked so well together.

Russ: Okay, well I know in our interview four years ago, one thing we didn't ask you that's sort of become a standard now in The BusinessMakers Show, is was there a mentor or somebody that really inspired you and affected you in, in a very positive way that helped you be the Rod Canion that you are?

Rod: I was blessed with several mentors along the way, sort of at several different stages of my career. The first one was a man named Kel Walker, who was my boss during the middle part of my TI career. Kel has passed away, but was just this guy with a lot of common sense, and almost folk wisdom about him. And really learned a lot about values and work values, and people. Kel was a student of human nature, and I began to think of myself as a student of human nature, and observed during those days what motivated people, what de-motivated people. For example, there isn't a system ever created for compensation that people can't gain, they can't figure out a way to optimize. So you got to be really careful when you're trying to figure this really smart system out, because it's not as smart as the people that are going to be trying to solve it.

The next guy was Jim Ephart. Jim was a division manager at TI, and another really good guy, a really solid guy, that was down to earth and had good common sense, and he inspired me in a lot of ways to go beyond just being an engineer and to become a manager first and then to get interested in business and, and every aspect of it, sales and manufacturing. And I was enabled through his guidance to actually get that experience in all those areas during my career at TI.

Russ: That's cool. That's cool.

Rod: And then I should mention the third because Ben Rosen, who was an original investor of Sevin Rosen and Compaq, and who was our, chairman of our board. He really took me under his wing and, and I would have to say, probably molded you know, somebody he must've thought had potential, because he certainly didn't know we could do what we did, and helped me fill in a lot of pieces that I didn't have. I had a lot of good management experience at TI. And I had been an observer of human nature, but I really didn't understand a lot of the things. Like, for example, Wall Street never been there, never done that. Dealing with the press, I hadn't done that. A lot of those elements, Ben not only did the introductions and so forth, but also mentored me and groomed me to be able to do it myself.

Russ: That's cool. Well I also want to get your perspective on new technologies. I mean, I can't help but think these companies that you're interested in and playing a role in, obviously that's sort of part of the motivation there. But do you see a next big thing on the horizon that might have economic altering implications to it?

Rod: The one that I think is on the forefront right now, is a simple thing called the iPhone App. And it's enabled by the Internet. And what's so powerful about it is that unlike just running a program on a computer, which is great, the iPhone combines three critical elements. It's continuous connectivity through the 3G cell phone network or YFi. It's a great multi-touch user interface for manipulating the screen and reading the screen, a great screen. And thirdly, by an app, which essentially does one thing well. If you're going to go out and solve a problem on the Internet, if you're going to find some information or do something, if you're going to do a lot of different things, then you need a general purpose product. But if you're going to do one simple thing, then the iPhone App is the way to go, because it takes something that's a little too complex for a lot of people to do on a PC, and makes it simple enough and quick enough. And very importantly, and interestingly, faster, much faster than you could do on a PC, because it's always on.

You just, you know, use your thumb on the iPhone. I've demonstrated this to a lot people where you turn it on. You click, click, click, and in about 10 seconds-if it's really complex, maybe 20 seconds-you've got your answers. And you can't do that on a PC or any other type of computer system. So I think the iPhone App is a much bigger breakthrough than even Apple or the industry has recognized at this point. It's going to really be a game changer, like the spreadsheet was in the PC days.

Russ: So I assume that means if somebody had just a killer application for the iPhone App, that, boy, you'd take a look at it?

Rod: Actually, I would if I had time. I'm probably going to be writing one myself, or maybe, maybe several.

Russ: All right, all right.

Rod: No, seriously, I mean, if, if I were younger, I probably would be doing that right now, because I was a programmer. One of the things I did at TI was write programs, and with a little investment and time, I could probably figure it out. But any company that I'm involved, certainly one of the things I'm pushing is, is doing an iPhone App to leverage what they've already got.

Russ: Okay, so before I let you go, let's say that we have a young aspiring entrepreneur that's tuned in right now that, has an idea and has a plan. And what sort of advice would you give them?

Rod: Well, it all comes down to that person's desire. Are they really committed to go dedicate some number of years of their life to make this thing happen? It's not going to be easy. If it is, then, then it was a lot more luck than you'll normally get. It's going to be hard. There's going to be a lot of problems. Look for a lot of help getting training in entrepreneurship, something that wasn't at all available ten years ago, even five years ago in many cases, was really good training on how to start a business. What are the things that will make or break the success of, of a startup company? And then find a mentor. I think finding somebody that's been there and had the hard knocks is really going to be a way to avoid a lot of mistakes. So, you know, you got to commit yourself to it, and if you're lucky-you said something about luck-you make a lot of your own luck. But the only way you're ever going to succeed is if you get some of the breaks to fall your way.

Russ: Rod, I really appreciate this update.

Rod: You're welcome, Russ. It's been a lot of fun. I always enjoy going back and remembering the fun we had in the in the Compaq days, and I'm enjoying it still.

Russ: And that wraps up this WebXtra with Rod Canion, co-founder and former CEO and chairman of Compaq Computer Corporation. You're listening to The BusinessMakers Show heard here and online at thebusinessmakers.com