Compaq Computers: Rod Canion (2019)

In 1981, engineer Rod Canion left Texas Instruments and co-founded Compaq, which created the first IBM-compatible personal computer. This opened the door to an entire industry of PCs that could run the same software. PLUS for our postscript "How You Built That," we check back in with Danica Lause, who turned a knitting hobby into Peekaboos Ponytail Hats: knit caps with strategically placed holes for a ponytail or bun. (Original broadcast date: May 22, 2017). See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Guy Raz?

  So back in the 1980s, Rod Canyon left Texas Instruments with one vision: to create a better portable computer. He had no idea his 28-pound invention would not only compete, but also beat out computing giant IBM. We first ran this episode in May of 2017, and there is a lot of great stuff in here. Enjoy.

• 0:25Speaker 01

  Well, it's assumed that if IBM enters the market, they take over and push everybody out. In February of 1984, IBM introduces their own portable into the market. Our orders stopped because before it actually was introduced, they were showing it to dealers and customers, and they just stopped ordering ours. That was a very, very life-threatening situation. We had this factory running full speed and no place to go.

• 0:59Guy Raz?

  From NPR, it's How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.

• 1:13Guy Raz?

  I'm Guy Raz, and on today's show, how Rod Canyon's personal computer startup Compaq took on the biggest computer company in the world and won.

• 1:29Guy Raz?

  So if you have a PC at home or at work, and you buy some software like Word or TurboTax, it doesn't really matter if you have a Dell, or an HP, or a Toshiba, because if it's a PC, it will run PC software. And that makes perfect sense, right? But believe it or not, in the 1980s, in the early days of personal computers, that is not how it worked. If your computer was, say, an IBM, well, you needed software written for an IBM. And IBM was the biggest player by far. In fact, some people thought that IBM would eventually crush all of the competition and become the only PC maker. But all of that changed when Rod Canyon started Compaq.

• 2:14Guy Raz?

  Now, Rod wasn't your typical restless entrepreneurial guy. In fact, he had a good and stable job at Texas Instruments as an electrical engineer, and he was pretty happy there. But one day in 1981, his managers assigned him to work on a new project, and it was something that Rod believed would not work. And so he started to get frustrated.

• 2:37Speaker 01

  Basically, it was being told to go spend the next two years of my life being my head against the wall and end up in failure.

• 2:43Guy Raz?

  So at that moment, Rod started to talk to two close colleagues at Texas Instruments, Jim Harris and Bill Murto, and he basically said, hey, maybe we should leave.

• 2:54Speaker 01

  We met and talked about how we were going to go start a company. And there were a lot of startup companies in California, in Silicon Valley. One of the first things we realized is, gee, these guys are having fun. They're making a ton of money, and they're not any smarter than we are. They're just out doing it themselves. There was also this awareness that something really big is going on in that personal computer market. When IBM entered the market in August of 1981, we realized that that market was going to explode. And then what happened is that fall Comdax came along. We went out to the conference and saw all of the companies and all of the things going on. And it was just, that did it.

• 3:37Speaker 01

  We went back to Houston and talked about, we're going to miss this if we don't get going. So Jim Harris and I turned in our resignation right away. Bill Murto waited because his wife was about to deliver their first child.

• 3:52Guy Raz?

  And you had a family too, right? How many kids did you have?

• 3:55Speaker 01

  Three.

• 3:56Guy Raz?

  Were you nervous at all about just quitting without any income coming in? I mean, were you worried at all about doing that?

• 4:04Speaker 01

  You know, I don't remember being worried about it. The three of us, none of us had any money to invest. So what we did was we saved up money. And the idea was, we'll give ourselves a runway length of six months to come up with an idea and go get funding.

• 4:19Guy Raz?

  Mm-hmm.

• 4:20Speaker 01

  You know, I think this was an adventure. Let's go see what we can do.

• 4:23Guy Raz?

  So, so when did the three of you sort of land on the idea that, that, you know, eventually turned into Compaq?

• 4:29Speaker 01

  Well, the, the idea came to me actually one morning. It was strange how you remember those pivotal points in your life. But I was thinking about the idea for a portable computer. There were a number of them that existed at the time. Probably, you know, I'll just guess, 15 or 20.

• 4:46Guy Raz?

  And, and what were, what were portable computers like at the time?

• 4:50Speaker 01

  Well, most people remember the Osborn. It was made out of cheap molding and sort of strung together. It had a five-inch diameter screen. And it had two floppies, but you could immediately see some ways to make it a lot better. You know, we, we decided we could do a nine-inch screen in about the same-sized box. And while that seemed small, turns out it's about the same size as what the original iPad screen is.

• 5:18Guy Raz?

  Hmm.

• 5:19Speaker 01

  And we could make it rugged so that when you carried it, it was not, you know, damaged. But not worth really spending the time on unless we could get some software that already existed. Because I had learned that the key software, like spreadsheets and word processors and others, every different brand of computer had to have its own version of the popular software programs.

• 5:45Guy Raz?

  Mm-hmm.

• 5:46Speaker 01

  So I said, well, what if we could make this great portable run software that already existed? And I knew that the IBM PC was relatively unprotected. It would be a challenge, but it could be reverse engineered legally. And we could make our computer run the same software. And that was the idea that sent a chill down my spine. Wow. What's wrong with this idea? There's, there's got to be something wrong with it. It's too good to be just hanging around here.

• 6:13Guy Raz?

  And so at what point did you say, okay, we have an idea. Let's go look for money?

• 6:19Speaker 01

  So I called up Jim Harris and then later got Bill Murto involved and we thought about it and talked about it and decided, you know, that would be a great product if we can do that. Let's put together the business plan. And so that was the next thing we did. I mean, it was very quick, from the 9th of January to when the idea came up, to the 22nd of January, when we met with the venture capitalists. We basically put together a very short, four-page business plan and prepared to meet and discuss it with them.

• 6:48Guy Raz?

  And what did they say when they saw it?

• 6:50Speaker 01

  Well, they were coming into town for another meeting and we put this business plan in front of them and began to describe it. And then they started talking to each other. You know, one of them said, you know, "I had this idea, you know, like three months ago." And I said, "Well, if you think it's such a good idea, why aren't you more excited about it?" And they said, "Well, look, we like the idea, we like you guys, but we're new in this industry. So what you need to do is we need to send you out to Silicon Valley and go meet with Klanner Perkins. And if they'll invest, then we will."

• 7:27Speaker 01

  So we basically flew out to Silicon Valley and we went in to meet with John Doerr. And we spent a good morning, probably three or four hours, being questioned. And sure enough, about a week later, we got a call that they were willing to invest and so it was a go.

• 7:50Guy Raz?

  Okay, so it's 1982, I guess, and you've gotten your investors. And what, do you get to work building a prototype?

• 7:57Speaker 01

  Well, first thing we do is begin hiring people. Because the three of us, we're sort of the head of each area, but we need engineers mainly to go figure out how to reverse engineer and how to design the things out. So we hired three engineers.

• 8:11Guy Raz?

  And presumably, they basically had to build something pretty similar to an IBM PC?

• 8:16Speaker 01

  Yeah, except "pretty similar" didn't cut it. You had to be exactly the same in order to run the software, from an internal standpoint. And so they came to work for us right away and began, first, reverse engineering the product and then designing our own.

• 8:33Guy Raz?

  But were you convinced that you guys were going to succeed?

• 8:37Speaker 01

  You know, it never crossed my mind that we wouldn't succeed. And as I look back now, I think, wow, that was such a long shot.

• 8:44Guy Raz?

  Yeah.

• 8:45Speaker 01

  You know, our expectations were very low. What did succeed mean? It didn't mean become the industry leader. It didn't even mean become one of the leading companies. It meant build a company that doesn't go out of business, that has a product that solves a real need and you don't lose money on it. We felt like we knew how to do that.

• 9:03Guy Raz?

  How long did it take for you, from that point in, I guess, the first, you know, the early part of 1982, until you had a working prototype?

• 9:16Speaker 01

  So, we started the company February the 16th. And from March until early June, we had our first prototype ready. The deadline was determined by the National Computer Conference, which just happened to be held in Houston that year, the only time I think it was ever in Houston, to show to potential dealers, potential computer store owners who would sell it, to magazine writers who would write about it when it came out, you know, to get feedback, and others, basically, to find out what people thought about this product.

• 9:52Guy Raz?

  So, you come up with this prototype, and at that point, where are you even manufacturing these computers?

• 9:59Speaker 01

  We built a factory inside a leased building in North Houston. We hired manufacturing people. They put up a production line, hired people, trained them on how to build it, and began to build the product. And we had a plan that basically allowed us to build probably, I'm going to say, 20, 25,000 computers by the end of 83. We didn't begin actually turning out finished units until January of 83.

• 10:28Guy Raz?

  Just to be clear, I mean, when you talk about a portable computer in 1983, you're talking about a... A machine that weighed, what did it weigh?

• 10:38Speaker 01

  Twenty-eight pounds.

• 10:39Guy Raz?

  Twenty... this is not even hand luggage on an airplane.

• 10:43Speaker 01

  Well, we did use it as hand luggage, but there was some skepticism about that. Not only that, you had to plug it in. It was... people began to call them transportable computers, which was more accurate.

• 10:56Speaker 01

  It was also very rugged. One of our key engineering talents was to build it so that it, when you dropped it, it would survive.

• 11:03Guy Raz?

  And, of course, your portable would run any software written for the IBM, and none of the competition did that, right?

• 11:11Speaker 01

  That's right. And basically, late in '82, as we had our first prototypes, Bill Murto and then I joined him, because there were a lot of computer stores around the country. We would go out and make an appointment and go in and show the computer store owner our product. And showed them the computer. They liked the way it looked. And when we showed them how it worked, it was very nice. The screen was nice. But when we told them, "Okay, just pick any of the IBM software off of the shelf, it's in a shrink wrap box, and put it in the computer and see if it runs." And when they did that, and it ran, their eyes lit up. They got excited. They thought about it a minute, and they wanted to order some right then.

• 11:55Speaker 01

  They would say something like, "Okay, I need five of these next week," or "I'll give you an order for 25 if you can ship them in the next month." Bill and I got back to Houston and compared notes. It was like, wait a minute, every one of these dealers said the same thing. What we just stumbled onto is this pent-up demand for a portable version of the IBM PC. Now, it seems subtle, but we had never thought of our product that way. This is a portable computer. It fits a niche. And you have software because it runs all the IBM software. But if you just step back and turn that over and say, "Everybody out there has an IBM PC in their office, and what they need, every one of them needs one or more of, is a portable version of it. And we happen to have that product."

• 12:38Speaker 01

  People were wanting to take these things home for the weekend or even overnight to finish their work. They wanted to take them out to customers to show them their work. And so it was a much bigger market than anybody anticipated, once we had all the ingredients together.

• 12:54Guy Raz?

  Weren't you worried in 1982, when you were going to dealers and showing them your product, that, and saying, "Hey, you know, this is basically, this can do everything an IBM can do, except it's portable." Weren't you guys worried that IBM would come after you?

• 13:09Speaker 01

  No, because we hadn't broken any laws. You know, we had reverse engineered the ROM, following advice from top-notch intellectual property lawyers. So we were very careful around that. Their product was not protected by patents in any other way. They had followed, more or less, the general industry direction. And so, building a computer that was similar, or close to it, was not a problem at all. The fact that we took the time to figure out exactly how theirs made the software work, and made ours do the same thing, it was not illegal.

• 13:42Guy Raz?

  But it sounds like you guys really launched this in a stealth way, that IBM probably didn't even care about you. They thought you were just probably just a fly speck of a company that was making this product. And when you launched it in 1983, I don't know, did they even know who you were?

• 14:00Speaker 01

  Oh, no. No, they had no idea. Nor did they care.

• 14:04Guy Raz?

  Yeah.

• 14:05Speaker 01

  I mean, even after we began to sort of get some positive results in getting into stores, remember, we were portable. They didn't have a portable. So initially, it was very easy for them to ignore us, because we were truly a fly.

• 14:22Guy Raz?

  In that first year, 1983, how did the company do?

• 14:28Speaker 01

  We sold $111 million worth of compact computers.

• 14:34Guy Raz?

  Wow. How did you-- I mean, you must have been expanding like crazy. I mean, I'm assuming at the beginning of that year, you just had like a few hundred, maybe like less than 100 people working there.

• 14:45Speaker 01

  We had about 100 people at the end of the first year. That's about right. And about 600 by the end of '83. So you can imagine how much hiring we were doing and expanding. Now, this was not a one thing at a time. This was a multitasking, bringing on very competent people in every area so they could, here's what needs to be done, and go get it done.

• 15:07Guy Raz?

  How much were you selling that first portable computer for?

• 15:11Speaker 01

  It was listed for $29.95 for a single floppy. Unbelievable.

• 15:17Guy Raz?

  And who were your customers? Was it businesses? Was it individuals?

• 15:21Speaker 01

  It was mostly businesses, but a surprising number of individuals could see the value in it. And if their company wasn't buying it for them, then they would buy it for themselves.

• 15:31Guy Raz?

  Okay, so 3,000 bucks for this computer, and you guys are selling tens of thousands of these. I'm assuming that at this point IBM is starting to notice.

• 15:40Speaker 01

  Oh, absolutely.

• 15:41Guy Raz?

  They did.

• 15:42Speaker 01

  Absolutely. They, you know, in February of 1984, IBM introduces their own portable into the market. Now, our orders stopped because before it actually was introduced, they were showing it to dealers and customers, and they just stopped ordering ours. It's assumed that if IBM enters the market, they take over and push everybody out. So we had this factory running full speed and no place to go. That was a very, very life-threatening situation.

• 16:11Guy Raz?

  So you guys are freaking out.

• 16:13Speaker 01

  We're freaking out. The industry's freaking out. It's like, there goes Compaq. You know, they've had a good run, but it's over.

• 16:24Guy Raz?

  When we come back, Rod Canyon made sure that it wasn't yet over. Stay with us. I'm Guy Raz, and you're listening to How I Built This from NPR.

• 16:46Guy Raz?

  Hey, welcome back to How I Built This from NPR. I'm Guy Raz. So 1983 was a really good first year of sales for Rod Canyon and Compaq. But to put it in perspective, Compaq sold about 53,000 computers. In that same year, IBM, they sold 750,000 computers. And so in 1984, when IBM decided to compete with Compaq head to head, everyone knew it was a major threat. So Rod called together the management team for an emergency meeting.

• 17:20Speaker 01

  You know, what do we think we ought to do? Well, the manufacturing people said, we've got a lot of temporary people. We were hiring so fast, they came on as temporaries initially and said, we can lay all them off immediately and we can really cut back production, cut back our costs. And it was, I have to say, a very dire tone to the meeting. Everybody was like, you know, it's all over. And I took all that and added it all up and I realized, you know, if we're going to come out of this with a happy ending, there's only one way that's going to occur. And that is, let's assume for a minute that IBM's product is not better than ours, that maybe it's in limited supply, and the dealers, once they see it, begin to order our product again.

• 18:04Speaker 01

  We need to have product available to fill those orders.

• 18:07Guy Raz?

  Yeah.

• 18:08Speaker 01

  So here's what we're going to do. We're going to keep building these things. We're going to store them and wait for the orders to come. If the orders never come, yeah, we're in deep trouble. But you know what? We're in deep trouble anyway if the orders don't come. So that was the plan. I'm not sure everybody was on board with it, but that's what we went off and did. We ended up storing these things in the trailers, tractor trailers, you know, 18-wheelers back then. And parking them in our parking lot. When that filled up, we borrowed space in friends' parking lots around the town. And by mid-February, we had about 20 of these trailers, full of computers, sitting around Houston.

• 18:47Guy Raz?

  So what happened? How did you survive that?

• 18:49Speaker 01

  Well, what happened is IBM introduces the product, they kick the tires. It's announced that it is in limited supply for a while. It was not a better product. It wasn't a bad product, it just wasn't better.

• 19:03Speaker 01

  And so, just as we had hoped, almost the best possible situation is the orders came in and we had the computers to fill them. It's like they had been holding them back and so not only were they ordering at the normal rate, they were sending all the orders that they had been holding. Everything fell into place just at the right time and we took advantage of it.

• 19:20Guy Raz?

  So what explains, what explains the fact that, that they didn't crush you? I mean, it, it sounds to me like it was one of two things. It was either total luck, or it was that the IBM portable computer just wasn't that good, or maybe both?

• 19:36Speaker 01

  Well, any way you look at it, it was luck. I mean, it was, it, there was a lot of luck involved. But what had happened is, we had had a year to build great relationships with the dealers. The dealers actually liked having somebody other than IBM, because IBM was the, you know, the 500-pound gorilla, and they knew it. In any case, we continued to sell like crazy and outsold the IBM portable throughout the year. I think by the end of the year, we were outselling it seven or eight to one.

• 20:05Guy Raz?

  End of 84?

• 20:06Speaker 01

  By the end of 84. And we tripled to 329 million in our second year.

• 20:13Guy Raz?

  So by your second year, you've tripled sales. When's the first time you remember Compaq becoming part of like, of the mainstream conversation in America?

• 20:25Speaker 01

  Well, it depends on how big the mainstream is. I think by the end of 83, everybody in the industry knew about Compaq and was sort of marveling at what was going on here. You know, this idea that people could use all the same peripherals, all the same things that were designed and built to run in an IBM PC, whether it was software or hardware, would work on our computer. IBM maybe underestimated us. They didn't really study what had made our product successful. They could have easily put us out of business if they had come out with a, a real comparable product.

• 20:56Guy Raz?

  Yeah, and, and I mean, once you guys showed that you could build an IBM clone, A lot of other companies realized that it was possible to do the same thing, right?

• 21:05Speaker 01

  That's right. And the fact that we took off and set sales records, I mean, everybody else did it, including, by the way, the big guys, HP, TI, DEC, all finally followed suit. But by then, we had really established ourselves in the market. And, you know, the thing that took us from 600 million in '86 to 1.2 billion in sales in '87, we came out with our own desktop, which was essentially three times faster than IBM's desktop for about the same price, and began to establish ourselves as not only the portable company, but also the high-performance company.

• 21:44Guy Raz?

  Didn't IBM try to, like, kill off all the clones when they released the PS2 in 1987, which was this computer that was designed so it could not be cloned, right?

• 21:54Speaker 01

  Yeah, that's right. That was an attempt to take this thing that had gotten out of control, mainly due to Compaq, and bring it back under IBM's control. So IBM comes out with their new architecture and claims that this is the way to go, that that old architecture has run its course, it's going to run out of gas very soon, and so you don't want to follow it to the end, you want to get on this new horse, and IBM has it, and so let's go. And that's where IBM's marketing strategy got them in trouble, because this thing not only didn't run all the software, it didn't run any of the software.

• 22:32Guy Raz?

  Wait, stop for a second. IBM's new computer did not run IBM's own software?

• 22:38Speaker 01

  It didn't. Now, they came out with new IBM software. So if you wanted to buy this new product, you could buy all new peripherals and all new software, and they would claim that it would outperform anything else in the market.

• 22:51Guy Raz?

  So at that time, though, Rod, I mean, you're saying that, I mean, presumably, companies, many companies already had PCs and software, and IBM was saying, buy this new PS2, oh, and you're also going to have to invest in new software?

• 23:05Speaker 01

  You know, you make it sound crazy. To them, it was normal. That's the way the industry had always worked, and they still hadn't bought into this industry standard idea. People believing that and understanding that it was important to be able to run your old software on a new computer. It had never happened before. Compaq pioneered it and then they wanted to get rid of it as quick as they could.

• 23:28Guy Raz?

  Was there a moment where you were worried that actually they would succeed?

• 23:31Speaker 01

  Oh, yeah. No, there was never a question that they had a good chance to succeed. Now, what kept us going and what I guess gave us confidence that we had a pretty good chance was we outperformed IBM's best products every step of the way. And so there was, you know, a significant part of the industry that looked at IBM's claims. You know, the magazines aren't afraid to write, "Compaq outperforms the IBM by 50 to 100%." So in spite of it being IBM, we're holding on to a pretty solid position in the market because ours was always higher performing.

• 24:11Guy Raz?

  I mean, it seems like at any juncture in your first several years, IBM, had they just done something a little bit smarter strategically, could have crushed you?

• 24:24Speaker 01

  There's no doubt IBM could have crushed us a number of different ways at that point in time.

• 24:30Guy Raz?

  Okay, Rod, so it's five years from the time you launched to the time you're doing a billion dollars in revenue, right?

• 24:40Speaker 01

  That's right.

• 24:41Guy Raz?

  How did your life, your own personal life, change? Because all of a sudden, you're like, I'm assuming you've become kind of a rich guy.

• 24:49Speaker 01

  Yeah, you know, certainly compared to where I had been, I was rich. But then again, we knew that that was a fragile part of it. I did get a divorce in 1987. You know, it was just a sad part of what happens in that era, but I'm sure it had something to do with the stress associated with all of the work, the time I spent at work.

• 25:15Guy Raz?

  So in 1987, you're going through a divorce. I mean, even a simple divorce is hard. And then IBM comes out with this new computer designed to basically put you guys out of business. So how did you deal with that? I mean, how did you cope with all that happening?

• 25:32Speaker 01

  You know, looking back on it, I would say it's probably denial. You know, it's a pretty effective tool. You know, not letting things impact you as much as they might in sort of other situations is something you have to do there. I mean, I felt like I was learning as I went and I was doing a good job. There was personal turmoil. If you want to throw another layer on top of that, Radio Shack tried to buy us in late 86 and early 87. And so that was going on at the same time all this was happening.

• 26:04Guy Raz?

  So you were just, as far as your personal life, you were just kind of, you compartmentalized that. You just had to put that in a box and focus on this stuff and not let that depress you?

• 26:17Speaker 01

  Yeah. Now, I've got three kids and they're getting to be teenagers and there's Little League and there's all of that. And I'm trying very hard to get away at the right time, go see a school play. That's where most of the stress came from, trying to do it all. If you could just cut off part of it and say, "I'm not going to worry about that," it would be one thing. But trying to do it all and not drop any balls, that was pretty stressful.

• 26:44Guy Raz?

  Were you going home, you know, eating like takeout Chinese food? I mean, what was happening once you were done with your day?

• 26:51Speaker 01

  Crashing usually, yeah. No, I see pictures now of me carrying fast food, you know, a McDonald's bag or a Wendy's bag. You just ate when you could. That was sort of secondary. Getting everybody, you know, taken care of, getting the meetings done, getting the decisions made. You know, you could look at my role as making decisions.

• 27:13Guy Raz?

  Yeah.

• 27:14Speaker 01

  I wasn't making all the decisions, but all of the key ones I had to be involved in, so.

• 27:18Guy Raz?

  Wow.

• 27:19Speaker 01

  And there were always a lot.

• 27:20Guy Raz?

  And Rod, I guess about, like, what, 10 years after you guys launched Compaq, you're ousted. I mean, the board of directors, they fire you.

• 27:29Speaker 01

  Almost exactly 10 years later, that's right.

• 27:31Guy Raz?

  Why? What was going on?

• 27:34Speaker 01

  Well, there's several levels of looking at the dynamics there. On the surface, it's a matter of disagreement over how fast to move into the lower-cost arena.

• 27:46Guy Raz?

  Like, like, lower-cost PCs?

• 27:49Speaker 01

  Yes. The chairman of the company, Ben Rosen, thought we ought to move very quickly, and so quickly that, in fact, we ought to go buy a product from a Taiwanese, or a Japanese, or a Korean supplier. And my argument was, look, it's not what it seems. We can get to market as fast as anybody with our own design. And I think at the board meeting, the board decided to replace me with the number-two guy, with Eckard Pfeiffer.

• 28:18Guy Raz?

  How did you, how'd you get that news?

• 28:20Speaker 01

  Well, we had a board meeting where Ben proposed that idea, and I left the room, and they deliberated it for quite a while, and then made the decision to make the change. But it was clear that was the direction they were going. I knew that's what it was going to be. I was also somewhat burnt out, and I was of a strange mindset, you know? I kind of wanted to get out of that, that pressure. It was, it took me a while to really look back and understand that I was a big part of the problem of why it ended up going down that path. And I, and I regret that, but it is what had happened. And I guess, under the stress I was under, and kind of gotten into this frame of mind where I need to get away, the disagreement over the low-cost speed to market was just

• 29:04Speaker 01

  the catalyst that, that allowed it to happen. I almost guided it to the point where I was going to be fired.

• 29:12Guy Raz?

  So when you were at, I mean, this is the company that you founded, that you built.

• 29:16Speaker 01

  Yes.

• 29:17Guy Raz?

  And then you were removed from that company. I think a lot of people hearing that would say, "God, that sounds like such an injustice, because it's your idea, you created it, it was your sweat, and then it was taken away from you." But, but it sounds like, from your perspective, that was fine. You, you were kind of, your time was, was over there.

• 29:40Speaker 01

  You know, let's be clear, we're a Fortune 500 corporation. You know, we're a leader in a big industry. And just because you started the company doesn't give you any right to continue to run the company. You know, it needs to be run by somebody that can make good decisions and can manage that complex an operation. Which I think I was doing okay, or maybe even very well up to that point in time. So that's, I don't see that as the reason that I needed to leave. I think it had more to do with my frame of mind and sort of a burned out situation.

• 30:15Guy Raz?

  You were in your mid 40s at that point, so still a pretty, pretty young guy. You accomplished a lot. Did you walk out of the company with, you know, financially secure? Were you set for life at that point?

• 30:29Speaker 01

  Yes, absolutely. You know, of course, continued my life. Actually, the home life became much less stressful. And then I got involved in investing in some startups and early-stage companies and tried to help them succeed. Not all of them did. But then finally evolved to where I really just like helping entrepreneurs start their company and tried to help them avoid a lot of the mistakes that new companies make.

• 30:55Guy Raz?

  And you think about Compaq, it was such a powerhouse in the 80s, a Fortune 500 company, does a billion dollars in revenue within five years. And then you think about all of the companies that it was associated with or that it competed against, you know, Apple, IBM, Dell, Microsoft, Texas Instruments. All of those companies still exist. And Compaq doesn't exist anymore. It was folded into HP and that brand is no longer here. In a way, is that a cautionary tale for some of these powerhouses we see today like Snapchat or Uber or Facebook companies? We can't even imagine not existing.

• 31:41Speaker 01

  You know, it really is. That's certainly something I didn't envision when I left. I guess I just wasn't thinking that far down the road.

• 31:49Guy Raz?

  Yeah.

• 31:50Speaker 01

  And of course, you never know the future. The decision to merge in with HP was a financial decision. But the end result of the way it happened is that Compaq no longer exists. And that is sad because it's got such a great history and played such a key role in actually forming the way the world works today. And yet, most people you run into on the street have never heard of Compaq.

• 32:14Guy Raz?

  It's crazy, isn't it?

• 32:16Speaker 01

  It is crazy. Yeah, it's sad, but it's also life. We started out to build a company that would last. And I think that's the case with any... If you look at Dell, or Microsoft, or Apple, the leaders of those companies maintained enough control to make sure that it never got into the hands of somebody that looked at it just purely from a financial standpoint. If I had been there, if I had been leading the company, we would never have sold. We would have figured out a way to solve the problem.

• 32:52Guy Raz?

  How much of your success at Compaq was because of just your hard work and Smarts and the hard work of Jim and Bill? And how much of it was luck?

• 33:05Speaker 01

  If you had asked me that in the 80s, let's say the late 80s, I would probably have said it was 90% intelligence and insight and work and 10% luck. But to tell you how perspective changes with time, I would say today it was the other way around.

• 33:27Guy Raz?

  Wow.

• 33:28Speaker 01

  We did a lot of good things. We came up with a good idea. But if you look back at any of the things that could have gone wrong and would have either slowed us down or stopped us, I mean, there's an endless list of those. And so the fact that, you know, okay, we dealt with those issues as they came along, but the fact that there was a successful path even available is pretty, pretty doggone lucky.

• 33:52Guy Raz?

  Rod Canyon, he founded Compaq Computers with Bill Murto and Jim Harris in 1982. Rod still lives in Houston, where he mainly invests in other people's startups. By the way, the story of Compact's David and Goliath's struggle against IBM was the subject of a very cool documentary. It's called Silicon Cowboys. What kind of computer do you use today?

• 34:15Speaker 01

  I use a MacBook Air and an iPad Pro and iPhone.

• 34:20Guy Raz?

  You started the PC revolution. You're an Apple guy.

• 34:23Speaker 01

  I'm an Apple guy.

• 34:36Guy Raz?

  Hey, thanks so much for sticking around, because it's time now for How You Built That. And today, we're updating a story we ran about a year ago.

• 34:44Speaker 02

  My name is Danica Lozzi. I live in Germantown, Wisconsin.

• 34:48Guy Raz?

  And about 16 years ago, when Danica was in college, she loved to knit scarves for her friends, to the point where they started to say, "Enough, Danica, no more scarves." So she thought, "Okay, I'll branch out. I'll knit a hat."

• 35:03Speaker 02

  I made it, and I finished it, I thought, and I looked at it, and there was a big, weird hole in it. And I thought I made a mistake. I tossed it on the ground, really disappointed.

• 35:13Guy Raz?

  But it's a good thing that, when she did that, her dad happened to be in the room.

• 35:18Speaker 02

  My dad saw it laying there, and he said, "Well, put your nest through that."

• 35:22Guy Raz?

  Yeah, her "nest," that was her family's nickname for the curly mass of hair on top of Danica's head. So just for fun, she put her hair through the hole in the hat.

• 35:32Speaker 02

  And I don't know who said it, but I remember, kind of collaboratively, the room looked and was like, "That looks good."

• 35:40Guy Raz?

  So Danica started to wear the hat with her ponytail or bun sticking out of it. And wherever she went, on campus or traveling around the country, people would say the same thing.

• 35:51Speaker 02

  Where'd you get your hat? I like your hat.

• 35:53Guy Raz?

  So without realizing it, Danica had solved a problem for people with long hair. Because if you've got a ponytail, it's uncomfortable to pull a knit hat over it. And it can look kind of silly, too. You know, this weird bulge on top of your head. So after Danica got out of college, and after she got a full-time job in the chemical industry, she continued to knit hats with the strategically placed holes in them. And then she would sell them online.

• 36:19Speaker 02

  And that's where I thought that it might stay, where I would keep my day job forever. And I mean, I was actually kind of planning on going back and getting a PhD in chemistry.

• 36:30Guy Raz?

  But that's not what happened.

• 36:33Speaker 02

  Like, I'd get to work, and I'd think, hmm, I could maybe be making just about, you know, what I'm making here if I made more hats.

• 36:42Guy Raz?

  And right around this time, Danica started to notice there was competition. Other people were making hats for ponytails. So she innovated. She made multiple openings to accommodate different hairdos. And she even figured out how to hide those openings, so you could wear the hat like any other hat when you wanted to. And all that knitting took a lot of time. So Danica started to get some help.

• 37:07Speaker 02

  I started getting a lot of emails from manufacturers in China who had found my website, saying, hey, we can make these for you. And I thought, all right, I don't have a lot of other options here. I'm going to try that.

• 37:18Guy Raz?

  So, OK, she found a few people in China who could hand knit the hats.

• 37:22Speaker 02

  They were actually, a lot of times, made by people in their homes. But they were all turning out to be different sizes and a little bit different shape. And some of that was just the nature of handmade, but it couldn't go on.

• 37:35Guy Raz?

  Danica realized she couldn't grow her business by knitting the hats by hand. So after asking a lot of different engineers, she found one guy in New Jersey to design her a knitting machine that would put holes into hats.

• 37:49Speaker 02

  It can make a hat every 18 minutes. And I have to stop to oil it about every six to seven hours. And so I can get about 60 hats in a day.

• 38:05Guy Raz?

  Danica's company is called Peekaboo Ponytail Hats. Since we last spoke with her, Danica has been thinking about marketing Peekaboo hats in countries like New Zealand and Australia, where it's winter from June to August, so she can keep selling her hats year round. And she's working on five new designs. If you want to find out more about Danica Lozzi or her previous episodes, head to our podcast page, howibuiltthis.npr.org. And of course, if you want to tell us your story, go to build.npr.org. And thanks so much for listening to the show this week. You can subscribe wherever you get your podcasts, and while you're there, please do give us a review. You can also write to us at [email protected].

• 38:49Guy Raz?

  And if you want to send a tweet, it's at howibuiltthis. Our show was produced this week by Casey Herman, with music composed by Ramtin Arablouei. Thanks also to Julia Carney, Jaycee Howard, Noor Kutsi, Neva Grant, Melissa Gray, Sanaz Meskampur, and Jeff Rogers. Our intern is Candace Lim. I'm Guy Raz, and you've been listening to How I Built This. This is NPR.