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Joseph R. "Rod" Canion Cloning Around

Joseph R. "Rod" Canion
Co-founder of Compaq Computer Corp.
Founded: 1982

"The world is moving so fast that it's become change or die. Nobody knows that better than me."-Joseph R. "Rod" Canion

In 1981, when soon-to-be Compaq Computer Corp. co-founder Joseph R. "Rod" Canion sketched out a plan for a portable IBM-compatible PC clone on a napkin in a Houston pie shop, he knew he was onto something big. But he never imagined that he was laying the groundwork for what would become the first start-up company ever to reach more than $100 million in its first year of sales and firing the opening salvo in a PC clone war that would last well into the next decade and beyond.

A soft-spoken Texan whose boyhood spent tinkering with hot rods led him to study engineering, Canion received his master's degree in electrical engineering with an emphasis in computer science in 1968, and he immediately began working for Dallas-based electronics titan Texas Instruments (TI). During his 13-year tenure at TI, Canion became close friends with two other company engineers, Jim Harris and Bill Mutro.

Although both Mutro and Harris aided Canion in creating his groundbreaking design, none of the three initially intended to become computer manufacturers. They had actually planned to build a computer disk drive and peripherals company. But they were dissuaded by Wall Street analyst-turned-venture capitalist Benjamin J. Rosen, who offered instead to help the trio raise $1.5 million in venture capital to build the industry's first MS-DOS transportable computer-a 28-pound "luggable" PC.

Rosen came through with the capital he promised, and in 1982, with Rosen as chairman, Canion, Harris and Mutro started Compaq Computer Corp. Under Canion's direction, Compaq's initial game plan was to build PC clones that offered complete compatibility with IBM personal computers, but with more power and more features.

Canion knew that if he was to compete against the Big Blue juggernaut and the hundreds of other PC-clone makers who had popped up after the enormous success of IBM's personal computer, he would have to find a way to make Compaq stand out from the crowd. So he developed a plan that would rocket Compaq to the head of the pack, not through technology, but through keen financial planning and superior marketing.

Canion's first step was to acquire the monetary resources Compaq would need to survive what he knew would be a war of attrition. While long-since-vanished cloners like Victor, Vector and Hyperion were building nearly identical machines, Compaq was building a colossal war chest. In just a few months, Canion had gathered the largest pool of venture capital ever concentrated on a single venture-nearly $25 million. This strong capital base enabled Compaq to offer potential computer dealers solid reassurance about Compaq's future stability as a manufacturer, which was vital if the second phase of Canion's plan was to work.

Unlike IBM and many of the other cloners of the time, Canion saw the hazards of offering computers both directly from the company as well as through dealers. He decided the path to success lay in selling only through dealers, thereby avoiding the headaches of competing with his own channel market.

"There was nobody going exclusively through dealers," Canion explains in a 1985 Computerworld magazine interview. "That was our own invention. But as to how to deal with the dealers-what they expected and what they needed-we hadn't a clue. We had to get that from the dealers themselves and from observing what other people had tried."

Canion's strategy made a point of keeping a wide spread between the wholesale price and the "suggested retail price" that Compaq published. The spread was handsome enough to secure a highly visible place for Compaq's machines on dealers' shelves next to the IBM PC. Canion allowed the dealers to use the spread to either offer deals to their customers or to fatten their own margins. And dealers had an added incentive to push Compaq computers-Compaq backed its dealers with a flood of TV advertising.

Canion's plan was a huge success. During the company's first year in business, Compaq shipped more than 53,000 PCs and set its first of many U.S. business records with revenue topping $111 million. Compaq was off and running-at a dead sprint.

In 1983, Compaq made its first public stock offering, which raised $67 million. Canion used a portion of the profits to develop Compaq's first desktop computers. Released in 1984, the DeskPro line was a family of modular desktop systems based on Intel's new 8086 chip. The new chip offered more power than IBM chips, but without sacrificing IBM compatibility.

Compaq's next groundbreaking computer hit the streets in April of that same year, when it rolled out the first systems based on Intel's 80286 processor. By the end of 1984, Compaq had shipped nearly 150,000 PCs and set another revenue record of $329 million.

Based on Canion's philosophy of advancing existing technology while offering more power and more features, Compaq continued to grow and prosper, becoming the youngest company ever to join the Fortune 500-just five years after it was founded.

In 1987, the 42-year-old Canion and Compaq faced their first major potential roadblock when IBM introduced its new line of PS/2 computers. Abandoning the industry standard MS-DOS, the PS/2s ran on IBM's newly created OS/2 operating system, which IBM promised would deliver faster speeds, expanded versatility and more features. Many industry pundits claimed the PS/2 was a "clone crusher" that would run Compaq and all other clone makers out of business. But the pundits were wrong, at least in Compaq's case. Having firmly established its reputation for providing superior quality, speed and features at competitive prices, Compaq continued to outsell the competition and became the first 6-year-old company in U.S. history to break the $1 billion sales mark.

Under Canion's firm hand, Compaq would became the industry's technological leader. Over the next three years, Compaq would pioneer every new class of personal computer, introducing the first 386 machine, the first 20MHz, 25MHz, and 386SX-based systems.

Then in late 1991, the unthinkable happened. Compaq announced its first-ever quarterly loss-nearly $70 million. Canion suddenly found his company confronting an entirely new market from the one it entered nine years before. As a new generation of clone builders, such as Dell, Zeos and ALR, discovered they could bypass the dealers and sell direct through the mail, PC prices plummeted and Compaq was left stranded with an obsolete philosophy based on pampering dealers. No longer could it win premium prices by being first with the best and brightest technology. Buyers now wanted discounts, not premiums.

In reaction to the loss, Canion laid off 1,400 workers and developed an 18-month plan to create a new line of low-priced computers to counter the cut-rate clones. Worried about further losses, without Canion's knowledge, Compaq chairman Benjamin Rosen commissioned a team to discover just how quickly and cheaply a low-priced computer could be made. The answer, which turned out to be half Canion's allotted time, meant Canion's days as Compaq's CEO were numbered. On October 25, 1991, Compaq's board of directors, led by Rosen, announced that Canion was being replaced as CEO by Compaq executive vice president and COO Eckhard Pfeiffer. Two weeks later, Compaq accepted the resignation of co-founder Jim Harris, who was then vice president of engineering.

Some claim Canion was the cause of Compaq's downturn. Others claim he was merely a scapegoat. Regardless of which theory is correct, one thing remains true: Rod Canion changed the way the world computes. By pushing the technological envelope, Canion created many of today's computer industry standards and inspired the entire computer industry to keep developing new and better PCs.

Management 101
Joseph R. "Rod" Canion pushed the computer technology envelope further and faster than any before him. He built one of the world's most successful businesses, brought the first IBM-compatible portable PC to market, introduced the first computer based on Intel's 386 chip, and was the driving force behind the first PC-based superservers. But perhaps his greatest accomplishment lies not in developing new hardware or technology, but in the visionary management policies he pioneered as CEO of Compaq Computer Corp.

A positive and encouraging manager who listened as he led, Canion's style was to empower people, get them working together, then challenge them to be the best they could be. The "can-do" corporate culture Canion created made him a talent magnet. He attracted the best and brightest in the industry and built them into teams and management structures that fostered incredible innovation and made Compaq the undisputed champ in the PC market for nearly a decade. A tribute to the loyalty and passion Canion inspired in his workers, after news of his dismissal in 1991, about 150 employees staged an impromptu protest, many carrying signs that read "We love you Rod." Several weeks later, the same group took out a newspaper ad saying "Rod, you are the wind beneath our wings. We love you."

Is There Life After Compaq?
It may be cliché, but in Joseph R. "Rod" Canion's case it is true-you really can't keep a good man down. Just months after his dismissal as CEO of Compaq Computer Corp., Canion joined fellow Compaq co-founder Jim Harris in a new business venture. Renting space in the same Houston office where they started Compaq, the two old friends started Insource Management Group (IMG) in 1992, a computer consulting firm dedicated to helping customers evaluate their business processes and then design information systems to help them improve those processes.

Canion has remained chairman of IMG since its inception, but that hasn't stopped him from exploring other avenues of business. In 1998, he became chairman of GK Intelligent Systems, a software company that was experimenting with artificial intelligence to help children learn more quickly and easily. But that relationship didn't last long. Within four months of accepting the position, Canion left GK, citing "basic philosophical differences" as the reason for his departure.

Canion's latest venture began in 1999, when he was appointed co-CEO of Tricord Systems Inc., a former maker of Intel superservers. Tricord Chairman and CEO John Mitcham tapped Canion to help him re-launch Tricord as a storage company. When asked in an interview in the May 24, 1999, issue of Computerworld magazine if he expects his relationship with Tricord to be a long-term one, Canion replied, "No. When we get through this launch phase and we're up and running as a company, I will step back. But I like working with start-ups, and I'm likely to be doing that again in the future."

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