A decade after he got the boot from Compaq, Rod Canion is once again betting on the Next New Thing.
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Almost twenty years ago Rod Canion was a frustrated engineer at the granddaddy of Texas’ high-tech companies, Texas Instruments. He was itching to break out of the big-company mold and start something new. So were his TI colleagues Jim Harris and Bill Murto. Over coffee in a Houston pie shop, the budding entrepreneurs hatched a plan to fill a niche in the fast-growing computer industry, sketching their idea for a portable computer on a paper place mat. The machine they envisioned wasn’t much like today’s thin, light portable computers. The size of a small suitcase, it was dubbed a “luggable.” Canion and his friends knew they were onto something big; they just didn’t know how big. They quit their jobs, plunked down $1,000 each, and in 1982 founded a company they called Gateway Technologies. Almost immediately they renamed it to better describe their compact product—Compaq Computer.
Compaq showed the world that Houston could hit a gusher in something besides oil. With backing from one of the computer industry’s most revered venture capitalists, Ben Rosen, Compaq broadened its product line, zoomed past fierce competitors like IBM and Apple Computer, and eventually became number one in PC’s. But like other Cinderella stories in high tech, this one didn’t end with Canion and company cranking out computers and raking in money happily ever after. By 1991 cheaper PC clones were flooding the market and siphoning off Compaq’s sales. After almost a decade of stunning growth, the company reported its first-ever loss. Rosen and Canion had different views about how to make Compaq more competitive and speed up production. According to Canion, Rosen wanted to move production overseas, but Canion disagreed. The two could not reach a compromise. That October Rosen, whom Canion considered a close friend, orchestrated a move that rocked the industry: Compaq’s board booted Canion out the door.
He could have taken the millions he had made from Compaq and retired, but he quickly dusted himself off and went looking for other ventures. Harris had resigned shortly after Canion was fired, and the two teamed up again in 1992 to co-found Insource Technology, a firm that provides consulting services for information systems. (Compaq’s other co-founder, Murto, had left Compaq in 1987 to pursue a master’s degree in religious education and eventually produce religious films.) Canion invested in other high-tech companies too, but it’s his latest investment that has rekindled the excitement he felt in those early, heady days when Compaq was riding high.
Canion was at a meeting of the Houston Technology Center in 1999 when he heard a twentysomething entrepreneur named Troy Williams make a presentation about his idea to build an online library that would not only help students research papers but also automatically generate footnotes and bibliographies. Williams had plenty of enthusiasm but no money. His interest piqued, Canion set up a meeting with Williams, and the two talked for hours. “I look at a lot of companies, and I can give you a hundred reasons why they might fail,” Canion says. “This was an exception.” Canion called Williams after their meeting and said he wanted to kick in some seed money to get the start-up going. “I hung up the phone and jumped up and down for ten minutes,” Williams says with a laugh. Canion also called Jim Harris, and together they put in $400,000.
Now, two years later, Williams’ idea is a real company, Questia Media, with 145 employees and spacious but utilitarian offices in a high-rise near Houston’s Galleria. Canion, Questia’s chairman, and Williams, its CEO, initially seem an unlikely pair of collaborators. The wiry Canion, a 56-year-old Houston native, is polished and low-key, with bachelor’s and master’s degrees in electrical engineering from the University of Houston. His speech is measured, and his brown eyes flicker when he’s excited about a subject, but you can’t imagine him jumping up and down. In contrast, the exuberant Williams is 29 years old and built like a linebacker; a graduate of Rice University and Harvard Law School, he hails from Mystic, Connecticut.
Canion brought a lot to Questia’s table. He lured big-name investors like his friend Ken Lay, the chairman of Houston energy giant Enron, and TA Associates, a Boston high-tech venture-capital firm. Lay sits on Questia’s board, as does Therese Crane, America Online’s vice president of education products. Last year Questia raised $40 million from TA Associates and $90 million from OppenheimerFunds, even though many high-tech companies had fallen out of favor with investors after the big market crash. Canion also knew where to find seasoned executives to build a strong management team. Not surprisingly, many came from Compaq; others came from Walt Disney’s Disney Online and publishers like HarperCollins. Williams, who was nine years old when Compaq was founded, looks up to Canion as a strong strategist and a “great mentor.” “Rod has been instrumental in giving the organization the legitimacy it needed, especially early on,” he says. “I wouldn’t be here without him.” Williams is convinced that Questia will revolutionize learning by giving students and others 24-hour access to an online library that is currently stocked with more than 60,000 books and journals in the humanities and social sciences. Canion agrees. “This is really earth shaking in this business,” he says, “to have a copy of a book in this database and simultaneously have millions of people looking at it at one time. And it’s never checked out—it’s always available.”
Canion and Williams believe Questia’s approach is unique. Users of its online service, which costs $19.95 a month, can highlight passages of text and make marginal notes much as they would in a real book. As they scan the pages, they can click to automatically cite the book in a bibliography or mark a passage to be included in footnotes. Not only that, Questia offers extensive cross-indexing. For example, a student scanning one book on its site might come across another work cited on a page. The student can click on the cited work and, through a hyperlink, go directly to it, saving lots of time in tracking it down. The company, which launched the service in January, won’t reveal how many paying subscribers it currently has, but Williams says he’s pleased with the response and expects to be turning a profit next year.
This fall Questia will get its first real test on college campuses. The company has been buying advertising on cable channels that are popular with students, such as MTV, VH1, and Comedy Central, to get the word out about its service. “Fall is really our grand opening,” Canion says. And guess who’ll be looking on with interest? His old friend Ben Rosen, who ended up stepping in as acting CEO at Compaq in 1999 after the board fired Eckhard Pfeiffer, who had succeeded Canion. In a twist of irony, on Rosen’s watch Compaq stumbled again, this time because the much leaner Dell Computer was eating its lunch. Rosen has since passed Compaq’s reins to a new CEO, Michael Capellas, and the company is still struggling to rev up profits. Canion says he wishes Compaq and Capellas well. And he reveals that Rosen has more than a passing interest in Questia: He’s a small investor in the company. Seems that after all these years, the guy who gave him the boot still has some confidence in Canion’s ability to take an entrepreneur’s wild idea and turn it into the Next New Thing.