September 28, 2003
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Little Tech Titan

Ralph Yarro CEO of Canopy Group

By Bob Mims
The Salt Lake Tribune

    LINDON -- Talk about Canopy Group, and the underdog metaphors inevitably follow.
    The Lindon-based high-tech incubator and venture capital firm, like Don Quixote of old, certainly has tilted -- albeit with success -- at a few windmills. David versus Goliath? Oh yes, there have been, and there remains, giants on Canopy's horizon.
    In 2000, it was the colossus Microsoft paying $250 million to settle an antitrust suit by Canopy's Caldera Inc. (now SCO Group). This past August, behemoth Computer Associates International paid $40 million to settle a software-licensing dispute with Canopy and another of its 30-some companies, Center 7.
    Now, through SCO Group's controversial claims on the freely distributed Linux operating system, Canopy finds itself in a three-way federal court battle. Claiming SCO's proprietary Unix code has shown up in Linux, Canopy's offspring seeks up to $50 billion from computer titan IBM -- even as it fights off a pre-emptive suit from leading Linux distributor Red Hat Inc.
    Ralph J. Yarro, Canopy's president and chief executive, cannot help but relish his company's feisty, litigious reputation, even as he argues it is undeserved. Multimillion-dollar settlements from big-name companies make headlines, he says, but the dozens of tech companies and thousands of Utah jobs Canopy has helped create are its true legacy.
    "I would prefer to be a peacemaker than to fight," Yarro says. "But I don't have the luxury to pick who steals from us, who attacks us. All I can do is decide whether or not we will defend ourselves."
    Once that decision is made, the commitment is total. "We don't care how big you are. If you mess with us, we're going to take you on, even to our utter destruction, whatever occurs. We fear nobody, and we are respecters of no persons."
    A devout Mormon, who with wife Jackie is raising four children, Yarro credits his faith, no-nonsense forbear s and Utah high-tech entrepreneur Ray Noorda for molding his reputation as an aggressive, fiercely loyal and successful businessman.
    His grandfather, a California homebuilder, taught lessons of hard work. "Long before my grandfather allowed me to wield a hammer, I dug ditches, moved lumber, hauled rocks and bricks," Yarrow recalls, adding with a chuckle, "I learned heavy manual labor was not an interest."
    It was while exploring the fine arts at BYU -- after a two-year church mission and a European honeymoon -- that Yarro discovered the developing world of computer graphics. He put in stints helping design software and games, selling hardware and consulting before attracting the attention of Novell Inc.
    "I was recruited and in '93 joined them," Yarro says. Soon after, he began his tutelage under Noorda, nearing the end of a 12-year association with Novell. Noorda, seen as the prime mover behind Novell's initial networking software success, formed a special advanced technologies project; Yarro was enlisted.
    Noorda -- who declined a request for an interview -- had earned several fortunes in the industry by the time he retired as Novell's president and CEO in 1994. Much of that money was used to eventually launch Canopy. While still chairman and a guiding light for the firm today, he handed Canopy's reins to Yarro in 1996.
    Yarro, with Noorda's support, wasted little time in refocusing Canopy's investment strategy toward development of Linux, seen as a challenger to the predominant Windows OS. Companies that fit the refined mission were kept, those that did not, were not. Of 40 companies, only 16 made the 1996 cuts.
    Lauro DiDio, an analyst with the Yankee Group, said it is obvious that in Yarro, the torch has been successfully passed from the mentoring hand of Noorda.
    "In his day, Ray Noorda was very forward-thinking, able to focus in on the trees and yet still see the forest and beyond," she says. "He had a public persona as a sort of svelt Santa Claus, but behind closed doors, Ray really knew now to wheel and deal. He could be ruthless when he had to be."
    Utah Gov. Mike Leavitt, too, credited Yarro for helping build Noorda's investment company into critical player in the state's high-tech industry.
    "By my observation, Ralph has a clearly defined instinct for the practical and confidence to run contrary to conventional wisdom," the governor said. "That's a recipe for successful investment."
    Among Canopy's and Yarro's detractors these days, though, are almost anyone in the so-called "open source" community, the loosely knit network of free software developers championing Linux. Shortly after SCO filed suit against IBM, some open-source leaders threatened a boycott of Canopy products; others settled for verbal broadsides.
    Bruce Perens, a noted Berkeley, Calif., Linux developer and open-source spokesman, flatly stated that Canopy was the real power behind the Unix-Linux brouhaha. "Canopy Group never understood how to be our partners," he wrote in online comments. "They've chosen to screw us one last time on the way out the door. Let's do our best to turn it back on them."
    SCO's recent claims that its Unix code has been illegally imported into the latest versions of Linux have made Canopy into a perceived nemesis of the "open source" community. For Yarro, this is a "difficult paradox."
    "I grew Canopy out of Linux, period," he says. "Many of the people in our companies are guys who can easily stand up and say we, too, are contributors. And it's not that I want to take any credit for Linux; let someone else decide what our contributions have been.
    "But we have funded many Linux companies, developed and supported them," Yarro adds. "I still support Linux, but I don't support Linux in its tainted versions, or people taking copyright information and contributing it."
    While an important battle to fight, Yarro believes it will be Canopy's successes as a tech incubator -- not the Unix-Linux fray -- that will ultimately preserve its place in history. More than 100 companies have passed through Canopy's hands in less than a decade, some sold to larger concerns, others marking success as part of the Canopy portfolio.
    In 1999, for example, Canopy sold Vinca Corp. to Legato Systems Inc. for $94 million. A year later, KeyLabs Inc. fetched Canopy $43.5 million from Exodus Communications Inc.
    While the privately held Canopy does not release overall results, it also can boast in the results of its public spinoffs. SCO, for example, finished its most recent quarter with net income of $3.1 million on revenue of $20.1 million, a sharp turnaround from the same time a year ago when net losses were $4.5 million and revenue $15.4 million.
    Then there is Altiris Inc., a computer systems management-solutions company that reported net income of $3.3 million -- reversing a $105,000 loss the same time a year ago. Revenue hit $22.8 million, up 71 percent.
    Greg Butterfield, Altiris president and CEO, said his company owes much of its success to the faith Canopy placed in it at its founding in 1998. Butterfield recalls a stream of rejections from venture capital firms inside and outside the state before Canopy said yes.
    "[Canopy] sees a technology and knows whether you can wrap a business around it," he says. "They invested in the early stage, took the risk. Fortunately, Altiris has proven successful and provided a good return for them."
    Richard Nelson, president and CEO of the Utah Information Technology Association, credited that vision -- and ready provision of management, legal help and other expertise to its investments from sister companies -- for Canopy's success.
    Even during "the last three difficult years" for Utah's tech economy, Canopy has kept the industry alive and poised for recovery, Nelson says.
    "Without the funding of the Canopy Group during this period, Utah would have at least 1,000 fewer very high-paying jobs," he says. "Canopy has been a vital funding source in light of the brutal capital markets [tech] companies have faced."
   Canopy Group
   Headquarters: Lindon
   History: Founded in 1995 by former Novell Inc. chairman Ray Noorda to act as a technology incubator
   President and chief executive: Ralph Yarro
   Portfolio companies: Include Altiris, SCO Group, Center 7, Helius

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