From rags to Red Hat

How, inside four years, a startup went from a bedroom enterprise to a possible Windows killer.
Written by Lisa M. Bowman, Contributor
DURHAM, N.C. -- Red Hat Inc. co-founder Marc Ewing planted the roots for Red Hat software in 1993, while studying computer science at Carnegie Mellon University in Pittsburgh.

Ewing, 29, was looking for a cheaper alternative to Unix, and found it in Linux. He began repackaging the software and selling enough copies so that he could pursue his hacking hobby and still pay the rent.

He named his venture Red Hat, after the Cornell lacrosse team cap he got from his grandfather. "The real story is that it was red- and white-striped," said Ewing, who wore the cap regularly until he lost it. "But Red- and White-striped Hat didn't sound like a good name for a company."

A year later, he ran into Bob Young, now the company's CEO. Young was running a computer mail order catalog, and had heard about Red Hat from some customers. He called Ewing and offered to buy 500 copies of Red Hat, nearly all that Ewing had produced.

Maxing credit cards
The two started the company formally in early 1995 -- initially financing their enterprise by maxing out half a dozen credit cards.

Ewing said he was thrilled that Young relieved him of the salesman role, so he could concentrate on code. "We both had compatible styles -- we were willing to take risks and flexible enough to go where the business led us," he said.

At first, the handful of employees worked out of Ewing's Durham, N.C., apartment, taking group trips to Sams for soda during breaks. They were kicked out after six months, when a toilet overflowed in the early morning hours, leaking into the apartment downstairs. When the manager arrived on the scene, he found a roomful of computers -- and no evidence of tenants.

So they moved to a small business office.

The company has grown so quickly that, four years after launch, many workers are still at Red Hat, even though they never intended to be. Erik Troan, Red Hat employee No. 5, started working at Red Hat as a summer job in 1995. It's been a long summer.

"If someone had told me when I started at Red Hat that I'd be working for a 100-person company that had partnerships with IBM and Oracle and other world-class companies, I would've said, 'You're crazy,' " said Troan, who at the age of 25 oversees 30 other employees.

'Quality Products, Quality People'
These days, Red Hat is a symbol of the new technology economy of Durham. The shiny new business parks in the suburbs are a sharp contrast to downtown Durham, where the air smells of sweet tobacco, and cigarette companies such as Liggett & Meyers Inc. plaster their brick buildings with giant Orwellian signs reading "Quality Products, Quality People" in white letters.

In 1996, Red Hat began winning technology awards, beating, or at least tying, Windows NT, even though it had only a fraction of the developers that Microsoft did. Still, corporations weren't jumping on board. So, the company began a concentrated effort to drum up support among industry bigwigs. "We had to make it safe for these major technology users to use Linux because while we were winning the major technology awards, we were not winning any customers," Young said.

Then, in September 1998, Intel Corp. (Nasdaq:INTC) and Netscape Communications Corp. (Nasdaq:NSCP) unveiled support for the company, putting Linux on the map of even the most conservative companies. Since then, a flock of heavyweights have joined the Linux party, providing Red Hat and other competing Linux companies with investments and momentum. Others that used Linux behind the scenes began coming out of the closet.

The pace of Red Hat's growth has surprised nearly everyone, including Ewing. "I look back and say, 'That's just insane, how did we get to this point?'"

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