Chapter Beginning.
The New Man.
Job One:.
The Entrepreneur.
The changing of the guard.
In pursuit of the PC-compatible marketplace.

The changing of the guard

In March 1983, the three directors of Novell--Ray, Pete Musser, and Dolf Paier--met for the first official meeting of the board.* [*Dolf Paier was chairman of the board--a position he would hold until January 1986, when Noorda became chairman.] After reports on the progress of the company, the first order of business was the election of company officers. Noorda was officially installed as president and CEO, and Harry Armstrong was elected vice president. Scott Loveless, a Utah attorney, was elected assistant secretary. The other officers were all Safeguard people: Ray Kraftson was secretary; Bill Gillan was treasurer; and Gerald Wilk was assistant vice president. The officers were elected for a term of one year.

Ray's choice of Harry Armstrong as vice president indicates the importance of Armstrong's role relative to the role of others in the company. Armstrong was personally responsible not just for the manufacturing and shipping but also for many of the sales that kept Novell's head above water. Craig Burton, by contrast, was still director of marketing at this point and would not be elected vice president until 17 months later, in August 1984.

Another important agenda item at the March meeting was approval of the stock incentive plan. The plan used a combination of stock grants and stock options to "incent" key employees. Eight employees would be allowed to buy a total 26,500 shares for a nickel per share ($1,325 total). Although the plan was adopted in March, Ray apparently waited about six weeks before making the actual distributions to employees.

[In July, Jack Messman bought 20,000 shares also for $.05 per share ($1,000).]
[In March 1983, eight Novell employees bought a total 371,000 shares for a nickel per share ($18,550). In July, Jack Messman bought 280,000 shares also for $.05 per share ($14,000).]

Putting the team together

By May 1983, Ray had identified the key players in his new company. SuperSet, Armstrong, and Burton formed the core management team, although "management" was a somewhat ambitious description of what these six individuals actually did. Ray had picked them not for their managerial skills--because they had never demonstrated any--but for their ability to make things happen. They were all "do-ers." In any case, there were no employees to manage. If something needed to be done, it was up to them to personally handle it.

Among the "support" employees were Judy Clark, her husband Reid Clark, Diane Solberg, and Lorraine Fitch. Judy's job was to help manage the office and to dress up the Novell booth at trade shows. Other support employees were hired about this time, some of whom had previously worked for NDSI. Kelly Spencer was hired in March to help Harry Armstrong in the plant. Jim Bills, who had worked for the company in the Data Systems days, rejoined in June. David Owen, an engineer who had worked for NDSI for a year, rejoined in July.

Although Ray cared little for titles, the differences in rank do reflect of the relative standing of each individual in the company. Harry Armstrong was vice president of sales.* Burton was director of marketing. Dave Owen was director of engineering. Kelly Spencer was Materials Manager. Jim Bills was director of technical services. Judy Clark, at first manager of corporate communications, was made director of corporate communications. [*In Novell's Form S-1 (filed with the SEC at the beginning of December 1984), Armstrong is listed as director of operations and sales from January 1983 to November 1983, when he was elected vice president. However, the Delaware franchise report submitted by Novell in March 1983 lists Armstrong as vice president. Further complicating the record are the frequent references made by Ray Noorda and others in various interviews that Armstrong was production manager when Ray arrived in January 1983].

Ray made sure that all his employees had a generous stake in the new company. True, the shares were worthless at the time they were issued, but it was clear to all that if they could make Novell a success, they could do very well for themselves.

[Initial capitalization: Ray invested $125,000 for 200,000 shares, or $.625 per share. Safe Guard "invested" assets worth $1,015,381 and received 350,000 shares of Convertible Preferred stock. In October 1984, Safeguard converted these shares to 4.9 million shares of Novell Common Stock.]

The most important people Ray had to please were the four Superset guys who had created Netware. Major, Neibauer, Powell, and Hurst were not employees of Novell but outside consultants. In exchange for the rights to Netware and continuing work for Novell, each of the four members of SuperSet was allowed to buy 11,875 shares at a nickel per share ($593.75). The shares were to vest over four installments from May 1983 to January 1986. In addition, each member of Superset was to be paid a salary. In the fiscal year ended October 1984, the four Superset members received a total of $248,200.

Neibauer recalled the contract negotiations as another example of Ray's "win-win" philosophy. "He doubled Superset's equity position in Novell when he came on board," Neibauer remembered. "We had already negotiated a position with Safeguard, and we had a position in Novell based on our value and so on.

"When Ray came in, he doubled it. He said, `You guys, I need you to be here and I need to keep your attention a long time, and that isn't enough."

Other employees and consultants were given the right to buy a total 56,500 shares of Novell, for an average exercise price of $2.42 per share ($136,600). The employees put up a cash total of $5,700 for their shares, and the company lent them the balance of $130,900.

Different employees were given different opportunities to purchase stock. Harry Armstrong received 5,000 shares plus options that would vest in annual increments over the next four years. Reid Clark received 3,000 shares plus options to purchase 4,000 more over the next four years. Since Judy and Reid Clark were a couple, Judy received no shares of her own.

The individuals Ray picked to fill the key roles in the new Novell were, without exception, relatively young and inexperienced people. All except for Harry Armstrong (age 40) were under 30. The four members of Superset were recent graduates of BYU, and Craig Burton was a college drop-out. They shared similar qualities: a burning faith in the destiny of Netware and Novell; a willingness to commit themselves totally to their work--to eat, sleep, and dream Novell; an ability and desire to make things happen, without waiting for direction; and an absolute personal loyalty to Ray Noorda.

Much has been made of Ray's willingness to entrust great responsibility to little people; part of the Noorda legend is his ability to discern, among the mob, those individuals of genius and talent, the diamonds in the rough. In interviews and speeches, Ray makes a point of encouraging this idea. "Finding the best players has been one of the most important things in the companies I've been in," he said to an interviewer in 1988, who provided the following context:

To find the best players to staff the Novell team, Noorda went to the trenches. As suspected, he found that those who knew the most about the company were not at the management level. Soon after he arrived at Novell, he realized people like Craig [Burton] and Judith [Clarke], plus some of the programmers knew far more about the company than those who were managing it. Needless to say, management was "streamlined."

Ray's critics attribute different motives to Ray's choice of managers. They see Ray not as a great liberator of human potential but rather as a CEO who will not brook the independent ideas of experienced professionals. In elevating people with no career histories to key management positions, he guarantees their loyalty and their good behavior. They are his creatures: He made them, and if necessary he can break them.

By the summer of 1983, the new Novell was taking its first tentative steps forward as a company. Ray had his key people in place, properly incented, and had eliminated those employees he didn't want. He had addressed his problems in manufacturing, and the list of successful installations was growing almost weekly. He had a new name and marketing image for the company and the flagship product. He had a vision of a future LAN industry that would grow from the file server model developed by Novell.

In June, an incident occurred that illustrates an aspect of Ray's involvement in the computer industry. As Novell struggled on its upward climb to profitability, Ray approved a loan of up to $200,000 made by Novell to Gateway Communications, Inc., a company in which Ray owned a substantial interest and served as director. The loan was apparently designed to improve Gateway's financial standing; Gateway actually borrowed only $20,000 of the $200,000 available to it.

The loan was paid back a year later, but it shows how Ray could use one company to serve another. As president and CEO, Ray's energies were focused on Novell, but he continued to take an interest in other high tech companies as an investor, director, founder, and where appropriate, strategic partner. Ray's involvement in other companies has been an asset to Novell in many cases, although his critics suggest that certain deals may have been more to Ray's benefit than Novell's.

As the orders for S-Net LANs grew, the company needed additional capital to build and ship the systems. In November, Ray made a personal loan to Novell of $125,000; by March 1984 he had loaned an additional $25,000. Safeguard also made a series of loans to the fledgling company which by the end of 1983 totaled some $800,000.

At Novell's Comdex booth in Las Vegas in November 83, the mood was confident, determined, and optimistic, in contrast to the fey but ultimately pessimistic mood of a year before.

In December 1983, Novell sold the Superset consultants an additional 30,000 shares [420,000 shares] for $.29 per share ($8,700) [$121,800].

At the end of its first year of business, the new Novell had a pulse and seemed likely to survive. From zero sales in January 1983, the company had somehow managed to bring in $3.8 million by January 1984. True, there was still a year-end loss of almost a $1 million, but if the income continued to grow as projected, the company would be in the black in fiscal 1984. Foreign shipments contributed significantly to first year sales--30 percent, in fact--and this was largely due to the efforts of Reid Clark. On January 13, 1984, Novell's stock split four for one.

On New Year's Day, 1984, most Novell employees felt good about the progress made in 1983 and the work that lay before them. There was, however, at least one casualty from the rebirth of Novell, and that was the marriage of Reid and Judy Clark. In light of the role Judy came to play in the company, it is a casualty worth mentioning. According to Reid, Novell presented a vast new set of opportunities and possibilities for Judy, and she wanted to be free to pursue those possibilities.

"She just got to a point where she didn't want to have to report where she was going or what she was doing," said Reid. "What she wanted at that moment was not to have a husband. She saw a wholly different lifestyle for herself. So I said, `Well, if that's what you want, then we can arrange that.' Because everything else had changed. You know, she had stopped going to church, taken off her garments . . . .* There was a split in terms of what she was doing in her lifestyle." [After Mormons marry, they wear special underclothes called Temple garments. For a married Mormon to stop wearing garments is an indication of apostasy.]

By the end of the year, they were divorced.

Chapter Beginning.
The New Man.
Job One:.
The Entrepreneur.
The changing of the guard.
In pursuit of the PC-compatible marketplace.