#235 Steve Jobs The Pixar Story



In the episode featuring Lawrence Levy, the first CFO of Pixar, the conversation delves into the intricate negotiations and strategic decisions that shaped Pixar's journey from financial uncertainty to becoming a multi-billion-dollar company. Levy recalls the challenges of aligning Pixar's business model with its creative ambitions, particularly in securing a fair deal with Disney that recognized Pixar's brand and shared profits equitably. Steve Jobs' unwavering belief in Pixar's potential, despite the company's initial negative $50 million net worth, is highlighted as a driving force behind its success. Jobs' negotiation skills, his distaste for positional bargaining, and his staunch stance on not yielding on essential terms like creative control and co-branding ultimately led to Disney acquiring Pixar for $7.4 billion. The acquisition marked a triumphant moment for Jobs, making his investment in Pixar the largest source of his personal wealth. However, for Levy, the emotional attachment to Pixar likened to that of a parent to a child, making the departure bittersweet, a testament to the personal investment that goes beyond business.

Summary Notes

Steve Jobs' Recruitment of Jordan

  • Steve Jobs sought a successor for his role at Pixar and reached out to Jordan for a CFO position.
  • Jordan was taken aback by Jobs' casual attire and direct interview questions.
  • Jobs questioned Jordan's career choices, including his work at Disney and as a management consultant.
  • Jordan defended his experience at Disney, highlighting the success of Disney stores.
  • Jobs pitched Pixar to Jordan, who declined due to his interest in a different career path.
  • Jobs then suggested Jordan join Apple to help with the vision for Apple stores, which Jordan initially thought was delusional.

"Steve Jobs had been hunting for a CFO of Pixar and reached out to Jordan, who agreed to meet Jobs for breakfast. I show up in my suit jacket, Jordan recalled, and Jobs walks in in torn clothes 20 minutes late."

This quote illustrates the contrast between Jordan's formality and Jobs' casual approach, setting the stage for an unconventional interview process.

"Jobs had only two interview questions for Jordan. Question one, you went to Stanford Business School... Question two, how could you work at Disney for eight years? Those guys are fucking bozos."

Jobs' blunt interview style and challenging questions are highlighted, indicating his desire to understand Jordan's decision-making and ability to handle stress.

Lawrence Levy's Introduction to Pixar

  • Lawrence Levy was the first CFO of Pixar, recruited by Steve Jobs.
  • Levy's initial impression of Pixar was negative due to its financial state and uncertain future.
  • Despite reservations, Levy was impressed by the creative talent and technological innovation at Pixar.
  • Pixar's financial survival was dependent on Steve Jobs' personal investments.
  • Levy saw potential in the company's creative team and believed they were winners, despite the risks.

"When I first started talking to Steve about Pixar a little more than ten years earlier, in late 1994, the company had burned through almost $50 million of his money with little to show for it."

Levy provides context on the dire financial situation at Pixar before his involvement, emphasizing the company's struggles and Jobs' significant personal investment.

"My tenure at Pixar lasted from my first conversation with Steve in 1994 until the sale to Disney in 2006. This opportunity was one of the great privileges of my life."

Levy reflects on his time at Pixar, marking the period as a transformative and valuable experience in his career.

"It is about the strategic and business imperatives that enabled Pixar to flourish."

Levy's quote underlines the focus of his story, which is to provide insight into the business strategies that allowed Pixar to succeed.

The Creative and Business Tensions at Pixar

  • Pixar was like the grinding of tectonic plates with innovation and survival pressures.
  • Ed Catmull and John Lasseter led the creative drive, while Jobs and Levy focused on business challenges.
  • The tension between creativity and business was seen as essential for success in films, life, and organizations.

"The making of Pixar was more akin to the high pressure grinding of tectonic plates, pushing up new mountains."

Levy uses a metaphor to describe the intense and opposing forces at Pixar that led to its eventual success.

"These two forces ground ceaselessly against each other."

This quote emphasizes the continuous struggle between the need for creative innovation and the realities of business survival at Pixar.

Steve Jobs' Recruitment of Lawrence Levy

  • Levy was skeptical about joining Pixar due to its financial instability and Jobs' past failures.
  • Jobs encouraged Levy to visit Pixar and witness the work firsthand.
  • Levy was amazed by the creative and technical expertise at Pixar, despite its unassuming location and financial state.
  • He recognized the talent and dedication of the Pixar team and believed in their potential for success.

"Why would I join a company that had been struggling for 16 years and whose payroll was paid every month out of the personal checkbook of its owner?"

Levy questions the wisdom of joining Pixar, given its long history of struggles and dependence on Jobs' personal finances.

"These two leaders had dedicated themselves for years to their crafts, with almost no commercial success and recognition."

Levy acknowledges the passion and commitment of Catmull and Lasseter, despite the lack of immediate commercial success.

Pixar's Transformation and Future Success

  • Levy's decision to join Pixar, despite the risks, was driven by his belief in the team's talent and potential.
  • The transformation of Pixar from a financially struggling company to a successful animation studio was a significant risk that paid off.
  • Pixar's eventual sale to Disney for $7.6 billion validated Levy's intuition and the team's hard work.

"I might not know how that victory would come, but I was quite confident that for them, somehow, it would."

Levy expresses his confidence in the eventual success of Pixar's team, despite the uncertain path to victory.

Transition from Career to Pixar

  • Lawrence Levy had a successful career in Silicon Valley as a CFO before considering a position at Pixar.
  • The decision to join Pixar was difficult due to its uncertain future and Steve Jobs' notorious reputation.
  • Despite rational doubts, Lawrence felt a strong intrigue towards the opportunity at Pixar.
  • He eventually decided to take the leap and joined Pixar, accepting Steve Jobs' offer.

"But the more he's like, no, I can't do this. The more these quiet times in his mind, he's like, there's just something here, go do it."

The quote reflects Lawrence's internal struggle and eventual decision to follow his intuition, despite the risks involved.

Strategy and Focus at Pixar

  • Steve Jobs and Lawrence Levy conducted a thorough review of Pixar's operations upon Lawrence's arrival.
  • They decided to cut non-essential projects and focus solely on film, particularly on the Toy Story project.
  • Renderman, Pixar's proprietary animation software, was deemed not viable as a standalone product for external sales.
  • The decision to focus on Toy Story was based on its potential to be a significant hit and open future opportunities for Pixar.

"And he spent weeks and weeks like, this is nonsense. And that's when he, I think he eliminated something like 70 or 80% of the product line."

This quote illustrates Steve Jobs' methodical approach to streamlining Pixar's focus by eliminating the majority of the existing product line.

Working with Steve Jobs

  • Lawrence describes Steve Jobs as intensely focused and quick to engage in deep discussions.
  • Jobs preferred collaborative resolutions over unilateral decisions.
  • The decision-making process at Pixar was likened to a rock tumbler, smoothing out ideas through rigorous debate and eliminating non-essential business ventures.

"Steve had an almost permanent intensity about him. Like, he was always in top gear."

The quote captures Steve Jobs' characteristic intensity and his all-in approach to work and decision-making.

Lawrence's Reflections and Uncertainty

  • Lawrence Levy reflects on his uncertainty and the immense challenges facing Pixar.
  • He applies wisdom from his mentors, focusing on productive actions rather than dwelling on uncontrollable circumstances.
  • The potential success of Toy Story was likened to climbing Everest or landing on the moon due to the unprecedented nature of the project.

"If I had known what I know now, I said, I can't imagine I would have taken this job."

This quote shows Lawrence's retrospective doubt about his decision to join Pixar given the daunting challenges they faced.

Pixar's Market Potential and Strategy

  • Lawrence and Steve Jobs researched the animation industry to understand Pixar's potential.
  • They discovered that the home video market was a significant revenue source for animated films.
  • The insight that animated feature films had long-term value in a film library shaped their strategy to focus on creating quality animated movies rather than diversifying into live action.

"Home video was turning animated feature films into big business. Bigger than we had ever imagined."

The quote highlights the realization that the home video market was a lucrative opportunity for Pixar to capitalize on.

Comparison with Disney

  • Lawrence and Steve Jobs studied Disney's history to draw parallels and lessons for Pixar.
  • They noted Disney's creative and technological innovations as well as its financial struggles and diversification.
  • The idea of a pure animation company seemed doubtful, but they saw value in building a film library for long-term success.

"If the undisputed king of animation, of the animation world, hadn't pulled it off, what was the likelihood that anyone else could?"

This quote expresses skepticism about the viability of an independent animation company based on Disney's historical challenges.

Pixar's Creative Process and Control

  • Pixar has a distinct advantage over live-action films due to the iterative process of animation.
  • The ability to iterate on storyboards, character modeling, and animation tests allows for greater control and flexibility.
  • In live-action, once footage is shot, changes are limited, leading to potential shortcomings in the final product.
  • Pixar's approach is likened to a combination of tech product development and filmmaking.

"In animation, there is much more control. We iterate on the story over and over again, do storyboards, character modeling, animation tests, and other processes."

This quote by Ed Catmull highlights the iterative process of animation that allows for refinement and changes throughout the production, unlike live-action films where footage is fixed post-shooting.

Pixar's Brand and Identity

  • Pixar aims to establish itself as a brand, not just a supplier to Disney.
  • The importance of brand recognition is emphasized through the stories of Sony and Ralph Lauren.
  • Steve Jobs was adamant about Pixar being recognized for its work and building a lasting entertainment brand.
  • Pixar's strategy involved four pillars: renegotiating profit shares, raising funds, increasing film production frequency, and building the Pixar brand.

"We cannot build a company without a brand."

Steve Jobs stresses the necessity of brand recognition for Pixar's success, indicating that building a strong brand is essential for the company's long-term strategy.

The Decision to IPO

  • Pixar considered the past failures of film companies going public.
  • The book by Hal Vogel highlighted the risks of taking a film company public, yet Pixar decided to pursue an IPO.
  • Pixar's IPO was timed strategically after the release of Toy Story to capitalize on its success.
  • The IPO was part of a larger plan to raise funds and gain independence from Disney.

"Steve was pressing for a public offering, and here Vogel was holding up a big, bright neon warning sign."

Despite warnings from experts like Vogel about the risks of film companies going public, Steve Jobs pushed for Pixar's IPO, demonstrating his confidence in Pixar's potential.

Pixar's IPO and Its Aftermath

  • Pixar's IPO was a resounding success, with share prices soaring above expectations.
  • Steve Jobs's optimism and belief in Pixar's vision were vindicated by the market's response.
  • The IPO was just the beginning, with the need to increase film output, renegotiate profit shares, and solidify the brand.
  • The challenge was to maintain Pixar's creative edge and avoid becoming a one-hit wonder.

"Steve called it down to t. He got it."

This quote illustrates Steve Jobs's accurate prediction of Toy Story's success and its positive impact on Pixar's IPO, showcasing his strategic foresight.

The Importance of Creative Vision

  • John Lasseter and Ed Catmull were the creative forces at Pixar, similar to Steve Jobs's role at Apple.
  • Pixar's success hinged on its unique story team and the personal connection of directors to their films.
  • The debate over introducing a creative director at Pixar was settled by trusting the existing creative team's vision.
  • The commitment to making films from the heart and the filmmaker's perspective was a key to Pixar's philosophy.

"Yes, John replied. I know that's asking a lot, but it is what I think we should do."

John Lasseter's conviction in the creative team's vision and the need to make films from the heart reflects Pixar's culture and approach to storytelling, which Steve Jobs supported.

Long-Term Excellence and Sustained Performance

  • The goal for Pixar was long-term excellence, which required overcoming the challenges of sustained success.
  • The success of Toy Story brought new responsibilities and the need to avoid complacency.
  • Pixar's focus remained on creating great films, as this was the foundation of their business success.
  • The company's future depended on its ability to consistently produce high-quality, emotionally engaging films.

"Sustained performance is the hallmark of business success."

Lawrence Levy's statement encapsulates the importance of maintaining a high level of performance over time, which is crucial for Pixar's continued success in the film industry.

The Creative Force in Business

  • Steve Jobs highlights the importance of creative individuals in driving a company's success.
  • The example of Pixar is used to illustrate how creatives, like John Lasseter, are pivotal to innovation.
  • Steve Jobs equates the need for creative freedom in filmmaking to his own philosophy in business.

"But did they have a John Lassiter? Steve mused, this was a great question. John and his young team seemed to be cut from a different Cloth. They were virtually inventing how to tell stories in the entirely new medium of computer animation."

The quote emphasizes the unique talent and innovation that John Lasseter and his team brought to Pixar, which Steve Jobs believed was crucial for the company's success and should not be stifled by executive oversight.

Embracing Risk in Filmmaking

  • Lawrence Levy, as CFO, discusses the inherent risks of filmmaking without corporate oversight.
  • Despite the risks, Levy supports the vision of Steve Jobs, Ed Catmull, and John Lasseter at Pixar.
  • The Silicon Valley approach to entrepreneurship—betting on innovation and greatness—is favored over caution.

"Fear and ego conspire to rein in creativity, and it is easy to allow creative inspiration to take a backseat to safety."

This quote by Lawrence Levy captures the tension between creativity and the fear of failure, suggesting that innovation requires overcoming the constraints imposed by fear and ego.

Strategic Negotiations with Disney

  • Pixar and Disney's relationship and contract negotiations are detailed.
  • Steve Jobs and Lawrence Levy strategize by assessing the leverage points of both Disney and Pixar.
  • They list advantages for each company on a whiteboard, creating a visual representation of the negotiation landscape.

"Disney wants to merge with us, meaning merge with Yahoo. Why would we ever want this seems so unbelievable."

The quote reflects upon a potential merger between Disney and Yahoo, showcasing Disney's leverage and influence, and aligns with the strategic points Jobs and Levy considered during their negotiations with Disney.

Pixar's Leverage and Negotiation Strategy

  • Steve Jobs and Lawrence Levy consider Pixar's strengths in negotiations, such as IPO money and the success of "Toy Story."
  • They also discuss potential partnerships with other studios like DreamWorks as leverage against Disney.
  • Jobs' negotiation style is described as unwavering and almost religious in its conviction.

"Dreamwork is a threat to Disney. Then Steve made another entry in the Pixar column. Better deal if, wait, if we don't do a deal with Disney now, Steve said, we'll get a better deal later when this contract is over."

This quote demonstrates Steve Jobs' strategic thinking, using the potential threat of DreamWorks and the possibility of a better future deal to strengthen Pixar's position in negotiations with Disney.

The Outcome of Pixar-Disney Negotiations

  • Steve Jobs' negotiation skills result in a favorable deal for Pixar, including creative control and equal branding.
  • Disney eventually agrees to co-branding, which was a sticking point for Jobs, due to the alignment of incentives between the two companies.
  • The acquisition of Pixar by Disney becomes one of the most successful corporate acquisitions.

"On January 24, 2006, Disney announced that it would acquire Pixar for $7.4 billion."

The quote marks the culmination of the negotiations, with Disney acquiring Pixar and reflecting the success of Jobs' negotiation strategy.

Personal Impact of Business Decisions

  • Lawrence Levy reflects on the personal and emotional aspects of the business, particularly the sale of Pixar to Disney.
  • Although financially successful, the sale represents a significant emotional loss for Levy.
  • The story concludes with a reflection on the personal nature of business and the importance of moving forward.

"Letting go of Pixar is harder than I thought, I said. I wasn't sure exactly why, though."

This quote from Lawrence Levy encapsulates the emotional complexity of selling a company that one has invested in personally and professionally, highlighting the personal connections that are often formed in the business world.

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