To Pixar and Beyond

“What seemed like an insurmountable challenge turned into one of the biggest creative success stories of the modern era.”

1. Joining Pixar: A Leap of Faith

Lawrence Levy’s life changed with a single phone call from Steve Jobs, who invited him to join Pixar in 1994. Jobs’ enthusiasm for the struggling company didn’t seem to align with Pixar’s mounting financial troubles. Despite doubts about risking his career, Levy took a chance, drawn by the company’s creative potential.

Levy initially had reservations. His research revealed Pixar's shaky survival, dependent on $50 million from Jobs’ pocket. Previous ventures had faltered, and Pixar had little to show in terms of business viability. Yet, a tour of the studio changed Levy’s perspective. He witnessed the groundbreaking work on Toy Story, Pixar’s first feature-length animated film. Meeting dedicated creatives like Ed Catmull and John Lasseter made him believe in the studio’s unique vision.

Although intimidated by challenges and Jobs’ infamous reputation for being difficult, Levy couldn’t resist the opportunity to be part of something extraordinary. He became Pixar’s executive vice president and CFO, ready to help steer the company toward stability and success.

Examples

• Steve Jobs personally inviting Levy in 1994 to rescue Pixar.
• The revolutionary impact of Toy Story's early footage on Levy.
• Levy’s deliberation over Pixar’s potential versus its overwhelming hurdles.

2. Pixar’s Bleak Starting Point

When Levy stepped into Pixar’s offices in February 1995, he saw a team of talented but demoralized employees. Pixar faced distrust among its staff and lacked profitable ventures across its projects, except for faint hope in Toy Story.

Pixar’s work was diverse but unprofitable. Its core software, RenderMan, had niche functionality, while animated commercials and short films drained resources. The only potential lay in home video, inspired by Disney’s success with VHS sales. However, the terms of Pixar’s agreement with Disney offered little financial upside for Toy Story and future films, further hindering their chances of building a sustainable business.

Despite this bleak landscape, Levy started brainstorming a way forward. He realized that Pixar would need major changes, including better production agreements, business partnerships, and market positioning, to succeed.

Examples

• RenderMan software’s limited commercial viability despite its patent.
• The Disney partnership awarding Pixar less than 10 percent of film profits.
• Pixar’s struggle to sustain runaway costs in creating animated commercials.

3. Finding Hope in the Entertainment Industry

Levy saw an opening in the swelling popularity of animated movies in home entertainment, particularly thanks to Disney’s successes with The Lion King and Aladdin. Perhaps Pixar could secure its place by focusing entirely on becoming an animated film studio.

The decision wasn’t easy. Even Disney, with its vast resources, had difficulty relying solely on animation. Pixar wasn’t diversified like Disney, didn’t own its distribution channels, and had no safety net. Plus, no modern animation studio had gone public successfully, a step Levy knew was necessary. Yet, Levy believed Pixar’s creative strength offered a chance to win over audience hearts and investors.

Levy developed a financial model detailing how Pixar could monetize its blockbuster potential while cautiously preparing for the risks of high production costs and unpredictability in the film industry.

Examples

• Disney’s enormous revenues from VHS sales of The Lion King’s home-video release.
• Audience loyalty to family-oriented entertainment.
• The stark odds: only two out of ten films typically turned a profit.

4. The Four-Pillar Business Plan

To turn Pixar’s dream of profitability into a reality, Levy, Jobs, and Catmull developed a plan based on four strategic pillars. These addressed Pixar’s most pressing challenges and laid the foundation for growth.

First, Pixar needed to increase its share of profits from the Disney agreement, aiming for at least 50 percent. Secondly, it had to launch an IPO to fund partial production costs and solidify bargaining power. Third, they decided to scale production by ultimately creating multiple films simultaneously. Lastly, branding was key – Pixar needed recognition for its work, not just Disney’s label on films like Toy Story.

These pillars gave Pixar the direction to move forward, though each would come with its own set of challenges and determined negotiations.

Examples

• Identifying $75 million as the target amount Pixar needed from its IPO.
• Planning to release Pixar films under its own name and branding.
• Aiming to release films every 18 months to fulfill demand efficiently.

5. Triumph at the IPO

Despite skepticism from leading banks like Goldman Sachs, Pixar prepared for its IPO. This was timed perfectly with the anticipated release of Toy Story, which would validate its storytelling ability and financial promise.

Levy convinced banks like Robertson Stephens and Cowen that Pixar was worth backing. The release of Toy Story in November 1995 was a roaring success, earning $30 million on its opening weekend and proceeding to gross more than $190 million. Pixar’s valuation shot up to $1.5 billion after the IPO. This moment marked a turning point, with Jobs becoming a billionaire overnight.

The IPO not only provided Pixar the funds it needed to scale and grow, but it also gave the company credibility as a serious player in the entertainment world.

Examples

• Toy Story breaking animated film opening weekend records.
• Partnership with boutique investment banks, such as Cowen and Hambrecht.
• Pixar’s billion-dollar valuation on IPO day.

6. Investing in Creative Talent

For Pixar to maintain its newfound success, it needed to produce high-quality films regularly. The solution lay in expanding and nurturing its story team, which was the heart of Pixar’s magic.

Ed Catmull established Pixar University to train new hires and strengthen the company’s storytelling methods. To lead production, Pixar brought in Sarah McArthur from Disney. Job roles across animation expanded massively, but emphasis on quality remained strict. John Lasseter and his story team were given total creative control, ensuring that the soul of storytelling stayed intact amidst growing operations.

This balance of creative freedom and a robust team would allow Pixar to release animated films every 18 months, such as Finding Nemo and Monsters, Inc.

Examples

• The creation of Pixar University for in-house training.
• Recruitment of Sarah McArthur, a former Disney executive, to oversee production.
• John Lasseter’s appeal for full creative control to maintain Pixar’s distinctive storytelling.

7. Securing a Better Deal with Disney

After Toy Story’s success, Pixar was ready to renegotiate its Disney agreement. It aimed to secure equal recognition for its branding, control over creative direction, and increased profits.

Although talks stalled at one point due to disagreements over branding, Jobs and Levy stuck to their demands, walking away temporarily. Months later, Disney’s CEO Eisner returned with a better proposal: Pixar would be credited fairly in exchange for Disney owning a portion of Pixar’s stock. An arrangement was finalized in 1997, fulfilling all four of Pixar’s business objectives.

This deal not only boosted team morale but solidified Pixar’s reputation as a respected animation studio.

Examples

• Pixar demanding equal billing on films like Toy Story.
• Negotiators walking away when branding was dismissed by Disney initially.
• Finalized agreement yielding equal profits and recognition.

8. Sustained Success and Lessons Learned

By selling to Disney in 2006 for $7.4 billion, Pixar capped an incredible run. Meanwhile, Levy and Jobs learned essential lessons about the interplay between creativity and business.

Pixar became a force in the entertainment world, delivering hits like Cars and Toy Story 2. Jobs later applied storytelling and design insights gained at Pixar to revolutionize Apple’s growth. Levy, on the other hand, reflected on how balance – between structure and creativity – had propelled Pixar to its heights.

Both realized that staying true to a vision while adapting to obstacles was key to creating something enduring and meaningful.

Examples

• Pixar’s blockbuster films earning an average $250 million each.
• Jobs using Pixar lessons in Apple’s comeback and innovation streak.
• Lawrence Levy connecting business practices to Buddhist philosophies, such as the Middle Way.

9. A Unique Philosophy for Success

Lawrence Levy interpreted Pixar’s journey as a metaphor for balance, reflecting his later embrace of Buddhist teachings like the Middle Way.

Pixar’s adherence to disciplined structure, while allowing creative teams their freedom, created a space for spontaneous brilliance. Levy identified that thriving required finding the harmony between art and bureaucracy, creativity and practicality, visionary thinking and financial responsibility – all elements embodied by Pixar’s four-pillar strategy.

This harmony within Pixar established it as not just an entertainment company but a model for fostering innovation in any field.

Examples

• Levy’s post-Pixar study of the Middle Way and its alignment with Pixar’s operations.
• Pixar balancing creative freedom with reliable financial frameworks.
• The alignment of storytelling with disciplined production schedules.

Takeaways

1. Use creative freedom as a competitive advantage, but pair it with clear business direction for support.
2. Invest in talent and create spaces that nurture innovation, as creative teams are the backbone of transformative work.
3. Look for balance in decision-making, finding harmony between vision-driven aspirations and practical constraints.