This is a story about plans and expectations gone horribly wrong. It’s also a very human business story.
The Innovator’s Dilemma has been tech industry gospel for 27 years. A company invents a very successful product. It comes to see the world through the lens of what it has built, missing competitors coming up with something new and cheaper. The company is dependent on the cash flow from its once-revolutionary widget. Disaster looms.
The Innovator’s Dilemma is a good business analysis; it is also a very human story. We’re born into this world, and in our younger years we figure out a method of how it works, which we tend to stick with, even when it’s clearly no longer the best way to live. For “cash flow,” substitute “history.” We’re all prisoners, and it’s hard to break out from doing this time.
I’ve seen it in action. In 2003 I wrote the first big cover story on Google, and their revolutionary internet search engine. I called Microsoft for months seeking comment. Eventually they put someone from Microsoft Research on the phone - to talk about desktop search! They’ve since become more savvy, but at the time they couldn’t imagine a world which did not center on the Windows desktop (Ray Ozzie deserves credit for his 2010 memo about that.) Similarly, while I was speaking to Motorola in 1996, the execs had a good laugh about Nokia’s cheap consumer cell phones, nothing like their cool $2000 flip phones ($3730 in today’s dollars.) That part of Motorola’s business is long gone.
In 2015, though, I heard an amazing story that added another human dimension to this surefire analysis. I was writing about Kodak for The New York Times, and spoke with a longtime senior executive.
For decades, Kodak was Apple, Microsoft, Google, you name it. Its cameras and its yellow boxes of film were global icons. People from around the world shipped their film to Kodak’s Rochester, NY, campus to be developed; their revolutionary technology encoded your memories.
Rochester boomed like Apple, for decades. George Eastman, Kodak’s founder, developed his own work calendar. The headquarters contained a railhead to ship film more efficiently. A company theater ran movies, and circuses performed during lunch hour. Ahead of Kodak’s annual bonuses car dealerships stocked up and bars stayed open all hours.
How could it ever stop? Oh, you know the answer.
Digital killed Kodak, right? Although Kodak actually made the first digital sensor (for a Nikon camera), it couldn’t get off its addiction to the cash flow from chemical process film fast enough to beat the cheap digital upstarts. Classic Innovator’s Dilemma, right?
Wrong, he told me. Of course they knew digital would overtake film. Of course they knew this meant transitioning from a chemicals business to a physics business. Yes, they knew they were prisoners of their cash flow, but in 2000 they had a plan to ease from one business to the other. They were managing cash and costs, shutting down buildings in Rochester, and increasing their investments and returns from digital cameras, building out a quality brand.
Then 9/11 happened.
“For six months, no one was happy," the executive told me. "They canceled weddings, they didn't go on vacation, they avoided going to theme parks.”
“People photograph happiness. There wasn’t any," he said. No one wants to look back on memories of the time they were sad.
Then, once things started to open up, the TSA installed stronger X-Ray machines at airports. There was a lot of concern, mostly unfounded, that these machines would fry chemical film. People transitioned over to digital cameras far faster than planned.
Film sales collapsed. Goodbye cash flow. So long, careful plan. By the time smartphones took out digital cameras with a new, software-based way to capture happiness, it was well over for Kodak.
I had this conversation in an old, ill-lit room on a campus where over 40 buildings had been blown up. Employment at Kodak had fallen over 95% from its peak. Kodak has been through bankruptcy, and for a time the company tried a bitcoin gimmick, but nothing was the same.
No one photographs their sadness. And sometimes fate is as powerful as any Innovator’s Dilemma.
Or, in the words of that philosopher of history and business, Mike Tyson, "Everybody's got a plan until they get punched in the face."
They did all the right things. They acquired Ofoto in 2002 or thereabouts and the first acquisition call we got at Flickr was from Kodak.
Kodak theme at Disney EPCOT: “Making Memories” was a very h(s)appy experience. The cash flow collapse you describe is spot-on. The happiness industry experienced a deep recession after 911.