culture x business = breakthrough creativity

By Anne Bindels, Jeroen Geelhoed & Eline de Jonge – 2018

What happens when the greatest computer experts and the most genius storytellers come together? Pixar.

Pixar has gone down in history as one of the most innovative entertainment companies of

the world. They are the primary example of a sustainable, creative culture and serve as an

inspiration for many. Not just in the creative corner, as they also inspire with their strategic

choices and their culture. In this article we will look into the world of Pixar through the eyes

of Lawrence Levy, the former CFO of Pixar, and Ed Catmull, the current president of Disney

and Pixar. We will do this by analyzing their business strategy in different phases, starting in

1986 up until now. Subsequently, we will zoom in on the way Pixar built and maintained a

sustainable creative culture.

BUSINESS STRATEGY

The computer hardware company 1986 - 1991Pixar did not start out as an entertainment company. The company started out as a spin-off from Lucasfilm, and

Steve Jobs saw a lot of potential in that spin-off. He envisioned Pixar as the hardware company for the highest

quality imaging computers. He paid $5 million dollars for the company and additionally invested $5 million

dollars, to be able to transform the company into the leading hardware company for imaging computers.

To make it a successful company, computers had to be sold. Unfortunately, this was quite a struggle for Pixar’s

employees. While brilliant technicians and genius creatives were working under supervision of Ed Catmull, there

weren’t any salesman among them. Besides this, the Pixar Imaging Computer was very expensive, hence only

the largest companies who wanted the best quality, could afford such a system. There weren’t many of them.

Nevertheless, the visionary and stubborn Steve Jobs did not give up. Simultaneously, he started allowing his

designers and storytellers to develop other material (i.e. commercials) and could see its positive effects. In addi-

tion, Pixar wrote a graphic system for Disney, in which special effects for movies could be made.

A deal with Disney 1991All this time, Pixar did not make any profit. During these years, Jobs put around $54 million dollars in the compa-

ny from his own pocket. Obviously, he was not very happy about this and so he tried to sell the company sever-

al times between 1989 and 1991. But then Disney made a proposition that Jobs could not refuse. Disney, being

an experienced entertainment giant, saw Pixar’s strength: creating computer animations. Therefore, Disney pro-

posed a three-picture-deal: Pixar would create three computer animated feature films. Disney would own these

films and be responsible for production costs and distribution, while Pixar would get a part of the profit. This was

an offer that Jobs could not refuse.

And so it happened that Disney and Pixar started a long and intensive partnership. The making of a computer

animated film would take about four years. Worldwide, nobody else had ever tried creating such a film, and thus

nobody knew if this would be successful. It was as if Pixar jumped out of an airplane without knowing if there

was a parachute in the backpack. However, John Lasseter, the creative lead, already had a story in mind.

The making of… 1991 - 1995It would be a story about a group of toys that would come alive when their owner, Andy, was out of sight. Andy’s

favorite toy was cowboy Woody. When action figure Buzz Lightyear was added to the group, Woody nearly lost

his position as favorite toy and of course this caused rivalry between the two figures. We now all know this story

as Toy Story.

What made this film special, is that prior to its creation, nobody had ever made a computer animated feature

film. In addition, a film about a group of toys had never been made, let alone a group of toys that would come

to life. When Lawrence Levy joined Pixar as CFO in 1995, he was astonished: ‘They’re doing work that no one

has ever seen before’. He was not just referring to the story the story, but also the artistry and dedication he

witnessed. For four years, the employees of Pixar worked inexhaustibly hard to create the first computer ani-

mated film ever. It existed of thousands of images per minute, which all had to be drawn by hand. A complete

film exists of more than one hundred thousand separate images, that had to come together to create Toy Story.

Before this film, Pixar had already created Renderman, an important and successful graphics software program.

This program created a fluent image overflow, which was patented by Pixar, with its motion-blur technology. By

making Toy Story, Pixar showed not to be afraid to take risks to realize breakthroughs, and this turned out to be

a gigantic success.

The way to financial health: a double business model 1995However, before this point was reached, Pixar had to become a financially healthy company. Because even

though the company finally focused on their core qualities, they still generated huge losses. The next proper

earnings were expected to come in at the end of 1995, when Toy Story would premier. However, even when

this would turn out to be a huge success, it would only generate a fraction of the revenue that was needed to

become financially healthy. Therefore, Levy was brought into the company by Jobs. It soon became clear to him

that he, as ‘Steve’s guy’, started out one step behind. It became clear to him that they wanted Jobs to be as far

away from his own company as possible. ‘Steve doesn’t get us. We’re artsy and creative. We’re like a family.

We hug. And we’re not a top-down organization; everyone here has a voice.’

During 1995, Levy explored all the options to create a financially viable Pixar. He decided to stop the distribution

of the relatively cheap software program Renderman, and started a license fee plan for the patent on Pixar’s

created motion-blur technology. This was a successful start. Silicon Graphics and Microsoft were each prepared

to pay over $6.5 million dollar. The first step was accomplished.

At the same time, Jobs put Levy under pressure to undertake an Initial Public Offering(IPO) for

Pixar. Jobs had wanted to take Pixar public years ago, as this would have meant a comeback

in the tech world after he had forcedly left Apple’s stage. Nevertheless, Levy insisted on letting

Pixar prove its value to the outside world first. Because even though everybody who visited

Pixar could clearly see its special organizational structure and innovative, creative and informal

character, its overall success remained to be seen.

D-day November 1995And successful it was indeed! At the end of November 1995 Toy Story came out, and the ex-

tremely well visited openings weekend was an indicator for its status as most successful anima-

tion film ever. It was a promising factor for the IPO, which was planned several days later. At the

IPO the value of the 6.9 million shares was set at $22 per share. An average IPO at that time had a value of $12

(per share) and at the end of the first day the shares skyrocketed to the value of $39 per share. At this point, the

value of Pixar was $1.5 billion dollars and brand new billionaire Jobs was back in business.

Finally, this also meant approval for all the people who worked at Pixar from the very start. When Jobs bought

it as a spin-off of Lucasfilm, he promised everybody stock options. However as time went by and that moment

never came, people turned angry, as he did not keep his promise. Nonetheless, ten years later the moment was

finally there, and Pixar’s loyal employees were greatly rewarded.

It was the start of a bright future. Employees finally received validation for their artsy and innovative qualities and

were rewarded for their perseverance. Everybody was in a cheerful mood and got to work on their next film,

‘A Bug’s Life’, with new energy. However, profit margins were still very low. Levy had calculated that in case of

another successful movie such as Toy Story, Pixar would again receive only 10% of the profit. And this 10% was

way too little. Not only because the costs could not be covered, but also because this 10% did not do justice to

the high quality of work that had been delivered.

In discussion with Disney for a better revenue model 1995 - 1997The Toy Story success gave Pixar leverage to challenge their initial deal with Disney. Pixar received little finan-

cial advantage from the deal, while they had proven themselves to be a master in storytelling and computer

animations. Nonetheless, Disney took all the credit. Jobs and Levy listed all

the arguments for Pixar to revise the deal and all the arguments for Disney to

keep the deal (see table 1 below). They called Disney’s CEO Michael Eis-

ner and told him they wanted to discuss the deal. The negotiations started

smoothly, but went south when no agreement could be made on one of the

thousand details from the new contract. Jobs and Levy were not willing to give

in, as they thought that Pixar earned to finally get what they deserved. Eisner

did not agree and the deal was off.

Disney Pixar

No obligation to change contract IPO $ to pay for productions

Can invest in computer animation themselves Toy Story was a big success

Other Pixar options inferior Dreamworks is a threat to Disney

Pixar only one hit Better deal if we wait

Animation might be losing priority

Tabel 1. Arguments of Disney and Pixar to respectively keep and renew the current contract

Meanwhile, everybody at Pixar worked hard for the next film. As the organization had proven itself to be talent-

ed, not only to the outside world but also to themselves, the plan was to create films in 18 months instead of four

years. This meant an explosive growth of employees: Pixar grew four times as big. And this growth challenged

the beloved Pixar culture. There was a small group of people that worked at Pixar before it was detached from

Lucasfilm. All these new employees resulted in a mixed group of people. Thus, the Pixar dinosaurs, had to wel-

come a gigantic group of newbies.

What was new for everyone, was the fact that multiple films had to be created simultaneously. This meant quick-

er production and decision-making processes. At entertainment companies, it was common that the manage-

ment team had a great say in storylines, character choices etc. Even when they did not

come from the entertainment world. This created a devious process, which was precisely

something Pixar did not need. Besides this, Pixar had the most experienced storytellers

and animators on board. To grow the company, it was decided that the decisions on the

creative side would be taken by the creatives. No exceptions. Hence, even when the

creatives wanted to carry out a crazy idea (e.g. to create a film without text about a silent

robot) the management team was not allowed to intervene. Everybody promised to be-

lieve in the process.

A new deal with Disney 1997 - 2006Just when the top of Pixar had given up on signing a new deal with Disney, Eisner called: ‘Let’s get the deal

done.’ He gave in! The new contract promised recognition for Pixar and as for Disney, a company like Pixar

was very valuable. Eisner signed a contract that stated that Disney and Pixar would share the profit of the films

50/50, and Pixar would become a brand in itself: at the bottom of each film it would now say Disney • Pixar. It

was the start of a productive period in which Pixar would finally profit of its achievements.

During this fruitful collaboration, in which both parties thrived, films like Finding Nemo and Monsters Inc. came

out. The value of the Pixar shares kept rising. Levy, by that time no longer the CFO but still member of the advi-

sors board, expressed his concerns about the possible overvaluation of Pixar to Jobs. He gave him two possi-

bilities: merge with another party, or sell. Jobs choose the latter. And thus Pixar was sold on the 25th of January

2006 for $7.4 billion dollars to Disney.

CULTURE

The secret to creating such a successful company, is not only Pixar’s strategy but also its culture.

Ed Catmull, current president of Pixar and Disney animation studios, started his career as a computer scientist.

From a young age, he was a big fan of animations, and during his computer sciences studies his audacious goal

became apparent: he would combine the computer world with the animation world. How? That question had yet

to be answered.

Via several detours, Lucasfilm crossed his path, from which, Jobs bought Pixar as a spinoff. Pixar was led by

Catmull and Lasseter Catmull was a man of technology, and Lasseter was the storyteller. What happened in the

following years, has already been explained in the prior section. However, even though Pixar was a rising star

full with positive vibes, since Toy Story and A Bug’s Life, Catmull’s mood was less optimistic. And after some

time, the reason became clear to him: he had accomplished is life long mission. He successfully integrated tech-

nology with the entertainment business by creating computer animated films. ‘So that’s it?’ he asked himself.

He was aware of the fact that all the employees at Pixar, particularly when close to deadlines of new films,

had worked extremely hard in the past years. They gave up on their family time, worked late nights to get the

smallest details, such as the structure of a leaf on the tree as realistic as possible, and gave each other constant

feedback to be able to be the best they could be. Ceaselessly, and without complaining. He had seen to what

successes this had led, but also which struggles occurred. He started to realize that he had a strong passion

for the culture of Pixar and specifically for the question on how he could keep and strengthen the company’s

creativity. Catmull decided to make this his new audacious goal: ‘figuring out how to build a sustainable creative

culture.’ From that moment on, he mapped out the following as the key factors of the success of Pixar.

Learning from own experiencesOne of the basic elements in the process of making a film, is evaluating the lessons learned

during the creation. This happens after the film is created and is a little more difficult than it

seems. After creating the film it is fairly easy to give in to the euphoria, pride, and resignation

that prevails. Leaders rather give compliments than focus on what went wrong. On the other

hand, deadlines for coming movies move up close, hence everybody is automatically forced to look forward.

Focusing on a process from the past is therefore a challenge, but nonetheless essential for a learning organiza-

tion. Catmull calls these evaluation ‘postmortems.’ The key here is to draw lessons from what went wrong or did

not go as planned, and while people generally don’t like this, they simultaneously realize how much this could

help them. An interesting detail is that during postmortems, the focus is more on what failed and less on what

worked. Because Pixar does not see success as a cue to repeat the action. In fact, next time they are highly

likely to do something else. If this goes wrong, at least a lesson is learned.

Candor is kingTo have a successful postmortem, people have to feel as if they are in a safe surrounding where they are able

to say whatever they think to whomever it may concern. Honesty is highly valued, but this is only effective when

people dare to speak up. To anyone. In Pixar, giving feedback is common and respected. Feedback is neces-

sary to improve, not as a person, but as a company. People know that direct feedback is aimed at improving

the film and not to put a person down. The only way high quality feedback can be given is when people are

honest, sincere and speak their mind. ‘Honesty is not enough – candor is.’ A valuable word that puts all these

qualities together is ‘candor’. At Pixar candor is king. Put your personal issues aside, focus on the product and

listen to people from all levels of the organization. It is important to keep in mind that decision making hierarchy

and communication structure are two different things. In addition, Pixar works with ‘braintrust’, a group of internal

advisors who can be asked for help when someone is stuck on a story or a character. This group, often the most

experienced creatives of the organization, is faced with a specific question and gives advice. This meeting

often entails heated discussions, in which candor is the most important value: everything to improve the film. In-

teresting detail: the party that asks for the braintrust’s help decides whatever it wants to do with it. And so it may

happen that a young director is stuck on a character of a film, asked the braintrust for advice, and subsequently

decides to do the contrary.

Extremely committedPeople at Pixar are extremely committed. They could not do their difficult, patience testing, intensive work if

they would not be involved. At the same time, it is this work that makes them so committed. Employees know

that they can move mountains together and feel very responsible as an individual, but even more so united, as

to what they can achieve. Only the people with a huge passion for animation, technology, the entertainment

world, films or stories, are able to do this job, and this passion is visible throughout the company. Just take a

look at any Pixar film. This dedication was strongly reflected during the making of Toy Story 2. A young director

got the job to lead the production, however, the process did not go as smoothly as hoped

for. About ten months before the deadline of the film, the company decide to pull the plug,

and start building the film from scratch again. Knowing that creating a film would take about

three to four years, this was an almost impossible decision. At the same time, it was a mo-

ment when everyone decided to go that extra mile and make peace with the fact that they

would have little family time the coming nine months. You can only imagine what an intense

period this was, a time where dedication was brought to a higher level.

One big familyThe feeling of being one big family is a consequence and at the same time a reason for

the way people work at Pixar. Some employees have worked together since the end of

the eighties. They have, so to speak, survived tornado’s together, and still managed to stay

together despite the setbacks and due to the successes. This is not something that the management team can

impose, but something that naturally arises. When Levy started at Pixar, one of his colleagues described it like

this: ‘We’re artsy and creative. We’re like a family. We hug. Everyone here has a voice.’ A family includes safety,

trust, openness, and togetherness. Interestingly this was one of the reasons why Jobs was not loved within the

company, especially in the first years, as he did not understand the family-like culture that existed in Pixar. And: a

common enemy creates even more solidarity.

Another example is the awe-of-the-institution-syndrome. New people are often intimidated by the achieve-

ments of their new company. That automatically puts them outside the community. To prevent this issue, Pixar

makes sure that all new hires will receive an elaborate introduction in which the management team explains

what big mistakes they made in the past. They explain what they learned from their mistakes, and how they act

differently now. They tell them that change is the only constant. It removes the invisible barrier between the

new hires and the settled employee and creates humanity and safety.

People before ideasPixar sees creativity as something different than the ability to create as many ideas as

possible. Many believe that creativity means making new things, to do something that

was none existing. However, creativity is the ability to solve difficult issues. In addition

there is a fundamental belief that success does not involve ideas, but people. Without

people problems cannot be solved, let alone in a superior way. Good people, people

with talent, are rare. And people need a certain environment to be able to deliver

good work. The job of management is not to prevent risk but to focus on the capability

to recover when something fails. This can be done by analyzing what is needed to

process setbacks in the right way and to facilitate people in the process. When you

support people in solving the issue of a problem and in being resilient, there is a good

chance for creative success.

Safe to experimentThis results in the following aspects of the Pixar culture: an environment where it is safe to experiment and take

on challenges. People have the feeling that it is beneficial to try things even though the result is unclear. Only

when you try, you will know if it works. You can only learn from experiences and not from ‘what if’ questions.

Catmull describes this in a fascinating way: ‘Always be a little scared. If you’re not scared, you’re not doing your

job.’ This means employees need to be willing to take risks and be particularly curious and courageous.

When such an experiment is a success, the outcome tastes even sweeter. People naturally have the tendency

to repeat successful stories. Pixar does not. As we have seen earlier: mistakes make for the best learning expe-

riences. When something has worked in a previous situation, at Pixar this mostly means it will not be repeated.

Above all, Pixar wants to prevent a ‘this is just the way we do it’ mindset.

Focus on creativity And why? Because this mindset would exist at the expense of creativity. To make a creative company flourish, it

is important to be aware of what exactly fosters creativity and what does not. For example, it is very important to

share work in an early stage, as this enables people to improve each other’s work. This does not only improve

speed of work, it also enables people to find connections they did not see before. The

issue of this approach is that people often find it hard to share work in an early stadium.

They feel when something is not finished yet, it doesn’t appeal in a way it was initially

imagined, it is not good enough etc. When people feel this dissatisfaction towards their

work, it is necessary to move past this shame. When they take a leap forward, they can

let their imagination run wild.

Another way in which creativity can be promoted, is the arrangement and decoration of the working environ-

ment. The Pixar office is designed in such a way that coincidental meetings can happen everywhere. These

coincidental meetings can result in new insights and experiences. In addition, employees get the possibility to

design their work environment in a way that inspires them. This results in areas where some people work in

castle themed rooms and others have accessories of Dory (from Finding Nemo) on their desk. Everybody is

allowed to surround themselves with everything that inspires them and makes them more creative.

Combination of tech and artThe combination of technology and art is the essence of Pixar and the people that work at Pixar. The techno-

logical challenges of creating computer animations and the art in storytelling, unite under Pixar’s roof. Of course,

technical people have a different mindset that the more creative individuals. Yet, or maybe due to this fact, they

work very well together, and in addition all the previously discussed cultural elements help with this. Further-

more, besides the rare combination of real craftmanship, the integration of technology in the world of filmmaking

was not seen before Pixar’s implementation. Catmull’s goal, to combine his passion for computer sciences with

animation, proved to be greatly successful. An interesting detail is that the company always wants to use the

newest technologies for film making. And while the creation of new technologies is always paired with delays

and frustrations, it also results in the highest achievable quality. ‘

InnovationTo stay informed of the latest news in the world of tech, Pixar stays closely connected with the academic world.

The management team encourages scientific research and Pixar publishes articles in academic journals on a

regular basis. The connection with the academic world attracts very talented young people, and everybody is

aware of how scares talent is. In addition, Pixar has its own University. At Pixar University people from different

disciplines work together to learn from each other. This encourages people to see challenges as fun and

inspiring, and lets them experience the feeling of moving mountains together.

No mediocrity Another reason for Pixar to stay informed about the latest technological developments, is that it wants to

implement these inventions right away. Pixar wants to be the best of the best. Mediocrity does not exist, which

means that sometimes painful decisions have to be made. An example is the earlier mentioned situation around

Toy Story 2. Only nine months before the deadline of the film, the creative leads decided that the film had to be

recreated. The film just was not good enough. Knowing that creating a new film would take about three to four

years, and that all the past work had to be put aside, it hurt. But it was necessary, and everyone understood that

a mediocre film was not good enough for Pixar. More importantly, good enough did not exist and was something

nobody in the company aspired. The company was praised for its technological magic and art of storytelling

for a reason. And so, after the restart nine months before the deadline, Toy Story 2 became the second highest

profitable animation film ever.

Key lessonsWhat can we learn from Pixar? A better question would be: what couldn’t we learn from Pixar?

As this would be a fairly short question to answer, we decided to summarize the seven most important

lessons of Pixar:

➊ Create a double business model. The profit of your side business can finance your core business,

especially in the startup phase;

➋ Focus on your core qualities. Practice what you are extremely good at and don’t get distracted;

➌ Find a partner. You can focus on what you are good at, your partner focusses on ‘the rest’. This deal should

be profitable for both parties;

➍ Learn from your own experiences. Take your time to revise and evaluate, and do this in a group;

➎ Create a safe and open environment. People will be genuine and feel more comfortable

at a place that feels like home. A distinction between communication structures and the

hierarchy of decision making can contribute;

➏ Dare to take risks. If it benefits the quality of the work, you sometimes have to take

big risks;

➐ Use the brainpower and creativity of the smartest people in your organization.

Use this braintrust as an independent internal consultant and make sure that all levels

of the organization have access to it.

Note: At the time of writing this journal, John Lasseter got involved with the #MeToo discussion. He withdraws

himself temporarily from his function after accusations of wrongful behavior towards colleagues.

(source: NOS, november 2017)

APPENDIX

1. Facts and figures

Period 1: 1986 – 1991

Revenue model: Companies buy Pixar Imaging Computer

Revenue 1990: $ 3.4 M

Net. income 1990: $-8.3 M

Period 2: 1991 – June 1995

Revenue model: Pixar supplies 3 animation films to Disney within 12 years

Companies buy the software program Renderman

Revenue 1994: $ 5.6 M

Net. income 1994: $-2.4 M

Period 3: June 1995 – November 1995

Revenue model: Pixar supplies 3 animation films to Disney within 12 years

Microsoft and Silicon Graphics both pay $6.5 million dollars for the Renderman license

Revenue 1995: $ 10.6 M

Net. income 1995: $ 3.1 M

Period 4: November 1995 – February 1997

Revenue model: See period 3, but then more rapid film making

Revenue 1996: $ 38.2 M

Net. income 1996: $ 25.3 M

Period 5: February 1997 – January 2006

Revenue model: Pixar produces films with Disney as the distributor with 50/50 profit

Revenue 2005: $ 289 M

Net. income 2005: $ 152.9 M

2. Leadership team

Steve Jobs• Wants to sell Pixar

• Does not really value the core qualities

of Pixar

• Asks Levy for help

• Sees potential in Pixar

• Wants Pixar to be a hardware company

Lawrence Levy• Asked for strategic help by Jobs

• In awe by artistry of Pixar

• Did not know what he got himself into

• Is the yin to Jobs’ yang

Ed Catmull• Has a PhD in computer science

• Is critical towards Steve Jobs

• Dreamed about making a

computer animated film since he was a

student

• Has to redefine his purpose after Toy

Story into ‘figuring out how to build a

sustainable creative culture’

John Lasseter• Is the creative brain

• Was laid off by Disney early in his

career

• Is in charge of the stories Pixar wants

to tell

• Likes to dress in the theme of the film

he works on