Pixar went from a scrappy startup to a proven leader in the entertainment industry, producing Toy Story, A Bug’s Life, Finding Nemo and other animated megahits. One of the men tasked with building the company and taking it public was Lawrence Levy, whom Steve Jobs invited on board to serve as chief financial officer. Jobs had purchased a computer graphics operation from filmmaker George Lucas in the mid-1990s and re-imagined it as Pixar. Levy writes about his experiences with Jobs and the company in his book, To Pixar and Beyond: My Unlikely Journey With Steve Jobs to Make Entertainment History. He recently appeared on the Knowledge at Wharton show, part of Wharton Business Radio on SiriusXM channel 111 to talk about what he learned along that journey.
An edited transcript of the conversation follows.
Knowledge at Wharton: What made Pixar work so well at the outset and got this company going?
Lawrence Levy: Well, that took a while. At the outset, they were honing this creative process and honing their technology over a long period of time, but it had never really come together. They had tried to make different products, different technologies, so they were like an amazing technology without a market. That was what I found when I started there.
Knowledge at Wharton: The company was really struggling at the start?
Levy: The company had basically burnt through $50 million of investment, and when I arrived there in early 1995, the shortfall in the monthly payroll was being paid out of Steve Jobs’ personal checkbook. That’s a company that was struggling, certainly financially.
Knowledge at Wharton: Pixar has transformed the industry, wouldn’t you agree? We’re at a point now that if we don’t see five animated films a year coming out of Hollywood, then it’s a down year?
“When I arrived there in early 1995, the shortfall in the monthly payroll was being paid out of Steve Jobs’ personal checkbook.”
Levy: I do, I think so. I liken Pixar to what the Disney company did in the late 1930s, early 1940s, where they transformed film and entertainment with traditional animated feature films. Pixar did it again by transforming the whole field of animated feature films by using the medium of computer animation to tell new kinds of stories.
Knowledge at Wharton: What did you learned from working there that you still carry in your professional or personal life?
Levy: I worked there in different capacities for about 12 years. There were many lessons. I will give you one example. When I got to Pixar, I am fearful as business person because I see these films are taking four, four-and-a-half years to make. I’m like, “My goodness me, we better shorten that. Let’s make these films in three years,” and that’s a way to increase our profitability. I had the feeling that we should shorten the cycle. By the time I left Pixar, I was like, “I have no idea how we can get one of these made in four years.” The reason for that is how much the creative process takes. I learned a whole different kind of respect for what it takes to do great work and how long it takes and that you can’t rush it.
Knowledge at Wharton: Steve Jobs wasn’t that present within the company when you joined. This was post-first run with Apple and before that secondary run with Apple, correct?
Levy: That’s correct. This is one of the challenges that we faced because he was a little like an absentee landlord. He owned the company, but he was never there at the company. The company had built its own kind of culture, and they had quite a lot of fears about what he might do if he became more involved.
“Nobody understood Pixar as an entertainment company, not even Pixar.”
Knowledge at Wharton: Toy Story started something for this company. But there had to be something within Pixar, not just the films, that really turned this entity around and got it rolling.
Levy: There were a few things. First of all, it was focusing the company. When I got there, it was doing a whole bunch of different things: selling software, selling animated commercials, developing short films and making a feature film. One thing that it did was drop everything and focus only on the feature films. Then, it was basically the coming together. Making these kinds of products requires all kinds of different forces. Creative, technical, business production. Pixar mastered the art of harmonizing all of those different forces so that they function together instead of against each other.
Knowledge at Wharton: The company is a subsidiary of Walt Disney Pictures. The relationship with Disney was there pretty much throughout, correct?
Levy: Yes. The relationship with Disney was on two levels. It was really interesting. On the creative level, it was a great relationship. The collaboration between the story tellers at Pixar and their mentors at Disney in the early days was great. But at the business level, the level of the contract and the agreement, there was a lot of tension in the relationship. So, we had this multi-leveled kind of relationship to manage.
Knowledge at Wharton: In terms of deciding to put the company public, what were the challenges that you faced as CFO. Pixar was in an industry that didn’t understand what the company was trying to do, correct?
Levy: That’s right, and there were several challenges. Nobody understood Pixar as an entertainment company, not even Pixar, by the way. That was a sort of a change that had to happen throughout. And nobody really ever successfully created an independent animated feature film company. Even Disney over the years had long, long ago diversified away from just animation. The third problem is that the nice, smooth curve of growth that investors like to see in the animation business just isn’t likely to be there. It’s a very up-and-down kind of revenue stream. You have to get Wall Street and investors accustomed to that.
Knowledge at Wharton: Even with the success of Toy Story, there had to be apprehension about whether Pixar would be able to pull off a next great film?
Levy: Oh, there was. There was a huge amount of speculation. The release of Toy Story was an amazing moment, but it was the release of A Bug’s Life, which is Pixar’s second film and a big hit. Sometimes it gets forgotten about a little bit because that’s the film that kind of showed that we could do it again.
Knowledge at Wharton: If you think about the scope of all of the films Pixar has done, A Bug’s Life may be down on the list.
Levy: In terms of maybe pure box office commercial, maybe it doesn’t get as much play as Nemo or The Incredibles. But in the history of the company, it was a moment when you could say, “Hey, we’ve done this twice now. There’s something really serious going on here.”
Knowledge at Wharton: You said the production schedule was something that you were nervous about in the early days. “Good things happen to those who wait” is the old line. You had to believe that because you weren’t of that philosophy, were you?
Levy: No, I wasn’t. One of the things I worried about all the time was whether the business pressures would stifle the creativity within the company. The production schedule is a great example of that. It comes down to how often are you going to try to release films? I felt we ought to try to release one film a year, and at the time that I joined, it was like one film every four years. After a while, I realized that was going to put just too much pressure on the creative teams. So, we settled at first with one film every two years, and then we moved to every 18 months. Those kinds of decisions were pivotal to what we were doing.
“Pixar took very seriously the notion that family entertainment means that everyone in the family is entertained.”
Knowledge at Wharton: Dealing with a creative team was also a unique process for you. In the traditional movie industry, you have your director and producer and other people around the production itself. But once the film stops shooting, they’re off the books. They don’t have to be paid anymore. A creative team has to be paid no matter whether they’re working on a project or not
Levy: Yes, that’s right. At least within that industry, this issue is called the “carrying cost issue.” It’s the cost of carrying your creative and production teams, even when they’re not making a film. This can get extraordinarily expensive. A lot of thought went into how do we navigate that, because we knew we had to keep these people onboard. It was a combination of things. Pixar did continue to make short films because it wanted to train new production crews and new directors, so that’s one thing that was happening. We learned how to put films into staggered production schedules so that you would slowly increase the size of the crew on a film. Through that kind of jockeying, we were able to navigate those carrying cost challenges.
Knowledge at Wharton: When did the decision for Pixar to sell to Disney come about?
Levy: It came about in that 2005-time period, and it was a product of Pixar’s success. Its stock price had skyrocketed. There was a great danger that even a small slip could cause a huge decline in its stock. That’s a moment when a company would normally think about either using that high price stock as a currency to acquire other companies or to go into a more diversified company and sort of spread the risk of that. That was the initial impetus for that acquisition.
Knowledge at Wharton: You went to have a conversation with Steve Jobs about this specific fact. To a degree, he beat you to the punch in terms of deciding this was the way to go.
Levy: Yes, when I went to him with that conversation, it was a kind of easy conversation. We were both in a very similar place. It coincided with Bob Iger taking over the helm at Disney. It became an easy step to say, “Let’s go find out where he’s at in terms of the future of animation within the Disney company.”
Knowledge at Wharton: How big of a shift has this company and animation in general been for the film industry? Animation became a disruptor, didn’t it?
Levy: It did. The animated feature films that Pixar was making became these franchise films, where they were generating revenues not just from the box office but from all of these ancillary revenue streams associated with that. Whether it be video, DVD, toys, TV, merchandise, theme parks. We see a lot of that today, where the studios are investing in branded franchises, like from the comic books and things like that. They are like a juggernaut of generating revenue on multiple different channels. The Pixar films, in many ways, sort of paved the way for that.
It also fills the niche of family entertainment. Pixar took very seriously the notion that family entertainment means that everyone in the family is entertained. It doesn’t mean you can take your kids to see a film. It means you want to go, as well. It’s the greatest compliment at Pixar when a grandparent says, “I took my whole family to see the film, and everyone loved it.” Then Pixar is like, “Yeah, that’s exactly what we tried to do.”
Knowledge at Wharton: With all of the successful films that this company had made, how much of a concern was there of failure?
Levy: There is always that concern. I don’t think any single film ever feels like it’s easier than the previous one. Every film has its challenges, has its crises. I think what Pixar did over and over again was never rest on its laurels. Never did it think that, “Oh, we’ve got this down.” Every time Pixar made a film, no matter how successful it was, it would go back and review all the things that went wrong and see what could be learned from it. And every time it came to a new project, it would never let up on the sort of discipline that it took to make a film.
Knowledge at Wharton: What were the most important things that you learned coming into the industry?
Levy: One of the things that I really honed and leaned at Pixar is that great work of any kind — whether it’s great creative work or great work in any industry or endeavor — requires this collaboration among competing forces. It’s the power to bring together all these disparate forces in a culture that allows for the right kind of collaboration. Great work, whether it’s films or otherwise, emerges from the right kind of culture.
Knowledge at Wharton: Is Pixar now, as part of the Disney entity, still as strong as it was before?
Levy: Yes, I would say it is. The reason for that is the key to that acquisition was the agreement that not only would Pixar not change, but that Disney would learn from Pixar. Disney animation would learn from and emulate, in some ways, what Pixar had done. You could say that the magic with Pixar not only grew from that acquisition, but it expanded. Now, we see the Disney animation unit producing these unbelievable films. In many ways, you could say it’s stronger than ever.
Knowledge at Wharton: With some of the properties that Disney has added to its repertoire over the last several years, including Star Wars and The Muppets, it’s an unbelievable opportunity for them to expand and build on what have been great franchises.
Levy: Absolutely. I like to think that Pixar had a lot to do with that because it was one of the first of those kind of acquisitions, and I think it showed the power in those. When you get the distribution and marketing capacity of a company like Disney and combine it with the creative genius and production capacity of a company like Pixar, then you really get an incredible result.
Knowledge at Wharton: It sounds like coming from your financial background and then being in the creative process changed your mindset?
Levy: It did change. An example of that was writing this book. When I came to write it, I had learned so much from Pixar that it really helped me. It helps me in all of the work that I do now because I have this understanding of this process of creation that I didn’t have as well before.
Knowledge at Wharton: How does it help in your personal life?
Levy: This is a journey that I took beyond Pixar to understand how these kinds of ideas play out in our personal lives. There are philosophies. I actually use Pixar as a metaphor for some of these philosophies. In my personal life, I am much more able now to balance these conflicting things.
Knowledge at Wharton: Toward the end of the book, you talk about this idea called the middle way. Is that what you’re talking about?
Levy: Yes. The middle way is a sort of ancient philosophy. In a nutshell, it says that there are two people inside of us: One is a bureaucrat who is focused on performance and functioning and getting things done, and the other is an artist or a free spirit that just wants to live and love and laugh and experience joy and life. If we get stuck in either of those places, we can suffer. Life is all about performance. If life is all about just being a free spirit, we might feel like we don’t have any momentum and be frustrated from that.
The middle way is about harmonizing these conflicting things within us. I could see eventually that Pixar was also about harmonizing these disparate forces. When we’re able to harmonize these things, whether they are in businesses or whether within ourselves, I think the quality of our work, the quality of our experience goes up.
“The thing about work/life balance is that it separates work from life. But when you’re at work, you are still alive.”
Knowledge at Wharton: That is something that has been a focus with a lot of companies right now. It falls into that work/life balance category, correct?
Levy: It does in a way. The thing about work/life balance is that it separates work from life. But when you’re at work, you are still alive. The philosophies, the tools that I’ve been studying — I think of them as sort of a technology of inner transformation. We’re really good at outer transformation. They allow us to bring a certain kind of spirit and energy and quality to everything we do. Work, life, everything.
Knowledge at Wharton: What are you doing now outside of the book?
Levy: I’m a co-founder of the Juniper Foundation, and we’ve been doing that for over 10 years. The goal of the Juniper Foundation is to bring transformative technologies — meditation and the like — from this ancient tradition into contemporary life. Our belief is that sometimes we get very stressed out by this relentless, one-dimensional, performance acquisition, at-all-cost orientation. This is work to try to help people find that kind of balance.
Knowledge at Wharton: Is that something that’s readily acceptable in Silicon Valley, where you live?
Levy: I would say so, but I find interest in it everywhere. People seem to have a high recognition of this problem. If you are living in one dimension, it can kind of get a little hollow sometimes. These are ways to open up another dimension in our lives, and we get resonance from it in all kinds of places.
Knowledge at Wharton: Is it still amazing when you look back at that first time you got that call from Steve Jobs to come and join him at Pixar?
Levy: Oh, yes. The whole thing, looking back, it’s completely amazing. It’s one reason I wrote this. I knew this was an amazing story. I’ve told it on again and off again over the years. Now you would think to yourself, “Wow, a call from Steve Jobs to run Pixar, that must be amazing?” But at that moment in time, Steve was kind of being written off as a has-been and no one knew what Pixar was. That’s why the first chapter in the book is called, “Why Would You Want to do That?” Because that’s what everybody said to me.
Knowledge at Wharton: What do you think about the life of Steve Jobs and what he did?
Levy: I think within the tech industry and the computer industry, Steve was a visionary like no other. When he went back to Apple, he gained a lot with his experience with Pixar. This is covered in the book as well. But one of those things was, he really understood the entertainment industry. By the time he went back, he had a longstanding vision of the computer industry. All of this came together in an exquisite way to produce all the products that we now know about. But in terms of being that kind of a visionary and thinker, he was the real deal.