Steve Jobs turned Pixar's talent advantage into $7.4B

Read time: 4 minutes

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In today's issue, we cover how Steve Jobs was fired from Apple and his investments lost him millions each month. One thing saved him: animated films.

Jobs was running out of money until he found his competitive advantage. We'll explain how he found his advantage and how you can too.

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Steve Jobs is fired from Apple

It's 1985.

Steve got in a fight with the Apple CEO, John Sculley, over pricing. Both men are hard-headed so the fight escalates to point where John demands that the board vote to remove John or Steve.

Steve Jobs is fired.

The board's decision makes him angry so he takes a few Apple employees and begins his own computer company NeXT. NeXT is a powerful computer, but it has poor graphics which makes it hard to sell.

Then, George Lucas, director of Star Wars, announces he's selling his graphics team. Jobs quickly realizes this the opportunity NeXT needs to improve their computer and make customers line up to buy them.

Jobs buys the business from George for $10M. "Pixar" is born.

Pixar's business model

There's no computer as powerful in creating graphics as the Pixar computer.

But it's high-priced and designers are afraid the computer would replace them. People aren't buying.

Pixar is failing.

Steve Jobs funds Pixar with his own personal money to keep the company afloat. He's losing millions each month.

If this continues, Pixar will go bankrupt. 40 employees will lose their livelihood.

Jobs has to save his team, but he doesn't know how. Everything he tries, fails.

Why not make films ourselves?

John Lasseter, the Chief Creative Officer, approaches Jobs with an idea:

In 1988, John used Pixar's animation tech to make his own animated short film. The film, "Tin Toy," became the first animated film to win an Oscar. Check out the 5-min film below:

Pixar had the best animation technology and Oscar-winning talent, but they sell the technology to other studios.

John proposes: Why not make animated films themselves?

Jobs is desperate to save the company. He agrees to give it a try.

Pixar begins making films

Jobs sells the hardware business for $2M and goes all in on animated short films and commercials.

It's a big risk to completely transform their business model, but they need to make money. FAST.

So Jobs negotiates with the biggest studio he can get in front of: Disney.

Then, a miracle. Disney sees the potential in animated films and feels the talent at Pixar gives them a competitive advantage.

They win a $26M contract to produce 3 feature-length animated films.

Jobs raises the stakes

But... despite winning a massive contract with Disney, money is still running out.

Jobs needs a second miracle to keep the company afloat.

So he raises the stakes on their first movie with Disney. He publicly announces he will sell part of Pixar in an IPO, right after launching their first movie.

The announcement puts tremendous pressure on the team to make their first movie a success. If the movie does well, Pixar would IPO at a high valuation and they can keep their jobs.

If the movie doesn't? Pixar might not work out.

Pixar launches their first movie

The weekend of the movie launch arrives.

The Pixar team huddles together to see the results of their late nights and weekends. Wondering if they'll be able to keep producing the animated films they love.

The results are in.

Their first movie is a massive success. Toy Story makes $30M in its first weekend.

The weekend boosted Pixar to a $1.5B valuation and made them the best animation studio on the planet. Disney eventually buys Pixar for $7.4B.

Jobs is now a billionaire.

So how did Pixar go from near failure to a $7.4B studio?

At the point of near failure - John Lasseter approached Jobs with a proposal. The two realize Pixar has a talent advantage over all other studios.

Having an asset that provides exceptional returns and no other company has access to, is a competitive advantage called a "Cornered Resource." It's one of the 7 competitive advantages from Hamilton Helmer's 7 Powers (all 7 Powers listed below):

In Pixar's case - they won with talent. They had the best animator (Oscar-winning John Lasseter) and business mogul (Steve Jobs).

Other studios weren't able to get such exceptional business and animation talent which gave Pixar an advantage with the best content and business deals.

How to find your cornered resource

Your advantage is only a cornered resource if:

• You continue to get the resource - Pixar continued to get exceptional directors, not just a one-time talent acquisition

• You're able to capture the value - Pixar paid a lot for their directors, but their value greatly outperformed what Pixar paid

• The value is transferrable - If Pixar talent went to other companies, expect the new companies to capture the value. If not, the advantage is not isolated to that resource

You need to isolate the resource as a source of your competitive advantage. If you can't isolate one resource (e.g., your ability to get talent), it's likely not a Cornered Resource.

Other examples of possible cornered resources include:• Exclusive partnerships• Proprietary insights• Proprietary data• Patents

It's critical to have a competitive advantage to grow quickly and ensure competitors don't steal your customers. Think through your business. Do you have a cornered resource?

If you do, think about how you can focus on the resource to drive returns.

If you don't, we'll get into other possible competitive advantages in a later issue.

If you want help creating a competitive advantage:

Reply to this email with "I'd love help with my growth" and I'll point you to resources to help.

I read every email and will answer your questions in future content.

See you again next week! 👋

Brian

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