Entrepreneurship · Startups

Why did Kodak fail and what can we all learn from it?

Sahedi Khan Internet Marketing Executive & Web Developer

November 23rd, 2016

Most are familiar with the fact that Kodak developed the first digital camera in the 70s, and then never followed up on it, eventually becoming bankrupt as film became obsolete.

My naive assumption is a bunch of 60+ executives with a 1950's mindset of "We're Kodak", and some junior execs proposed projects that were either ignored or ridiculed.

But I wonder, what really happened? What were they saying in the meetings while digital products were hitting the market? What can we as entrepreneurs learn from a story like Kodak's? Thanks for the participation.

Usarian Skiff CEO Ultra Notitia

November 23rd, 2016

Well, I'll tell you exactly why they failed.

My father worked there all through the 90's and I worked there for a few years in the early 2000's so I got the inside scoop for you right here.

First you have to understand WHAT Kodak is.

Eastman Kodak, in the 1990's, consisted of several plants around the country and some overseas. The biggest plant was located in Rochester NY and dubbed "Kodak Park". Kodak Park was shaped like an L, 7 miles lone one way, 3 miles long the other way. The oldest building in the palrk was built by founder George Eastman in 1888 and the rest of the park grew up around it.

Kodak Park was a chemical plant from the start. It's products were film (cellophane coated with a chemical emulsion) and paper. The Park was built to facilitate the efficient production of these products and featured over 600 buildings housing 100 year old well maintained steam driven machines, steam producing plants and steam handling systems, mostly located underground. As a chemical plant in the 1800's, before laws and popular opinion drew a moral line in the dirt against polluting, Kodak dumped massive amounts of waste for decades and is still to this day responsible for paying fines to teh state for this pollution - which is still leeching into the Genesee river and lake Ontario.

It's within this context that George Fisher came on the scene. He was Kodak's first ever CEO hired from outside the company. The day he started he made a speech in which he stated "digital will never surpass film".  The thinking at the time was that film has resolution based on molecules, digital based on mechanical sensors. Besides consumer cameras and film, Kodak was the main producer of many kinds of movie film and the government's proprietary (and secret) high speed and high resolution films. They had a lock on a market that was going nowhere. So while, yes, Fisher did make a feeble effort to lead in digital cameras and digital hosting and sharing as well as online digital photo processing-by-mail, he also amped up film to make sure it wasn't overtaken anytime soon by advances in digital imaging.

But the company's bread and butter was paper and film - consumables. There simply was no way for a company built on selling consumables to transition to selling quality irreplaceable products. They created digital cameras that were trash, making no effort whatsoever to compete with Canon or other camera manufacturers -- who still relied on Kodak to fill their pro quality cameras with pro quality film -- but rather to compete only with their own low quality film cameras by selling cheap gimmicky digital camera systems that broke easily.

It wasn't long before consumers started buying moderately priced quality digital cameras and then using their phones to capture images. There was no longer any kind of market at all for disposable film, paper, or cameras. Kodak, it turns out, was a flash in the pan, a relic of the 1900's having no other place in history.

John Turner Business Development Executive

November 23rd, 2016

I grew up in Rochester in the 70s and 80s...Kodak was a way of life there. Here is the simple, but true answer to your question... Kodak ALWAYS thought they were in the Film and Camera Making Business when actually, they were in the IMAGING Business. When the industry pivoted to digital imaging and cameras in everyone's hands for free (cell phones) they tried to compete with companies that knew they were in imaging, not hard good manufacturing. John W Turner Email :: turner.johnw@gmail.com Mobile :: 315.374.2770 LinkedIn :: tinyurl.com/turnerjohn

Dane Madsen Organizational and Operational Strategy Consultant

November 23rd, 2016

It is pretty well laid out in The Innovators Dilemma. It was not arrogance or ignorance; it is how big companies operate in a bubble. We like to use 20/20 hindsight to cast them as victims of their own incompetence, but the structure of large organizations is not conducive to innovation because of the need to justify expense. It is why we all have opportunity.

Dane Madsen Dane@DaneMadsen.com [removed to protect privacy] Mobile Sent from my mobile device. Forgive typographical and grammatical errors.

Gabor Nagy Founder / Chief architect at Skyline Robotics

November 23rd, 2016

Great posts. I agree that it's mostly the "Innovator's dilemma" effect.
As startup founders, we should be immensely grateful for this effect, as it is the primary reason that startups have any chance at all!
If it wasn't for the sluggish, 10-mile turn-radius nature of large corporations, small startups would never have a chance at beating these behemoths with their near infinite resources.

As another example: this is also why I'm skeptical about incumbent large carmakers ever successfully competing against Tesla.
They've been saying for a long time that "electric cars are just another 20 years off".
The have several decades invested in internal combustion engines. A lot of old-scool petrol-head execs are still parroting the old "gasoline cars will never go away" mantra.
Just like digital sensors will "never" have the resolution of film...
As if they were all following some script written by Kodak and all the other former behemoths.
Every EV they release screams "we don't really want to sell this thing, which is why we made it so ugly and slow. It's just a compliance car".
One car is more hideous than the other.
I'm part industrial designer, so I may be more "visually sensitive" than usual, but I literally can't look at some of these monstrosities, without getting a knot in my stomach.
And, they are surprised that Tesla sells more cars than Nissan sells the Leaf, even though it costs three times less.
There's no technical or business reason to do this.
As Elon Musk put it "it costs the same to stamp out the body panels for an ugly car, as for a good-looking one".

This Thanksgiving, we should give thanks to the behemoths, like Kodak, for sabotaging themselves into irrelevance, by stubbornly clinging to old technologies, and thus giving us, small startups a chance!
:)

Selvan Rajan

November 23rd, 2016

This will happen to any company, which has only one product. They used to have many products but sold one after another to become a single product company, which put them to extinction. For a company to survive for a long time, it has to come up with new products and/or services to have multi-revenue streams. Otherwise, they have to be the only one in the block offering such a product/service to the consumers.

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

November 23rd, 2016

Kodak intelligently spun off its chemical company a while back and Eastman Chemical still trades on the NYSE and has a market cap of about $12 billion.  The photography company could not keep up with technology. Kodak was considered a great place to work and had a reputation for treating its employees well.  It was old school that way and resisted sending jobs out of the US. That was the 1950's mindset of the 60+ year old executives you would be happy to work for.  Also Kodak's patents (it has a lot of them) still have value.  It was a company that had a new technology at its start which it exploited well for 120 years.  That is the lesson that you should take away.

Peter Kestenbaum Advisor, Investor, Mentor to Emerging firms

November 23rd, 2016

I was an exec with Sun Microsystems in those days and Kodak was one of our largest clients.. You pretty much got it right... We had many discussions with them about moving them into the digital age but the resistance from the film side was ingrained in their culture... they dabbled using our technology for prototypes like in store processing for camera shops and lots of other related efforts they thought would be cutting edge... the underlying thought process though was that digital would never have enough resolution to compete with film ( those initial cameras were 1Mega pixel and the future ... meaning 5 or 10 years out might get it to 2 or 4 ) and did you know how much storage you would need on a camera to hold 10 or 20 shots.. the camera would need an palm size board full of memory chips that would cost as much as a small car@! (well a bit of a stretch but you get the point). The world was just getting from floppy disc to CD. The CD was a major break thru.. from a financial standpoint the entire company margin was based on film and film processing so you know what the internal politics were too... Its not like we did not try... I remember one meeting with Scott McNealy then SUN CEO and one of their SVPs whose name escapes me... after the meeting Scott turns to me and says " they have no clue they will be out of business or irrelevent in 5 years".. Hey Scott was wrong... it was closer to 10 pk

Tom DiClemente Management Consulting | Interim CEO/COO | Coach

November 23rd, 2016

I think this would make a good research project for you! This is one of the best covered and documented stories of all time and there is a wealth of info from the very start of the company on the web!

John OHanlon Owner of Banks Printers

November 24th, 2016

there was a small Kodak factory that closed down near where i live and i was able to purchase some of their items in an auction. I have to say that the stuff i bought was in superb condition and I am still using some of it to this day (purchase was about 15 years ago) There is an old saying that you shouldnt carry all your eggs in one basket and this is what Kodak did to a large extent. Diversification is the key to success in today's rapidly changing world John O'Hanlon* Proffessor* *Banks Printers * John O'Hanlon, 13 Church Road, Banks, Southport PR9 8ET Tel/Fax: 01704 229697 Home: 01704 232620 Mobile: 07717 518167 banksprinters@gmail.com www.banksprinters.com

Richard Gilbert Director, SME Partnerships & Business Development, North America at Payoneer

November 25th, 2016

This disruption and ultimate business failure is well documented.  I think it is instructive for you to think about how ecosystems evolve and the importance of building a platform to support the ecosystem.  

Blackberry is another example that is going the the way of Kodak (much more accelerated rise and fall) and see how both Apple and Android have developed a robust platform with a thriving ecosystem versus the Blackberry example.

The irony mentioned before in this post is that Kodak invented digital photography.  Had Kodak thought more about the evolving needs of "the contributors" - their customers / the creators - rather than thinking about their legacy platform and how many rolls of film they could sell and develop. They could have used their worldwide brand and distribution to enable some of the innovation we have seen in digital photography - marketplace enablement (Getty Images / Shutterstock) - social sharing (Instagram / Pinerest) ... seem more enduring business models. 

Each of those innovators are building an ecosystem to erect barriers and guard against further disruption.