What Small Businesses Can Learn From Hollywood

Originally published: 12.01.08 by Guy Kawasaki


Successful industries respond early and appropriately to new technologies and new ideas. 

Scott Kirsner spent the last three years immersed in the movie industry in order to write a book called Inventing the Movies: Hollywood’s Epic Battle Between Innovation and the Status Quo, from Thomas Edison to Steve Jobs.

He talked with directors like Francis Ford Coppola and James Cameron, editors, cinematographers, studio chiefs, producers, tech companies that sell technology into Hollywood, and even actors with an interest in new technology like Morgan Freeman.

He discovered that Hollywood serves as a great case study for how any longestablished, successful, and self-satisfied industry responds to new technologies and new ideas.

Even when a new idea seems to have obvious merit, and even when its inventor can make a strong case for it, 95 percent of the people involved in the industry fight the new idea with all their energy for as long as they possibly can until they realize it has the potential to grow their business in surprising ways.

Case in point: within a decade of Hollywood’s fight against the Betamax video recorder, which went all the way to the Supreme Court, the studios were earning more from home video business than they were from ticket sales.

Here are five movies—all of which you’ve likely seen—that have an important back-story that innovators can learn from.

Sometimes technology needs to be just good enough, not perfect. “The Jazz Singer” will forever be remembered as Hollywood’s first talkie — even though it wasn’t among the first dozen to try to sync up the pictures on the screen with a soundtrack. But the technology that Warner Brothers banked on, developed at AT&T’s Bell Labs, was better than what came before it. It was just good enough to turn “The Jazz Singer” into a hit—especially combined with a performance from Al Jolson that practically leapt off the screen. The system still relied on phonograph records that could scratch. If the film broke and needed to be spliced back together, the entire movie would veer out of sync. The Warner Bros/AT&T technology was just good enough to start the sound revolution in Hollywood, though it didn’t endure for very long as a standard. Five years after “The Jazz Singer”, even Warner Bros. had switched over to a technology that more reliably linked the audio with the visuals.

Innovators never underestimate the importance of allies. Shot in glorious Technicolor, “Gone with the Wind” won the Best Picture Oscar in 1939, marking the start of Hollywood’s transition from black-and-white to color. But Technicolor had been working on its technology for making color movies since 1915, developing new kinds of cameras and film processing techniques.

Like most start-ups, the company nearly ran out of money several times, and had to continually hunt for new investors and allies who’d make movies using Technicolor’s technology to show how it was improving. These allies included the swashbuckler Douglas Fairbanks and Walt Disney, who won one of his first Oscars for a short cartoon made in Technicolor. Technicolor cofounder Herb Kalmus met another key ally at the racetrack at Saratoga Springs: Jock Whitney, a rich playboy who used his money to option a novel by Margaret Mitchell and help turn it into a movie starring Clark Gable and Vivien Leigh.

Innovators spot market opportunities first, and chase them relentlessly. Entrepreneur Andre Blay had no connection to Hollywood, but in the mid-1970s he was among the first to realize that home video machines like Sony’s Betamax (which sold for about $1,000 at the time) presented the potential for a new business.

He sent “cold call” letters to most of the major Hollywood studios asking them for the right to sell their movies on videotape. Only one studio, 20th Century Fox, consented, offering movies like “Butch Cassidy and the Sundance Kid”. Blay’s first ad in “TV Guide” netted his company $140,000 in revenues, and within a year, Fox acquired his company for $7.2 million in cash.

Innovators find collaborators who share their vision, and they’re prepared for things to take longer than expected. Computer graphics pioneer Ed Catmull, while he was still a graduate student at the University of Utah, was one of the first people on the planet who believed that it’d be possible to make a full-length computer-animated movie that people actually would pay to see. As he marched toward that goal, he connected with two people who bought into his vision: John Lasseter, an ex-Disney animator, and Steve Jobs, who purchased the fledgling Pixar from George Lucas and helped develop it into a company that could stand on its own two feet, selling hardware and software while also pursuing Catmull’s ambitious, audacious goal.

Catmull admits that he thought the goal of making Pixar’s first film would take a decade—it took two. (While Disney’s legendary animators weren’t among those who bought into Catmull’s vision early on, Disney the company eventually did, buying Pixar in 2006 for $7.4 billion. Today, Catmull and Lasseter oversee all of Disney’s animated movies like “Toy Story”.)

Innovators acknowledge that not everyone loves a revolution. After Sony Electronics developed a new digital movie camera for George Lucas to use on “Star Wars: Episode II — Attack of the Clones”, much of its introductory marketing focused on how revolutionary the camera was, and how it would simplify shooting. But most of the leading cinematographers in Hollywood were already quite comfortable with the film cameras they used—they didn’t want their work revolutionized, and Sony’s marketing strategy hit a brick wall.

“There was a lot of hype and overpromising,” said Steven Poster, who was head of the American Society of Cinematographers. “They’d say, ‘You don’t need lights, you don’t need crews. This is just as good as film, if not better.’” That wasn’t a message that resonated with Sony’s target audience, which already associated digital cameras with low-cost, quick and-dirty TV production.

As a small business owner, there are many lessons to learn about innovation from the movies. If nothing else, it gives you a reason to go to a movie and deduct the expense—maybe not “Beverly Hills Chihuahua” (even though I liked it), but certainly “Flash of Genius”.


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