Saturday, June 22, 2024

EXCLUSIVE: “Tales from a fantasy CFO” – Lawrence Levy in ‘The Fintech Magazine’

Animation studio Pixar is a Cinderella story – with Steve Jobs painted as the prince who swept it off its feet. But, behind the scenes, there was also Lawrence Levy, trying to be ‘the fun adult in the room, willing to make the hard decisions’ as the studio’s CFO. Are you sitting comfortably? Then let’s begin…Lawrence Levy, Pixar | Fintech Finance

It looked like the fairytale might finally be coming to an end. The Walt Disney Company, the creative juggernaut behind some of the 20th century’s most memorable films, had entered the new millennium on unsure footing. Rival animators were conquering the third dimension, CGI technology was fizzing with new ideas, and Disney’s sprawling studios, in the beating heart of Hollywood, suddenly felt a long way from the action down in Silicon Valley.

Happily, Disney had a long-standing distribution deal with Pixar, the animation upstart from San Francisco Bay. Unhappily, that partnership only exposed the creative ennui back in Hollywood. Disney’s 2004 Home On The Range flopped at the box office, taking just $145million worldwide. Pixar’s Finding Nemo (2003) and The Incredibles (2004), on the other hand, had netted $871million and $631million, respectively.

Come the autumn of 2004, even that success-by-association was under threat, with Disney’s then-CEO Michael Eisner falling out with Steve Jobs, who’d been running Pixar since 1986, over a new distribution deal. Pixar reached out to other distributors, and Disney watched on, helpless. Meanwhile, isolated in their creative cocoon, Pixar’s animators would start working on a new story, initially titled Heliums, about an embittered old balloon salesman, stubbornly clinging to the past as the world raced on without him.

By the time Heliums, now called Up, hit the box office in 2009, Eisner was out, Jobs was in the ascendant, and Disney had merged with Pixar, creating the archetypal case study for successful competitor acquisitions. Up, of course, ended on a high, too, the grumpy old children’s entertainer renewed and energised by his youthful sidekick – art imitating life, perhaps? The film won two Academy Awards and was only the second animated feature in history, after Disney’s 1991 classic Beauty And The Beast, to receive a nomination for Best Picture.

A parallel universe

So, what’s all this got to do with fintech? There are teachings in the Disney-Pixar merger. Their story aligns neatly with the fraught incumbent-challenger relationship in the financial services sector – and that enduring tension between secure stability and risk-taking innovation. Having played his part in slaying the dragon of financial uncertainty at Pixar, the studio’s former executive VP and CFO, Lawrence Levy, knows what it takes to walk the plank between ambitious overreach and staid consolidation.

“It doesn’t matter if you’re making animated feature films or the next great fintech breakthrough, innovation companies live on the precipice of two things,” Levy explains. “On the one side, there’s the dream, the vision: ‘we’re going to make the world better, we’re going to make better products in this space’ And then, on the other side, there are the practicalities of it. The fundraising, the profitability, the cash. You can’t run out of money.”

It’s all very well shooting for the moon, but if you can only afford the jet fuel to get halfway, you might as well have stayed on Earth. Pixar was initially funded by a mere $5million in cash when Steve Jobs bought the studio’s technology rights from George Lucas in 1986. As Levy explains, that’s an unenviable financial position for any incoming CFO.

“When I joined Pixar, it was making Toy Story and it had 200 people working on it. It takes four to five years to make one film,” he says. “Then they stop making that film and they make another, so every four or five years, you get a film. Well, there’s no way you can build a business by releasing a film every four or five years. You’ve got to increase it.

“So we had this huge, months-long discussion: how often could Pixar make films? Would it be every four years? Every three years? Every one and a half years? As the CFO, I’m saying ‘you can’t make them often enough… [let’s make them] twice a year!’. But quickly you come to see that if you push on that too hard, you’ll dampen the creativity that’s needed to make a great film.”

So, Levy opted for patience. Like Steve Jobs, who’d had no previous experience in the entertainment industry, he was willing, initially, to listen and learn – even as the financial dashboard lit up with warning lights. Toy Story was distributed by Disney to cinemas in 1995, with Jobs admitting ‘if Toy Story is a modest hit – say $75million at the box office, we’ll both break even’.

It ended up taking $350million worldwide, setting up a four-film franchise (and counting) that would be worth billions.

“I learned that stories take time to percolate,” says Levy. “You can’t force creativity; there’s a certain organic lifecycle to it. And you can’t control innovation – by its nature, it’s not going to just lay down and go according to your timetable.”

But, let’s face it, the developers and designers working on today’s fintech products would, in an ideal world, go to infinity and beyond to perfect their offering, forever asking for more time for fine-tuning and finesse. So, a CFO shouldn’t apply no pressure at all, surely? Levy, who after his stint at Pixar went off to study eastern philosophy, looks at this need for balance in terms of finding the ‘middle way’.

“In the context of businesses, I put it this way. You have the bureaucratic function that says we’re just here to get things done: to build, acquire, to measure, to produce. On the other side, there’s the free spirit, or the artistic function in life, interested in experience.

“What the middle way would say is that, if you’re stuck in one of those extremes, you’re not going to reach good outcomes. If everything in life is bureaucratic, you might end up wondering ‘wow, did I ever really live?’, but if you’re stuck on the spiritual side, the artistic side, you may lack momentum in life, and become frustrated by that. People, individuals, businesses, and organisations all get stuck in these places.

“In my mind, the CFO should live right on the edge of that precipice. It’s an opportunity to be a person that is keeping one eye on both sides. One eye on the practicalities – the money, right, you know, the stuff that we need – but also on the dream-building. Pixar really did navigate its way to the middle. It was able to have enough bureaucracy, enough administration, enough capital, but without killing the creative spirit.”

It’s a sad truth that, piled up on the innovation scrapheap, are fantastic fintech products that ran out of funding, and well-funded in-house ventures that, cowed by Gantt charts and KPIs, lacked the space to be inventive. According to Levy, finding the middle path in that would come by creating a culture, from the C-suite down, of smart collaboration – and sensitivity to the people doing the dream-making.

“I’m constantly telling businesses ‘have you ever even paid attention to your culture? Do you even know what your culture is?’. Some people reply ‘I didn’t even know we had a culture.’ But culture is something that seeps into every detail: how we speak to each other, how we work together, how we set up meetings.

“It’s literally in the details, in how you collaborate. Collaboration is an art, but I often say that collaboration only requires two things: you have to get the right people, and you have to listen to them.”

As much as getting the right people in the room is important, Levy also believes effective collaboration has to be about excluding people from the process, too. Should Steve Jobs, technology visionary, have a say in the trajectory of Nemo’s adventure; should Levy be given a vote when sketches of WALL-E are compared? Levy’s answer is a decisive no. Even if office politics would have senior managers poring over technical details, the best way to manage firms operating on the cutting edge is to leave decision-making to the experts.

“Steve and I never paid attention to the politics. It didn’t matter if you were the lowliest person in the company or the highest person in the company, if you didn’t have something major to bring to the table, you weren’t going to be in the room. Compare that to Hollywood where, generally speaking, the executives are involved in everything.”

Levy’s unlikely to draw any unfavourable comparisons with Disney, but it’s fair to say that, with the studio off the boil in the early 2000s, something about the culture just wasn’t right. Ultimately, it was moving too slowly, too cautiously. Like today’s incumbent financial institutions, Disney had built its Cinderella Castle, complete with a seemingly impregnable moat. But the paint was flaking, the wheels coming off the pumpkin carriage.

“If you’re just managing a business that’s been around forever, you’re in maintenance mode,” says Levy. “But today, most companies are trying to innovate. So I think it’s a great idea for large organisations to try to remake themselves. But that may take 50 years, and they’ll lose momentum. Large banks have this enormous inertia, and they vastly underestimate what it takes to move their culture to be like challengers. So, if they could acquire some small companies, to really let that culture come in, it’s a great idea.”

With the pandemic changing the state of play, we’ve seen a number of mergers and acquisitions that look a lot more like scavenging than strategy. Those firms picking over the bones of disgraced Wirecard in late 2020 can’t have been doing it for the culture; it was for the assets. But assets alone – as all-powerful Disney could attest in the early 2000s – can’t deliver real innovation.

“With Pixar, every day we just couldn’t understand why Disney didn’t just crush us out of existence,” Levy admits. “They had infinitely more resources, they had the market access, they had everything.”

It’s been years now since incumbents recognised the value of fintech firms. Few have managed to adapt fast enough, and many have failed to realise that partnerships and mergers don’t just head off competition: they drive change, invention and creative brilliance.

“The Pixar acquisition was actually all about infecting Disney with Pixar’s culture, rather than the other way round,” says Levy. “It worked so well that Bob Iger, the new Disney CEO, then went on this spree and bought Lucasfilm, The Avengers, and everything’s led to the modern Disney. But Pixar was the first of those acquisitions in that new era.”

Whether in a land, a galaxy or a comic universe far, far away, it’s paid for Disney to bring creative, innovative minds as close as possible over the past 15 years. And film fans benefit from that, watching Iron Man share a screen with Captain America; Buzz and Woody venture further and further from Andy’s toy box; and even a CGI Carrie Fisher feature in the concluding scenes of Rogue One. It’s difficult not to see Levy and Jobs as the superheroes of this story. Their successful collaboration seems to have had a ripple effect that’s been felt in movie theatres and living rooms across the world.

Taking Pixar from an undefined technology company to a $7.4billion sale is, arguably, one of the great business success stories of our time. Steve Jobs, who’d owned half of Pixar, came out with a seven per cent stake in Disney, worth $3.9billion. The next largest individual shareholder, previous CEO Michael Eisner, held just 1.7 per cent.

“I think that Pixar had a big effect on Steve, a real big effect,” says Levy. “It was an industry that he didn’t know, so Steve had to be humble.”

Bear in mind that Jobs had left his first stint at Apple under a gigantic cloud and in the middle of a media storm.

“He was really being written off; I think it was the lowest point of his career,” says Levy. “But he learned how to run a creative company. So, by the time he got back to Apple in 1997, he had a whole new experience under his belt, learning how to be a different kind of CEO, and also learning the entertainment business. So, post Pixar Steve was very different, and I think that’s sometimes not recognised.”

You could argue it’s the CFO who’s often not recognised – whether in film or fintech. They’re too often regarded as bespectacled number-crunchers, not innovation drivers. “I’m not a fan of this notion that the CFO is the numbers guy,” says Levy. “There are certainly people whose job it is to focus on numbers, but the CFO should see themselves as bigger than that – broader than that. They’re the person catalysing health within the company, trying to get all the forces within it aligned and working together.”

Like Woody, coordinating a rescue with Buzz, Rex and Mr Potato Head, or Mr Incredible trying to keep his family from bickering while they’re saving the world, the CFO has a broad diplomatic mandate. That said, Levy suggests CFOs don’t just approach problems with stoicism.

“Try to be the fun adult in the room,” he says. “Not so serious, but also, you know, willing to make the hard decisions.”

For Pixar and Disney, those difficult decisions have all but guaranteed a never-ending story of fun, fantastical flicks for the world to enjoy.


 

This article was published in The Fintech Magazine #22, Page 32-35

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