Polaroid, Kodak, Apple: No One Escapes the Winds of Creative Destruction
Hundreds of companies are born every day. Most don’t survive the Darwinian struggle to attract customers, achieve profitably, and reach adolescence. The fittest claw their way to adulthood. Thankfully, this happens often enough to encourage entrepreneurs to leave the security of their jobs and gamble on starting something new. In exceptional cases, companies maintain their vigor into old age. But most, even among the dynamic, eventually grow senescent and die.
Corporations may not be people, but they are still bound by a cycle of life.
Apple is currently king of the hill and the most valuable business in the world, rescued from adolescent illness by the return of its charismatic founder, Steve Jobs. Yes, he did build that. But with Jobs gone it’s fair to wonder: How long can Apple maintain its dominance? Even in the wake of its triumph over Asian rival Samsung in patent court, there are no guarantees that fickle fashion won’t favor an upstart, or that the efforts of entrenched managers to protect hard-won turf won’t one day cause Apple to lose its creative edge.
Remember Polaroid? It, too, was once a darling of Wall Street. Polaroid’s charismatic founder, Edwin Land – second only to Thomas Edison in the number of patents he received – drove the invention factory he built from success to success. His exceptional career, chronicled in a first-rate biography, Insisting on the Impossible, demonstrates both the strengths and weaknesses of a founder-driven culture. Where Jobs was the impresario of form, function, and business model, Land was the wizard of optics, chemistry, and physics.
Land’s epic patent battle with Kodak, a supplier that brazenly tried to steal Polaroid’s technology to launch a competitive instant camera, bears much resemblance to the Apple/Samsung fight. Refusing to license his patents after prevailing in court, Land forced Kodak to exit the business, recalling and destroying its infringing products.
Alas, the headstrong genius who abjured market research gambled his company on a new technology one time too many, leaving it mortally wounded with crippling debts. When it became apparent that the limited capabilities of Polavision instant movies couldn’t withstand competition from emerging videotape technologies, the game was up. Today, little remains of this once-great company beyond a tarnished brand name, still being dragged through successive bankruptcies.
Yes, Kodak got the last laugh – but not for long. While Kodak invented many of the core technologies underlying digital cameras, its management was too addicted to the steady flow of fat profits from its film, paper, and chemical franchises to risk cannibalizing it. Hence, Kodak let others pioneer the field, waking up too late to catch up. Today we watch the wizened hulk of one of the most storied companies in American history sadly scramble to auction off its trove of aging patents as an indifferent market waits for the bankruptcy clock to run out.
The lesson in all this? Don’t believe that Apple will magically last forever. The day it stops building insanely great products, the day it loses its knack for thrilling loyal customers with new releases, the day a younger generation turns up its nose to chase a brand that’s fresh and new is the day the grim reaper goes to work. And this is as it should be, freeing up the capital and talent necessary to build the next great company, the consumer making the ultimate choice between winners and losers.
Capitalism only works if companies are allowed to succeed and fail – on their own merits, in their own time, with their fate dependent on pleasing customers, not politicians. Yet the progressive economic policy-making coming out of Washington today rests on the futile attempt to escape the corporate cycle of life that lies at the heart of capitalism. The current administration actually brags about its interventionist approach, pledging to expand it, despite its manifest failures.
The resulting policies – regulations that favor incumbents, bailouts that turn failed companies into zombies, subsidies to besotted start-ups to satisfy industrial policy fantasies, and punitive taxes on the successful – add up to a guaranteed way to halt progress, stymie economic growth, and curse the economy with permanent unemployment.
None of the expensive and ill-fated attempts to prop up failed banks and car companies, or to magically infuse solar, biofuel, and battery start-ups with élan vital, will generate lasting value. None will drive growth by rationally reallocating capital, allowing new companies to generate the jobs needed to pull the country out of its malaise as old companies are properly laid to rest. None will help America compete in international markets.
The death of companies is always painful. But out of death comes rebirth, a cycle we interfere with at our peril.