𝗞𝗢𝗗𝗔𝗞’𝗦 𝗕𝗜𝗚 𝗠𝗜𝗦𝗧𝗔𝗞𝗘 𝗜𝗦𝗡’𝗧 𝗪𝗛𝗔𝗧 𝗬𝗢𝗨 𝗧𝗛𝗜𝗡𝗞

What industry is your company really in?

As my days at Kodak wound down, along with the company’s finances, I pondered that question a lot. 

This was in late 2011, just weeks before Kodak filed for bankruptcy. At the time, I had the privilege of keeping the world’s first digital camera in my office. Invented in 1975 by my pal and colleague Steven Sasson (winner of the National Medal of Technology & Innovation in 2010 for his extraordinary achievement), this toaster-sized device ushered in the age of digital imaging.

Lots of analysts assert that digital was the thing that killed Kodak’s vaunted film business. That’s true, but only to a point. 

Kodak had a much bigger problem. It didn’t fully appreciate what business it was in. 

In my view, Kodak wasn’t as much a photography company as a 𝘮𝘢𝘵𝘦𝘳𝘪𝘢𝘭𝘴 𝘴𝘤𝘪𝘦𝘯𝘤𝘦 company that too narrowly applied its capabilities to photography. That is at the heart of the company’s strategic failure. 

Making film is a highly complex process of applying a chemical emulsion to a material called a substrate. The brilliant scientists, researchers, and manufacturing experts at Kodak knew more about that process than any company anywhere. 

Kodak should have much more aggressively applied its materials science prowess beyond film to compete against the likes of DuPont and 3M. If Kodak could apply layer upon microscopic layer of emulsions on a thin plastic strip in the dark (film is light sensitive, after all), it surely could have made Sticky Notes. 

Consider this: In 1920, Kodak founder George Eastman created what is now Eastman Chemical. In 1994, Kodak spun off the business as an independent entity. Since then, Eastman Chemical stock (ticker: EMN) has appreciated almost 900%. 

Or this: In 1987, Kodak invented OLED, now ubiquitous in televisions. It sold the technology to LG for $100 million in 2009. 

These examples are perhaps the greatest proof that Kodak didn’t understand its very essence. It failed to successfully diversify into markets where its materials science prowess would have been rewarded. 

After Steve demonstrated his invention to many levels of Kodak’s management, the company buried the camera inside of a locked file cabinet inside of a locked closet. We used to kid that we treated it like kryptonite. 

It wasn’t the digital camera itself that ultimately sapped Kodak’s strength, although its affect on film was inevitable. It was a tragic nearsightedness, encouraged by an addiction to a film business with 70% market share and 70% gross margins, that kept Kodak from thinking outside the little yellow box. Imagine how rich Kodak’s future would have been had it done more to apply its extraordinary knowledge of materials science far beyond film. 

What is your company’s essence? If you don’t know, a competitor likely will reveal it to your disadvantage soon enough.