The Business of Creativity — Pixar CFO, IPO, and Beyond!

You’ve heard a version of this story before: Steve Jobs calls some executive out of the blue to come work for him. Only this time the story turns out great … and the company wasn’t Apple. This episode of the a16z Podcast shares some of the journey that former CFO Lawrence Levy went on with Steve Jobs as they took Pixar — a company then on the verge of failure — to its IPO and subsequent greatest hits.

It’s sort of an adventure story but is really more of a quest for product-market fit. How did they figure out a model for such an old-but-new business (i.e., animation and entertainment)? How did they take an improbable plan and figure out how to make it work — both qualitatively and quantitatively? How did they then navigate and straddle the diverse worlds of Silicon Valley, Hollywood, and Wall Street? And finally, how did they price their IPO, which was also a symbol of Steve Jobs’ comeback story … a narrative that’s sometimes lost in the Apple story.

From the business of creativity to corporate culture, Levy — former CFO of Pixar, board member, and author of the new book To Pixar and Beyond: My Unlikely Journey with Steve Jobs to Make Entertainment History — shares his (and Jobs’ untold) story. But it isn’t just a story about finding the right model and numbers to build, explain, and measure the business; it’s also, partly, about how to get the measure of one’s humanity, too.

Show Notes

How Lawrence Levy came to Pixar [0:48]

Why animation is difficult [6:00], and how they decided on the company’s focus [7:51]

What it was like to work with Steve Jobs [11:40]

Getting investors to accept Pixar [15:00], IPO pricing [17:50], and lessons learned [20:02]

Levy’s and Jobs’ long-term plans for Pixar [21:32]

Personal and philosophical takeaways from the experience [25:00]

Transcript

Sonal: Hi, everyone. Welcome to the “a16z Podcast.” I’m Sonal. Today we have, as our special guest, Lawrence Levy, the former CFO of Pixar, who also took the company public. He’s on the board of directors of Pixar and was in the office of the president, and has written a book, just out, called “To Pixar and Beyond: My Unlikely Journey with Steve Jobs to Make Entertainment History”. In this conversation, we cover everything from his partnership with Steve Jobs, to how they figured out what kind of business Pixar should be, to the delicate balance between finance, strategy, and the business of creativity. We even cover details about how they priced their IPO, and end on a more personal note about bringing a more humanistic approach to business and corporate culture. But first, we begin with a story of how this lawyer came to Pixar. Let’s just start jumping right into your story, which essentially you describe as an adventure story.

The early days of Pixar

Lawrence: Yeah, I think my experience at Pixar could definitely be characterized as an adventure. It started in 1994. Imagine that I’m sitting in my office at the company I was at then, which was Electronics for Imaging. And I was sitting at my desk and the phone rings. I pick up the phone, and on the other end of the phone, I hear this voice that says, “Hi, this is Steve Jobs. I saw your picture in a magazine one day.” He said, “I thought we would work together someday. And I have a company that I would like to tell you about.” And I immediately thought that he was talking about NeXT Computer, because NeXT was very well known. It had gone through quite a number of bumps. But then he says, “It’s Pixar.”

Sonal: Had you even heard of it?

Lawrence: I had heard of Pixar, but I didn’t know anything about it.

Sonal: How jarring because you’re hearing from this computer founder who’s suddenly going to a cartoon company. Or how would people have described Pixar at that point?

Lawrence: Oh, I wouldn’t have known enough to even know it was a cartoon company. I didn’t even hardly know what to say. But I was intrigued. It was just Steve Jobs on the end of the phone. He’s telling me about something called Pixar.

Sonal: So at that time, Pixar was a flailing company. I mean, it wasn’t at all the success that we know today. It was very early days. What were they? Were they a movie company, an animation company, an entertainment company?

Lawrence: If you did research at that time, which I did, you would have discovered they were really a graphics company. So, Pixar had really set out to change the world of high-end computer graphics. And they made an imaging computer. They’d made some short films that had, sort of, won accolades at some of the festivals and shows, but not even Pixar conceived of itself as an entertainment company in 1994.

Sonal: It wasn’t an entertainment company at the time. Clearly, it became one.

Lawrence: It was in a broad range of businesses. It made software, it did animated short films, it did commercials. It had this little project going on called “Toy Story.” And so my goal, my work, was to, sort of, figure out how to put all that together. And at the beginning, the last thing that I imagined was that it was gonna be an entertainment company. Why would you hire me to go in there and figure it out? Because I…

Sonal: What was your background?

Lawrence: I was a lawyer and an executive. I was at the Wilson Sonsini law firm. I represented all these high-tech startups, I knew software, I knew hardware, I knew semiconductors, but I didn’t know any more about entertainment than, you know — that you go to a movie theater, buy your ticket, and buy some popcorn. So, it never occurred to me that I was going to run an entertainment company. And I actually thought it was going to be a company where we would pull together different businesses, and they would help — each of those businesses would — the risks of one would offset the other.

Sonal: It’s interesting you say that, because one of the lines that really stood out to me is someone telling you, think of it as a portfolio business. And I think that’s really interesting, because it actually touches upon all kinds of businesses. If you think about an R&D of a big Fortune 500 company, that’s having a portfolio framework for deciding which projects to invest in and not to invest in. If you think of VC, that’s a portfolio business. How does that portfolio mindset apply specifically to Pixar?

Lawrence: Well, at the time, I thought that it could be a business where its different parts would offset the risks of the other. And the reason was because the notion of becoming a standalone, independent animated feature film company was a crazy idea.

Sonal: Why was it so crazy?

Lawrence: Because only one company in history had ever done it.

Sonal: Disney.

Lawrence: That was Disney. And they had only succeeded at it for a few years, from 1939, when they released “Snow White and the Seven Dwarfs.” They did “Dumbo” and “Bambi” and a few of these great films. But it was such a struggle to be a standalone, animated feature film company that Walt Disney — brilliantly — began to diversify. And so then you get the theme parks in 1954, in 1955, and they went into ABC television, and the Wonderful World of TV, and they opened Buena Vista distribution. They couldn’t sustain themselves as an animated feature film company. If you looked at the history, every other studio that had tried to do that had essentially failed. So, the notion that you could build an independent, standalone, animated feature film company was one that I basically fought every step of the way, because it seemed impossible.

Sonal: Well, there’s actually an interesting exchange between you guys. Steve told you, “Investors will love this. Pixar can be in a multimillion-dollar video market.” And you responded, “I agree, but let’s get the data first. Even then I’m not sure we can count on home video alone to take Pixar public.” So, tell me about that. How did home video play a role in all of that?

Lawrence: Well, the video market was changing the nature of the film business. That was the time when Blockbuster films and Blockbuster stores and — it was creating a whole new economy for film, which was great. And Disney was having incredible success at it. But the challenge for Pixar was that animated feature films take a long time to make. So, if you release a film every four years, that’s too much time. And if you have one film that’s a miss, which could easily happen, you could have an 8 or 12-year dry spell, and the home video market wouldn’t be any help at all.

Sonal: That’s kind of frightening, actually, to think about because you can now pivot a company three times and not even blink an eye, and here your product is this thing that has so much planning and development that goes into it. Just to break it down at the technological level, why is animation so hard?

Lawrence: An animated feature film has about 110,000 frames in it. And each one of those frames has an enormous amount of data. At that time, just to render a single frame, could take a day. So imagine how much computing power it would take to render an entire film. And then you had to have the software to actually manipulate the characters — a three-dimensional image of Woody or Buzz or something like that. How do you then manipulate that image to make it seem as though it’s alive, to give it emotion? Because emotion is very subtle movements of the eyes, very subtle movements of the mouth. Pixar had to invent the technology in order to do that.

Sonal: So, given this context of the difficulty of the animation itself, the fact that you can only have maybe one good movie every four years, and you’re putting a lot into one movie, how did you guys get to “Toy Story?”

Lawrence: Pixar was already making Toy Story when I arrived. They had committed to that in a 1991 contract that they went into with Disney. That was a little bit of a Hail Mary, in a way. Because otherwise, Pixar was perilously close to going out of business. Disney came along and said that they would, basically, front the costs for making that first animated feature film. But the price that Pixar paid for that was enormous. It was almost like selling your soul.

Sonal: Why?

Lawrence: Because the contract — and this was really my hardest moment. You know I was a lawyer? This shows you how little I knew then about the entertainment business. They had entered an agreement with Disney, but it was written in this arcane Hollywood code. When I got there, I realized that Pixar had essentially been tied up by Disney for what could have been, you know, 12 years, 15 years with a very, very tiny share of the profits.

Sonal: Oh, that’s awful.

Lawrence: And that was only if the films were ridiculous blockbusters. It just didn’t seem to have any chance. Its hands had been tied too much.

Developing the company’s focus

Sonal: So how did you guys come out of that? I mean, how did you go from this situation to the success that you and Steve and everyone that worked at Pixar built?

Lawrence: Well, we went off on this quest, if you will.

Sonal: This is an adventure story.

Lawrence: It’s an adventure. So there are two parts to it. One is qualitative. What does it mean to build an entertainment company? And the other is quantitative. What do the numbers look like? At the time, we didn’t even have a spreadsheet of numbers that told us how these movies performed. I recount the story in the book of how we had to beg, borrow, and steal, just to understand how the numbers were gonna work. We’re starting to very slowly understand how these films make money, basically. And at the same time, Steve and I are shuttling back and forth to Hollywood. And we’re meeting these, you know, Hollywood executives. We met Edgar Bronfman Jr. and we met Mike Ovitz, Joe Roth. Basically, anybody who would open the door to us. We’d ask them all these questions about the industry, because we thought we can’t just do straight animated feature films. So we wanted to learn about all those other businesses.

Sonal: Was Steve on board with that diversification? Because I’ve always heard famous stories about him being such a focus guy. Did he agree that you had to diversify in order to make this a viable business?

Lawrence: I think Steve was on board with the process that we were going through. He hired me to assess and analyze this business, and basically partner with him to do that. So, we went on this quest. We learned all about the live-action film business, but the live-action film business is also a terrible business. It actually didn’t diversify the risk of animated feature film. We came to the notion that Pixar should be an animated feature film company, basically by default, which is that this is our only shot. We literally created the spreadsheet and it had on it, this is how many films we have to release and this is how they have to perform in order for Pixar to have a shot, and these are the conditions that have to happen in order for that to work.

Sonal: And that was a quantitative activity that you guys did.

Lawrence: That was quantitative, but associated with qualitative notions of — this is what that means. We have to get out of the software business. We have to get out of the animated commercials business. We have to triple the size of the company. We have to increase output. We have to do all these things. We have to renegotiate with Disney. And if we do all those things, and if our films are more successful than anybody will possibly believe they could be, we could make it. And so, it was literally a million to one shot that you could pull it off. And then I was like, “I have no idea how we can get this financed,” because the risks in this plan are absurd.

Sonal: Insane. That’s interesting. You described that Steve had hired you to partner with them. So you guys were partners?

Lawrence: We represented the business and strategic side of the company together. The creative side of the company was represented by John Lasseter and Ed Catmull.

Sonal: And Ed Catmull, of course. So, we have the creative side, and you have the business and strategic side.

Lawrence: Yeah.

Sonal: Those are essentially three legs of a stool. And they all have to be functioning in order to make the company succeed, and build this amazing thing. How did you guys make decisions, though? It’s not like you just had spreadsheets and these rubrics. Was there, like, a visionary, sort of, “We’re gonna go do this?” Was there an instinct? Was there someone who’s saying no and yes? How did you guys negotiate that?

Lawrence: With Steve, and with Ed as well, and John, it was basically a constant dialogue. Decisions came out of this dialogue. It was like we were in motion all the time. So there weren’t, like, moments where we’d sit down, and now we have to decide. It was more like it emerged from this continuous dialogue.

Sonal: It sounds like an incredibly creative friction.

Lawrence: It is. It is, because we never fought, but we didn’t always agree. There was this healthy debate, I would call it, one pushing the other, always pushing the other, you know, to sort of, figure it out.

Sonal: Never fought but didn’t always agree. That is the definition of healthy conflict.

Lawrence: Yeah, that’s how I would describe it. It was collaborative and respectful and great.

Working with Steve Jobs

Sonal: So, tell us some of your stories about partnering with Steve Jobs. It’s a really interesting moment right now, in recent history, given how few years it was that he passed away. But already three or four books have come out trying to repaint the picture, or maybe paint the picture. And you had a unique, front row — not just a seat, but you were an active participant.

Lawrence: One of the reasons I was motivated to write the book was, in the aftermath of Steve’s tragic death, all these things came out. And I started to see, “Well, what about the Pixar story?” I mean, it was a little bit of an afterthought. Some of it made it seem as though, you know, he started at Apple, and then he went away from Apple, and then he went back to Apple. And I’m like, “Well, wait a minute, that part when he went away from Apple — that was really important.”

Sonal: That was a really big deal.

Lawrence: Both as Pixar and in Steve’s life, it was a really big deal. Steve had had a series of failures leading up to Pixar. Before he left Apple, there was the Apple Lisa, and there was the Apple Macintosh. After he left Apple, there was the Pixar imaging computer. And then there was the NeXT Computer. So, those were four pieces of hardware that essentially failed in the marketplace. Pixar really was his comeback, as I recount in the story. But Steve and I hit it off from the get-go.

Sonal: Why do you think you guys hit it off? I mean, everyone’s heard that famous story in the Apple counterpart, where he’s saying, like, “Do you want to sell sugar water the rest of your life?” And this is, sort of, like, a similar thing where it could have gone that way, where there might not have been as much chemistry between you and him. What made you work?

Lawrence: That’s a really good question. Sometimes there’s just chemistry. And from the moment we met, there was just this level of mutual respect and trust, and it lasted for a long time. And it was both professional and personal. We just kind of got each other.

Sonal: That’s amazing.

Lawrence: And so the relationship started in this, sort of, you know, adventurous dialogue of this crazy thing called Pixar. Of course, I’m aware of all the other accounts of Steve. I’m writing about my experience.

Sonal: You had the opportunity to work with, arguably, one of our most influential innovators, who’s created things that have changed our world. It’s kind of an amazing opportunity. What were the moments that were most trying between you guys, because, obviously, it wasn’t all peaches and cream?

Lawrence: I think when Steve began to see that an IPO was possible for Pixar, he couldn’t get there fast enough.

Sonal: He couldn’t get there fast enough. Interesting.

Lawrence: He couldn’t get there fast enough, because that IPO was really the symbol of his comeback. He was rushing toward that faster than I was.

Sonal: Which is, by the way, really interesting, because in the current ecosystem, it’s been, sort of, the opposite, where a lot of founders are not ready to IPO yet. One of the things you said in the book is that, “Besides making films that would enjoy unprecedented box office success the world over, we simply had to, one, quadruple our share of the profits, two, raise at least $75 million to pay for our production costs, three, make films far more often than we knew how, and four, build Pixar into a worldwide brand.” Piece of cake. But really tough. That was your plan.

Lawrence: Yeah, that was the plan.

Sonal: So how did you guys go from there? Because the thing that I think is super interesting is that you said it’s not going to be easy for investors to get their heads around Pixar’s business. We have a lot of explaining to do. Tell me about that.

Investors and IPO

Lawrence: Well, I went to see my old friend and mentor Larry Sonsini, of Wilson Sonsini. And I presented all this to him. And he knew Steve really well, and he knew Pixar. And I said, “Investors are really gonna balk at this. We’ve got to disclose this — all this risk, up front.”

Sonal: Yeah, it’s a lot of risk.

Lawrence: So, I thought he was gonna say, “Forget about it. You have no chance. Don’t even think about it.” But he didn’t. He said, “You’re right. This is an incredible long shot. But if you disclose the risks upfront, completely, then you’ll see investors will make an open evaluation.” And that’s actually always been my approach to, you know, when I was in business, and being a CFO, which is — don’t hide behind the risks. You know, just put it out there. And don’t be afraid to put it out there. Because they’re going to find out anyway.

Sonal: And they’ll probably trust you more, actually, for being open about it.

Lawrence: And they’ll trust you more, so just be an open book. Because once you’re a public company, you’re gonna be in a fishbowl anyway. I said to Steve, “You know, we’re gonna have to disclose this risk, and these things that we have to accomplish that are so difficult, and why they’re so difficult, upfront.” Steve wasn’t against it, but he was kind of like, “Fine, fine. If that’s what we need to do, we’ll do it. But the investors won’t care about that, because they’ll see this incredible vision and this incredible possibility.” So, I had one foot on the brake while he was rushing toward it. We were heading into some very choppy investment waters, which we did.

Sonal: How did you navigate that, exactly? Because you have to also have a model that works for people to want to invest in you. One of the things I’ve heard is that — a big part is the story you tell on your way to the IPO. How did you guys tell that story?

Lawrence: The story was, in some ways, the easy part. By that time, we had figured out Pixar was going to become an entertainment company. So, we told the story of its creative capability, its production capability, its technical capabilities. We laid it all out — the talent and the capacity. That part of the story was the easy part.

Sonal: The easy part, okay.

Lawrence: It was easy to tell. You couldn’t help but walk into Pixar — even today. But in 1995, when you walked into Pixar…

Sonal: Before the new campus.

Lawrence: …before the new campus, and you start looking inside a little bit, I mean, it’s staggering. There wasn’t a person there that didn’t leave just, like, blown away. It’s that impressive.

Sonal: That sounds amazing.

Lawrence: It’s really impressive. So, that was the easy part. It was the numbers part. But we did have a model. And we said if these things happen…

Sonal: Those four things.

Lawrence: Right. We build a worldwide brand, we quadruple our share of the profits, we raise $75 million, we release films more often — if we do all those things, this company will make it, and it’s really up to the investors to assign a risk to that. You may think we have a 1% shot, or we have a 10% shot. That’s for you to decide. But if we hit those, then we will hit the ball out of the park. It was more than a prayer.

Sonal: Well, this is where the pricing of the IPO is a really fascinating narrative. Because you have a version of the story where it’s like, “Okay, if we do these things, these four things, we will hit these amazing numbers.” The investors are like, “Okay, yeah, that’s a great story, and great model and plan. And yay, we’ll give you capital to do that. But hey, we’re not gonna value very highly upfront that we believe in this.”

Lawrence: Well, I would say that the price of an IPO on the financial side of a company is one of the most important decisions that it will make. And this was also a point of contention between Steve and I, about how to price it. My thinking about it was that it’s important to leave something on the table. It’s much more important that early investors be happy, and feel like they made money, than they’d be disappointed and feel like they lost money. And so if you underprice a little bit and they feel like they’ve made money, then you get a lot of confidence in your stock going forward.

Steve felt that, you know, wherever we priced it, it would just skyrocket. And the irony — sitting here doing the a16z — is that the reason he thought that was because of Netscape. Netscape and Pixar were the two hottest IPOs of that year, in 1995, but Netscape went first. And they, of course, were the first company to ride this new wave called the internet. It was huge. I’m looking at Pixar saying that, you know, Pixar is amazing. But no one is sitting around talking about, you know, the animated film business. This is a 50-year-old business.

Sonal: And the best model, till that point, was 1939 founded company of Disney.

Lawrence: Yeah, Steve was saying that if they’re valued there, then we ought to be valued there. And I was like, “But it’s different. There’s no frenzy out there for animation.” We went back and forth, back and forth, but we worked it out.

Sonal: How did you guys work it out?

Lawrence: The pricing comes together through a whole combination of factors. You have investment bankers, and they’re having a lot to say about it. You’ve got your lawyers and the disclosures, and you have your board, and there’s a lot of elements. And so it begins to coalesce. We managed to get it into a bandwidth where I felt that we could make it and investors would be happy, and Steve felt that we had a shot at the kind of valuation that he wanted.

Sonal: I want to ask you about some lessons learned and high-level takeaways from that whole experience of going to your IPO, and things that may be different today.

Lawrence: You know, people see their IPO as like an end game, but IPO is the beginning of the game. It’s a change event.

Sonal: Did it make you better, because you’re able to execute on your model in the public eye?

Lawrence: I think if you’re disciplined, that it doesn’t necessarily have to make you better. But by the time we were in public, we knew what we were doing. We really did. The plan that we’ve talked about, that we put in place, lasted Pixar 10 years. It took 10 years to execute and we just sort of…

Sonal: Kept going.

Lawrence: …kept going, steadfastly. Went at it.

Sonal: How did you navigate the cultural divides, where you have the Silicon Valley-centered company, and team for that matter, technology, Hollywood, and the business of creativity — and then you have the East Coast, kind of, banking coterie? How did you navigate all those?

Lawrence: You describe Hollywood as the business of creativity. But in some ways, one of the things we learned is that sometimes creativity in Hollywood isn’t all it’s cracked up to be. The big studios have so many presses. Some of our thinking back then is, we have to protect Pixar from some of those kinds of pressures, in order for it to continue to innovate and do original films. This is a tremendous tribute to John Lasseter and Ed Catmull, who really created the creation culture of Pixar. And Steve and myself — I think our contribution, in a way, was to recognize the importance of preserving that.

The creative process

Sonal: I think that is actually a pretty tremendous credit to you as well, because when you’re responsible and accountable for the financial performance, there are a lot of short-term things you can do that short-shrift some of that long-term creativity. You get eager to see some results. And to keep your eye on the long term is a very difficult challenge. All companies face this today — this balance between being able to execute on a plan, but also adapt and innovate. What are some of the ways you’ve made that work?

Lawrence: Well, these were very big discussions. Steve and I would talk about this a lot. Because, going back to 1995, 1996, the creative team at Pixar, as brilliant as it was, was young and untested. “Toy Story” was the first film. Now these famous directors — Andrew Stanton and Pete Docter and Brad Bird, Lee Unkrich, the others from Pixar — they’d never made a film. And you’re looking at these young directors, and each film is gonna cost, say, an average of $140 million.

Sonal: And that’s really expensive, because they’re animation.

Lawrence: They’re animation. It’s really expensive. So you’re literally betting $140 million…

Sonal: On this untested talent.

Lawrence: …on this untested talent. So, the temptation to wanna go in there and make sure it’s going well is enormous, right? Because in a project of that size, slip-ups are very expensive. They come to you and say, “We made a mistake in the story,” right, you can’t fix that, like, the next day. That’s usually a $5 or $10 million mistake. So, the most important decision that we made at Pixar was basically to trust the creatives and not interfere with what they’re doing. For executives, that’s really hard for two reasons. One is that executives think they know. They think they’re creative, and they think they know. And some are, but it’s rare. And Steve and I realized that that wasn’t our domain. We could watch movies, we could critique movies, but we were amateurs and they were professionals. And so we had to trust them.

Sonal: But what gave you — I think it’s important to push on this — the ability to trust them? They were unproven. Was there some indication that you felt like, “We can trust them?” What were the signals? Because otherwise, anyone could say, “Hey, I want to trust the creatives.”

Lawrence: Well, it was very clear that John Lasseter was something extraordinary. And he had hand-groomed these other — sometimes we called it, like, the John Lasseter school of animation direction. But that said, even if you’re the best director in the world, you’re gonna have misses, right?

Sonal: Yeah.

Lawrence: He was that good, that you could place that bet. And I think you put your finger on the issue. Not everybody, in a startup company — you don’t have to have John Lasseter — but you have to be very discerning about the level of talent that you have. And I think that’s the challenge for executives. Not to think that they know, but to be able to make a real assessment about what the level of talent they have is.

Sonal: We see this every day here in our own business, because, essentially, the definition of venture capital is you’re betting on talent. The product may or may not end up where it started off, but you’re really betting on that person. And you have to make that assessment on a combination of factors.

Lawrence: Right. Once Steve said to me that he felt the decisions that we made at Pixar were not his, were not mine — or they were the product of this process. I think it’s very rare to find somebody to work with like that. And when you have it, one plus one makes way more than two. And that’s what our relationship was like.

Personal takeaways

Sonal: Has it changed how you live your life today?

Lawrence: Well, I went off to do something completely different. I left corporate life behind, and I wanted to explore Eastern philosophy and meditation. I love my career, I love what I did, but I felt there was something one-dimensional about it. It’s very oriented towards success and performance and acquisition, which are great, and I have no issue with any of it. But we also pay a price for having that intense orientation towards performance at all costs.

Sonal: What’s the price?

Lawrence: One of those prices is, it creates a stress culture. I asked myself, why is it today that we hear so many stories about anxiety and agitation and mental health? And I think a part of this is because we have this sort of performance orientation without anything else to balance it. I have all these years at Pixar. And what I learned at Pixar is that it’s all about story. Then I go off and study Buddhist philosophy. And after all those years, I realized — it’s all about story.

Sonal: What do you mean?

Lawrence: Pixar, of course, it’s all about story because that’s what’s driving people to enjoy the film. In Buddhist philosophy, what it’s saying is that we’re living by a story. That we can’t always see it, but our life is driven by stories that are inside of us. And so…

Sonal: Actually, psychotherapists say the same thing.

Lawrence: And now neuroscientists are also saying the same thing. It’s fascinating. So, the performance story that we live in now — it’s not something inherent in the nature of the universe. It’s a story. It’s a culturally-generated paradigm. The Middle Way essentially says that we are mistaking our stories for reality.

Sonal: Why do you call it The Middle Way?

Lawrence: Because The Middle Way talks about two extremes. One extreme would be the extreme of believing that your story is real. And the other extreme is, because that story is so real to you, you cannot conceive of any other possibility — even if the story is hurting you.

Sonal: Very binary.

Lawrence: Exactly. It’s very binary. And so to move away from your story, to move away from your performance orientation, is so threatening and, sort of, fearful that you can’t imagine life is even possible over there. So The Middle Way is about, how do you find that place in the middle? It’s not about giving up performance or giving up all of these things. It’s about harmonizing with all the different elements of life.

Sonal: Just one last question. On a personal level, there are so many interesting threads. How does this tie into companies at an organizational level, like, in terms of corporate culture?

Lawrence: I think it goes to the very heart of corporate culture. If you look at what’s driving corporate culture over — I’m gonna say 300 years — it started with the Dutch East India Company. By 1402, for 200 years, the Dutch East India Company ruled the world. And the mentality — the corporate mentality going back is basically acquisition at all costs. Over the decades, what we see is, basically, a battleground between corporations that are trying to acquire at all costs, and other forces around them that are trying to get them to pay for the costs. So, we have to have environmental laws, and anti-pollution laws, and anti-child labor laws. They’re just going for it. And that creates that mentality of success at all costs within corporations. And that’s the paradigm that we’re in. I believe that we could change that paradigm to a more humanistic paradigm that values the individuals that are in cooperation.

Sonal: I actually wonder if that story is changing right now, because the firm for the first time in 300 years is essentially being reinvented with all these new types of models, decentralized models, B Corp, social business. There’s a whole category of new things that are coming around now.

Lawrence: I think that’s right. And I think it’s fantastic.

Sonal: The theme to me — and this is sort of the theme of this whole podcast — is this human side to the business. It all ties together.

Lawrence: I’ll tell you this, the number one question that I get when I give talks is, “Do I have to be a jerk to succeed?” People ask me that all the time.

Sonal: That’s a question that comes up all the time. Do you have to be a brilliant jerk in order to be successful?

Lawrence: Exactly. I’ll tell you my answer. My answer is no. You don’t have to be a jerk to succeed, but it’s harder, because you can be a jerk and succeed.

Sonal: You’re, kind of, going against gravity.

Lawrence: And so, if you want to do it the other way, it’s up to you. It means that whatever you’re doing — you have to make hard decisions, you have to fire people, reprimand people. Whatever you do, you have to remember that you’re dealing with a human being. It’s a choice, and it’s one that we can all make.

Sonal: That’s great. Well, Lawrence, thank you for joining the “a16z Podcast.” And for everyone who wants to read more about these adventures, read the book. Thanks, Lawrence.

Lawrence: Thank you for having me.