On October 12, 2001, the Polaroid Corporation announced that it was going to file for Chapter 11 bankruptcy protection. As I read that announcement, a flood of memories came back to me.
Polaroid photographs chronicled the life of my family. My dad had one of the early models, a big bellows kind that looked like a press camera.
I remember the anticipation after the picture was snapped and the paper was pulled out to develop. We waited the full sixty seconds and more, just to be sure. Then we'd peel off the paper and look at the image.
If it was good, and my dad always thought it was, we'd use that strange fluid that came with the film and smelled like the stuff in the school mimeograph to preserve the image. Later the picture would wind up in one of my parents' many scrapbooks.
Years later, when I was grown, I remember Polaroid as the darling of investors. It was one of what was called the "Nifty Fifty" in the 1970s. These were stocks that were supposed to be can't-miss investments, and they sold at astounding prices. At some points in that period, Polaroid was selling at ninety times earnings.
The story we heard in the '70s, was that Polaroid was a can't-miss investment because it was an idea factory that turned out profitable invention after profitable invention. What happened? To understand this, you have to start by understanding the difference between Edwin Land, the founder of Polaroid, and the Polaroid Corporation.
Someone once said that a true genius is a person who has two great ideas in his or her lifetime. By that definition, Land was a true genius.
He dropped out of Harvard after his freshman year to work on some ideas for products. The first one he came up with was a polarizing film. That basic invention was used by the government for photo reconnaissance in the Second World War, and finds a home today in polarized sunglasses. Polarizing
film was the first product for the company Land called Polaroid and incorporated in 1937.
Polarized sheeting was a good, profitable product, but the product that made the company legendary was the one that came next. Shortly after the war, Land was in New Mexico with his daughter. He was taking a picture of her against one of those scenic backdrops when she asked him why she couldn't see the picture right away. Land set to work on the project and produced the Polaroid Land Camera in 1947.
My family wasn't the only one using a Polaroid in the Fifties. It was a great time to make a product like this. The Bob Hope generation was home from the War, inventing the suburbs, and raising families. Economic prosperity meant they had money to spend on gadgets. And what better gadget than something that let you take a picture of your family or your brand-new Levittown home, and see that picture almost immediately?
Throughout the '50s and '60s and '70s, Polaroid made lots of money on the camera invention. The cameras themselves didn't always do it, but the film was always a moneymaker.
The camera became sleeker and easier to use. Color film was developed. In 1972, Polaroid introduced the SX-70. That's the camera most people think of when they think of Polaroid. It's the one that spits the picture out the front of the camera.
There were also business innovations tied to instant photography products. Special instant camera systems were produced for professional photographers and passport photos and to make pictures for security badges. And Edwin Land kept having bright ideas.
There was the idea for using polarized light to help create 3-D images on a movie screen. If you grew up in the '50s, you may remember going to the theatre and putting on red and green-lensed 3D glasses to watch really awful flicks like Bwana Devil. If you've never seen Bwana Devil or any of the other really cruddy films that came out in 3-D, you really should go see them -- if only to understand how much people will put up with if they think it's "cool." They were cool, but they didn't last
The next bright idea that failed was Polavision instant movies, introduced in 1978. Neither the product nor the timing was particularly good.
Polavision didn't have sound. That made it hard to compete with Super 8 movies. Super 8 was already a working technology and folks weren't willing to allow Polaroid to refine Polavision to catch up. And there was electronic video recording equipment that was just starting to come on the market.
Let's look at Polaroid up to the late 1970s. It had one great idea. It had gotten lucky once. But there was no repeat. Even so, that idea was a great one. Instant photography produced a constant flow of profits and developments over a thirty-year period; but time and the market were catching up, and Polaroid wasn't paying attention.
As a company, Polaroid spent almost all its corporate life looking for the big score, the next great idea from the brain of genius, Edwin Land. Because they believed in that genius and the idea of the one big score, they believed their own hype. Like the dot coms, they ran their business as if the rules didn't apply.
In 1991, for example, Polaroid was not in good financial shape. They'd just fought off a hostile takeover from Shamrock Holdings. To do that, they'd bought back public shares, created an Employee Stock Ownership Plan, issued Preferred Stock, and gone into debt. But that year, Kodak paid off a patent suit with $925,000,000.
Most companies would have done two things with that money. They would have paid the expenses of the suit, and they would have cleaned up the Balance Sheet and reduced debt. Not Polaroid. Polaroid put the money into the development of a new product and film. Neither ever produced any profit. The big score never happened.
Because they believed the rules didn't apply to them, they didn't pay much attention to basic financial management. When their first outside CEO, Gary Di Camillo took over in 1995, debt was 42% of capital. Just five years later, it had shot up to 60%. Costs were out of line, too. Polaroid's general administrative and marketing expenses were 37% of sales, almost double that of rival Kodak.
Polaroid wasn't paying attention to the marketplace, either. It was obvious for years that the instant camera and film market was going to have some competition. First, there were those One-Hour Photo places, which seemed to be sprouting like mushrooms after a summer rain.
Then came digital photography. The One-Hour Photo places eroded the consumer side of the market, while digital photography washed away huge chunks of the business and professional side.
By the end of the '90s, Polaroid was thrashing around like a drowning swimmer. First they were going to concentrate on new product innovation. In 1998 they introduced twenty-five new products. Similar numbers followed in '99 and 2000. There were lots of products, but many weren't very good and the good ones were often late to market.
By 2000, Di Camillo was announcing that Polaroid was going to become a "digital imaging company." The only problem was there were already a whole bunch of those, already strong in the market, and good competitors. There was no room left to maneuver, not in the market, and not on the Balance Sheet.
Polaroid, it turned out, was not an invention factory. It was a one-product company that was seduced by its own myth. Besides instant photography, no other product made a big score.
Instant photography is unique among Polaroid products and not just because it's the product whose profits made the company. This is the only product where the idea came from consumer comment, in the person of Land's daughter. Every other product came out of Land's head or the R & D labs.
So here's lesson number one from Polaroid. Listen to the market. Get your new ideas there, but watch for changes, too. If it looks like your cash cow is going to get slaughtered, milk it, don't worship it and spend lots of money building it a new barn.
Here's lesson number two. When you've got something good, ride the wave. Polaroid was great at that. They developed that single Polaroid Land Camera product so that it stood off all comers until new technology overtook it. When you've got something good, tweak it, develop it, make it better and more profitable.
There's one final lesson. No matter how good you are, no matter how good your product is, you still have to manage your company well. Polaroid, like the dot-com disasters teach us that sound financial management never goes out of style.
This feature appeared on 22 October 2001
