As I write this, Kodak—the company that invented digital photography but refused to use it—is once again facing extinction. This time, it might be final.
Yesterday, the 133-year-old Eastman Kodak Company warned investors there's "substantial doubt" about its ability to continue operations. The stock plummeted 25%. The company faces roughly $500 million in debt obligations with no committed financing to meet them.
It's a fitting end to one of business history's greatest failures—not of innovation, but of psychology.
And when I read the story, I thought to myself - there has to be more to this saga than just the failure of a titan. Because, like Blockbuster, Kodak once occupied the preeminent spot in the industry. I well remember accompanying my mother as a kid to get film developed. Kodak here, Kodak there - Kodak everywhere.
And like all good stories, the failings and inability to adapt to changing times have no value for anybody interested in learning.
The story you're about to read isn't really about technology. It's about the behavioral biases that destroy even the most dominant companies. And why an intelligent and timeless investor would be wise to understand these - not just for our own businesses, but for our portfolio.
The Innovation That Killed Its Creator
In 1975, a 24-year-old Kodak engineer named Steven Sasson built the world's first digital camera. It was the size of a toaster, weighed eight pounds, and took 23 seconds to capture a single black-and-white image onto a cassette tape.
It was also the future.
Sasson demonstrated his invention to Kodak executives, expecting enthusiasm. Instead, he got questions like: "Why would anyone want to look at their pictures on a television? How would you store thousands of pictures? What's the business model?"
The real question, though unspoken, was simpler: Why would we destroy our cash cow?
At the time, Kodak controlled 90% of film sales and 85% of camera sales in the United States. Their film business generated gross margins of 70%. They were printing money—literally and figuratively.
So they buried the digital camera.
For nearly two decades.
Think about that. They had the future in their hands. The parallels between them and Blockbuster's refusal of the Netflix opportunity ar huge. It’s almost the same story.
The Psychology of Self-Sabotage
While I don’t love seeing the decline of a great business, I do enjoy picking these apart in terms of behavioral mistakes. As long-time readers of The Timeless Investor know, we cover behavioral finance in depth and often.
And the fallacies that drive mistakes in investing also drive huge errors in operations and businesses. So let’s look at the psychology of what led to this slow, deadly decline.
Loss Aversion Humans feel the pain of loss roughly twice as intensely as the pleasure of gain. For Kodak executives, protecting their $10 billion film business felt more urgent than pursuing an uncertain digital future. The potential upside of digital felt abstract. The threat to film felt visceral.
Sunk Cost Fallacy Kodak had billions invested in film manufacturing infrastructure. Plants, equipment, supply chains, distribution networks—all optimized for a chemistry-based business model. Walking away from those assets to embrace digital felt like admitting massive failure.
Status Quo Bias The film business wasn't just profitable—it was familiar. Kodak executives understood every aspect of that market. Digital photography represented the unknown, requiring new capabilities, new partnerships, new ways of thinking. Change is hard. Staying the same is easy.
Overconfidence Bias Success breeds overconfidence. Kodak had dominated photography for a century. They'd survived countless technological shifts—from glass plates to flexible film, from black-and-white to color. They believed they were too big to fail. Digital was just another challenge they'd master on their timeline.
Unfortunately, innovation and technology don’t wait for anybody.
And that overconfidence killed them.
The Timeless Pattern
Here's what makes this story particularly fascinating: it's not unique.
The same psychological forces that destroyed Kodak are destroying companies right now. The technology changes, but human psychology doesn't.
Think about it: How many dominant companies have fallen not because they lacked innovation, but because they couldn't bear to cannibalize their own success?
Blockbuster had the technology to compete with Netflix—they just couldn't bring themselves to destroy their retail footprint.
Taxi companies had the capability to build ride-sharing apps—they just couldn't abandon their medallion system. Lot of sunk cost fallacy there …
Traditional automakers had the resources to build electric vehicles—they just couldn't risk undermining their internal combustion engine businesses.
Kodak had the brand strength to potentially have done something proactive to protect their business. There was a time when everybody knew the word Kodak. It was almost like Kleenex (think about that as a Timeless Business, people. Ain’t nobody disrupting Kleenexes in the near future).
The pattern is always the same: Yesterday's strength can become tomorrow's weakness.
The Real Estate Mirror
If you're a real estate investor reading this, you're probably thinking: "This doesn't apply to me. Real estate is different. Location, location, location."
Not so fast.
Because our industry is changing gradually and at its own pace, and while I firmly believe that people will always need places to live, work, shop, and play, changes are percolating within the system.
For starters, let’s talk about the office. This has been a wholesale disruption of the existing ecosystem. Clearly. The losses in the office building space are borderline apocalyptic for those owners. Now - to be clear - I am not saying that anybody who owned prime office locations in downtown San Francisco could have foreseen this coming. This was not a Netflix moment for them.
It caught the entire world off guard.
But some owners took decisive action when this happened. They remodeled their spaces, they built common areas, they adapted into the future of office. Is it working? Perhaps not - there’s an overbuild (in my opinion) of Class A office, so the owner of the old Art Deco buildings might be in an existential crisis. But steps could have been taken (with adequate capital).
Or think about the Airbnb model. Major, traditional hoteliers could potentially have leveraged their name brand to build such an innovation themselves. Obviously, Airbnb has created a new industry category that is tangential to hotels themselves. And something hotel operators might have seized advantage of. Now traditional hotels are not going away. They each serve their own purpose.
A third example I’d offer is obstinately sticking with one strategy, despite changing market conditions. Some might call this “sticking to your thesis”, and I respect that. But the real estate industry is cyclical. So obstinately sticking with a finance and renovate value-add strategy in the face of rising rates, rising inflation and a weakening economy would probably fall in this bucket.
We, for instance, shifted our focus during this seismic shift in the industry to acquiring low-basis vintage assets with high cash flow profiles. Not because we don’t love value-add, but because I don’t think that strategy works particularly well right now. After all, the premise of value-add was to add value through a financing strategy with low rates. Investing $20,000 into renovating an apartment unit and paying 3% or 4% for that money makes a lot of sense.
It doesn’t work as well at 7 or 8% rates, which is what bridge debt often looks like for smaller deals today.
The trend remains the same - adapt or die.
The Contrarian Framework
So how do you avoid the Kodak trap?
You build humility into your process. You assume you're wrong until proven otherwise. You stress-test your assumptions against scenarios that feel unlikely but aren't impossible.
Write the memo. Spell out your thesis. Lay out your risks. Then stress-test it. Shock the cap rate. Push the vacancy assumptions. Ask yourself how much cushion you really have.
Geographic diversification. Don't just diversify your assets—diversify your thinking. We avoided the Denver madness in 2021 because we had perspective from Seattle and Portland. Different markets gave us different data points.
Find the skeptics. Pitch your best deal to someone who doesn't care about your ego. Your spouse. A skeptical friend. Someone who'll tear it apart. If you can't defend your thesis against intelligent criticism, you probably shouldn't do the deal.
Study failure. For every success story you read, study two failures. Understand not just what went right, but what went wrong and why. The patterns are usually behavioral, not technical.
The Final Lesson
Kodak's epitaph isn't about missing the digital revolution. It's about the human inability to destroy what we've built, even when survival demands it.
The company that democratized photography—"You press the button, we do the rest"—couldn't press the proverbial button on its own future.
As Kodak faces its final moments, there's a tragic irony: They're terminating their pension plan to pay down debt. The engineers who invented digital photography are watching their retirement funds disappear to service loans that might not save the company anyway.
It's a reminder that in markets, as in life, the most dangerous moment isn't when you're failing. It's when you're succeeding.
Success breeds overconfidence. Overconfidence breeds complacency. Complacency breeds irrelevance.
And irrelevance? Well, that's where even giants go to die.
Think well, act wisely, build something timeless.
Nice article and I agree great book.