The Process of Creative Destruction in Walt Disney’s Success

This is the unedited article that was submitted to Mises.Org and published as a Mises Wire post on December 5, 2019, under the title “Serving the Customer: The Secret of Walt Disney’s Success.”

December 5 is Walt Disney’s birthday. More than fifty years after his death in 1966 he remains the world’s most beloved and iconoclastic entrepreneur – a name known and revered by almost every person on the planet. 

Walt Disney’s reputation is well deserved. After all, he was the creator of Mickey Mouse and a score of lovable animated characters; was a pioneer in adding sound and color to movies; created the game-changing full-length animated feature; invented the concept of children’s programming for television with The Mickey Mouse Club; and built the world’s first theme park with the creation of Disneyland. 

With the recent interest in applying Austrian economic theory towards a better understanding of managerial effectiveness, there is value in reflecting on Walt Disney’s career through an Austrian lens.

It is a fundamental tenet of Austrian economics that while entrepreneurs steer the ship, they are bound to serving consumers. Mises wrote in Human Action:

The direction of all economic affairs is in the market society a task of the entrepreneurs. Theirs is the control of production. They are at the helm and steer the ship. A superficial observer would believe that they are supreme. But they are not. They are bound to obey unconditionally the captain’s orders. The captain is the consumer. Neither the entrepreneurs nor the farmers nor the capitalists determine what has to be produced. The consumers do that. If a businessman does not strictly obey the orders of the public as they are conveyed to him by the structure of market prices, he suffers losses, he goes bankrupt, and is thus removed from his eminent position at the helm. Other men who did better in satisfying the demand of the consumers replace him.

Mises, Human Action, Liberty Fund multi-volume edition. 269-270

Consumers never cease wanting better products at lower prices to address their desires and wants. In a world of competition and insatiable consumer demand for value satisfiers and value fulfillment, no organization can stand still for very long. No matter how brilliant or small an innovation, other entrepreneurs stand ready to copy and improve upon it to win consumers and profits, thereby diluting the market value of previous innovations. 

Joseph A. Schumpeter (1883-1950) coined the phrase “creative destruction” for this ongoing process of endless change. Creative destruction is the simple concept that when we are free to solve problems in the pursuit of new opportunities for our own wellbeing, we necessarily destroy the old way of doing things. Continuous innovation entails continuous change, and in the process new wealth is created and old wealth is destroyed. In a key passage, Schumpeter notes that “Creative Destruction is the essential fact about capitalism…. It is what capitalism consists in and what every capitalist concern has got to live in.”

Speaking metaphorically, the marketplace rewards with wealth the innovations it approves. Buyers are willing and eager to trade something they have for something they perceive to be of greater value. Sellers are willing and eager to do the same. The result is voluntary value exchange, with both parties of the immediate transaction benefiting, as well as all parties in the long tail of economic production and work that was required to enable the final consumer purchase. 

Walt Disney’s career growth was similar in kind to most entrepreneurs, beginning with very modest means and creating something new that others find valuable and are willing to pay for. When demand is high and the product can be delivered profitably, entrepreneurs can become wealthy very quickly. Walt and the studio struggled for years to be financially successful, from his early start in Kansas City, MO, in the early 1920s through the creation of the characters of Oswald the Lucky Rabbit and Mickey Mouse, always struggling to innovate in one way or another with new ideas and production techniques to create a more highly valued quality product to entertain audiences and to take away the pressure of meeting payroll from week to week. With each new innovation new ways of creating and doing things replaced the old in a process of continuous improvements and creative destruction. 

Each stage of Walt’s success was the result of creating a delivering something new that was valued highly, not only by Walt and his team, but most importantly by movie houses and movie-going consumers. At first it was black-and-white silent Laugh-O-gram fairy tale cartoons that he produced in KC, followed by the Alice Comedies, then by Oswald the Lucky Rabbit, leading to the huge success and phenomenon of Mickey Mouse, and later other characters, particularly Donald Duck. 

Unlike many others in the cartoon business who flogged the same old products in multiple variation to an increasingly disinterested consumer, Walt continued to innovate in quality, sound, and color, as new technologies became available and public tastes evolved. Doing so allowed him to charge premium prices, bringing in more money to invest in further innovation and quality improvements.

It wasn’t until Walt created, and the public accepted, the brilliance of something brand new and at the time astonishing—an emotionally and visually engaging full-length animated feature film—that Walt Disney Productions received a drastic increase in the inflow of money from ticket purchases. Though Walt started the Disney Brothers Studio with his older brother Roy in their Uncle Robert’s Las Angeles garage in 1923, it wasn’t until 1938 with the public’s acceptance of Snow White and the Seven Dwarfs that Walt and Roy could finally put their money worries behind them (at least for a little while).

By buying tickets to see Snow White, consumers inadvertently made the creators of that product wealthy; inadvertently because movie-goers neither think about nor care who they are making rich or poor when they make consumer choices. They could just as easily have decided to avoid an animated film, as most studios and experts in the industry predicted and expected. Had that been the case, after having spent years developing and animating the film, Snow White would have bankrupted the Disney studio. Instead, Walt was richly rewarded for his risk-taking. His employees, suppliers, investors, and distribution channel partners were also rewarded by Walt’s vision, courage, and entrepreneurial risk-taking.

In this one example, one can see how a harmony of interests exists in the voluntary pursuit of values both within organizations and across society. Entrepreneurs and capitalists invest in production infrastructure and pay wages to those who contribute as employees, each in pursuit of their own economic and personal interests and values.  

George Reisman identifies the essential elements of such prime movers and business titans as providers of “guiding and directing intelligence at the highest level in the productive process” to achieve the goal of producing a product, creating customers, and achieving profits.”

Time Magazine designated Walt Disney as one of the top 20 business iconoclasts of the 20^th Century. The story of his creativity, courage, and struggle over his lifetime to continually innovate and adapt to changing technologies and consumer desires in order to bring happiness to people of the world is fascinating for both its business insights and economic lessons. I present the story fully in my book The Business of Walt Disney and the Nine Principles of His Success, from which this article is adapted.

© 2019, Barry L. Linetsky. All Rights Reserved.

Barry Linetsky is a Toronto-based business consultant and advisor. He holds an MBA from The Rotman School of Management. Barry is the author of The Business of Walt Disney and the Nine Principles of His Success and a number of published journal articles. He blogs at barrylinetsky.com.