Do you know the tale of Icarus? Icarus was a figure in Greek mythology who fashioned some wings out of feathers and beeswax to escape an island. So enamored of his newfound ability to fly, Icarus ignored warnings not to fly too close to the sun. Upon getting close to the sun, the beeswax melted, his wings fell off, and he plummeted to his death.

The Icarus paradox is a phrase coined by Danny Miller in his 1990 book by the same name, referring to the phenomenon of businesses failing abruptly after a period of apparent success, where this failure is brought about by the very elements that led to their initial success. Successful companies often fail due to their strengths and past victories, which engendered over-confidence and lulled them into complacency. The characteristics that drove their success, such as tried-and-true business strategies, dauntless management, signature products, and the reciprocal action, when employed in excess may ultimately lead to declining sales and profits and even bankruptcy.

Miller explains that success seduces companies into failure through fostering overconfidence, complacency, specialization, exaggeration, dogma, and ritual. Most successful firms owe their fortune to a unique competitive formula, and as the company continues to grow, the manager's confidence in this winning formula is bolstered. However, this attitude is unsustainable in the long run, as they become unable to keep up with the threats of new competitors, changing consumer demands, newly developed business models, and changes in the external environment.

In a 1992 article, Miller noted that successful companies tend to fail because of their strengths and past victories, which causes over-confidence and lulls them into complacency. The characteristics that drove their success such as tried-and-true business strategies, dauntless and self-assured management, and the overall combination of all these elements when done in excess may ultimately lead to declining sales and profits and even bankruptcy. This happens as managers make unwise decisions based on past strategies that they mistakenly believe will always be relevant and companies exploit as much as possible the strategies that contributed to their success, concentrate their focus on the products that launched their brand and become blinded to changes in the external business environment.

Key Takeaways

1. The failure of the very wings that allowed him to escape imprisonment and soar through the skies was what ultimately led to his demise.
2. Most successful firms owe their fortune to a unique competitive formula.
3. As the company continues to grow, the manager’s confidence in this winning formula is bolstered.
4. People tend to take credit for positive outcomes and attribute negative outcomes to external factors.
5. There are perils associated with following a certain system, even a winning one, for too long.
6. Other business activities such as marketing and finance were deemed unimportant as long as they were technologically up-to-date.
7. In many industries, extremely successful businesses often face problems maintaining their success. Of the companies in the 1966 Fortune 100, 66 no longer existed by 2006. Fifteen still existed but were no longer on the list, and only 19 remained on the list.
8. Standard economic theory explains the high rate of failures as an inevitable result of companies taking rational risks in the face of uncertain situations.

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