Two reasons companies fail -- and how to avoid them | Knut Haanaes

Core business idea: why companies fail

The speaker argues that companies fail for two primary reasons:

• They only do more of the same → trapped in exploitation (optimizing what they already do)
• They only do what’s new → trapped in exploration without execution (seeking novelty but not maturing it)

The strategic balance emphasized is “exploration vs. exploitation” for quality growth.

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Framework: Exploration vs. Exploitation (from Jim March)

Exploration (new frontier)

• Search and discovery
• New products and innovations
• Risky in the short term: outcomes are uncertain and answers may be unclear

Exploitation (optimize current knowledge)

• Improve existing products and processes; make “good” better
• Make delivery and operations reliable (e.g., “trains run on time”)
• Lower short-term risk, but long-term risk if it becomes the only mode

Key claim: Only ~2% of companies can effectively explore and exploit in parallel (simultaneously, not sequentially).

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Case examples (concrete lessons)

Facit (Swedish mechanical calculators)

• Facit doubled down on mechanical calculator strengths when electronic calculators emerged.
• Outcome: after a short period, they went from maximum revenue to being gone (fast decline once their core became obsolete).
• Diagnosis: too much exploitation — success in the current model prevented timely change.
• Ironic detail: engineers bought cheap electronic calculators in Japan to double-check, but the company still didn’t pivot.

OncoSearch (European biotech; anonymized)

• Innovation-focused biotech creating diagnostic/cure applications for blood cancers.
• Culture: “When we only get it right” / “We want it perfect.”
• Outcome: before reaching “perfect,” their approaches became obsolete as the market/science moved on.
• Diagnosis: too much exploration without enough speed toward usable (“good enough”) outcomes.

Public-sector parallel

• Reforms in education, research, healthcare, defense often take 10–20 years to be effective.
• Yet systems change more frequently—suggesting leaders don’t sustain exploration/execution long enough.

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Two “traps” that prevent balance

1. Perpetual search trap

   • You discover something but don’t persist long enough to make it work.
   • Instead of maturing it, you start something new → a vicious cycle of ideas without deployment.
   • Example dynamic: OncoSearch as “perfect-but-too-late.”

2. Success trap

   • Because you’re good at what you do, you’re less able (or less willing) to change.
   • Example: Facit—they held the future in their hands, yet couldn’t see it.
   • Supporting quote: “Success is a lousy teacher.” (Bill Gates)

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Actionable recommendations / “playbook” (lessons)

The speaker provides four leadership/management lessons to avoid the traps:

1. Get ahead of the crisis

   • Treat innovation as “insurance” against future disruption.
   • Example pattern: Netflix pushed into the “next battle” rather than relying on earlier distribution advantages.
   • Practical takeaway: commit to the next innovation cycle before the current one collapses.

2. Think in multiple time scales

   • Short-term view (about 1 year): innovation contributes about ~30% to valuation.
   • Long-term view (about 10 years): innovation and renewal contribute about ~70%.
   • Practical takeaway: fund the long-term journey while still delivering near-term performance.

3. Invite talent (make it a team sport)

   • Balancing exploration and exploitation can’t be done well by one person alone.
   • Encourage constructive challenge:
     • Company teams and cross-functional stakeholders
     • Corporate boards that constructively challenge
   • Practical takeaway: build governance and culture that reliably challenges the status quo.

4. Be skeptical of success

   • Success creates complacency; leaders need reminders that change risk is always present.
   • Practical takeaway: institutionalize “reality checks” (e.g., competitor/technology scanning, assumption testing).

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Strategic reflection questions (management prompts)

• Where is the company at risk of the success trap / autopilot—and what will you do to challenge it?
• When did you explore something new last—and what effect did it have? Should you do more of it?

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Metrics / KPIs mentioned

• ~2% of companies can explore and exploit effectively in parallel
• Directional valuation relevance of innovation by time horizon:
  • ~30% within a 1-year perspective
  • ~70% within a 10-year perspective
• Public-sector reform context: ~10–15 to 20 years for reforms to work (illustrating execution persistence needs)

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Presenter / sources

• Knut Haanaes (speaker)
• Jim March (credited founder/source of the exploration vs. exploitation idea)