One of the oddest ways that companies fail is by becoming victims of their own strengths. In other words, the very thing that generates competitive advantage morphs into a problem.
In 1990, Danny Miller identified this phenomenon and described it as the Icarus Paradox.
In Greek myth, Daedalus and his son, Icarus, were imprisoned by King Minos. But, in an effort worthy of MacGyver, Daedalus built wings of birds’ feathers and beeswax—strapping them onto his son’s arms and his own. Before taking flight, Daedalus warned Icarus to stay well above the sea to keep the feathers dry—and low enough that the beeswax wouldn’t melt from the sun.
But Icarus was young and impetuous. He soared higher and higher, lost in the excitement. And then, he felt one of his arms losing hold of the air. The beeswax had begun to melt. He dove downward trying to salvage the rest of the apparatus—but too late. He plunged into the sea and died.
Icarus was foolishly incautious. And so, the moral of the tale is usually about caution. Don’t fly too close to the sun.
But we can also see a more strategic warning.
Whenever we create something novel—any strong value proposition—there is a potential for that exact phenomenon to become a problem. Had there been no innovation in magical wings, there would have been no tragic end either.
A Falling Star?
It was Southwest Airlines that prompted me to write this post.
Southwest has, of course, been a market leader almost from its inception. That success was due to the many ways in which it differentiated itself. And most important to customers were its unique policies and pricing:
- Low and inclusive prices
- Free bag check
- No assigned seats
- Funny flight attendants
Any Southwest frequent flier is intimately familiar with all of these.
Two years ago, things started to slip. They had a technology failure that caused mass cancellations—and received a $140m fine from the Department of Transportation. That was the first of many ignominious headlines: More mass cancellations, equipment failures, flight anomalies—and a precipitous drop in bookings.
Finally, an activist investor demanded change.
Scrambling
In response, Southwest just announced that they will add assigned seats and premium seating. There are also rumors of checked bag fees.
In their announcement they report that 80% of surveyed customers want assigned seats. That’s understandable. When flights are full, the only way to guarantee a good seat is to check in at exactly midnight, thereby securing a spot at the front of the boarding queue.
Assigned seating alleviates that rush, both at check-in and when boarding.
But, dedicating 30% of seats to “premium” is a different thing. It means add-on fees.
From the start, Southwest’s value proposition has hinged on price transparency—and a kind of passenger equality.
Another bit of data: Based on my own analysis (with help from MetaAI) of 10 popular routes, their pricing is not lower than major airlines—even after including baggage checking fees.
So, how much of their product differentiation remains?
Low prices and inclusive pricesFree bag checkNo assigned seats- Funny flight attendants
Is that enough?
What Happened?
The interesting question here is harder to answer.
What choices did Southwest make that portended its terrible last 2 years?
Most news coverage of their delays cite outdated scheduling technology. The other issues all had to do with mechanical failures.
So, the general conclusion seems to be technical debt.
What was informing decisions that led to technical obsolescence and failure? Did they assess potential consequences?
It would be cool to have enough information for a counter-factual: What if Southwest had (e.g.) invested in a state-of-the-art scheduling and booking platform?
Someday we’ll know the whole story. But leaders at Southwest made choices that inverted their competitive advantage. That lack of conscientiousness is symptomatic of the Icarus Paradox.
Nike
Unlike most of its rivals, Nike has never made shoes. They outsource their manufacturing.
Those supply chain and distribution efficiencies (and Michael Jordan) are at the very heart of its $124B market cap.
But it’s hard to control the conditions, methods and policies of multiple factories around the world.
In the 1990’s, factory conditions became a massive scandal for Nike. Soon, Nike and Vietnamese sweatshops were lumped together in the public’s mind.
In a 1998 speech , CEO Phil Knight said “When we started Nike […] It never occurred to us that we should dictate what [a] factory should look like… We had no idea what a shoe factory should look like anyway.”
But, they could have foreseen that problems on the factory floor could mean problems in the public eye. They just didn’t consider the possibility.
Food Poisoning
Meal kits revolutionized home cooking starting in 2007. For customers, they simplified home cooking with pre-prepped ingredients and easy-to-follow recipes.
By centralizing manufacturing and distribution, meal-kit companies benefited from economies of scale. It was that centralization that allowed palatable pricing (pun intended).
But starting in 2018, there were successive meal-kit recalls due to contamination and food poisoning: E. coli in beef, chili peppers with salmonella, and lentil crumbles that caused liver damage! All in different companies and countries.
The efficiencies at the heart of the business model also meant that a single point of failure could quickly spread across the customer base.
Given that reality, it wouldn’t have been hard to see the risk of food-borne contamination. But no one thought to consider it.
Sun Protection
How can we prepare ourselves or anticipate the circumstances in which our strongest suit can kill us?
We can narrow it down to three key concerns. These are not comprehensive. But asking these questions and then applying focused heuristics can make a big difference.
(1) Over extension: Are we emphasizing or relying on a single feature or a specific operation?
No feature is so spectacular that it can’t be either imitated or obsoleted. If the strategy is dependent on a single key differentiator, identifying that sets the stage for avoiding threats. Meal-kit companies could have mitigated potential food hazards. But they never identified their over-reliance on centralized manufacturing.
(2) Rigidity: How hard would it be to change our strategy and positioning?
No matter how superb a position or unique a category, things change. Even now, Google may have to reinvent its offering to fend off AI-answer engines and avoid regulatory peril.
Possible reinvention needs to be an ongoing inquiry. We must ask ourselves and our peers, “How else can we differentiate for competitive advantage?”
What-if scenarios can build the muscle of flexibility and comfort with change.
(3) Downstream Effects: What could go wrong?
Tech is notoriously bad at anticipating undesirable consequences. But the Butterfly Effect tells us there are innumerable potential negative effects at varying degrees of remove. Two specific exercises can help anticipate those pitfalls
· Futures Wheel. This model explicitly maps consequences. It’s structured like a mind map (see image below). From a central node representing the issue under consideration, you ask “What direct consequences could emerge?”
You do that same thing to the 2nd or 3rd order—asking the same questions of each. It will reveal some of the unexpected but possible consequences—for which you can craft a mitigation strategy.
· The second model is a Pre-Mortem. Unlike post-mortems which ask what went wrong from the standpoint of a current failure, pre-mortems look backwards from a future failure. It starts from the premise that it is now some point in the future (6 months, 5 years—you choose), and the initiative has been a failure. The group’s job is to explain what went wrong that caused that failure.
Nothing is Ever Handled
Fundamentally, vigilance, flexibility and a determination to identify threats are the best defense against the Icarus Paradox.
At some level those are just the basic attributes of a strategic leader. But with all that consumes our days—most of it operational or fire-fighting—it’s easy to neglect this kind of work. After all, it feels non-urgent—sort of like life insurance. Until it’s too late.
Plus, it could be an upsetting endeavor. If you identify a way in which your competitive advantage will implode, you have also created a new and big problem.
But that is a far better challenge than salvaging a terminal enterprise.
