The Real Reason Great Companies Fail

The company that operates Eddie Bauer in the U.S. just filed for Chapter 11 bankruptcy protection. While the brand may live on, the store that once outfitted mountaineers and soccer moms is closing locations and searching for a buyer. For employees, it means uncertainty. For employees, it means uncertainty. For customers, it means gift cards that may soon be worthless as storefronts go dark.

The company was founded over a century ago when outdoorsman Eddie Bauer started a sporting goods shop in Seattle. After nearly catching hypothermia on an expedition, Bauer got to work creating outerwear that would stay warm without the bulk of traditional wool layers. His Skyliner coat is credited with being the first modern quilted down jacket. That design helped define outdoor apparel for decades to come. Over the ensuing years, Eddie Bauer became a mall staple, surviving wars, recessions, and multiple ownership changes.

And yet, Eddie Bauer came to share a fate with so many American retailers. Mall traffic declined. Digital-native competitors emerged. Consumer preferences shifted toward athleisure, performance wear, and fast fashion. One by one, familiar names filed for bankruptcy, underwent painful restructuring, or disappeared entirely. Retail experienced a structural shift in how people shop and how brands reach them. Eddie Bauer got caught in that shift.

Why Companies Fail

Why do successful companies fail? That question has haunted business leaders and academics for decades. How can industry giants lose their footing so quickly? Kodak, Pan Am, Sears, Motorola, BlackBerry… each of these companies invented a category, dominated it for years, and then watched their relevance evaporate. Given their scale, talent, and resources, it’s hard to attribute their failure to a single strategic mistake. There has to be a deeper pattern.

Jim Collins offered one of the most rigorous answers to that question. Collins had built his reputation as a management guru by studying what makes companies great. In “Built to Last” and “Good to Great” he examined companies that outperformed their peers for decades. He held them up as models of disciplined leadership. But over time, Collins began to notice something he couldn’t ignore. Several of the companies he had praised began to stumble. Their performance sagged. His narrative of enduring success no longer fit. And he needed to figure out why. So, the management guru who analyzed greatness got to work studying failure.

In “How the Mighty Fall,” Collins argued that decline follows a predictable path. Companies begin with hubris born of success. That success leads them away from disciplined execution toward the belief that past victories guarantee future ones.

Next comes the undisciplined pursuit of more. Leaders expand beyond the core strengths that made them great, chasing growth without the same rigor that fueled their rise.

Warning signs begin to surface. Instead of confronting them directly, organizations enter a stage of denial about risk and peril, explaining away data that threatens the narrative.

As performance deteriorates further, companies grasp for salvation. They pursue bold initiatives, high-profile hires, or dramatic acquisitions in the hope of restoring momentum.

Finally comes capitulation to irrelevance or death. Resources dwindle, options narrow, and what once looked like an enduring enterprise fades from prominence.

The pattern that Collins identifies is compelling. It’s grounded in serious empirical work. And yet, there’s something troubling about the underlying assumption in his framework. The companies in “How the Mighty Fall” start from a place of arrogance and complacency. That’s a satisfying explanation. It’s also a story we’ve been telling ourselves for a very, very long time. And it’s usually not true.

Blame It on the Greeks

Psychologists have known for years that human beings have an annoying habit of selectively noticing things that reinforce the stories we already have in our heads. We’re especially drawn to stories that are shared by the people around us. And the older a story is, the more deeply it gets embedded in our collective brains. For all its rigor, Collins’ analysis may be echoing deeply held frames in Western culture.

For millennia, we’ve had a narrative that companies, cities, and even civilizations fail when they get too successful. Too comfortable. Too soft. It’s an idea that goes all the way back to those original scrappy underdogs, the ancient Greeks. Herodotus, the so-called “Father of History,” describes the Persian Empire as being weakened by their luxury and moral depravity. To him, the Persian emperor Xerxes was a wealthy king who preferred perfume and silk robes to sword and armor. Pay no attention to the fact that Xerxes wiped out the Spartans at the Battle of Thermopylae—he was a pampered monarch whose eventual fall was inevitable.

We’ve carried that narrative down with us through the ages. Greek and Roman tragedies repeat the story of success followed by hubris and correction. The Protestant work ethic equated discipline with virtue and decline with moral failure. When observing the rise and fall of civilizations, Voltaire is said to have remarked, “They go up the stairs in wooden shoes and come down in silk slippers.”

For people who’ve grown up in the West, that’s a very satisfying morality tale. You just got too big for your britches. Your decline started with a character flaw.

Thankfully, modern society has gradually started to shed the idea that our fate is the result of intrinsic virtue. Contrary to what your ancestors may have believed, schizophrenia isn’t caused by spiritual weakness or demonic possession. Addiction is not a failure of willpower. Today, criminologists don’t explain crime as an intrinsic evil—they look at systems, incentives, and context.

And yet, many of us still see economic failure as a morality play. Eddie Bauer, Kodak, and Motorola were all arrogant, lazy, and prideful. And pride goeth before the fall. 

If only it were that simple. It’s hard to call most business leaders complacent. They operate under relentless pressure. They face activist investors, regulatory uncertainty, geopolitical instability, AI disruption, and a performance cycle that resets every ninety days. Many of the leaders I meet don’t seem comfortable. They seem hunted.

To be sure, there are a few villains out there. We’ve all read headlines about Elizabeth Holmes, Sam Bankman-Fried, or the guys from Enron. But these stories make headlines precisely because they’re different from the everyday.

In reality, failure has more to do with psychology than morality. Most companies do not collapse because leaders are arrogant. They collapse because they are cognitively and structurally designed to optimize for the present, while the future continues to evolve around them.

Built for the Present

In our research at Jump, we’ve found that only a small minority of leaders are truly future-focused. They regularly imagine what their industry might look like five or ten years from now and make decisions today based on those possibilities. A modest group is past-focused, drawing guidance from precedent. The majority, roughly 70%, are present-focused. Their attention is anchored in what is happening now.

Most companies are organized to reflect this bias. Team meetings focus on the most urgent issues. Senior leaders focus on preparing for quarterly earnings calls. Annual budgets reward hitting this year’s numbers. Performance reviews celebrate operational execution, not exploration of uncertain futures. Boards evaluate CEOs on near-term results. 

For many companies, this kind of architecture is a good thing. It ensures execution. It keeps revenue flowing and customers served. But when most decision-makers in a system are anchored to the immediate horizon, predictable patterns emerge. Investment flows to what already works. Metrics reinforce current performance. And strategy conversations get squeezed between operating reviews.

Under those conditions, organizations do exactly what they’re built to do. They’re not complacent. They’re optimized.

Of course, that structure can become a liability if conditions start to shift. When that happens, successful companies start reallocating resources before legacy revenue streams dry up. They place small bets on alternative models. Some even decide to change what they report to the street. That’s been the story of Microsoft. And Disney. And Netflix. And every other company that saw disruption coming and acted before the pressure became unbearable. 

Those stories don’t fit the narrative of success followed by hubris. They’re stories about companies that saw the future coming and started changing early.

Beyond Character Flaws

Voltaire’s morality tale of wooden shoes and silk slippers is comforting. It suggests that discipline determines your destiny. But moral explanations don’t help anyone change their behavior. No leadership team wakes up believing they’re arrogant and lazy. They believe they’re doing the best they can under the constraints they have. And when we frame failure as a character flaw, everyone assumes the warning applies to someone else.

Not long ago, a friend of mine was in the running to become CEO of their company. As part of the selection process, the Board of Directors asked each candidate to write a white paper outlining the biggest opportunities and threats to the business over the next three years. My friend asked for my thoughts. I told them the hardest part of the assignment wouldn’t be spotting the risks. It would be figuring out how to tell the truth.

After all, the biggest threat to the business wasn’t a competitor or a supply chain shock. It was that the Board of Directors only worried about the next three years.