5 Companies That Failed from a Lack of Innovation (and 5 That Recovered)

These days, it seems like every other fledgling entrepreneur dreams of building the next Tesla or Facebook. Thanks to shows like Silicon Valley and the glamorization of start-up culture, launching a startup can seem like a golden ticket to becoming the next Elon Musk or Mark Zuckerberg. 

However, the reality is that for every success story, there are hundreds of companies that fail. What’s more, even the biggest brands can go through some tough times before becoming profitable. 

In this article, we’ll be exploring some notable failures (companies that went from boom to bust) while highlighting a few comeback stories involving companies that learned from their mistakes before it was too late. 

The element tying them all together? Innovation. Simply put, some found a way to innovate while others couldn’t. 

Innovation is key to maintaining success

At its heart, innovation is a journey of embracing change. Most successful companies didn’t experience overnight success. Rather, they were committed to building success through learning and evolution.

Big companies are no exception. 

Nearly half of executives (45%) believe their company risks losing competitiveness over the next decade if they stick to their current business strategy. 

Their fears aren’t without reason. Countless stories of resistance to change litter the history of every industry. 

Still, success today doesn’t guarantee success tomorrow. “Innovate or die” may sound harsh, but it’s also the answer to staying ‘default alive’ long-term. 

With that in mind, here are five companies that failed due to a lack of innovation and five that managed to pivot and survive despite the odds. 

Failed: Kodak

Kodak’s downfall shows how quickly failing to innovate can cause even industry giants to crash. For over a hundred years, Kodak made film photography easy and affordable for the masses. As a result, Kodak became an iconic brand of American innovation.

However, Kodak failed to keep up with photography’s digital revolution. Despite inventing one of the first digital cameras in 1975, the company feared disruptive technology would undermine its profitable film business.

Consequently, Kodak chose to forego building on their new tech. Instead, it spent years trying to safeguard its film sales, all the while rivals raced toward the future of digital photography.

In 2012, no longer able to adapt to changing times, Kodak filed for bankruptcy. Ironically, although it had invented the core technology that sparked the digital revolution, it failed to capitalize on the potential, leading to its doom. 

Recovered: Apple

Apple’s story underscores the importance of pursuing innovation in spite of difficult times (and a perpetual sales war with Microsoft). 

Founded in 1976, Apple made its name in user-friendly computing (its legendary 1984 commercial spoke volumes). But by the mid-1990s, the tech company was in dire financial straits. 

Part of it was due to the ousting of co-founder Steve Jobs in 1985, which extinguished the company’s spark for big new ideas. Apple’s innovation premium — a metric defining a company’s innovative potential — plummeted from +37% to -31%. In short, the company lost sales as rival products like Windows PCs became more advanced.

When Jobs returned as CEO in 1997, he quickly reignited Apple’s culture of disruptive innovation. He assembled a leadership team with the skills to create and execute. 

Soon, Apple started to produce wildly successful products: the iMac, iPad, iPhone, iTunes… The list goes on. Not only that, but Apple products are the premier destination for many professionals’ customer journey.

Though the company took several years to recover, its innovation premium increased to 52% between 2005 and 2010.

Now, Apple is the world’s number one company for innovation, as well as one of the largest on the planet with a multi-trillion dollar market cap.

Failed: Blockbuster

Founded in 1985, Blockbuster was the biggest video rental chain for over 20 years, with thousands of stores worldwide.

Yet by 2010, smaller competitors had all but wiped Blockbuster out. The company made the big mistake of focusing on physical store traffic and not shifting to mail DVD rentals despite the clear signs it was time to shift strategies. 

The cherry on top was that Blockbuster refused to acquire its rising competitor, Netflix, which could have saved it. In the words of Barry McCarthy, former Netflix CFO, Blockbuster “just about laughed us out of their office.”

The company stubbornly chose to stick to its outdated business model as remote and digital movie rentals started to grow. In the end, Blockbuster filed for bankruptcy in 2010, and now there’s only one Blockbuster still in operation (more for nostalgia than movie rentals).

Recovered: Netflix

Fed up with Blockbuster’s exorbitant fees for late returns, Reed Hastings launched Netflix in 1997 as a way to mail-order DVD rentals without late fees (Ironic, isn’t it, that Blockbuster gave rise to the company that eventually put it out of business? Who knew that Netflix would morph into the albatross around Blockbuster’s metaphorical neck).

Like any company, Netflix had its share of ups and downs. Early on, Blockbuster dismissed Netflix’s DVD-by-mail concept, but Netflix persevered with its idea to gain a competitive advantage over physical rentals.

However, in 2011, Netflix announced that it would split DVD rentals and streaming into two pricier options, which angered many users. The decision cost Netflix around 800,000 US subscribers in a single quarter.

Hastings apologized sincerely, saying, “There is a difference between moving quickly — which Netflix has done very well for years — and moving too fast, which is what we did in this case.” Netflix also backtracked on its plans and kept its affordable options in place.

By admitting its missteps, Netflix rebuilt loyalty, but the company remained committed to innovation. Thanks to unlimited streaming, as well as hit shows and marketing tactics like “Love is sharing a password”, Netflix is now a tech giant that streams films and TV shows to over 200 million members globally.

Failed: Blackberry

Blackberry phones dominated business mobile use in the late 1990s and early 2000s thanks to their messaging capabilities and high security. The high point was becoming President Barack Obama’s favorite gadget of choice.

However, the brand failed to innovate and keep up with the times. While iOS and Android transitioned to touch screens and built vast app ecosystems, Blackberry stuck with outdated technology: Its famous physical keyboard.

Although the company did release touchscreen models like the Storm and Torch, the phones had many bugs and lacked apps compared to its competitors. 

After losing market share year after year, Blackberry finally shut down its phone business in 2016. 

In a certain sense, Blackberry became a victim of its own success. It succeeded in turning its ideal customer into sales, only to lose their customer base by committing a familiar mistake – Not updating products to match new preferences.

While it’s no longer a mobile device pioneer, the company has remained profitable thanks to its enterprise software and security offerings.

Recovered: LEGO

Founded in 1932, the Danish toy company LEGO began facing problems in the 2000s as children’s play habits profoundly changed. The rise of computers meant that kids were spending less time playing with traditional toys. The business reported its first-ever financial loss in 2003.

To reestablish itself after this market disruption, LEGO started making playsets based on popular brands like Star Wars, Harry Potter, and Marvel. The company also tapped into a new adult audience by offering sets tied to classic movies. 

The success of The Lego Movie in 2014 showed that LEGO could also compete in the realm of digital animation. The film delighted both kids and adult audiences, earning a 96% critics’ score on Rotten Tomatoes against top Oscar nominees.

In summary, the brand found innovative ways to stay popular even with more digital entertainment competing for attention. Today, LEGO is the world’s most profitable toy company.

Failed: MySpace

Anyone who was around before Facebook will likely remember MySpace, which was launched in 2003 as one of the first big social media platforms. 

MySpace let people show off their favorite music and personal styles on colorful, customized profile pages. By 2006, MySpace was the most visited website across the US.

Still, the company had problems under the hood. As users’ tastes changed, MySpace never meaningfully updated its user experience to match. On top of that, as online interactions evolved, MySpace pages began to look disorganized and cluttered.

By 2009, Facebook had developed an intuitive interface, and users quickly switched to it as a more easy-to-use alternative.

Unable to catch up, MySpace quickly collapsed. Mass media company News Corp had bought the company for $580 million in 2005, but when it sold MySpace in 2011, it received just $35 million. 

Recovered: Starbucks

Starbucks rapidly grew into the world’s biggest coffee chain after its founding in the city of Seattle in 1971. In 2000, it tried entering the Australian market to replicate its American success.

However, Starbucks had a big competitive disadvantage: They didn’t understand Australia’s existing coffee culture. Aussies already had their favorite local cafes serving high-quality coffee, and they were turned off by Starbucks’ sweetened drinks.

After struggling with pushback, Starbucks pulled out of Australia in 2008. It closed over 60 unsuccessful stores all across the country and lost over $100 million.

Recently, though, Starbucks has had a second chance to adapt to Australian tastes. The chain realized that quality and an authentic, personalized in-store experience are essential to connecting with locals.

Starbucks now has shops in high-traffic areas that engage both locals and tourists already familiar with this coffee chain. Although local shops still dominate, the company has finally found its niche in Australia.

Failed: Borders

With over 1,200 stores worldwide, Borders was a leading book and music store chain alongside rival Barnes & Noble. 

However, with the growth of Amazon’s online sales and the shift to e-books, Borders began to struggle. As physical book and CD sales dropped, Borders stores became unprofitable. In comparison, rival retailer Barnes & Noble weathered the change with its popular Nook e-reader line, which challenged Amazon’s Kindle for the same customer profile. 

Stuck in stagnation, Borders turned to external financing to stay afloat, but the resulting debt only accelerated the company’s collapse. 

While Barnes & Noble survives today, Borders failed to transition from physical to digital books. Stuck with fading business models, the chain filed for bankruptcy and closed all its remaining stores in 2011.

Recovered: Nintendo

Nintendo came to dominate video games in the 1980s and 90s with revolutionary consoles like the Nintendo Entertainment System (NES) and popular characters like Mario, Link (from Legend of Zelda), and Pokemon.

The 2006 Wii console took Nintendo’s success to new heights. Yet the pressure to exceed it ended up creating one of Nintendo’s worst failures.

The 2012 Wii U failed due to its weak launch. Nintendo usually provides hit games with new consoles, but the Wii U lacked any standout titles, so fans had no compelling reason to buy it. The console’s name was also an issue: Many people didn’t know whether the Wii U was part of the Wii or a whole new system.

After the Wii U’s lackluster results, Nintendo created its next system – the Nintendo Switch. The company took the Wii U’s tablet concept but made it far more flexible and functional. As a result, the Switch can be used as both a handheld and a home console. Having learned from the Wii U’s naming and marketing issues, Nintendo made sure people understood the Switch was a new console.

Overall, the Wii U’s failure pushed Nintendo to improve and innovate in key areas. Eventually, the Switch surpassed the success of the Wii console to become one of Nintendo’s top-selling systems.

Why are some companies oblivious to innovation?

Blockbuster, MySpace, and Blackberry are just a few of the market leaders who lost their competitive edge.

Now they’re examples of what can happen when a company fails to innovate.

As for why some companies remain oblivious to innovation, there are several potential reasons:

• Comfort with the status quo – Companies that have long been successful with their current approach are likely to resist in the belief that what worked before will continue to work.
• Risk aversion – Innovation requires an appetite for uncertainty and potential failure. Companies that prioritize stability are likely to avoid new ideas.
• Bureaucracy and slow decision-making – Large enterprises with complex hierarchies frequently struggle to adopt new ideas, leading to missed opportunities.
• Cultural resistance – Organizational culture plays a huge role in fostering or stifling innovation. Cultures that don’t encourage creativity or reward old methods will prevent new ideas from gaining traction.
• Short-term focus – Companies that prioritize short-term profits may see innovation as a costly investment than a long-term growth opportunity.

But even though some companies fail to innovate, the flip side is also a hazard. Innovating recklessly without understanding your users or markets will put you at risk.