In his TED Talk, Knut Haanaes explains why companies fail and how leaders can avoid common traps. He identifies two main reasons: some firms only exploit what they already know, while others focus only on exploring what is new. The key is striking a balance between the two.
Haanaes illustrates exploitation through the example of Facit, a Swedish company that once dominated the market for mechanical calculators. When electronic calculators emerged, Facit continued to perfect its old technology instead of adapting. Within months, their business collapsed. They became victims of the “success trap,” relying too heavily on current strengths and ignoring industry shifts. Exploration can be just as dangerous if overdone. Haanaes highlights a biotech firm, OncoSearch, that constantly pursued innovation but never brought products to market. By chasing perfection and failing to commercialize ideas, the company fell into the “perpetual search trap.”
For SMB CEOs, these examples underline the importance of balancing today’s operations with tomorrow’s opportunities. Exploitation makes current products faster, cheaper, and more efficient, but it carries long-term risk if it blinds companies to change. Exploration drives discovery and positions businesses for the future, but it requires patience, persistence, and discipline.
Haanaes argues that only about two percent of companies effectively balance both, yet those that do achieve outsized success. He points to Netflix, Lego, Toyota, and Unilever as companies that embraced new trends while leveraging existing strengths. He recommends leaders think in multiple time scales, anticipate crises before they arrive, invite diverse talent to challenge assumptions, and remain skeptical of success.
The lesson for SMB CEOs is clear: industry trends should not be ignored or blindly pursued. Sustainable growth comes from deliberately combining exploitation and exploration, turning foresight into long-term competitive advantage.
