What Is the Icarus Factor?

The Icarus Factor is a term for what happens when business leaders initiate an overly ambitious project that does not succeed, thereby harming the company's financial health. Fueled by excitement for the project, the executives are unable to rein in their misguided enthusiasm before it is too late to avoid failure.

Key Takeaways

  • The Icarus Factor is a term for what happens when business leaders initiate an overly ambitious project that does not succeed, thereby harming the company's financial health. 
  • The Icarus Factor is mainly seen when companies plow into businesses that work on different models from their existing lines.
  • Pressure from competing businesses often pushes companies to diversify new lines before they're ready; if these are prematurely launched or over-invested in, the Icarus Factor prevents them from becoming successful.

Understanding the Icarus Factor

In Greek mythology, Icarus and his father, Daedalus, were imprisoned in Crete by King Minos. Daedalus created two sets of wings made from wax and feathers. He and his son were to use them to escape by flying. Daedalus warned his son not to fly too close to the sun. Icarus was overcome with the excitement of flying and disregarded his father's warning. He flew higher and higher, approaching the sun. As the wax melted and the feathers fell, Icarus fell to his death in what is now called the Icarian Sea, near Icaria, an island southwest of Samos.

The Icarus Factor is mainly seen when companies plow into businesses that work on different models from their existing lines. As they spend more and more money to try and catch up to other companies already dominant in those fields, they use up the cash reserves built up by their core business. This drain, if not done properly, can sometimes be fatal, doing irreparable damage to the company and its overall financial health. 

The Icarus Factor: Why Take the Risk?

It's a competitive world out there, with companies diversifying their product and service lines or merging with other companies. All this can have a big impact on the marketplace and on consumers' tastes and habits. And by taking the risk, many companies are just trying to stay ahead of the competition.

That's why it's not surprising that some companies jump the gun on a project, innovation, or any other type of investment. But by going into it blindly and trying to reach their goal (and without doing the proper research), business leaders may end up losing sight of important factors like costs or future problems with the project. This can all have a big impact on other parts of the business or on the company as a whole. 

Example of Icarus Factor

Sometimes a company can become so blinded by its position in the market that it can set itself up for failure. India's Kingfisher Airlines started operations in 2005 as a public limited company, and initially had the second-largest share in the country's domestic travel market. The company was owned by United Breweries Group.

Six months after it began flying, the company made an announcement that it would launch an initial public offering (IPO) in order to raise capital to expand and possibly take over other airlines. But the company was reportedly in debt and continued to pile up losses, despite acquiring another smaller airline in 2007 and expanding to include flights from India to the United Kingdom in 2008. The company was plagued with problems, including the loss of prime flying slots and employees protesting over delays in salaries.