Why Products Fail

Building a successful product is notoriously difficult. But after having achieved the elusive Product-Market fit some products seem to still fail over time. While some failures are attributed to poor execution or bad timing, the deeper systemic reasons often lie in the structures and incentives that guide decision-making.

The way that companies structure their management and incentive systems can be compared to the political and economic institutions in a country - after all some companies are larger than nation states these days. If these structures concentrate control and rewards at the top, they create environments where failure becomes inevitable. By understanding these dynamics, organisations can avoid the common pitfalls that doom so many products.

The Problem of Centralised Control: Extractive Political Institutions in Product Development

In economics, extractive political institutions are characterised by centralised control, where a small elite makes all decisions, limiting participation and innovation. A useful analogy in product development is centralised project management, where leadership holds tight control over decisions, disempowering teams from taking ownership.

At first glance, centralised control can appear highly efficient. The Soviet Union, for example, experienced rapid economic growth in the 1950s and 1960s due to state-directed industrialisation. Similarly, a product team under strict top-down management might initially execute with speed and alignment. However, just as the Soviet economy eventually collapsed under its own inefficiencies, centralised product management leads to stagnation. When decision-making is concentrated at the top, it discourages innovation, slows adaptation, and reduces team accountability. Employees become disengaged, executing directives rather than proactively solving problems.

Microsoft's dominance in the 2000s, followed by its initial struggles with mobile and cloud computing, illustrates this pattern. Centralised decision-making limited its ability to respond to emerging threats from more agile competitors.

The Fear of Letting Go

Many executives struggle with relinquishing control. They fear that without centralised decision-making, chaos will ensue, and the company will lose strategic direction. However, history, and modern business success stories, shows that there is a better way to maintain alignment without stifling innovation.

Instead of controlling every decision, effective leaders provide frameworks that empower teams while ensuring coherence:

• Shared Company Values and Principles – These act as guardrails, ensuring that all decisions align with a core philosophy.

• Product Vision – A long-term aspiration that provides direction and purpose.

• Product Strategy – A roadmap that translates vision into actionable initiatives.

• Quarterly Goals (Outcomes) – Clear business outcomes that allow teams to focus on delivering impact rather than just output.

• Regular Business Reviews – Weekly or monthly meetings that evaluate product and business metrics, rather than being a delivery status check-in.

Amazon's "two-pizza teams" exemplify this approach. Each small, autonomous team has the authority to make decisions while staying aligned with company-wide goals and principles. This structure enabled Amazon to rapidly experiment and expand into diverse markets, from cloud computing to entertainment.

Extractive Economic Institutions and Their Impact on Incentives

Just as political institutions can be extractive, so too can economic systems. Extractive economic institutions concentrate wealth and power at the top, limiting participation and disincentivising investment from those outside the elite. The business equivalent is when financial rewards and decision-making authority are concentrated among executives while frontline employees lack meaningful upside.

Many companies attempt to motivate employees through short-term incentives like annual bonuses. However, research consistently shows that extrinsic motivators like cash bonuses often have a net negative effect on performance. Employees focus on hitting short-term targets rather than making strategic, long-term contributions.

Contrast this with the equity-based model of Silicon Valley startups, where employees receive stock options that align their financial success with the company’s long-term performance. When employees have real ownership, they are more engaged and invested in outcomes.

One of the most radical examples of breaking free from extractive economic institutions comes from Haier, the Chinese appliance giant. Haier transformed itself by splitting into thousands of micro-enterprises, each operating autonomously with an unlimited profit-sharing structure. Instead of following directives from above, these small teams function as independent businesses, with full accountability for their success or failure.

This model has led to exceptional agility, innovation, and ownership. Unlike traditional corporate structures, where innovation often slows due to bureaucracy, Haier’s teams are free to experiment, fail, and iterate quickly.

The Market as the Ultimate Judge: How Adapatability Beat Incumbents

When an industry is dominated by large incumbents, one might assume they have an unbeatable advantage. However, history repeatedly shows that markets favor adaptable, decentralised players over monolithic giants.

For years, Google was the undisputed leader in AI research. However, it was OpenAI, a much smaller player, that launched ChatGPT, reshaping the AI landscape. Despite Google’s deep resources, its bureaucratic structure slowed decision-making and product execution. Meanwhile, OpenAI’s nimble structure enabled rapid iteration and deployment.

Similar stories play out across industries. Notion challenging Microsoft in productivity software, Rust challenging C++ in systems programming, or Figma disrupting Adobe in design tools - in each case, more inclusive development models defeated traditionally managed incumbents.

Why Extractive Models Persist

If inclusive institutions are superior, why do extractive models persist in product development? The answer parallels national development: those with power resist changes that might dilute their control. Middle managers often resist empowering teams, just as political elites resist democratisation.

The fear is understandable. Empowered teams might make mistakes, move in unexpected directions, or challenge established hierarchies. But as with nations, the alternative is worse: stagnation, inability to attract talent, and eventual obsolescence.

Another reason why companies resist empowering teams is because it is really hard to do. There are very solid reasons why we work the way we work today, and why attempts to move towards more empowerment have failed. This is why we created ZeroBlockers. We want to make it easy for companies to really empower product teams, and solve all of the process, alignment, governance and funding issues that go along with that.

Conclusion

Like nations, products fail when their institutions concentrate power and rewards among a small elite. Success requires building truly inclusive structures that empower teams and align incentives with long-term value creation. The market ultimately rewards organisations that can adapt and innovate, which happens best through distributed power and shared rewards.

The parallel with nations is clear: sustained success comes not from brilliant leaders or perfect market conditions, but from institutions that encourage broad participation and innovation. Companies that understand this will build enduring products. Those that don't will follow the path of the Soviet Union - impressive short-term results followed by inevitable decline.