To the best of my knowledge, Iomega's big mistakes were skimping on quality control, which led to the infamous "click of death" scandal that killed the Zip disk's reputation; and trying to build on the early success of Zip by rolling out multiple new products in a rush like the Jaz and Clik drives, none of which were the slightest bit compatible with any of the others (including Zip).
It probably didn't help matters that Iomega also became an early case study in how the entry of individual investors in the market could have disorienting effects, as Iomega stock became extremely hot in online communities focused on the then-quite-new individual-investor market, particularly The Motley Fool (see https://www.deseretnews.com/article/491232/FOOLS-RUSH-IN-SEN...). The Fool's founders tapped Iomega as one of their highly recommended "Rule Breakers," and there were people on the Motley Fool message boards who were so convinced that Iomega was The Next Big Thing that they called themselves "Iomegans" (!), preaching the Gospel of Iomega with quasi-religious fervor. All that hype drove the price of Iomega stock to dizzying, unsustainable heights.
All of which makes me wonder in retrospect how connected the bad management decisions and the stock pumping were; it's not hard to imagine managers, confronted by staff with big internal problems, pointing at the stock and saying "if we're doing so badly, why does it keep going up?"
(The Fools sort of apologized for their role in all that in a book they published in 2000, after the Iomega bubble had popped; see https://books.google.com/books?id=3TDjULa4nO4C&lpg=PA148&ots.... But it couldn't have comforted their readers much to learn in that same passage that they had cashed out half their position in Iomega in 1997, earning a 650 percent return.)
Sounds like /r/wallstreetbets had a predecessor!
The 'click of death' thing happened with their later drives; I assume they tried to cut corners either on the design or QA and things suffered as a result. The original SCSI drives didn't have that issue, that I ever saw. It was the later USB and parallel-port drives that weren't especially reliable.
My feeling is that Iomega couldn't figure out if they wanted to do a razors-and-blades business model by selling the drives cheap and then charging for the media, or if they wanted to let the price of media fall, so that it became a widespread standard that they would 'own'. At first they didn't allow anyone else to make Zip disks; eventually they let Fuji and a few others manufacture them and sell them under their own brands. (I still have a few NIB Fuji Zip disks!)
My impression is that they were seen as fragile, people feared losing one was like losing whole boxes of regular floppies. A single floppy was fragile, so you made backups of it, but backing up a ZIP disk was slower and impractical because they were more expensive compared to burning CDs.