As fans of Crumbs know, the popular cupcake business started out as a single bakery and quickly grew to over 40 stores. So what led to the demise of Crumbs and its recent bankruptcy filing?
In my opinion, there are three factors that contributed to the crumbling of Crumbs.
Growth Must Be Paced
First, it grew too quickly. Growth is good but it must be controlled. Rapid growth can lead to cash flow problems, loss of revenue, operational failures, and leadership shortfalls. In Crumbs' case, it expanded so quickly and was spending so much money do so that when business started to slow it could no sustain the losses.
Single Product Focus Has Inherent Risks
Crumbs capitalized on the growing cupcake craze in the early 2000's. However, its product line stayed relatively limited to cupcakes. As competitors moved in Crumbs had no other products to fall back on. While a business can be successful by offering a single product, there are inherent risks and when cash flow becomes an issue there is a high likelihood that it will lead to the company's demise. The reason that company's like Carlo's bakery remain successful is because growth is slow and steady and there are a reasonable variety of products in their inventory.
Fads Come & Go
It can be risky to bet on the trends. Over the years we have seen cookie, cupcakes and cake fads come and go. It is one thing to hop on board the trend train but you have to expect that the train will leave the station at some point. It is easier for retail businesses to bet on trends if they have other products in their inventory. For example, where would you be today if all your company sold was parachute pants?
The demise of Crumb's teaches us valuable lessons that all business and entrepreneurs should learn.
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