Cupcake chain Crumbs Bake Shop made a surprising announcement on Monday—it was immediately closing all 48 of its stores. The chain, which started in New York City in 2003, seemed to have it all a few years ago.
But something clearly went very wrong between then and now. The rise and crumble of Crumbs offers some important lessons for entrepreneurs:
1. Be careful when jumping on fads—they don’t last. Specialty cupcakes became all the rage about a decade ago, spawning hundreds of upscale cupcake shops around the country. But consumers’ appetite for oversized cupcakes seems to have dwindled. It’s always dangerous hitching your business model on a fast-growing trend, which might disappear just as quickly as it sprang up.
2. Be willing to evolve. Massive, $5 cupcakes may have sold well in 2003 when Crumbs got started. But health-conscious consumers have trended toward mini, bite-sized desserts in recent years. Crumbs apparently didn’t get the memo.
3. Diversify your product line wisely. Despite the downfall of Crumbs, several other cupcake chains are still flourishing. Their secret: selling more than just cupcakes. Sprinkles, a California-based cupcake chain that’s still expanding, now calls itself a “specialty dessert store” and also sells ice cream and cookies. Magnolia Bakery, another cupcake chain, has desserts such as banana pudding, pies and cookies in its lineup. Crumbs tried to diversify in recent months by offering sandwiches and salads, but may have branched out with the wrong products for its customer base—and too late.
4. Find a sustainable growth model. Crumbs grew very fast, adding 70 stores in 10 years. The company went public in 2011, which propelled the company into high-growth mode. But equity couldn’t keep up with its rising debt, according to The New York Times. Even when it seems like you can’t grow fast enough to keep up with consumer demand, companies (think Krispy Kreme, too) can hurt themselves by expanding too fast and not taking time to think about how to grow wisely. Crumbs likely also suffered by locating its stores in trendy, high-end neighborhoods where rents have soared in recent months.
5. Think twice about going public. Going public may have put the icing on the cake for Crumbs, which was delisted from the Nasdaq last week. The company was likely under intense investor pressure and scrutiny to prove itself, which forced it to grow super-fast and make decisions that hurt the company’s long-term viability. Going public can also stifle innovation, management experts say, because all decisions are in the public eye. Crumbs, of course, wouldn’t be the first company that flopped after an IPO.
Read more articles on leadership.
Photo: Getty Images