As the Cupcake Crumbles — What Small Businesses Can Learn.

cupcake12I don’t know whether I’m happy or sad.  One of my favorite bakeries, Crumbs, is closing its doors.  I’m sad because I enjoyed stopping by one of its stores near my Manhattan apartment to pick up cupcakes to give as a thank you gift or a special recognition for someone with whom I worked.  But I’m happy because each one of those decadent cupcakes packed about 600 calories.  It takes a lot of exercise to cancel one of those puppies out.

Crumbs Bake Shop opened its first store in March 2003 on the Upper West Side of Manhattan during the beginning of what many refer to as the cupcake craze.  Cupcakes had been a staple at children’s birthday parties and PTA bake sales for decades.  But someone decided to give the old faithful cupcake a serious make-over and it re-emerged as the hottest new desert trend.

Riding the cupcake wave, Crumbs became an iconic brand offering its signature 4-inch cupcakes with think layers of frosting in myriad flavors including cookie dough, carrot cake and red velvet cheesecake.  And customers paid a hefty price for the sugary indulgences — each cupcake cost as much as $4.50.  That’s a far cry from the community bake sale prices.

Three years ago, Wall Street embraced cupcakes when Crumbs went public and the company grew quickly.  In its heyday, the brand had 78 locations in 12 US states and the District of Columbia.  But its success was short lived.  Customers soon tired of the tasty treats and business slowed.  The company experienced several years of financial losses caused in part by its rapid expansion.  Last year, Crumbs posted a loss of $18.2 million.  It’s stock which reached a high of $13 per share, tumbled to less than 30 cents resulting in the Nasdaq suspending the company from the exchange and Crumbs defaulting on millions in loans.

There is an important lesson to be learned for all of us in small businesses.  You don’t want to be a one trick pony because eventually customers will tire of the same old, same old and move on.  You may hang on for a while, but most likely if you don’t diversify your offering and keep up with market trends, your business will fail.

Crumbs CEO Ed Slezak noted in an interview with CNBC that the cupcake is “too narrow of an assortment” and “too tight a niche to attract a sufficient number of people.”  He added,  “At the heart of it, I think that cupcakes by themselves do not attract enough people every day any longer.” he added.

Perhaps, if Crumbs had broadened its product offerings it would have been sustainable.  But as  Kevin Burke, managing partner of Trinity Capital, LLC, a Los Angeles investment banking firm noted, in an interview with The Wall Street Journal,  “The novelty has worn off.”

Crumbs was a one trick pony.  So as the cupcake crumbles, make sure your business product or service is sustainable.  There will always be trends and fads in business, that’s why it’s imperative to pay attention to market trends.  Diversify your business so your success is not dependent on one product or service.

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