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Why Businesses Fail: What The Crumbs Story Can Teach Business Leaders

When the retail bakery chain Crumbs declared bankruptcy and closed last month it made national news. There are valuable lessons for all business leaders in this story.

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By Larry Gorkin

When the retail bakery chain Crumbs declared bankruptcy and closed last month it made national news. The high profile business failure was unexpected by consumers and mass media, with whom it was famous for selling over-sized gourmet cupcakes.

At one level, Crumbs’ closing is the boom-bust story of a trendy fad product. More importantly, however, it represents a failure by executives who missed Crumbs’ need for an evolved strategy to create a sustainable business. There are valuable lessons for all business leaders in this story, making it the focus of this post.

Here is the crux: Leaders with successful growing businesses need a strategy to ensure their value proposition and offerings evolve ahead of inevitable market changes. Otherwise they risk unexpected business set-backs, similar to those which recently forced retail baker Crumbs to shut down.

For those not familiar, Crumbs was a retail bakery chain specialized in selling gourmet cupcakes. Crumb’s signature item was a four inch big frosting cupcake which sold for about $4. While the company sold additional baked goods and beverages, cupcakes were most of its business.

Crumbs got its start about ten years ago, right as the gourmet cupcake market took off. The company grew along with the category, going public at its peak in 2010. Crumbs’ stock topped out at about $13 per share, as the company rapidly expanded to 70 retail stores.

But, success was short lived. The cupcake market declined, new competitors entered, and results suffered. After several unprofitable quarters, Crumbs’ stock fell below $1 and was delisted. You know the rest.

In many ways, Crumbs’ demise is easily understood and predictable. The company’s core business was a discretionary fad item without unique advantage. It operated in a market with many potential competitors and low barriers to entry. Moreover, Crumbs’ cupcakes could top 600 calories, making them out of sync with healthy diet trends.

At the same time, Crumbs was far from pre-destined to fail. The company had a huge following, solid baking skills, and an enormous footprint. Crumbs’ unfilled requirement was to expand its value proposition from cupcakes to something bigger, differentiated, and sustainable. As an example, Starbucks turned the concept of premium coffee into a larger lifestyle and social destination.

Alternatively, Crumbs could have pursued a more targeted strategy exclusively focused on their indulgent cupcake product. Rather than trying to sell its $4 cupcakes as an everyday purchase, Crumbs could have targeted special occasion buyers. This strategy might be modeled after Cinnabon, which sells similarly decadent and premium cinnamon rolls primarily in malls and airports.

Of course, the Crumbs story is not limited to trendy or fast growth products, although they do face special challenges. It is easy to get seduced by a rapidly expanding market where everyone grows and looks smart. But even tall trees don’t reach the sun, and markets eventually slow down. Moreover, successful businesses always attract attention and competition. Sooner or later you need to change.

So, the question facing everyone — whether in a fast or slow growth market– is not whether to evolve a business strategy, but when to do it. Here, I’d argue that it is better to be ahead of the curve than behind. Companies that wait too long have a hard time catching up, and some never do. Think about eBay versus Amazon, and Blockbuster versus Netflix. Both Amazon and Netflix continuously evolved their business strategies as the competitors stood still. The results tell the story.

In that spirit, here are some steps to help ensure your business doesn’t become crumbs.

1. Assess Your Position–What is the market size forecast? What are your competitive strengths and weaknesses? What macro market trends are likely to impact your business?

2. Set a Time Frame–How sustainable is your current strategy or value proposition? When is the right time to introduce a new strategy?

3. Develop Hypotheses–What are customers’ unmet needs? What strengths and assets do you have to leverage? What vulnerabilities do you want to defend?

4. Create a Plan–How will you evaluate and refine your hypotheses? What are the key steps and milestones? What are the role and responsibility assignments?

Creating change is hard and uncomfortable. But standing still means you’re being left behind.

Questions: How long has your value proposition and strategy been in place? How sustainable is it? How has it evolved?

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