I consider myself to be a cupcake aficionado. I’ve tried most (if not all) of the bakeries in the area, and rated them according to taste, price, and variety. Every time my husband I travel, he knows I’ll be scoping out the local offerings.
I love cupcakes. Some may call it a weakness; I call it enjoying the finer things in life. Years ago, one of my favorite places was Crumbs Bake Shop in New York City. And I wasn’t alone. While countless other companies were scrambling to capitalize on the cupcake trend (or ‘renaissance,’ in my opinion), Crumbs was at the top of its game. People were lining up outside the door to get a taste of their creation, and providing free advertising by posting pictures on social media with hashtags like #cupcakeheaven.
The company was poised for growth. It only seemed logical to strike when the iron was hot. Unfortunately, it wasn’t quite as hot as Crumbs’ founders thought. After expanding to 35 locations in several different states in 2011, sales began to decline. But rather than pausing to analyze the (increasingly crowded) market and reassess the strategy, Crumbs pushed on, opening 30 more stores in two years.
In 2014, 48 of those stores closed. And although 26 locations reopened when entrepreneur Marcus Lemonis bought Crumbs out of bankruptcy, the fix was merely temporary. By 2016, all physical locations had folded. (As it turns out, even a ‘Profit’ can be wrong.)
In fact, it’s only natural for leaders to want to expand their audience and increase revenue. The problem is that “growing too quickly can be just as dangerous to your business as not growing at all,” according Inc. In a recent post, the publication identified the consequences of expanding too fast:
- Losing Track of Finances
- Cash Flow Mistakes
- Overvaluing Sales
- Ineffective Business Operations
- Hiring the Wrong People
- Not Scaling Customer Service
- Management Mistakes
- Scaling Technology to Business Need
Costly mistakes, yes, but ones that are all too easy to make.
Interestingly, it was another addiction of mine — cycling classes, which help offset my sweet cravings — that got me thinking about the Crumbs mess. Yesterday, the story broke that Peloton Interactive is being sued by a group of music publishers claiming it used more than 1,000 songs from artists such as Lady Gaga and Justin Timberlake without permission. Peloton, for those who aren’t familiar, is a rapidly growing company best known for its video-streaming exercise bikes.
Just six years old, Peloton is valued at $4 billion and has announced plans to go public this year. In addition to its bikes — which can be purchased for $2,000, along with a $39 monthly subscription fee for live video classes — the company recently began selling high-end treadmills, and is expanding its business outside of the United States.
And until this week, few would’ve blinked an eye at those grand plans. But in light of the possible legal trouble, it might be time for Peloton to pump the brakes.
According to CNBC, a group that includes Downtown Music Publishing, Big Deal Music, Reservoir, Round Hill, Royalty Network, Pulse Music Publishing and TRO Essex Music Group seeks $150 million in damages, claiming Peloton’s failure to license songs resulted in a loss of income.
Whether the lawsuit holds up remains to be seen. But for Peloton — and countless other startups — the ramifications are significant. Growth is great, but it’s not everything. You’ve got to have the infrastructure in place to support healthy growth. You’ve got to have policies and personnel who can ensure something as critical as copyright infringement doesn’t fall through the cracks. You’ve got to be willing to reassess plans and pivot based on market trends.
It could mean the difference between taking a loss and losing everything.