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Lessons to be learned from Crumbs' Chapter 7 bankruptcy

Many Tennesseans are familiar with a one-hit wonder, that popular song from their youth from a band or singer that nobody has heard from since. Being a one-hit wonder is never a good thing, especially in the business world. With consumers' interests changing so rapidly, a company needs to be able to deliver more than one product in order to survive. Unfortunately, that was the lesson that once-popular cupcake chain Crumbs learned the hard way. The struggling business recently closed down more than 30 locations and is now reportedly considering filing for Chapter 7 bankruptcy.

Crumbs is just one of many businesses that focus on a fad. Mrs. Fields sells only cookies. Krispy Kreme is known for its donuts, while TCBY sells frozen yogurt. These companies have all suffered major declines in recent years. The reason? Fads are always changing. When consumers focus on the next new fad, these businesses suffer.

That's why it's important for companies to diversify. That way, when one product has reached its saturation point, the company has another product offering to fall back on. While selling only cupcakes led to Crumbs' success a decade ago, that no longer holds true. The company grew too rapidly and now is dealing with overwhelming debt.

Many small companies are eligible to file for Chapter 7 bankruptcy. This type of bankruptcy is beneficial to entrepreneurs who don't want to be personally liable for their business debts. It provides debt relief and stops harassing calls from creditors. It also allows a fresh financial start for entrepreneurs who may want to try their hand at another business in the future.

Source: FOX Business, "Failure of Crumbs shows dangers of rapid expansion, tying business to a single product," July 8, 2014

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