Many people see growth in terms of exploding sales goals over the next 90 days or doubling a business in 60 days, but there is a flaw in this reasoning. Growth can happen on a sudden and even exponential basis, but is that always positive?
Silly Bandz are a trend that lead to “flash in the pan” growth. Overnight, middle schoolers went into a frenzy for the shaped bracelets. Stores could not keep Silly Banz in stock, and they became so popular that schools banned the tradeable item.
At the height of its popularity, Silly Bandz seemed unstoppable, but there was no real explanation for the extreme demand. Over time, that frenzied demand cooled off. Silly Bandz is still in operation, but the company is not still a must-have item that is selling out of stores.
Growth that is not understood is impossible to recreate. Sudden growth generates more revenue, but it also generates more expenses. A business needs a sturdy internal infrastructure to deliver when there is more demand.
For Silly Bandz, less than adequate supply resulted in more demand. That concept does not always work. A homeowner with a broken air conditioner in the middle of summer will not wait around on a favored company that does not have an open appointment for weeks. If a restaurant has a line out the door, some customers will go elsewhere. Growth that is not prepared for can result in loss, even if revenue increases.
There is no shame in riding out the high that can result from the waves of supply and demand. Nevertheless, planned sustainable growth is better in the long-term. When there is a clear reason for growth, investors are more comfortable investing in a business.