$4B in sales to bankruptcy. Forever 21 is a lesson in how not to grow.

When your business is on fire and doing well, you want to capitalize on growth as quickly as you can so you don’t miss your window of opportunity. When all the signs are pointing in the right direction you can lose your way if you aren’t watching for the speed bumps and pitfalls that can throw any business off course and lead to failure. Having a handle on the fundamentals of your business is key to growing properly.

First time entrepreneurs who get their first taste of success often misunderstand what is really happening in their business. Instead of understanding the variables that need to be be managed to deliver outstanding results, entrepreneurs will believe they must have a special touch or have luck on their side. The truth is that success can be hard to find and when you find it you need to understand what lead to your success so you can continue to manage the contributing variables in a way that ensures your success continues into the future. I believe most entrepreneurs experiencing growth for the first time cannot tell you how they will continue to grow and sustain their success. Cash in the bank is not always profit. Customers lined up to purchase your product or service does not necessarily mean you have cracked the code. Needing to staff up to keep up with demand isn’t always the right answer to being overwhelmed. A prudent entrepreneur has a clear understanding of their business model and is able to push and pull the variables at the right times to achieve the best result. Often times an entrepreneur doesn’t understand what growth has done to their bottom line until it is too late.

Fast fashion pioneer, Forever 21, has filed for Chapter 11 bankruptcy after failing to sustain its profitability and market position that saw its revenue peak at over $4 billion dollars. Believing they had found an incredibly market opportunity to take on underpriced real estate during the Great Recession, co-founders Jin Sook and Do Won Chang aggressively grew their business and expanded internationally without addressing the fundamental challenges their business was facing. Competition for their customers caused them problems. Not understanding the local markets they were in caused them problems. Not being able to offer a competitive online shopping experience to customers caused them problems. Not managing inventory caused them problems. Basically every variable associated with growth caused them problems resulting in their filing for Chapter 11 bankruptcy.

Growth is a good thing. Flying by the seat of your pants without knowing what variables in your business need to be managed so you can grow profitably is not a good thing. There is a time to get excited about growth and to take a moment to enjoy the fruits of your labour, but don’t get too comfortable. Managing a business that is growing quickly can quickly turn into managing a business that is failing. Once the wheels are in motion it can be hard to slow down. Know your business, your business model and what need to be managed to sustain your success.

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