When was the last time you discovered something new, saw hundreds of people talking about it, jumping on the bandwagon, and thought to yourself “Wow what a great idea for a new business?” If you answered yes, you are not alone. However, the buzz is often short-lived in what some economists call ‘the circus comes to town’ fallacy.
This got its name from the days when a traveling circus came to a town for a few days. People from nearby towns flooded in to watch the circus, and local businesses saw significant upticks in business. Some business owners who didn’t associate the increased customer traffic to the circus took steps to handle the new level of business. They often bought new equipment or began expanding their operations.
When the circus tour was done, they left town and business levels returned to normal. However the businesses that expanded to handle the circus surge, not recognizing that it would be short-lived, now had additional expenses due to their ill-advised expansion. Many soon collapsed when demand returned to normal and their profits turned negative.
Many clients I mentor come to me with a trend or idea they’ve spotted and say that they want to take a leap and start a business to capitalize on it. Much of the time the trend or idea is just a fad that will run its course.
In late 2017 fidget spinners were all the rage. A client I saw wanted to create custom fidget spinners. Expecting that fidget spinners-like so many other fast peaking trends- would soon run its course, I shared the circus comes to town story with him. Fortunately, the client saw the light and chose to start a different type of company.
Back in January 2014, recreational marijuana became legal in Colorado. Colorado was the first state where you could consume recreational marijuana legally. In the months that followed many new businesses sprang up scrambling to take advantage of this new law. Many entrepreneurs set up new retail businesses or businesses to support retail shops, such as security or marijuana tourism companies.
One client seeing the trend, wanted to create a marijuana tourism business. His plan was to buy several limos and sign contracts with a number of marijuana-friendly Bed & Breakfasts and marketed his business to Hollywood “A” listers in California. At first, business was robust but then I never heard from him again. As other states including California legalized recreational marijuana, and people that just wanted to recapture memories from their marijuana smoking youth wore off, I’m sure his business suffered as a result.
Many business ideas have a short shelf life. That is not to say that you can’t make money, but you have to make it fast with limited long-term investment.
So the next time you spot a business trend and have a notion to either start a new business or expand your operations to capitalize on it, be sure to ask yourself “Is this just a circus comes to town moment?”
Are you overbuilding your enterprise when the circus comes to town?
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