A growing company rarely adds complexity in one big decision; it adds one reasonable SKU at a time.
Every SKU Has a Story
No founder wakes up wanting an unmanageable product portfolio.
The extra SKU usually starts with a good reason. A key customer asks for a variation. Sales needs something for a new channel. A product manager sees a trend. A retailer wants an exclusive. The founder wants to test a premium version.
Individually, these decisions make sense.
Collectively, they create the SKU proliferation trap.
I have walked into companies where everyone could explain why each SKU existed, but no one could explain why the portfolio as a whole made sense. That is the tell. When the story works at the item level but fails at the system level, complexity is running the business.
The first symptom is usually not obvious. Revenue may still be growing. Customers may seem happy. The sales team may like having more options.
Then the costs appear. Forecasts get less accurate. Minimum order quantities trap cash. Slow movers occupy warehouse space. Purchasing loses scale. Production changeovers increase. Service levels fall on the best products because inventory dollars are spread too thin.
The P&L rarely labels this as SKU complexity. It shows up as margin pressure, working capital strain, freight issues, write-offs, and team frustration.
More Choice Is Not Always More Value
Founders often believe more choice helps growth. Sometimes it does. Often it just creates confusion.
Customers do not value every variation equally. Sales teams may ask for breadth because it helps start conversations, but that does not mean the market rewards the added complexity. Retailers may request exclusives, but exclusives can fragment demand and make the base line weaker. Ecommerce can tolerate more assortment, but even digital shelves have operational costs.
The question is not whether a SKU can sell. Many SKUs can sell.
The question is whether the SKU earns its place.
I look at velocity, margin, reorder rate, customer acquisition value, operational burden, inventory risk, and strategic role. A low-volume SKU can still be valuable if it opens a profitable account or completes a high-margin bundle. A high-revenue SKU can be destructive if it carries poor margin, high returns, and erratic demand.
This is where founders need to be careful with averages. Average gross margin hides weak items. Total revenue hides slow turns. Blended inventory hides cash stuck in the wrong places.
A portfolio should be judged by contribution and purpose, not affection.
The Trap Gets Worse Across Channels
SKU complexity accelerates when companies expand channels.
One channel wants smaller pack sizes. Another wants bulk. Retail wants shelf-ready packaging. Direct-to-consumer wants variety. Foodservice wants different formats. International accounts want compliance changes. Suddenly the company is not managing products. It is managing product-channel combinations.
That can be the right strategy if the economics support it. But it cannot be casual.
At one company, channel-specific SKUs had grown faster than the team’s planning capability. Sales saw opportunity. Operations saw chaos. Finance saw cash tied up in items that moved only when a specific buyer reordered. The founder saw revenue and did not initially see the hidden risk.
The fix was not a blunt SKU cut.
Broadview separated core SKUs, channel SKUs, strategic test SKUs, and legacy SKUs. Each group received different rules. Core SKUs got service priority. Channel SKUs needed defined margin and reorder thresholds. Test SKUs had time limits and success criteria. Legacy SKUs needed a customer retention reason or an exit plan.
That structure changed the conversation. Instead of arguing item by item, leadership could manage the portfolio by role.
Pruning Requires Nerve and Data
SKU rationalization sounds clean in a board deck. In real life, it creates tension.
Sales worries about losing customer options. Product worries about killing innovation. Operations wants deeper cuts. Finance wants cash released. The founder remembers why certain products mattered in the early days.
That is why pruning requires both nerve and data.
I do not start by asking which products people like. I start with facts. Unit velocity by channel. Gross and contribution margin. Inventory turns. Forecast accuracy. Return rates. Customer concentration. Production complexity. Purchase commitments. Required working capital.
Then I ask what the SKU is supposed to do.
If it drives profitable repeat demand, protect it. If it opens a strategic channel with clear upside, manage it tightly. If it exists because one customer once asked for it, challenge it. If it consumes cash and attention without strategic value, exit it.
The exit matters. Poor SKU cuts can damage customers and create internal resistance. I prefer planned transitions. Run down inventory. Offer substitutes. Give sales a script. Protect key accounts where needed. Measure service impact.
Discipline does not have to be reckless.
Innovation Needs Guardrails
The answer to SKU proliferation is not to stop innovation.
Growing companies need new products. They need tests, extensions, and channel-specific ideas. But innovation without portfolio rules becomes clutter.
I like clear gates. What customer problem does the SKU solve? Which channel is it for? What margin must it hit? What operational changes are required? What demand signal justifies launch? What date forces a keep, fix, or kill decision?
Those questions do not slow strong ideas. They expose weak ones.
The best product teams I have worked with understand that focus is not the enemy of creativity. Focus gives the best ideas enough capacity, inventory, marketing, and operational support to succeed.
A smaller, stronger portfolio often grows faster than a broad, tired one. The company can buy better, forecast better, sell better, and serve customers better. Most importantly, leadership can see what is actually working.
Complexity should earn its keep.
Every SKU needs a job, and if no one can name the job, the SKU is probably working against the business.