While I only took a handful of business classes (and even fewer econ classes) during undergrad and grad school, I think there are a number of reasons making a limited quantity run makes sense for a company like Radical Seas:
1. Cost. For a new, small company, the cost of producing a product will either require (i) personal capital (e.g., one’s own savings), or (ii) outside capital (e.g., a friend or relatives money, loan/line of credit from a bank, etc.). So if using personal capital, it could very well be possible that the company produced only what it could with on-hand funds and made a business decision not to go into debt. If using outside capital, the company would most likely want to keep its costs and debt low. Keeping costs low allows the company greater financial flexibility on future business decisions (e.g., making another run, tweaking the product, investing in marketing, etc.). So while there may have been the opportunity to produce more, the failure to sell through the production run would not be so economically devastating if costs were kept low.
2. Testing the Waters. It is common for businesses, even large ones, to “test the waters” with very limited runs to gauge interest and determine if they have adequate margins (i.e., that they are charging enough for their product to sustain the company). While a limited run in other industries might be ten thousand units of product, a small, niche community like ours requires a comparably much smaller run.
3. Scarcity/Success. Especially with early production runs, a company is striving to achieve sell-through. If all product is sold, and the product is well received, it can create a scarcity effect, whereby others who may have missed out on said product are lining up for it the next time it is available. This is one way to generate “hype” around your product and may lead to future successful runs. If as a company your product always sells out, it may be assumed that the company is successful and has a great product. If it is assumed you have a great product, others may want to try your product. The fewer the units available for purchase, the easier (theoretically) it is to sell all of the product. There are a handful of yo-yo companies that have successfully used this limited run model (intentionally or otherwise) to generate a lot of buzz around their product. (Note: This is not a bad thing, and it wouldn’t work if their products weren’t great! ;))
I’m sure there are many other reasons that could have factored into Radical Seas, and other similarly situated small yo-yo companies, decision to produce the number of yo-yos they did, such as logistics, time, etc. Basic point is you probably aren’t going to flood the market with your product if you don’t have the money to do so and/or a history of very successful runs under your belt. None or all of the above may be applicable, just some random thoughts on a Saturday morning. I attribute anything accurate or inaccurate to my religious viewing of Shark Tank.