The Complicated Business of Building a Cupcake Empire

By Rosalind Resnick
Steve Abrams has worn a lot of hats in his career -- restaurateur, bar owner, high-end residential builder. In his latest foray, the 53-year-old entrepreneur is the CEO and majority owner of Magnolia Bakery, a New York City bake shop chain that has its competitors salivating with envy. But when it comes to frosting a cupcake or squeezing a pastry bag, he is the first to admit he's all thumbs.

"I didn't go to school for this," says Abrams, a Queens-born college dropout and self-described "big picture guy" who delegates the day-to-day operations to his seasoned management team. His full-service bakeries serve up an array of handcrafted cakes, pies, pudding, brownies, cookies and mini cheesecakes -- all prepared in small batches daily. While Abrams may not know much about baking, he sure knows how to run a bakery.

After investing $1 million of his own money in 2006 to buy Magnolia -- the 620-square-foot Bleecker Street store that TV show Sex and the City made famous -- today revenues top $23 million from six locations. There are now four New York stores, as well as bakeries in Los Angeles and Dubai. Abrams is also eyeing expansion in cities like Boston and Chicago and suburban locations in New Jersey and Long Island, N.Y.

But unlike owners of fast-growing national bakery chains, Abrams hasn't built his cupcake emporium through franchising, licensing or an infusion of capital from institutional investors. Magnolia is majority owned by Abrams and his wife, Tyra, and their daughter, Olivia, 11, and every store except for the one in Dubai is owned by the company. His expansion plans are modest -- three new stores a year -- and will be funded by an unnamed wealthy private investor and City National Bank.

"I have no pressure to do anything in a foolish way or too fast," says Abrams, who likes to race Porsches and play the drums. "That being said, you have to grow. You can stay very small regionally, and the intellectual exercise disappears."

Under the leadership of President and Chief Baking Officer Bobbie Lloyd, the company trains its staff to frost cupcakes the Magnolia Way, continues to refine founder Allysa Torey's original recipes (check out The Complete Magnolia Bakery Cookbook), and emails personal apologies to the rare customer who has a bad experience with its counter staff.

"We could easily say, one percent of our customers had a bad experience, that's life, let's move on," Abrams says. "But I don't think that's the way we want to run our business or our life."

In an interview, Abrams served up his vision of the company's future. Edited excerpts follow.

Entrepreneur: Did you have an expansion strategy in mind when you bought the original store in 2006?

Abrams: We had expansion plans, but wanted to stay true to our roots as the corner bakery. That's why all our stores in the United States are company owned. No franchising. No partnerships. No license deals. It can't be done by a franchisee. It's too complicated.

Entrepreneur: What's so complicated about baking cupcakes?

Abrams: The baking isn't complicated. Baking correctly and putting a product out that is correct is complicated, especially at the volumes we do. I could have easily turned [Magnolia] into a hub-and-spoke model, but I would have to dumb down the product and the quality, shorten the menu, and I would not be able to do the amount of specials and the different fun things we do.

Entrepreneur: What about competitors? It seems like everybody is getting into the cupcake business.

Abrams: Baking is a multi-billion-dollar business. No one is the big dog. Maybe Entenmann's or Pillsbury is, but not us. The market is so large that we are not competing for customers per say. People seek us out. I'm certainly not crafting my strategy around what anyone else is doing.

Entrepreneur: What's your exit strategy?

Abrams: I'm 53 years old. Ultimately, I have an end game of cashing out [through a sale to a strategic buyer] but there are many ways to get there. At the end of the day, we sell baked goods. It's not rocket science. If we're not laughing, we're not doing our jobs right.

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