The Dutch saw their famous bubble burst when tulip mania ended in the 1600s, dragging their economy down with it. The U.S. saw it with tech stocks in the late 1990s. When the dot-com bubble burst, billions of dollars of wealth on paper vanished as well.
But the death of Crumbs and what looks like the collapsing of the cupcake bubble is something else entirely. On the one hand, it suggests that running a monoline business, devoted to just one product, is now and always has been a really bad idea. On the other hand, as luxury items tend to be something of a lagging indicator, it mirrors everything that's wrong with the economy--weak growth coupled with outlandish valuations and expectations.
"What happens in these trends, whether it's tulips or cupcakes, is that the valuation models stay the same, but the valuations change, and as they change [values] generally diminish," says Mitchell Fillet, a professor of business and finance at Fordham University in New York. "Everyone likes the ride up and hates the ride down."
Fortunately, Fillet says, Crumbs is not like Facebook or General Electric, where a sudden bankruptcy might indicate much larger problems in a sector and the economy at large. Still, its quick disappearance from the scene should serve as a warning to all business owners about being too narrowly focused--and growing too quickly.
Savvy entrepreneurs know better, even ones whose primary business is still cupcakes. The best bakeries integrate closely with a neighborhood. And they stay away from slick trends, aiming for longterm viability. Those lessons are important to just about any small business owner.
To find out whether these truths were self-evident in Bakery Land, I checked in with some of New York City's most famous bakers to hear what they had to say about cupcake flameout and how it relates to their businesses and the economy.
Diversify or Die
Cupcakes always seemed like a silly fad to Maury Rubin, founder, owner, and chief baker at City Bakery and Birdbath Bakery, which together comprise seven locations, 135 employees, and revenues of less than $20 million. And for his sugar-coated pastry empire, the cupcake craze has always been anathema. "It is everything the traditional bakery business has never been," he says. That includes being well integrated into a neighborhood and ensuring that its Main Street encompasses many other retail shops and services.
Rubin says he never once thought of selling cupcakes, not even during the height of the craze when shops like Magnolia reported selling thousands of cupcakes a day from a single location in the West Village.
"I have been doing this for 24 years, I live in a bakery all day long, and the whole idea of the next big trend in a bakery makes me cringe," Rubin says.
In addition to its signature chocolate chip cookies, sporting hunks of melting semi-sweet chocolate, and steaming hot chocolate with dissolving bricks of real marshmallow, City Bakery offers its customers a wide selection of savory food, including soups, sandwiches and homemade pizza.
That's just smart business strategy, Fillet says. He points to other monoline disasters, such as Krispy Kreme, whose public debut in 2000, was followed a few years later by a similar crash and burn.
Instead, Fillet looks to longterm donut survivor Dunkin' Donuts, which has since branched out to include breakfast sandwiches in addition to coffee and other beverages.
Build Real Value by Growing Slowly
Unlike Crumbs--which many argue grew too big, too fast--Billy's Bakery, with three stores, wants to grow organically, says Wayne Dovan, co-owner and co-founder of the 11-year-old New York City-based bakery.
Like City Bakery's Rubin, Dovan and co-founder Marc Lino seek small locations where the bakery can become integrated into the fabric of a neighborhood. What's more, the company is self-funded and expands only from revenues. Dovan and Lino are thinking of opening a fourth location, and they've swatted away investment offers to grow more quickly.
As far as the cupcake craze goes, the co-founders saw the writing on the wall long ago.
In 2009, cupcakes were in peak demand, says Dovan.
Today cupcakes make up less than half of Billy's annual revenues, which are under $10 million. Growth in that part of the business has been flat for several years, Dovan says, while total revenues have steadily increased 5 percent to 10 percent per year. The bakery sells such other items as cakes, pies, and bars.
"We are not a cupcakery. We are a full-service bakery," Dovan adds.
You Don't Have to Hog the Spotlight
Even Butter Lane, whose bread and butter is still cupcakes--making up about 75 percent of business from two shops in Manhattan and Brooklyn--has expanded into catering and offering classes.
Butter Lane founder and owner Pam Nelson says cupcakes are no longer in the spotlight. But that's not necessarily a bad thing, she says.
"Cupcakes will never be a media darling again, but they are now a staple, just like donuts," Nelson says. And people will always want them for weddings, birthday parties, and other important occasions.