How Does a Cupcake Company Rock the Inc. 500 List?

When Jim Melloan at Inc. Magazine told me that the Manhattan-base bakery, Crumbs, had been inching up the Inc. 500/5000 list for the past three years, I knew I needed to find out how they did it. Typically, companies that make the list in multiple years see their rankings decline. Rank is determined by four-year revenue growth, so as companies grow and that base year revenue number increases, it becomes more difficult to achieve the kind dramatic growth that boosts your rank. Not so with Crumbs, which ranked 1553 in 2008, 1167 in 2009, and 422 this year. The company racked up $23.5 million in revenue last year and is now the largest cupcake company in the country. If I were writing Alpha Dogs today, chances are pretty good that this company would be in the book. I recently spoke with Jason Bauer, who co-founded Crumbs in 2003 with his (now) wife, Mia, and asked him to share the company's recipe for success.

• Listen to your customers. When the Bauers opened their first bakery, on the Upper West Side in Manhattan, the line was out the door on the first day. "We carried 150 items," says Bauer. "And we started with two to three varieties of cupcakes." They included Mia's signature coconut cupcake, which she first made in the second grade. No matter how many other items were in the bakery, the Bauers noticed that their customers were clearly cupcake-crazed, since the cupcakes would sell out every day. So Mia experimented with more varieties until the shop carried twelve different kinds of cupcakes with various fillings and toppings. "A few months into the operation we decided to convert the bakery case into all cupcakes," says Bauer. "Mia went on a rampage, and we stared to be known as a cupcake place." That wasn't in the Bauers's original plan, but their willingness to respond to market demands helped drive their initial success.

• Take calculated risks. Six months after their launch, the Bauers opened a second bakery across town, on the Upper East Side, and experienced similar success. And then, in 2004, they decided to take a leap of faith and open a third store in highly commercial mid-town Manhattan. It was risky. The two original stores were nestled in residential neighborhoods, where families with children could be counted upon for repeat business. But, as it turns out, the cupcake craze was widespread. "Our business exploded," says Bauer. "We had lines out the door every day. We thought that moms with strollers were our customers; we didn't know that suits and ties were our customers, too." Crumbs landed a significant amount of catering work from companies who figured that boring meetings could be made a lot more palatable with, say, a big box of red velvet cupcakes. When the recession hit, the corporate catering work dried up a bit, but Bauer says that foot traffic increased because "everyone can afford a $3-$4 cupcake."

• Get the right people on the bus. For the Bauers, that started with each other. They were dating when they decided to start a business together in 2003, and recalls Bauer, "people thought we were crazy, but we knew we worked well together." One marriage license, 35 stores, and two kids later, it looks like they were spot on. The Bauers are also big believers in home grown talent. "A lot of people on our corporate staff started as counter help," says Bauer. Ditto for store managers. Training existing employees to be managers and leaders ultimately saves time and money, and sends new employees the message that the company is invested in their success. Crumbs now has over 400 employees, half of whom are full time, and 35 stores in New York, New Jersey, Connecticut, and Los Angeles. Stores in Chicago and Washington, DC are on deck for next month. But Crumbs has not achieved that success all by itself. In 2008, the company took a sizeable investment from Edwin Lewis, a retail apparel industry executive who helped grow brands such as Polo Ralph Lauren and Tommy Hilfiger. Bauer, hoping his new partner will help do the same for Crumbs, describes Lewis as "a retail genius."