Making It with Jon Davids: Episode 169 - This Little Bagel Shop is Worth $54M | Popup Bagels

Release Date: February 11, 2025

Introduction

In the 169th episode of "Making It with Jon Davids," host Jon Davids delves into the remarkable growth story of Pop Up Bagels, a burgeoning bagel venture valued at an impressive $54 million in just five years. Jon, affectionately known as JD From, combines his entrepreneurial insights with a passion for bagels to dissect the elements that propelled Pop Up Bagels to success. This episode provides a comprehensive overview of the company's inception, strategic growth, business model, marketing ingenuity, and Jon's valuation methodology.

Origins of Pop Up Bagels

The story of Pop Up Bagels begins in 2020, amidst the global COVID-19 pandemic. Founder Adam Goldberg found himself confined at home, yearning for a culinary project beyond the ubiquitous sourdough trend proliferating on TikTok. Unlike the prevailing craze, Adam's focus was singular: bagels.

• Experimentation and Recipe Development ([02:30]) Adam embarked on his bagel-making journey with basic ingredients: flour, water, yeast, and salt. Through persistent tweaking, he perfected his recipe. The initial batches were shared with friends, sparking widespread local demand.

• Transition to a Business ([05:15]) Recognizing the surge in demand, Adam transformed his hobby into a business. Operating from his home kitchen, he offered pre-orders via the website popupbagels.com, allowing customers to pick up their orders the next day through a backyard window. This model ensured precise production matching demand, eliminating waste.

Business Growth and Expansion

Pop Up Bagels experienced rapid growth, expanding from a single kitchen operation to 10 stores within five years, with 20 more in the pipeline.

• Strategic Partnerships ([12:45]) A pivotal moment came when Danny Meyer, a seasoned restaurateur known for establishments like Union Square Cafe and Shake Shack, invited Adam to set up a pop-up at Daily Provisions in New York City. The collaboration was a resounding success, significantly boosting the brand's visibility and demand.

• Operational Efficiency ([18:20]) The business model emphasizes simplicity and scalability. By focusing on a limited menu—primarily bagels and schmears—and leveraging pre-orders, Pop Up Bagels maintains lean operations across its locations. This approach minimizes waste and ensures consistent quality and availability.

Business Model & Unit Economics

Jon Davids provides a detailed analysis of Pop Up Bagels' financials, outlining the unit economics that underpin its valuation.

• Pricing Strategy ([25:10]) The menu is streamlined with clear pricing:

  • $12 Package: Three bagels with one smear.
  • $42 Package: A dozen bagels with three smears, which Jon speculates is closer to the average order value.

• Sales Projections ([28:55]) Assuming an average order value of $42 and serving 400 customers a day, the daily revenue estimates to $16,800, culminating in approximately $6 million annually per location.

• Expense Allocation ([32:40]) Key expenses include labor, rent, and food costs, estimated at $410,000 monthly per location. This results in an 18% profit margin, translating to $10.8 million in profit across 10 locations.

• Valuation Calculation ([35:15]) Using a 5x EBITDA multiple, Jon arrives at the $54 million valuation: [ \text{Profit per Location} = $6M \times 18% = $1.08M \ \text{Total Profit for 10 Locations} = $10.8M \ \text{Valuation} = $10.8M \times 5 = $54M ] Jon acknowledges this is a conservative estimate, suggesting potential multiples of 10x to 20x given the company's growth trajectory.

Marketing Strategies

Pop Up Bagels distinguishes itself through innovative marketing tactics that seamlessly integrate with the product.

• Instagrammable Schmears ([42:30]) The schmears are designed to be visually appealing, drawing inspiration from trends like frozen yogurt’s Instagrammability. Flavors such as Pesto Butter, Honey Chipotle Cream Cheese, and Oreo Cream Cheese are not only delicious but also photogenic, encouraging social media sharing.

• Ritual Creation ([47:00]) Adam introduced unique rituals, such as the "rip and dip" method, where customers rip their bagel and dip it into their chosen schmear. This interactive experience fosters a deeper connection with the product and enhances customer engagement.

• Flavor Rotation ([52:45]) Similar to Crumbl Cookies’, Pop Up Bagels regularly rotates its schmear flavors, creating FOMO (Fear of Missing Out) and encouraging repeat visits. This strategy keeps the menu fresh and exciting, driving continual interest.

• Pre-Order and Texting Strategy ([58:20]) The pre-order system not only streamlines operations but also ensures cash flow and demand forecasting precision. Additionally, weekly texts maintain customer engagement, leveraging psychological triggers of urgency and scarcity to boost sales.

Jon Davids' Valuation Analysis

Responding to audience inquiries, Jon elaborates on his valuation methodology and addresses the speculative nature of his estimates.

• Assumptions and Logic ([63:10]) Jon emphasizes that his valuation is based on publicly observable factors and logical assumptions:

  • Customer Estimates: Actual customer numbers may be higher, potentially serving 600-800 customers daily.
  • Profit Margins: By assuming an 18% profit margin, which is optimistic compared to the thin margins typical in the restaurant industry, Jon provides a robust valuation framework.

• Multiplier Justification ([68:00]) Selecting a 5x multiple aligns with standard EBITDA valuations, though Jon acknowledges Pop Up Bagels could command higher multiples due to its rapid growth and scalable model. This flexibility in multiplier selection underscores the valuation’s conservative stance.

• Potential for Growth ([72:30]) With plans to expand to 50 or 100 locations, Pop Up Bagels has significant growth potential, which could drive the valuation upward as market presence and brand recognition strengthen.

Conclusion

Jon Davids concludes the episode by highlighting the strategic brilliance behind Pop Up Bagels' success. From leveraging pre-orders to minimize waste, creating engaging marketing rituals, and maintaining a simple yet effective product lineup, Adam Goldberg has engineered a business model that scales efficiently while resonating deeply with customers.

• Innovation Over Tradition ([78:15]) Addressing critics who claim Pop Up Bagels deviates from traditional bagel norms, Jon defends the company's innovative approach. He underscores that evolution and adaptation are fundamental to entrepreneurship, drawing parallels to how modern adaptations in other industries have thrived despite not adhering to original standards.

• Anticipation for Future Insights ([82:50]) Jon expresses excitement for the upcoming episode featuring Adam Goldberg, where he plans to validate his analysis and delve deeper into the founder's perspectives. This forward-looking statement reinforces the show's commitment to providing actionable insights from successful entrepreneurs.

Notable Quotes

• Jon Davids on Valuation Methodology ([35:15]):

  "If you do a 5x multiple, in other words, you say let's do 5x of the profit or of the EBITDA, you'd be looking at $54 million."

• On Marketing Integration ([50:10]):

  "Creating something visual and then taking that into your business and all of a sudden it becomes a social media viral sensation. So you're integrating the marketing into the product."

• Addressing Critics ([75:30]):

  "If you're an entrepreneur, your job is to sell stuff... you can stand on your high horse and say, oh, you know what? I'm sticking to the true nature of what this is supposed to be from the year 1942. Well, you know what? Times change."

• Growth Potential ([72:30]):

  "They could probably get to 50 or 100 or a few hundred locations across the country. So maybe they demand a multiple of like 10 or 15 or 20x."

Final Thoughts

Episode 169 of "Making It with Jon Davids" offers an insightful case study of how strategic innovation, efficient operations, and savvy marketing can transform a simple bagel shop into a multi-million-dollar enterprise. Jon's analytical approach, combined with Adam Goldberg's entrepreneurial prowess, provides valuable lessons for aspiring business owners aiming to scale their ventures effectively.

For those interested in the upcoming in-depth conversation with Adam Goldberg, stay tuned to "Making It with Jon Davids" by subscribing to the podcast on your preferred platform.