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

Summary

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.

Transcript

John Davids (0:00)

This little bagel shop is worth $54 million, and it's barely five years old. I'm a big bagel guy, so I had to learn more. The company's called Pop Up Bagels. It's run by founder Adam Goldberg, and they've got 10 stores with 20 more in the works. This is a phenomenon of a bagel shop. I'm going to tell you all about it today. Welcome to the podcast. My name is John Davids. Of course, you can call me JD From. If you're a fan of this podcast, make sure to leave a rating and a review wherever you're listening. And, of course, tell your friends if you like the show. I'm sure they'll like it too. And that is the only way we grow word of mouth. So I really appreciate you sharing the show, guys. We have so many amazing guests coming up in 2025. I can barely wait to tell you. And one of those first guests is actually Adam Goldberg. So I'm gonna do something I haven't done before. I'm gonna give you my own breakdown of this business today. And. And then in just a few episodes, you're going to hear from Adam Goldberg directly. I'm going to ask him if I'm right about all this stuff, if I'm wrong, if I'm a bozo, if I'm a genius. Who knows? We'll see. Adam's going to tell me. And for now, let's get to the show. You're listening to Making it with John Davidson. All right, so the story of Pop Up Bagel starts all the way back in 2020. This guy Adam, is stuck at home. He's bored, and he's hungry. And he's also sick of the sourdough trend. Remember that sourdough trend that was going crazy on TikTok back in 2020? We were all making sourdough out of our kitchen. Adam doesn't want sourdough, though. He wants bagels. There's just one problem. He's never made a bagel before. So it's time to hit the kitchen. Adam's mixing up flour, water, yeast, salt. He. He's tweaking and toning to get the taste just right. And before long, he's got the perfect recipe. Next, he shares that recipe, those bagels, with some friends, and they love it. Word is spreading fast, and pretty soon, the whole neighborhood is begging for Adam's bagels. So Adam keeps baking. Then he decides he's gotta turn this into a business. There's serious demand for these bagels. He wants to sell them. So again, we're in Covid times here. And Adam's just a startup guy. So he opens up shop in his house. He's making bagels in his kitchen and people can pre order online and then pick them up the next day through a little kitchen window in the backyard of his house. Right away he's selling hundreds of bagels a day. And he knows exactly how many to make and how many he's selling cause he's got that pre order button on popupbagels.com then restaurant heavyweight Danny Meyer takes notice. He asks Adam to do a pop up at one of his spots. Now Danny Meyer, for those of you who don't know, is a restaurant industry OG Got Union Square Hospitality Group names like the Gramercy Tavern, Union Square Cafe. He's also got Shake Shack of course, which is a huge brand. And he's got this one spot, Daily Provisions in New York City. And he asks Adam to do a bagel pop up at Daily Provisions. And again, these bagels are a hit. The lines are forming. He is selling out. The hype is growing. And while these bagels are tasty, I want to talk about the business because the business is even better. So Pop Up Bagels is all about simplicity. They've opened a few bagel shops so far. I think they've got like 10 now. And they really sell just two things. They've got bagels and they've got schmears. The cheapest item you can buy on the menu is $12. That'll get you a three pack of bagels with one smear. But I'm guessing most people are actually spending a lot more than that. $42 is the starting price. If you go online to order the $42 package, which is a dozen bagels and three smears is the starting price. So I'm going to bet people are coming in and buying more than just three bagels and a schmear these days. I might be wrong, but I'd imagine the average order is actually higher than that. And this place runs lean. Stores are small and they push you to order in advance. If you go to popupbagels.com they're still trying to get you to order in advance. So because they know how much demand there is and how much to make, they don't have a lot of waste. And think about it, a restaurant, any kind of food service business operates on waste or excess, right? So you don't want to have a whole lot of bagels that you can't Sell, throw them in the garbage. And now you've got a whole cost of goods that you've just thrown away. And you also don't want to make too little and then leave a lot of money on the table. So having a really good understanding of demand helps a lot. Plus, you get cash up front. When people order bagels in advance, they also pay you in advance, cash upfront. We like that. They know how many bagels to bake. They got cash in their pocket. Hmm. I love this business. They went from backyard bagels to 10 locations in just four years. So let's talk dollars and cents. Let's go into the unit economics of this business. I'm going to do some messy math for you now. I'm going to say the average order is around $42. I picked that number again because that's the cheapest thing you can order on. Of course, you can go in and buy just three bagels and a schmear for $12 13 bucks. Okay, fine. I'm going to say $42 would be the average order value. And let's say you can serve about 400 customers a day, which is not that hard for a busy bagel shop in Manhattan. That would be $16,800 in daily sales, or about a half a million bucks a month. Now, you got to factor in labor, rent, and food costs. I'm gonna estimate that runs you about $410,000 a month. So it's a $6 million a year business with an 18% profit margin. Now, multiply that by 10 locations, and the business is easily worth $54 million. And I'm low balling it. Don't worry. I'm gonna break down that math even more in just a minute. But that's my estimate. A $54 million valuation on this business. Now, there are so many bagel shops, but pop Up Bagels is doing something different. They're not acting like everybody else. They've made bagels cool with fresh recipes and fancy schmears. It's a vibe. It's got major foodie appeal, and the timing is perfect. You know, 60% of Americans eat bagels twice a week. I'm going to say it's a good thing Adam ditched Sourdough because it turns out bagels are where the real dough is made. Marketing executives, business owners. If you are running a company and looking for a fresh perspective on how to grow that company, take a look at Influicity. That's my marketing agency, where we work with brands across influencer marketing Podcasts, social media, AI content, paid ads, and so much more. But don't take my word for it. Go to Influicity. Check out our case studies from all the amazing clients we've worked with over the last decade. That's influi c I t y influicity.com and I'll see you there. Okay, so I shared this story across social media. LinkedIn, Instagram, TikTok, YouTube, millions and millions of you saw it, lots of comments. So one thing that popped up a lot in the comments is people want a better understanding of how I got my numbers, where I got my numbers from, and then where the valuation came from. So let me dig into that a little more. Now, I already told you, I picked $42 because that was the lowest ticket item on their website. Do I know for a fact that that's the average order value? No, I don't. But again, I'm doing messy math here. And the whole point of me doing this math and doing math in public and coming up with a valuation in public without any information is just to show you guys my logic of how I'm getting there. I could be wrong, by the way. I could be very right. I've had founders and business owners call me in the past when I guess their valuation and they ask me, they say, john, who did you talk to? Because you must have some insider info. No, I don't. I'm just doing the math. And sometimes I'm right, sometimes I'm wrong. Here's my logic. 400 customers a day. Again, I actually think I'm undershooting that. If I had to guess, these guys probably have like 600 to 800 customers a day at their busiest locations. I'm going to be conservative with 418% profit margin. Lots of restaurants operate much thinner than that with 15% or 10% or no profit. At the end of the day, unfortunately, most restaurants lose money. I'm being a little generous, and I'm assuming because they're premium priced, they're probably going to have a slightly higher profit margin than most. That's why I said 18%. And now why do I say this business is worth $54 million? Very simple. If you say 10 locations, the revenue, $6 million per location times 10 would be $60 million. And then the profit, which is 18% of the 60 million, is 10.8 million. And by the way, this kind of math on a podcast is like the worst thing to listen to. So hopefully I went slow enough there. Again, super simple. $60 million you multiply that by 18% or 0.18, you get 10.8 million. That's all you have to know. 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. Now that is very conservative because I think these guys could have a multiple a lot higher than 5x. This is a very fast growing, very young business. It's barely four years old. They've got 10 locations. 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. That's possible too. In which case the valuation could be 100 million, 150 million. It's hard to say because when you have a venture capital type valuation, again, the numbers can get insane. And it really is just a factor of how much are people willing to pay for this. So I'm going to say $54 million. On paper, maybe the numbers are way higher. Who knows? We'll ask Adam. I doubt he'll tell us, but I'm going to see. I'll do my best for you guys. I love the way pop up bagels is blending concepts from other industries. So if you look at the schmears, go to Instagram or go on social media, look at the schmears that they sell, they kind of look like froyo. You guys remember the whole frozen yogurt Trend of like 10 years ago, there was Pinkberry and Menchees and 16 handles, these self serve yogurt shops. And then you'd have these super Instagramable frozen yogurts. People would hold them in their hands against the wall, gotta have a nice manicure, of course, and you take the photo, put it on Instagram and that becomes like a status symbol, a foodie status symbol, a social and cultural symbol. They're kind of doing the same thing with their schmears. The schmears are the magnet, the social media magnet of this. And they even have a little ritual they've created in house, the rip and diplomatic. And so the whole idea behind pop up bagels is you don't do a sandwich, but you buy the bagel, you rip it up and then you dip it in your schmear. So they're creating ritual around this business and they're creating a very Instagramable visual concept with these schmears. And again, the whole idea of stealing what you know works from another business, the ice cream or the frozen yogurt type business or the dessert business. Right. With magnolia cupcakes like it's been around for a long time. There's nothing new here. 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. Yeah, right. Understand that. So you think about it. Product itself is the schmear. But by putting it in this big cup, making it colorful, making it interesting, making it something people want to talk about. Now it's not just a product, but it also becomes the marketing. Really smart when you can integrate the marketing into the product. And they also alternate the schmear. So think about the flavors. Pest Pesto butter, honey chipotle cream cheese, Cacio e pepe butter, Oreo cream cheese. And they drop these in a very similar way to crumbl cookies. I've talked about crumbl before and how they do these rotating flavors every week. Check out their TikTok, check out their insta. They've got new flavors popping up every week. That's what they're doing here also. Right. In the world of crumbl, it's strawberry shortcake and banana bread and lemon poppy seed. In the world of pop up bagels, it's oreo cookie cream cheese and it's honey chipotle cream cheese. But the whole idea of creating some FOMO and excitement and urgency and also frequency. So even if you're a regular, well, how often can I go buy bagels and cream cheese? Well, if they're changing the flavors constantly, then it gives you just another reason to go. The pre order strategy is also really smart. So I think Adam did this at the beginning out of necessity. But it's so smart to keep it going. I mean, when you have pre orders, you get cash up front and you understand demand. You can predict demand. Now as the company gets bigger, you'll be able to predict demand through data, through historical buying trends. And so you'll sort of know how much to make when, how it changes different times a year, different times a day. But at the very beginning, you have no freaking clue how many people are gonna buy your product. And so by getting pre orders in, you take that risk factor off the table. You're always trying to de risk as fast as you can with any startup business. And so by taking that risk factor of how much should I make off the table? Super smart off the bat. Someone in my comments also mentioned that they look forward to the weekly texts. So this is just another element of fomo Urgency, scarcity. I talk about this stuff. If you guys have taken my marketing that sells course, which I sell on my website, you've got this factor of urgency and scarcity. You've got manufactured scarcity and organic scarcity. And so the whole idea here of looking in your business and trying to figure out where you can put these psychological ticks in to get people to think about you and maybe come back more frequently and maybe feel like if they don't come, they're missing something or their friends are getting something they're not getting. You know, all that stuff makes a big difference. And these weekly texts are just another way to keep in touch with people. You can do it through a newsletter. I think text is really smart. It's much more lightweight and quick. And the fact that someone is looking forward to the texts every week, that's pretty enviable for a business. There's also a lot of people complaining, and I saw a lot of competitors up in the comments complaining about how these aren't really bagels. Maybe they're too soft or they're too sweet, or they don't necessarily stick to the origins of what a bagel is by definition. And you know, I kind of think that's fine. I mean, if you're in the business to commercialize your product and make money at it, you can take a lot of liberty with what you say or what you do. It's no different than someone criticizing a movie or a song or a singer because they're not true to the origins of the work. Right? Like, is a Marvel movie supposed to be a cinematic masterpiece? Listen, if it's a highly reviewed and they got positive reviews and it's a good movie, that's great. But at the end of the day, if it's a crowd pleaser, it doesn't need to be an Oscar winner. It doesn't need to have the Rotten tomatoes score of 100, right? How many big movies and how many big movie stars are there who are constantly panned by the critics who will never win an Oscar? Same thing in music. Like they're never going to win an award because they have the greatest academic way of singing or their writing is perfect? If you're an entrepreneur, your job is to sell stuff. And if you're in marketing, your job is to tell great stories that sell stuff. Always remember that you can't do any good if you're sticking to the playbook that has been used for the last hundred years and you're not innovating and you're not selling, but 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. Maybe this is a better version of a bagel. People seem to like it. So the whole idea that this isn't really a bagel, it's something else. Cool. No one's getting hurt. You're not breaking any laws. You can call this thing a bagel if you want. People will see it as a bagel, even if it's a new and improved and different version of it. That's totally cool. That's what entrepreneurship and innovation is all about. All right, guys, I got a lot of questions for Adam about the rituals. The rip and dip ritual, the occasion ritual, the lineups outside the door, the pre order strategy, the texting strategy, the marketing, the schmears, the flavors. I got so much to ask. Make sure to hit subscribe on this podcast if you haven't already, because Adam Goldberg is coming up in just a little bit. Make sure to tune in to that episode. Of course, if you like my stuff, you can get it straight to your inbox@johndavids.com I'll talk to you guys next time.