A conversation with the owner of Magnolia Bakery in New York City.
Question: Do you have any regrets when it comes to your career?
Steven Abrams: It’s a very good question because I’ve been thinking about it a little lately, and I’ve been approached by some younger people asking me what I think about that. One of the things that I would say that I didn’t get until I was a little older is to get into a business – I don’t care if you love it—but you have to get into a business that provides you with cash flow. To be in the business world and to grow, you need money. The axiom that the rich get richer is very, very true because opportunity comes to the people that can take advantage of it or opportunity seized by the people that can take advantage of it. At every step of the way, I had opportunities to save more money and I didn’t, so then when certain opportunities came my way I wasn’t actually able to take advantage of them. By the time Magnolia came my way, I had smartened up, but it took me until I was 40 where I had a very successful construction company that I made a lot of cash. I saved a lot of it; I invested it and saved that money, so when Magnolia came my way and I had to put up over a million dollars cash, I had it. That sounds like a lot of money and that took me until I was 40, but if I had been saving and investing since I [was] 22, when I started being an entrepreneur, I would have had that amount of money much sooner and been able to take advantage of other opportunities sooner. I don’t regret it because life leads you where it’s gonna go, and Magnolia is a wonderful opportunity and probably one of the best ones I could have gotten.
Question: What about dropping out of college?
Steven Abrams: No. The one regret that I have about not going to college is when I look back at my life, that four years I would have given up in my mind -- it was giving up time that I could have been doing business and becoming this world famous businessman in my mind that I gave up this wonderful time you have as a young person to explore yourself, to explore your intellectual and creative pursuits without the pressures of being in the world. I do regret missing that and at the time it seems unimportant and so important for me to get into my life that I thought I wanted to have as being a businessman. Looking back at it, there was no rush. Nothing that I did between the age of 20 and even 30 ultimately, other than give me some experience, really made a difference. If I had taken even six years to go through four years of college or went to graduate school, my life -- nothing would have change[d] in what I was doing, I don't think. I think it is important to stay in school for those reasons, but it's not for everybody, and I understand why people leave.
Question: You and your brother are both in the New York City food business. How does that work?
Steven Abrams: Oh there’s certainly synergy there. We speak almost daily. We’re brothers that actually get along and like each other and spend a lot of time together, time permitting. We started the bar Wildlife together, but he ran it. I was in the real estate business at the time, I didn't want to run it. He ran it. We then went on to the club and again I was investor. I'm an active investor, but I didn't want to run the day-to-day. We subsequently parted ways. He opened a restaurant called Citrus with a gentlemen named Louis Lanza, who has Josie's and a few other places. I got out of the real estate business and I was starting to do restaurant consulting and I opened a restaurant called Flowers, on 17th Street, which was a celebrity Mecca at the time. He went on and I, at Flowers, had a chef -- I actually fired a chef who tried to hold me up one night, which chef's do and I hired another chef named Jimmy Bradley and he was very, very up and coming young kid. When I opened up this fast food place called It's A Wrap, Jimmy became my partner who was sort of overseeing the food component even though he was doing other things.
I was getting out of that business; I got a problem with my two main partners in that business, I decided to leave and they went ahead and opened a very renowned New York Times two star restaurant called The Red Cat, which I invested in. I was still involved with them, but on a much less involved way. They went on to open up another place called Harrison, equally as successful, then they opened up a place called Pace which didn't do as well, and they opened the Mermaid Inn.
My brother and I had an opportunity to be bought out of the other restaurants and he was able to take over the Mermaid Inn [one] hundred percent. Other than giving him some construction advice and being an ear, I'm not involved in his businesses and he's not involved in mine. But he was, originally, going to be my partner in Magnolia. When we were talking to a leaser in the first few meetings, he was there as my partner. It was a wonderful deal for him; I was going to put up most of the money, he was going to have a nice sizable chunk to run it and he kept vacillating on whether to do it or not. Right now he calls it in the history of the world the worst business decision ever made because he chose not to do it, but I think in reality he did the right thing. His dilemma was I love running the floor, conceptualizing new places, being on the floor, working the people, working the room, etcetera. That's where his true love of the restaurant business is and if he had been working with me at Magnolia he would have been doing schedules for $9 an hour workers that were selling cup cakes and it didn't resonate with him and he kept vacillating and saying, "I'm in. I'm out. I'm in. I'm out." And finally he said he was out.
From a purely financial point of view, bad decision, but from a human being living a life and having to go somewhere every day for ten hours and live, it was absolutely the right decision for him because you should do what you love and then you'll be successful.
Question: What is the best deal that Magnolia ever turned down?
Steven Abrams: Well we get approached about everything almost. I think there is a place for that. I'm not sure the timing is right. I think that we have a wonderful brand with an enormous amount of brand equity and that's something you need to spend wisely. It's very easy when every day you open your e-mail and there is five get-rich-quick schemes coming at you and some of them are appropriate. I think that it's very easy to lose that iconic nature by exploiting it and I think when going -- this might not -- this pertains to this but it's something that you'll get in a minute. I took Magnolia from the hole in the wall on Bleecker Street -- and said, "How are we going to roll this brand out?" You can't go build hole in the walls if you want to have it ultimately a sale, an equity sale or go public, no one is buying into a concept that that's deconstructed.
We had to take the elements of Magnolia and what makes it famous and what makes it important and what makes it resonate with people and move it to the next level. What we found and one of the things we were very careful about, when brands have an iconic status there is a shared perception of ownership by the public and it's very easy to lose that trust because people think -- really think – they have a position in it. It would be like fighting with your sibling and getting into one of those crazy fights where no one talks at the holiday dinners anymore. We don't want to be in that position. We were very, very careful to deconstruct what we thought were the elements that made Magnolia, Magnolia and take it to the next level.
That same trust and iconic nature and ownership, still exists. It's actually growing. It's very easy to exploit that. I can take that trust and sell other products. I can take that trust and go into a grocery store, but I think that's diluting the brand equity at this point. I think that we need to be a stronger brand. I think we are very clear of who we are, but we need to strengthen that in the perception of who we are and what we stand for in the marketplace. I think there will be opportunities to exploit that without the bad connotation of that work, whether that's through a certain amount of organic merchandise growth where we're going to expand the t-shirt line, add hats, mugs. Obviously there are ways we can come into your home, if we want, through your kitchen with some product, and we can certainly put product in grocery stores. The problem, on some level though, is a large part of our cache and an enormous amount of who we are is small batches made fresh daily.
We use an old fashioned cake recipe that doesn't use oil. We are constantly working on the problem that's with that which is bread products and cakes dry very fast in the air. If you put stabilizers in them and oils and other tricks, you can keep them, with two or three day shelf-life, moist. We don't have that luxury because we are skewing to a specific time, date, and recipe. Unless we wanted to compromise that, you can't take that product and put it in to a grocery store because eight hours later the products' already using its shelf-life. We are donating it to the homeless shelter around the street -- across the street -- so you're not getting that, but in a grocery store, how do you do that.
Taking our most iconic product, we can't do that one. But what we are working on, there are ways to flash freeze and to ship. Maybe there will be ways down the road to flash freeze and keep them frozen, but of course we've got to make sure the taste is the same. We are working on that now. We are waiting -- the jury's out. We think that so far our taste test[s] have showed us that we can get 98 percent of the way there and the other two percent is only the people that make it need [it] daily and work with it. It's very encouraging, but there are other products that, over time, we might want to do that with. A natural for us would be a Magnolia Bakery cupcake mix and there are other people that have shops throughout the country that are doing that. We could easily do that and that is something that might come on to our radar shortly.
We could do something like cookies that might have a little bit longer shelf-life and the banana pudding that we were talking about earlier could probably get two to three days out of that and that would have to be maybe a gourmet store or whole foods where they would not keep an extra day and they understand that type of product and we could do that. None of those things are in the discussion internally. We don't get many of those requests externally and we have a very focused agenda right now and quite honestly it's overwhelming enough as it is.
Question: What keeps you up at night?
Steven Abrams: That my daughter has the most wonderful life she could have, and quite honestly I don't stay up at night for business anymore. I've worked that out, both financially and personally, to not really do that. I've been down that road and it's not a fun place to be, to be kept up at night worrying about a payroll, especially in a small business, or an insurance payment or rent, or are people going to come through the door. Those are very, very difficult things and I've lived through all of those. And usually, prior to this business, I bought an existing business, I had some capitalization of my own going into it and I was able to get some capitalization subsequent to that. I don't worry about that. But historically, what's kept me up at night is making a payroll, getting my collections in, and being able to pay my rent. Those are very, very difficult things and 30 years of business I never missed a payroll. I can tell you that was very difficult to achieve. A lot of the times that money came out of my pocket. A lot of times I scrambled to get that done, but people are working for you and they don't really necessarily care about those problems. They are not your partner. You know you have to make sure that you do that.
Most of my businesses, up until now, have been me conceptualizing a business, going out and raising the money for it and convincing other people it's worthwhile, then going and finding space if it's a restaurant, or space if it's some sort of business that requires that, doing all of the sales and then running the day-to-day of the business. It's exhausting and it's very difficult. I admire anyone who does it any level, whether they have made $100 million [or] they [have] a $500,000 business. The reality is when I folded my construction company a year and a half ago I had [a] $150,000 a week payroll. That didn't feel any different to me than when I was smaller and had a $3,000 a week payroll. They were equally as hard to make in the moment and they felt equally as difficult and hard to get through.
At every level, you're dealing with the same problems. Now you get to a point, hopefully, in your business or if you're lucky enough, like I was, to get something like Magnolia, you have a business that those issues aren't there. The business is strong enough already, I bought into an existing business that I knew had the cash flow to overcome those particular obstacles and there is nothing else in that business that can possibly keep me up at night. So I don't have any worries right now.
Recorded on October 23, 2009