The Next Page: What's behind the bite-sized baked good boom?

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The Cupcake Class and Its Contentment
By Michael J. Madison

In his influential "Pittsblog", Michael Madison has identified numerous trends in regional economic development. He was the first to chart the emergence of a "Cupcake Class" in local social demographics. We asked him to draw links between the rise of fine cupcakes and the region's prospects for entrepreneurial vitality.

oes the 21st century belong to cities that attract and nurture young, hip, creative professionals? The so-called "Creative Class"? Or did Richard Florida, the Pittsburgh and Carnegie Mellon refugee who coined that term, have it all wrong?
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Beginning in January, two groups of entrepreneurs set out, perhaps inadvertently, to challenge Florida's thesis. The owners of CoCo's in Shadyside and Dozen Cupcakes in Squirrel Hill are betting that the future of Pittsburgh lies not in the Creative Class, but in the Cupcake Class: people with the time and taste to consume small portions of upscale baked goods at $2.50 a pop.

Search the Internet for custom cupcake retailers and blogs run by cupcake devotees. What you find are cupcake bakeries in cities laden with people who are energetic and entrepreneurial -- San Francisco, Los Angeles, New York, Chicago, Washington. You find hordes of what David Brooks labeled "Bourgeois Bohemians," or BoBos -- not young creatives with more energy and attitude than money, but older hipsters with money and the persistent sense that they can be cool even after they've hit middle age.

And with them, you find growing economies. These aren't necessarily the hippest places, but they are all places that create and recycle wealth in ways that grow the pie. They have entrepreneurial and bottom-up mindsets. They are places that any city today would be proud to emulate. And these are cities that are putting away gourmet cupcakes by the truckload.

Clearly, the more cupcakes-sold-per-capita, the better off a city is likely to be. The informal motto of the Cupcake Class might be: If you bake it, they will come.

Can this possibly be right?

Two cupcake shops does not a future make, and Pittsburgh has a shortage of the bottom-up, entrepreneurial mindset. Moreover, with two cupcake bakeries and cupcakes popping up at Whole Foods and Starbucks, cupcake saturation looms. How long will people be willing to shell out $2.50 per cupcake -- anywhere?

Barriers to entry are low. Anyone with the sense to use fruit- or chocolate- or alcohol-flavored buttercream frosting can get in the game. Upscale $1 cupcakes might be on the horizon.

The cupcake market presents what Harvard Business School professor Clayton Christensen calls the "innovator's dilemma": Should cupcake bakeries specialize, maintain their margins and move upmarket with ever fancier cakes? In the short term, the money continues to flow. But soon low-cost competitors will move in like sharks and take over the heart of the market.

Or should they give up those fat margins, maintain their market share and commodify their cakes by selling branded cupcakes or even private label cupcakes through restaurants and other bakeries? The bakers don't get rich, and they don't get new, but they do stay in business.

Christensen's way out of this dilemma is for businesses to innovate outside the box. They need to constantly challenge their own business model.

That's the real role of the Cupcake Class, and the real lesson that the Cupcake Class may teach Pittsburgh.

Will the cupcake bakeries lead lives of serial innovation? Will their customers respond? If CoCo's and Dozen can keep their hold on the upscale cupcake market and simultaneously fend off low-cost imitators, we might take their success as a sign that the entrepreneurial mindset might finally be taking hold.


Michael Madison is associate dean for research and associate professor of law at the University of Pittsburgh School of Law (professormadison@gmail.com)

The Next Page is different every week

-- John Allison (thenextpage@post-gazette.com) 412-263-1915
-- Stacy Innerst, illustrations

 


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