From the April 2011 issue of Entrepreneur

It's just past seven on a Saturday night in New York City, and every seat at Sweet Revenge's custom-built zinc bar is taken. Forget about grabbing a table--they are all full, too. A big group is standing along a narrow drinks ledge, spilling into the back, and more people are hovering by the entryway. The room is warmly lit by suspended globe lights, giving off an inviting, Euro-chic vibe--dark hardwood, distressed mirrors, wall sconces with vintage metal accents, a striking art deco bird tattooed on the ceiling.

Sweet Revenge is a cupcake shop.

Its owner, Marlo Scott, has managed to turn the whole cupcake phenom on its buttercreamed head by serving "grown-up" versions in sophisticated, and not always sweet, flavors topped with three fat slashes of frosting--a "badass mohawk" motif, as Scott puts it. Even more badass: The cupcakes are offered with wine and beer pairings designed to bring out the best of both. For the signature Sweet Revenge cupcake--a peanut butter cake with a chocolate ganache center and peanut butter-fudge frosting--there's a frothy Weihenstephaner Hefe Weiss ale or a Las Perdices Malbec, a full-bodied Argentinean red.

No place on the planet is thicker with cupcakes than New York City. There are nearly 40 bakeries devoted to them, including Magnolia Bakery, which kicked off the whole craze after appearing on Sex and the City in 2000, and Crumbs Bake Shop, a 35-unit cupcake corporation on the verge of mass franchising. Besides the specialists, there are so many bakeries, restaurants and food trucks pushing their own spin on the cupcake that there have been more than a few rumblings that the whole thing is over.

Sweet Revenge CupcakeIn the midst of all this, and in a recession, no less, Scott is proving that great opportunities are still out there for smart entrepreneurs: She has found a niche no one else tapped--a cupcake, beer and wine bar, with the atmosphere of a stylish bistro--and turned it into a spectacular success.

"She's found a different way to market cupcakes," says Nichelle Stephens, co-founder of the popular cupcake blog Cupcakes Take the Cake. "Sweet Revenge is not a dive and not too high-end, and appealing to locals at night, and tourists and families during the day. Actually, I'm surprised there aren't more places like this."

Video: The Innovators: Sweet Revenge's Marlo Scott »

Just four months after opening in July 2008, Scott received a Critics' Pick award from Time Out New York magazine; the following April, she won another for "best case against cupcake backlash." Her recipe for a chorizo sausage and Manchego cheese savory cupcake was featured in Bon Appétit magazine, and she's shown off her cupcake and booze pairings on The Martha Stewart Show, the Today Show and the Cooking Channel's Unique Eats. Last summer, she became the face of a national advertising campaign for Chase's small-business credit card, Ink. In 2009, her first full year in business, revenue hit half a million (that's about 143,000 cupcakes). This year, Scott has plans to expand the menu and introduce Sweet Revenge lines of apparel, fragrances and wedding cakes.

Marlo Scott
"I wanted to create a whole new brand and experience."

It all started in August 2005, when Scott--a slim brunette with a wide grin and edgy style--got fed up with working for "the man" in sales, corporate development and brand licensing at NBC and Time Inc. "When I was passed over for a promotion in 2005, that day, I literally swore that I was going to get my sweet revenge on these, uh, folks. I think that's the F-word I used," she says, with a smirk.

Scott immediately began plotting her escape, taking business courses about the restaurant industry and attending entrepreneurship seminars. She discovered that cupcake bakeries had a mere 8 percent failure rate. By December, she had started baking in earnest. "I sucked at it at first," she recalls. "I'd forget about [the cupcakes] in the oven, and they'd come out very … toasted."

When a layoff came a couple years later, Scott was ready. She sunk a total of $500,000 from her savings and an SBA loan into the business, and got ready to show her old employers what she could really do.

Three years later, sweet revenge tastes pretty good, especially when it's a raspberry red velvet cupcake served with a cold raspberry bellini.Marlo Scott

Cupcakes and booze. How did you come up with that?
Up to that point, cupcakes were cute, girly-swirly, nostalgic all-Americana, but that just was not me. I wanted to create a whole new brand and experience, so I started by looking at successful concepts in the restaurant industry, and at my own experiences going out in New York City. I read that French bistros were successful as a restaurant concept, and sure enough, where did I go? Pastis, Felix, Café Noir--all these really beloved French bistros.

What next?
I was really a super sleuth. I started taking pictures [of all these places], talking to the bartenders about what the countertops were like, studying the lighting, fixtures, fans, wood, paint colors, tiles, chairs--literally every element. And I used Baz Luhrmann's film Moulin Rouge as [an example of] best practices in branding. I evaluated what he did in the visuals--the fonts, use of colors and language and decorative elements--to evoke the Bohemian spirit and energy across every element of the movie and its marketing.

What about the nouveau cupcakes?
I hired a genius consulting chef and tested out recipes, different packaging and frosting styles with friends and their friends. We ultimately got to this edgy, sexy, exotic styling, with the mohawk piping element and the rustic parchment paper instead of the pleated paper cup.

It's very adult.
Actually, there was a time I was thinking about doing a whimsical, kid-friendly, family-oriented cupcake experience, because I had a lot of friends who were having babies. Then I spent some time sitting in the cupcake bakeries and literally standing out in the street counting foot traffic and guessing ages and watching for children. It wasn't moms with strollers or toddlers at all; it was a 20- to 40-something crowd, predominantly single and--this was shocking to me--30 percent were guys.

All that research--it's clear you have a marketing background.
It's frustrating sometimes because I take longer than I'd like--it took 11 months to do our brunch menu. We did focus groups to evaluate service, taste, presentation. We asked what was missing, what they would never order and we made some key business decisions based on the feedback. We slashed the salads and hummus, redesigned the menu and added some non-cupcake items, like bacon, eggs Benedict and lox and bagels.

What couldn't you figure out with research?
I bought all new plates because the original ones were way too large. We were trying to fill white spaces on the dish with sides that weren't appropriate. And in the first couple months, I was overwhelmed. I didn't know about the day-to-day, like how someone has to make sure there are four different types of sugar in the sugar bowl! It was a year before I developed all the procedures and checklists.

You started research in 2005, but by the time you opened ...
Muddling out of a recession wasn't in my projections, and when I opened I suffered miserably. I literally would stand out on the street and try to give stuff away for free. It is unbelievably hard to give away anything on the streets of New York--people would look at me like I was half-crazy.

Then I had a staff member not show up and I had to take over the shift, but I didn't know how to use the point of sale. A friend down the street had to show me how to use the espresso machine. So I started pulling every second shift, because I realized I could make tips that I could live off of, and I could control my employee costs.

I was at the stage of the business where every penny counted, and January 2009 was absolutely the apocalypse. I was coming off incredibly small numbers, like $600 a day. I was working every night, and I knew that I was not going to be able to manage payroll and the SBA loan in February out of operating expenses.

The Secret Ingredient
Being green can save the bottom line, too

To the many reasons business owners can be enthusiastically green, Marlo Scott would add this: Greener is often cheaper. Here are four ways she practiced sustainability during Sweet Revenge's tough opening year.

Eliminate waste: "We never have things like napkins out for patrons to grab. We ask if they want it, and most will actually say no," Scott says. "Every bit counts when you're operating at the margin of survival."

Monitor production: The goal is to sell out every night, so Scott has developed ways to predict purchasing trends. "We can compare how much we sold last Monday, look at run-rates and build in a buffer," she says. "You can still get hit by surprises, but this way you're using numbers to make smart decisions." To encourage fewer surprises, she charges a "rush fee" for orders of a dozen or more cupcakes.

Buy used: Scott installed salvaged doors, circa 1900, from Olde Good Things antique store. Even at $7,000, they were far less expensive than new ones. "And they went
with the vintage essence and spirit of the bar, because they were real vintage doors," she says.

Don't skimp when it's worth it: Sometimes a little extra investment is worth it, because you earn it back in customer appreciation. The walls are an eco-friendly stucco and have a weathered parchment look, and to continue the rustic theme, Scott uses unbleached paper bags and wooden cutlery for takeaway.

Did you have a Plan B?
No. No. I never had any doubts, never had any regrets, didn't second-guess myself. I knew it was all about endurance and getting creative in figuring out how to take costs out. So I was mindful of HR costs and trained the staff to be conscientious about overproducing and wasting packaging and paper goods.

And I tried to win repeat patrons and create a lasting relationship with them. I think people love to eat and drink here, but we also treat them with really good cheer. You get greeted by name--and you'd think that's the way it should be in the service industry, but it isn't. In all my years of living here, only one bartender knew my name, at an Australian bar called Eight Mile Creek in the NoLita district. It made such an impression on me.

What was the turning point?
Being on The Martha Stewart Show that January [in 2009]. I was connected with the set decorator on the show, and I was asked to drop off some cupcakes for a taste test. I got the call two hours later to be available to film. I left the taping immediately after to bartend here, and 30 seconds later, some people from the audience walked in. Martha's viewers were so responsive that it allowed me to make rent and payroll on Feb. 1.

You've had incredible press.
You're shooting yourself in the foot if you don't do strategic stuff to get the word out. About two months in, I got on the Time Out New York website and sent an e-mail to the generic address saying hi. I think they called 30 seconds later to tell me to please bring the cupcakes. So I did, and when I was on the subway back, they called to let me know they were naming me a Critics' Pick because I was doing something so radically different.

Has the visibility made a big difference?
I'm finally seeing sales numbers on the weekends that I said I was going to do on an average daily basis in the original financial models that I built. It would have made me a $1 million business. It is driving top-line growth, and it's really increased web traffic.

Which you've taken advantage of.
I launched the Sweet Revenge apparel line online. I have stock here, and the staff is outfitted in it, but I don't want to kitsch out the place with T-shirts on the wall. I always knew I could expand the brand into different consumer products, because I was going to create a lifestyle--sexy, edgy, inviting--around Sweet Revenge. Also, I think anyone who's been challenged in the recession can appreciate the anti-establishment rebel yell, and the way I turned a bad situation around and got to do what I wanted to do.

What's next?
I'm hoping to get into lotions, perfumes, soaps. This is a platform for me to develop and launch other experiences. One of these days, I plan on writing a book, and I'm really hoping I can nail a TV deal that can pull off a Sweet Revenge concept about our quirky regulars or other small-business owners doing daring things.

Will you open more cupcake bars?
If I Starbucks myself, I'm no longer special. For me, it feels more authentic if you have to come here, to Carmine Street, to enjoy the experience and the cupcakes and booze.

So what about this rumor that cupcakes are over?
That's the silliest thing. The reality is, if you're doing something innovative, there's always room to become newsworthy, even in the cupcake industry.



Cupcake City
How Sweet Revenge compares to New York's leading cupcakeries.

  Sweet Revenge Magnolia Bakery Crumbs Bake Shop
Cupcake style Grown-up, eaten on plates with knives and forks Frilly, with sprinkles and frosting swirls Huge, and huge selection (more than 50 flavors and toppings daily)
Price $3.50 $2.75 to $3.25 $3.25 to $4.50
What else? Wine, beer and savory cakes, plus breakfast, lunch and brunch Pies, cakes, cookies, brownies, pudding, muffins Cakes (and "colossal cupcakes")

Locations

 

Just one Six and counting 35; 200 planned by 2014
Ambience

 
Cool, West
Village bar where regulars hang
Bright, retro bakeshop with long lines and the "velvet rope treatment" Fancy candy store: Wood cases, marble counters and treats
The hook You want Pinot Noir with that? Sex and the City ate here More locations, more cupcakes and online
delivery
Plans for world domination Sweet Revenge apparel, fragrances, TV show Major expansion (first up: Harlem, New Jersey and Boston) Franchising, after going public in a $66-million merger