April 26 (Bloomberg) -- Venture capitalists like to say they invest in entrepreneurs who are solving big problems. For foodies in San Francisco, there are few greater challenges than finding a good bagel.
Dan Scholnick, a partner at Trinity Ventures, is putting his money where his mouth is. After spending years complaining about the poor quality of local bagels, he joined his wife and another couple in starting Schmendricks to bring the taste of New York to the Bay Area.
The quartet is trying to build Schmendricks more like an Internet startup than a food company, keeping upfront costs to a minimum, reaching customers through services like Twitter Inc. and collecting data on consumer preferences. They don’t have a physical store and are subleasing kitchen space at Asana, the startup led by Facebook Inc. co-founder Dustin Moskovitz. Bagels are sold through preordered pickups, deliveries and at weekend pop-ups, where the team sets up outside a local cafe or shop.
“We’re using a lot of the tools and tricks of tech companies across our business,” said Scholnick, who worked at two startups before becoming a venture capitalist in 2007. “It’s all about getting to market as quickly as possible, being really efficient with capital and using all the latest technology that’s available.”
East Coast Transplants
More important than the Silicon Valley startup savvy is making bagels that East Coast transplants crave. In particular, Scholnick says there’s demand from local Jewish residents who grew up in New York and Boston eating traditional bagels, which are boiled before they’re baked. That process gives them a dense interior and crusty surface.
So Scholnick and company, who attended Dartmouth College in New Hampshire together in the late 1990s, spent two years working on an alternative recipe to the doughy bagels they found around town.
The most prominent of those Bay Area shops is Noah’s New York Bagels, which has nine locations in San Francisco and another five in Oakland and Berkeley. Noah’s is owned by Einstein Noah Restaurant Group Inc., a publicly traded company (ticker symbol: BAGL) based in Lakewood, Colorado.
Noah’s bagels are steamed -- not boiled -- before they’re baked. The company has been using that recipe since the late 1980s, and it’s proven to work on the West Coast, said Richard Burjaw, chief marketing officer for Einstein Noah. The fluffy texture is also good for the sandwich menu, Burjaw said.
“Given its history in the Bay Area and the number of units we have, you have to conclude that it’s quite popular,” he said.
No Fruit Flavors
In addition to the softness of San Francisco bagels, they also come in a variety of untraditional flavors that include fruits, vegetables and cheeses baked in. Schmendricks is sticking with the classic New York toppings of Sesame Seed, Poppy Seed, Salt and Everything as well as plain.
“Blueberries belong in muffins, they don’t belong in bagels,” said co-founder David Kover, a school psychologist who grew up in Brooklyn, New York, and has gained the title of chief authenticity officer.
Blueberries do provide good fodder, though. On April 1, the company sent a Twitter post with a picture of a chalkboard promoting their flavors of the day as Blueberry, Chocolate Chip, Bacon-Asiago and Orange-Maple. It was an April Fool’s Day joke.
It’s no joke that finding any traditional Jewish food in the Bay Area is a challenge, providing the inspiration for Wise Sons Jewish Delicatessen to open last year in San Francisco, offering classics including matzo ball soup and chopped liver.
To promote weekend pop-ups and keep in touch with customers, Schmendricks uses Twitter, Facebook and its e-mail list. For arranging pickups, it utilizes software from startup Good Eggs Inc. For accepting credit cards on site, the company has experimented with technology from Square Inc. and EBay Inc.’s PayPal unit. Those products let them track preferences of specific customers.
“Even at a very early stage, we’re able to drive a lot of foot traffic and customer traffic to wherever we’re popping up,” Scholnick said.
That’s how Schmendricks, named after the Yiddish word for a stupid person, sold out its launch party, scheduled for May 10, at Four Barrel Coffee in San Francisco.
While it has a growing fan base, the bagels aren’t cheap. The company charges $3 apiece, compared with $1 to $1.50 at most of the local stores. Cream cheese, which they buy in stores and then flavor themselves, is an extra dollar.
Ethan Kurzweil, a Boston-area native and vice president at Bessemer Venture Partners in Menlo Park, California, is willing to pay the premium. He compares it to buying an artisan chocolate versus a supermarket candy bar.
The One and Only
“They have to brand themselves as a different category -- they are a bagel and nothing else is a bagel,” said Kurzweil, who became an early Schmendricks customer through his venture connection to Scholnick. “If I’m going to eat the carbs, it’s not really about the money. It’s about the food experience.”
Schmendricks’ bagels are modeled after The Bagel Hole in Brooklyn, Kover’s childhood store. The baking is left to Scholnick’s wife, Deepa Subramanian, who quit her job as a corporate lawyer last year to become the single full-time employee. A native of India, Subramanian had never tasted a bagel until coming to the U.S. for college. She jumped at the opportunity for a career change.
“Once we nailed down the product, I was really excited about a shot at being an entrepreneur,” said Subramanian, who was a software developer at Salesforce.com Inc. before going to law school. “I’ve never produced anything in my life that is this tangible.”
She now wakes at 4 a.m. to have bagels ready for breakfast delivery at nearby startups and law firms. She’s making thousands of bagels a week, with evening help from the rest of the team. That includes the fourth founder, Dagny Dingman, who’s married to Kover. They expect to hire someone soon to help meet rising demand and give Subramanian more time to work on social marketing, meeting cafe owners and trying to build the business.
“It’s not the best use of my time spending eight or nine hours a day baking,” she said. “I’m really intrigued to see how I’m going to manage people. I’ve never done that.”
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