PastryScoop.com How to Start a Business Chat Transcript

Melissa Murphy of Sweet Melissa Patisserie and Jill Gifford of the Food Entrepreneur Assistance Program at the University of Nebraska Food Processing Center
Wednesday, April 26, 2006

<Judiaann_PastryScoop> Hi, Everyone. Welcome to today's chat as we continue to talk small business with chef/owner Melissa Murphy of New York City-based Sweet Melissa Patisserie and Jill Gifford from the Food Entrepreneur Assistance Program at the University of Nebraska-Lincoln’s Food Processing Center! Welcome all.

<Judiaann_PastryScoop> We also have Peter from The French Culinary Institute on the chat if anyone has an career guidance questions.

<Judiaann_PastryScoop> Please feel free to ask any questions that you have.

<Lora> I'd like to hear a little about where you started Melissa.

<melissa> I graduated The FCI in 1995 and started working in catering.

<melissa> I wound up specializing in baking.

<melissa> Worked in the pastry departments at some NYC restaurants.

<Judiaann_PastryScoop> I live very close to two of Melissa's Brooklyn bakeries and I have to say that her food is amazing. Everything is always so fresh and delicious.
 

<melissa> Thanks, Judiaann. The challenge is to do everything in small batches and a bake fresh daily.

<Judiaann_PastryScoop> Jill: Can you tell our members a little about what you do and
what services your organization provides?

<Jill_FEAP> Hi. I’m Jill Gifford, Manager of the Food Entrepreneur Assistance Program at the University of Nebraska Food Processing Center. We provide technical and business assistance to existing food manufacturers throughout the U.S. and in some foreign countries. I manage our entrepreneur program which is designed specifically to help individuals that want to start a food manufacturing business.

<Judiaann_PastryScoop> Jill: So if I wanted to turn my homemade chocolate sauce into a commercial product to sell to a company like Dean & Deluca, could you help me?

<Jill_FEAP> Yes, we help people take their home kitchen recipes and turn them into a product that can be manufactured and sold to stores.

<simplym> I'm interested in starting a baking business. How do you price items such as cakes and pies?

<melissa> Well the market will dictate. If you cost out the price of an apple pie, it will be somewhere around $2, but obviously the markup needs to be greater.

<Mariposa> How do you cost your products? By weight? Do you factor labor into the per-item cost?

<melissa> We do not sell our products by weight.

<Mariposa> I meant for determining what the cost of goods sold is. Sorry for the confusion.

<melissa> We sell per piece, each recipe is costed out and we look at our labor costs and
operating costs to figure out pricing.

<melissa> Generally, your food cost is a good place to start. Take into consideration labor, utility expenses, etc.

<Mariposa> Ok. So you do add the labor in and the overall burden rate when you're determining pricing.?

<melissa> Not exactly. It's not that direct. You should figure your food cost should be around 18-23%.

<Jill_FEAP> Determining pricing for any product is dependent on the actual costs to
produce the profit margin the owner wants to make and what the market will bear.

<chloelee55> Melissa: Do you see anything as being the next big wave in baking? Like cupcakes have been?

<melissa> Not sure about the "next thing." I focus on making great things and then wait for them to be discovered—sometimes with a little help.

<Jill_FEAP> Right now we are seeing many large manufacturers looking at ways to
produce quality baked goods without trans fats.

<Rose> Are small pastry shops able to produce similar products without trans fat?

<Jill_FEAP> Yes. In fact, in some ways, I think small bakeries can address the trend quicker than large companies.

<Sunshine> Melissa: What would you say are the hidden costs of opening a store front restaurant? What costs did you not count on that came up?

<melissa> So many hidden costs the first time around!

<melissa> Especially when you are building your space. In opening our new store in Park Slope, the C of O is a huge (unforeseen!) expense.

<patis> Did you seek professional consultation in choosing the location and business plan?

<melissa> I did not seek professional consultation in opening my business.

<chloelee55> Melissa: Did your business take a hit when the low carb craze came flying by?

<melissa> My business was not affected at all negatively.

<chloelee55> That is great!

<RussellB> What steps should be taken if you have a product that you currently make at home and want to get it into people's hands, eventually selling it commercially either to a store or in your own shop?

<Mariposa> Russell: My chocolates are currently home produced. So far, I have been selling by word of mouth, but we're formulating an expansion plan. It's intimidating!

<Jill_FEAP> It can be scary but also very exciting. We work with entrepreneurs every day that, with careful planning, decide to take the next step of expanding their business.

<Blair> What about finding reliable vendors? There are so many! Is there an industry reference guide, etc, or just lots of research? Jill, is that something that you could possibly help with or point me in the right direction?

<Jill_FEAP> Yes, ingredient sourcing and also finding contract manufacturers are a part of the assistance we provide.

<melissa> Fellow restaurant owners were very helpful in recommending vendors with good records. Don't be afraid to ask your neighbors.

<dutchess> Jill, do you have customers who run strictly web retail businesses? Can that be a viable business model?

<Jill_FEAP> Yes, we are seeing more and more entrepreneurs that want to be web-based. We don't have one model because we try to individualize all our services to each client's individual goals and resources.

<MQB> How do you determine nutrition facts (total fat, carbs, protein, etc.) for labeling?

<Jill_FEAP> Nutrition facts are determined by the industry using either a database or analytical method. When we produce facts panels here at the Center we discuss which method works best for each individual product and proceed accordingly.

<Amy> Hi Melissa, I am interested in building my home baking business from home into something more by getting the word out. Since, I am home based what is the next step?

<melissa> Go get your Food Protection Certificate from the Dept. of Health.

<PeterC_FCI> Melissa: How do you make the decision to open a second and even third shop?

<melissa> We outgrew our first location when the demand for goods increased, but our tiny kitchen stayed the same.

<Mariposa> Melissa: What has been the key for you to increase production volume while keeping tip-top quality?

<melissa> We still keep things in pretty small batches. It's a key to freshness.

<melissa> Also we only have one small freezer! That keeps us from baking ahead!

<simplym> I am a self-taught baker and I am pretty good. Would it benefit me to get professional training in order to start my business? I am 48 and not getting any younger.

<PeterC_FCI> It's always a good idea to go for professional training, especially in the pastry field.

<SugarM> I would love to go to The FCI, but financially and with family commitments, it seems impossible.

<SugarM> Any thoughts? Oh... age, too! I am getting up there!

<PeterC_FCI> Have you spoken to our Financial Aid dept. about your different options?

<SugarM> Actually, no. I am still paying for my Master's degree!

<PeterC_FCI> Our students' age ranges anywhere from 17-60.

<SugarM> Peter: What about the weekend classes? Are those still available?

<PeterC_FCI> SugarM: Send me an email with your info and I will have Financial Aid
send an info packet to you and I will also send a FCI brochure—
pclemens@frenchculinary.com.

<SugarM> Thanks, Peter.

<PeterC_FCI> SugarM: If you would like to come in and tour the school we can sit down and I can answer all your questions. Let me know if you would like to schedule something.

<SugarM> Thank you, Peter. I would like that very much!

<SugarM> That's what I am afraid of!

<melissa> I opened my bakery for $65,000 in Brooklyn!

<melissa> Just do your homework. You must think of everything, from your C of O to the number of seats you will have.

<melissa> The number of seats will dictate if you need a public bathroom.

<Rose> Peter: I'm from Singapore. Can I request for a financial aid info packet to be sent to me?

<PeterC_FCI> Sure thing. Are you a permanent resident or would you be considered an international student?

<Rose> Peter: I'm international.

<PeterC_FCI> We have an excellent department here just for international students. Email Peter Scanlan at pscanlan@frenchculinary.com.

<Rose> Thanks, Peter.

<simplym> I live in Philadelphia. Getting to The FCI would be a stretch. Are there any reputable schools in Philadelphia? Do you know anything about a culinary course at the Art Institute of Philadelphia?

<PeterC_FCI> I really don't know much about the Art Institute of Philadelphia.

<Vedika> I'm in Philadelphia and I could not recommend any schools here, particularly NOT the Art Institute. A friend of mine just dropped out from there because it was so bad and she's now going to school out of state!

<Rose> How do you determine the expiration date of products?

<melissa> Freshly baked goods such as croissants, cookies, scones, etc, for one day.

<melissa> Lemon tarts, refrigerated items, are about two days. Some flourless chocolate cakes last three days.

<melissa> Keep things covered. Pay attention to your pars. We only bake what will sell and don't sell things past their prime—not even a little.

<Lora> I'd like to take a candy-making hobby to a side business (Internet only. I'm not ready to quit my day job yet.). After I've found kitchen space to rent (I live in NY, so no home baking for me) and gotten my website up and running, what then? How can I build a client base bigger than just my friends with no actual store front?

<Judiaann_PastryScoop> Some good PR or free PR is nice. Getting the word out is always a bit of a grassroots movement but great products seem to have a way of getting noticed.

<Blair> What about insurance protection, is that a big part of your budget? Any recommendations as far as companies go?

<melissa> Yes, insurance is a big factor. Workman’s comp, general liability, all adds up!

<patis> How much seating do you think is viable in a coffee shop/pastry establishment with the high cost of retail space?

<melissa> I started with 18 seats. 9 Tables. TINY only. My stuff is pretty expensive.

<Judiaann_PastryScoop> I know bakeries/coffee shops with just a few stools. If you have good products, people will come and take their goodies to go.

<patis> Thank you, that is very helpful.

<Jill_FEAP> I notice that many of you have existing bakeries. At the Center we keep a database of companies that are willing to be contract manufacturers for others. If any of you provide this service or would like to learn more about it please contact me at (402) 472-2819. I would love to include your info in our database. I am always looking for good bakery co-packers. Thanks!

<SugarM> Jill, do you offer Business Plan examples?

<Jill_FEAP> We do have outlines and can also refer you to lots of sources for help in writing your own plan.

<SJK> Yes, on the business plan, need a good example!

<Blair> Melissa: How long before you saw a profit and did you have a business plan?

<melissa> We saw profit immediately while paying our loan back to ourselves over two years.

<melissa> We had a business plan that my partner and I put together.

<Jill_FEAP> Comment regarding a business plan: I would STRONGLY encourage everyone to write one. One of the biggest reasons we see for failure of small businesses is lack of planning and under-financing.

<Judiaann_PastryScoop> Planning is the key. Many small businesses fail because of improper planning. Do your homework but don't be discouraged because every city needs a better bakery, finer chocolates, great wedding cakes, etc.

<Judiaann_PastryScoop> A good way to test out whether or not owning and operating a food business is right for you is to work in one yourself. Work and see. Work and learn. Work and experience what it takes. Also, product is first so it helps to have a really firm foundation in the skills to make your food the best that it can be. That said, you only live once so follow your dreams.

<Amy> How can I get a copy/example of a business plan?

<Judiaann_PastryScoop> Many cities have a Small Business Administration where you can get sample business plans.

<Jill_FEAP> A few places to check for business plan examples are your local Small Business Administration Office, State Department of Economic Development, or State Small Business Development Center. If you need more specific contact information for these agencies in your state please feel free to contact me at (402) 472-2819.

<patis> How many clerks do you feel is necessary to run a smooth operation?

<melissa> It all depends on the size of the operation.

<DeaDolce> Melissa: I'm in New Jersey, the construction and equipment costs keep skyrocketing. With all the delays I keep paying out without any money coming in. How long do you think it should take to break even? I'm the only pastry shop in town.

<melissa> It all depends on how much you spend!

<DeaDolce> I figure I need to gross about $6K/week just to pay the bills. Does that sound doable in New Jersey?

<melissa> I don't know what your rent is!

<melissa> You should pay your rent in one week’s sales.

<SugarM> Jill, do you help people in other states, or just refer them back to their local SBA?

<Jill_FEAP> Yes, our Center and the Food Entrepreneur Program works throughout the nation and even in some foreign countries.

<Amy> How did you select location of your first location?

<melissa> I always wanted to open a patisserie across from a movie theater (instant business) and I knew my neighborhood needed a store like mine.

<jubilee> Hi, I'm thinking of starting a bakery but have been having trouble finding an affordable kitchen space. Do you have any advice/experience about possibly renting space at a church or school? (Some friends have suggested this).

<SweetMuse> There is an incubator kitchen in the Bronx called Mi Casa that you can rent.

<Judiaann_PastryScoop> Perhaps you can rent some commercial space during off-peak hours from a catering company?

<Jill_FEAP> I have had entrepreneurs set up business using a local school, etc. There are many things to be considered if you choose this route. Can you grow with them? Is the building in an area zoned for manufacturing? Is it a state approved facility? Some aren't?

<Indigo> Hello, Can you recommend any continuing education programs for me? I have been in the industry for eight years and decorating for five of those. I want to learn advanced decoration.

<PeterC_FCI> Sorry, no classes like that now but might be offering them in early 2007. Keep checking the website.

<SJK> Do you have a computer program you would recommend for making labels for packaged items?

<Mariposa> I make all my labels in PowerPoint, Word, and Publisher and use a hi-quality color laser to print.

<Indigo> I am also having trouble designing my stock cakes. I was wondering if you had any sources for inspiration for decorating to wow the customers but keep decorating somewhat low. I am talking truffle cakes, opera, and the like.

<melissa> Look through books, take out simple classic aspects that you like. Less is more.

<Judiaann_PastryScoop> Sometimes simplicity can work to your advantage. Often it's the simple cakes that look the most elegant. Keep it clean and neat and make the most of your cake's flavors and textures. Also, you can create some basic decorations and repeat them with different flavors. It's helpful when the decor indicates in some way the flavor or the cake itself.

<Blair> Melissa, what products did you start with and how did you determine this was what your market area would buy? Did you try to offer things that other locations were not?

<melissa> My style is a French-American style of baking. My neighborhood is filled with Italian pastry.

<DeaDolce> What is the typical deal for wholesale pricing—to caterers, restaurants, etc—compared to the standard retail prices? I figure that's where the money is but I'm not sure how to get into that business.

<melissa> People who buy wholesale want to sell the product for at least double what they paid for it.

<chloelee55> Did you feel like you had to do breakfast items to get more sales coming in?

<chloelee55> I have heard that sometimes people will create a lunch menu or other fillers so that they can survive on the bakery part.

<melissa> We have a savory cafe menu. Afternoon tea.

<melissa> We doubled our revenue when I added the savory menu.

<Indigo> Do you make them yourself or outsource?

<melissa> We make everything ourselves.

<Indigo> In your business, do you offer things other than pastry and cakes, i.e. jams, jellies (stonewall), or other curiosities?

<melissa> We sell jams, granola, candies, etc.

<melissa> We do wedding cakes, birthday cakes, catered lunches for NYU, etc.

<Mariposa> Jill, Have you ever advised a chocolatier, or do you specialize in bakeries?

<Jill_FEAP> I am currently assisting two companies making chocolate products.

<Jill_FEAP> We actually have the capabilities at the Center to work with any type of food or beverage product. And if we come against a product we don't have expertise in we have a good network throughout the country to find appropriate help.

<Jill_FEAP> If anyone would like an information packet regarding our Food Entrepreneur Program or other services provided by the Food Processing Center, please feel free to contact me at (402) 472-2819 or email jgifford1@unl.edu.

<Blair> Jill: What are the basic fees for your services?

<Jill_FEAP> Our fees are determined individually based on the project or work the client wants us to perform.

<Gigi> Melissa: How did you decide which suppliers to use for things like flour, sugar, chocolate, etc?

<Gigi> Did you already know which products you wanted to use or was just a matter of finding the right supplier at the right price?

<melissa> I started with a list of three for each type product needed.

<melissa> Then, I sent out a request for bids to these vendors telling them that I was interested in doing business with those companies offering the best service as well as the most competitive pricing.

<chloelee55> How early are you up to create the food for today’s business? Or do you have after hours baking that is done?

<melissa> We bake around the clock.

<melissa> We start our morning bake at 1 a.m. and it's delivered at 5 a.m.

<chloelee55> Do you immediately bake something again if it runs out or do you know your clientele enough to stop baking that certain item for that day?

<melissa> We use a par system to determine how much of each item we will bake off. If it sells out, the customer will buy something else. It's good to create a demand. Not good to throw muffins away.

<patis> Melissa: What amount of square footage is required for dining/front end and for kitchen and storage of supplies?

<melissa> Our whole store is 750 square feet, so it was about 2/3 seating and front counter, 1/3 kitchen, storage, and bathrooms. NOT ideal, but doable.

<patis> Thank you. This is very helpful.

<chloelee55> Do you have a facility that takes care of the bulk baking or do you do it all at the shops?

<melissa> We have a central production site which bakes round the clock.

<dutchess> Jill: How many months worth of expenses should I have saved up before opening a business?

<Jill_FEAP> I have heard varied amounts. However, I think at least a year.

<PeterC_FCI> Melissa: Are you considering opening stores outside of New York?

<melissa> No, I am currently writing a cookbook and am working with PodcastGo Network.

<melissa> I would like to market the brand as much as possible and I dream of doing a baking show for TV.

<Lora> That would rock!

<Gigi> Melissa: As a percent of your total sales, about how much is allocated to labor? What about food costs?

<melissa> For the most accurate percentage costs, refer to a how to open a restaurant book. I mostly focus on food, my partner does all the finances

<Mariposa> Jill: What was their biggest challenge to overcome? I'm curious whether some of my roadblocks are unique or not.

<Jill_FEAP> The biggest challenge for most entrepreneurs is lack of research and financing. However, for the chocolate company I referred to, they wanted to use a co-packer but decided that to maintain the quality they were looking for and keep the production local they would set up their own facility.

<Jill_FEAP> It is scary to let go of your baby and let someone else produce. However, it can be very satisfying if you locate the right co-packer. It also allows you to concentrate on growing your business if you are not handling day to day production.

<Jill_FEAP> Lots of entrepreneurs have to make this decision. But be positive—what a great place to be!

<Mariposa> That's the issue I'm running into right now. I'm fanatical about my quality and I'm having trouble following an adviser's advice to let go in order to grow.

<Mariposa> Jill: Wow, am I glad I’m not the only one at that crossroads!

<Judiaann_PastryScoop> There's a good two-part article in the April issue of Food Arts detailing what it's like to own and operate your own chocolate shop featuring Thomas Haas and Jacques Torres. They talked about how they got started, what equipment they use, etc.

<Mariposa> Judiaann: Where can I get a copy? I'm not familiar with the publication.

<Judiaann_PastryScoop> Food Arts is available at large bookstores and magazine shops, also food special stores like Dean & Deluca, Sur La Table, Broadway Panhandler, etc. It's worth seeking out.

<Judiaann_PastryScoop> Also, if you're a professional, you can request a free subscription.

<DeaDolce> Melissa: I've hired a pastry chef that just graduated The FCI last month. Without any lengthy experience, can I expect her to be able to manage the kitchen on her own?

<melissa> No you can't expect her to manage it on her own, but she may be able to.

<melissa> Do you know how to manage it on your own? My motto is that I know how to do everyone’s job better than they do.

<melissa> So they are always trained well and I am never stuck if they leave prematurely.

<DeaDolce> I am the typical entrepreneurial control freak but also realize I will collapse soon if I try to do everything. I have no partner so I do the finances too. I'm still worried about giving out my recipes to the other chef but I have to realize that's unreasonable too.

<melissa> I don't think you should let go exactly. You must train your employees.

<melissa> Train them exactly how you want things done.

<melissa> There's no other way. Explain everything even if you think they should already know.

<melissa> Put your systems in place.

<melissa> Make a production schedule that they sign off on on a daily basis.

<melissa> Post a cleaning schedule.

<melissa> Everything you train needs to be in a hard copy posted on the wall so they can refer to it.

<DeaDolce> Should I make the kitchen staff sign a non-compete or non-disclosure agreement?

<Jill_FEAP> While nothing is foolproof there are legal documents you can have employees sign so they can't "steal" your recipes.

<sugar> I have my employees sign a non-disclosure.

<melissa> I have always been very open with my recipes, and my chefs were open with me.

<melissa> Luckily we have so many published recipe requests that they are out there anyway.

<melissa> And remember, there are always more recipes in you.

<PeterC_FCI> I never had to sign any non-disclosure agreements for any chefs I worked with.

<Mariposa> Jill, what questions should I be asking potential co-packers to help me decide if it's a good direction for me?

<Jill_FEAP> There are many questions to screen co-packers. Here are a few to consider. What are their packaging capabilities, minimum order requirements, lead time, shipping and order fulfillment capabilities? Ask for references, tour the facility (preferably when it is operating). Ask to see state inspection reports.

<Mariposa> I'm thinking of starting my first assistant in the quality control role so they develop a quick eye for spotting minor defects.

<Judiaann_PastryScoop> There's a fun show on Food Network called RECIPE FOR SUCCESS. They profile new businesses. It's very interesting and you can learn a lot from the success of others as well as from hearing about their difficulties.

<Sonia> I love that show!

<Judiaann_PastryScoop> Me too. I come from a family of entrepreneurs so I'm always
fighting the business owner in me.

<Jill_FEAP> One of the companies we worked with was actually featured on Recipe for Success about a year ago.

<Amy> How many hours per week do you put in Melissa?

<melissa> Sometimes 20, sometimes 80, usually 40.

<Judiaann_PastryScoop> Unfortunately, we're almost out of time...

<Jill_FEAP> Thank you for inviting me to join your session. Please feel free to contact me at 402-472-2819 or jgifford1@unl.edu. If I can provide any more answers/assistance.

<Judiaann_PastryScoop> Thank you all for joining us today. If you missed any part of this chat or the others from this series, check back on PastyScoop.com next month. We will post the transcripts of this series.

<PeterC_FCI> If anybody would like more info about The FCI you can fill out a form on the web or just send an e-mail with all your info to pclemens@frenchculinary.com.

<Judiaann_PastryScoop> Special THANKS to Jill Gifford and Melissa Murphy for joining us today!!!

<Mariposa> Thank you, Jill! Thank you Melissa! Great info!

<DeaDolce> Thanks for all your great advice!

<SugarM> Thank you!

<Amy> Thank you!

<melissa> Thank you all

<Lora> Thank you for the advice!

<Blair> I just want to say thanks to everyone, this is so very helpful. Thanks for your generosity!

<Judiaann_PastryScoop> Happy baking everyone and best of luck to you in your business adventures!