49: Scaling a Small Business to Millions w/ Candace Nelson

0:00This is a real good story about Bronx and his dad Ryan, Real United Airlines customers. We were returning home and one of the flight attendants asked Bronx if he wanted to see the flight deck and meet Captain Andrew. I got to sit in the driver's seat. I grew up in an aviation family and seeing Bronx kind of reminded me of myself when I was that age. That's Andrew, a real United pilot. These small interactions can shape a kid's future. It felt like I was the captain. Allowing my son to see the flight deck will stick with us forever. That's how good leads the way. Hey everyone and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify.

0:36This episode of the show is incredibly special because we are joined by the powerful Candice Nelson. Candice is a serial entrepreneur, best-selling author, Wall Street Journal contributor, angel investor, TV show star, guest shark on Shark Tank, but above all, she's a mom. Candice started her career working as an investment banker, but in 2005, she left her banking job to launch Sprinkles. Sprinkles is the world's first cupcake bakery and cupcake ATM. In 2012, Candice sold Sprinkles to a private equity firm, netting her what I'm sure was millions upon millions upon millions of dollars. Since inception, Sprinkles has sold over 200 million cupcakes, has over 20 stores, 30 cupcake ATMs, and thousands of employees.

1:21But she wasn't finished. In 2017, Candice co-founded Pizzana Pizza Restaurant, which has seen rave reviews from the LA Times, Food & Wine, and many more. Today, Candice leads CN2 Ventures, a family office and venture studio which invests in early stage consumer companies. Most recently, Candice published Sweet Success where she shares her entrepreneurial journey. Candice, congrats on all the well-deserved success. We are so happy to have you on this week's episode of the Rich Habits Podcast. Thank you. I'm delighted to be here and I love following you on TikTok. Thank you for sharing all of your knowledge with the world in bite-sized pieces.

1:56that even my kids can want to watch. Let's go. I just want to remind everyone here now, this interview happened because I sent Candice a DM on TikTok. I have this podcast with Robert because I sent him a DM on TikTok. So y 'all don't underestimate the power of those TikTok DMs. Don't be afraid to shoot your shot. So the first question I have for you, Candice, is around your career and what got you excited to take the leap into being an entrepreneur, right? You worked in a career that had a very clear path to a comfortable retirement investment banking, but you decided to take the leap into entrepreneurship anyway.

2:30What inspired that? I'd say I'm an accidental entrepreneur. I was raised by a corporate lawyer. My dad had worked for two companies his entire career. Corporate lawyers are not known for their risk-taking, very risk-averse household. And growing up, I didn't have much in the way of female entrepreneurial models. So my vision for my path was to get the prestigious job, learn business, and just follow a corporate path to, you know, pot of gold at the end of the rainbow, right, to success. And life threw me a couple of curveballs. The first was, well, I'll take a step back. After a couple of years as a financial analyst at the investment bank, I went to work at a technology company.

3:13It was the late 90s. It was the early dot-com boom. And so many people were doing that. They were jumping ship from traditional jobs going to make their millions in stock options. And so I was working for an early internet company. And for those of you who are more my age than your age, you'll remember that after the boom came the bust. So literally within a few weeks period of time, the market for that early internet world just imploded. And everyone I knew was out of a job, including myself. So I went from sort of my very merry path to success to sitting on the couch, aimless, without a job wondering what to do next.

3:51And then not long after that, 9-11 happened. And that was a real, a very dark period and a period of reflection for myself where I came to realize I'd done everything right. I'd followed all the rules and where had it led me, right? It hadn't led me to what had been promised. And so with sort of all those rules out the window, I started to really think about what I wanted to do with my life, not what was expected of me, not what success looked like for other people, but what did it look like for me? And so I came to terms with the fact that I didn't like what I've been doing, and I wanted to make a real change, do something meaningful, do something joyful, work with my hands.

4:31And so instead of going to business school, I opted for pastry school just to test my interest. I'd always loved to bake. I'd grown up baking with my mom. It always carried a lot of meaning for me. And I realized once I got into pastry school that I loved it. I really loved it. I even surprised myself with how much I loved it. So that was the beginning of my path towards following my joy and following my creativity. And that's what led me ultimately to opening my own business with Sprinkles. So just as a quick follow-up, I just thought about this when you were talking through this, Candice, is I think a lot of people, including myself, right?

5:04We have this sort of ego where we're like, yeah, I was told to go to business school. I got the investment banking job. I'm not going to go be a pastry chef. No, I'm going to private equity. I'm going to venture capital. I'm riding up this ladder. Now, can you maybe talk for a second to the person listening right now who's really having that inner conversation with themselves that's trying to get over the ego hump of like, I mean, I kind of had it right. I was like, I'm going to do M &A. I'm going to be a financial analyst and do all these fun things in my job. And I'm like, well, I think I might just post videos on TikTok and see what happens, right?

5:33That was kind of what felt like a walk backwards, but turned into a leap forward. So did you have a similar kind of inner conversation with yourself? Absolutely. I mean, there is a lot of swagger and mojo that comes with those jobs. And you feel a little bit deflated when you leave them. I mean, that's part of the whole golden handcuffs. It's like, you'll never be the same without this job, right? You'll never make this amount of money again. Like, who will you be without this job? And I was just shy of buying into that. I didn't have enough of a paycheck. I was still an analyst that I was fully golden handcuffed to that job.

6:01So I got off easy. But no, in all honesty, I did have a hard time with it because I didn't have that model for entrepreneurship with one exception. Okay. So So while I was on the couch, aimless, wondering what I was going to do with my life, I ended up watching a lot of Martha Stewart, a lot of Martha Stewart. And, you know, part of the investment banking swagger for me was the fact that I was a woman in a man's world. Right. And I had sort of crashed through this glass ceiling. I was one of very few women in that investment bank. And so when I thought about embracing baking and moving away from the corporate world, I had this extra feeling of like, is this regressive for me as a woman?

6:43Am I kind of going back on all of the strides we've made, right? And I have carried that extra burden with me. But as I was watching Martha Stewart, she was the one who kind of gave me permission because here was this woman who was completely embracing the domestic arts. And yet she was a total business badass. She had built an empire. And so I think ultimately what I realized was that by holding myself to societal standards that weren't true to me, that was another way of holding me back, right? That's another way of holding women down. The whole idea of feminism is that we get to make a choice as to what's right for us.

7:20And so I think to your point about leaving the world and going into content creation and me going into baking, it's like you find power and success through being your authentic self. And you don't find it by trying to live up to the values of those around you. And it can be hard to step away from that. You have to have a sense of self and you have to have a sense of strength and resilience. But guess what? As an entrepreneur, that's really good practice because you're going to need that resilience. It's going to come in handy. Yeah. I remember vividly when I stepped away from my finance job and went the entrepreneurial route and my mother lambasted me for two years.

7:57What are you doing? You have a degree, you're making more money than anyone, you know, and I'm like, it's just not for me. And so I had always been in that entrepreneurial route, but I chickened out early on in my career in my early twenties and really went the corporate route. And as soon as I pivoted away from that, the world opened up to me and it just seemed like this magical land of success and fulfillment. And that's why this is such a great start to the episode, just because I think we've all gone through it. And my mother, probably similar to your father, very risk adverse. She just was not having it.

8:31And I was just like, this is just the way it is. And I was fortunate enough to have some good success and then silly bands happen. And then my mom let up on me quite a bit after that. So it was the last laugh there. It was definitely the last laugh. So let's get into, cause we could talk on this one question for hours and we have limited time. So let's get into my next question. In my career, I had found myself many times undercapitalized along the way. Did you go through this and how did you find the necessary funding to grow at the speed that you desire? Because I find so many entrepreneurs try to do it all on their own.

9:07They try to self-fund and it really slows them down. And it's just not a good practice for growth if you're not keeping up with the speed of the desire of what you could do with that company. So walk us through how you handled that first kind of hurdle of having enough capital to grow swiftly. Well, I'll be fully transparent. My husband and I had a little bit of a nest egg that we'd socked away from our investment banking bonuses. It was enough for us to work on the business for a couple of years and live very modestly. Like I'm talking about my car was breaking down. I couldn't get a new car.

9:44Trader Joe's salads for dinner, And this is a point in our career where a lot of our friends are now buying homes or going on nice vacations and certainly going out to nice dinners. And there is definitely a lot of sacrifice in the entrepreneurial journey. But in particular, you feel a little left out, right? You're like, wait, I can't go to dinner with you. I've got to have my Trader Joe's salad because we're building this business. So, yes, I had a little money to play with, but it wasn't lots. and we didn't even entertain the idea of raising money because essentially we were two out of work investment bankers betting it all on cupcakes.

10:20Everybody said we were crazy. And not only that, if you looked at sort of the macro market conditions, everybody was on a low carb diet. So carbs were completely out. And here we were talking about erecting a very special temple to cupcakes in the middle of Beverly Hills. So we were not a fundable business by anyone's measure. Luckily, we were able to bootstrap, build that first location. As can happen, everything took longer and cost more, and we were definitely sweating it out. We were very lucky to start cash flowing very early. And what we ended up doing is scaling the business through cash flow, which has its pros and its cons.

11:01The pros are that we got to make all of the executive decisions. So whereas an investor might say, I don't think you need to spend this much money on those Eames stools or on that beautiful custom cabinetry, we were able to build the brand exactly to our specifications, which most people probably wouldn't have understood, but it built the brand equity. And the flip side of that is that even though we were a very innovative concept, we were trailblazing and doing something no one had done before, cupcakes only luxury bakery, competition followed really quickly. So we had this national expansion plan.

11:38Well, by the time we got to location seven opening in Houston, we weren't the first cupcake bakery in town. Somebody had already sort of ripped off our concept. And so we were having to defend who we were. So I love the fact that we were able to bootstrap. We owned 100 % of it when my husband and I did 50-50 when we sold to private equity. We were able to do things our way, which was totally different from the way anyone else was doing things. So to have that creative control was amazing. But there's an argument to be made. We should have franchised. People certainly wanted the franchise. Nothing but cakes did a really good job franchising their model.

12:17So I don't want to look back and say I have any regrets, but it's certainly a debate that you could have. I just want to quickly follow up, actually, because you mentioned talking about how you guys were 50-50 when you sold to private equity. Describe the moment to me when you guys realized it's time to get out. it's time to let someone else run this business? Well, my husband and I weren't exactly in agreement on that. I think I heard about this a lot in investment banking and I was sensitive to it, this idea of founder syndrome, where you fall so deeply in love with your baby, right? Your business is your baby that you can't imagine anyone else being able to operate it the way you do.

12:53You can't imagine that anyone will value it the way you do financially or otherwise. And I think my husband had a little bit of that. And I was very sensitive, even though it was truly my personal baby. It was my recipes. I was the face of the brand. I did not want to be accused of founder syndrome. And my husband and I are very much more brand creators than we are true operators. I mean, we operated our business and scaled it nationally very hard to do, but that's not our strength. And so I wanted to hand over the reins to somebody who really, that is their expertise. I didn't want to hold back the growth of my company because it was my baby and it was too precious.

13:32Having said that, I do think that something gets lost when the founder isn't at the helm. My friend, Greg Renfrew from Beauty Counter, just returned to Beauty Counter. And I'll be really interested to see how that goes. But, you know, her team is so thrilled to have her back. So, you know, I think he was a little bit on the fence. I felt it was time. The thing that really pushed it over the mark for us was the fact that we had young kids that we were toting around the country every time we'd go to a store opening or checking on a store. And I really wanted to give them some consistency, allow them to have some roots.

14:05And so that was ultimately the deciding factor. Got it. And I think for me, the biggest takeaway for everyone following along and listening to this episode, that's a budding entrepreneur or already well into your journey is to understand there is no right way to do this. Every way is different, you know, and like Candice alluded to, you might grow faster having that money, but then losing some control sometimes can backfire. So it's just really all about what works best for you. Because when you do create something very successful, and everyone is out for you, you're going to have to either beat the competition or just thrive in spite of that competition.

14:42And I think that's something that we both have gone through, Candice, because I learned a very, very valuable lesson with Silly Bands. When we were in the name creation phase, I put a list of the 10 finalists, narrowed it down to five, narrowed it down to one. The biggest mistake I made during that period is I should have bought the URLs and reserved all of the social handles for every name, not just the finalists, because it would have made the knockoffs and the copycats work a lot harder had I taken all the names and brought them in under my URLs, my portfolio, to prevent them from being able to copycat as much.

15:19So I think there's both sides to the fence. And this is a great point for anyone who's in that position of do I bootstrap or do I bring in outside money? Austin, I'll take this next one. So plenty of budding entrepreneurs can execute on getting started. But in my experience, I found that they hit a wall when it comes to scaling the business to a level of like what you did. So what are some key insights that made you different along the way and help you get to that next level? Because I see so many entrepreneurs that can get to that$1 million or$2 million a year size, but then they struggle to get to the next level where maybe it's five, 10 or$20 million a year.

15:58So touch on those hurdles and the outcomes relative to hiring, inventory control, supply chain issues, and how to get all of your processes in order to be able to scale a business that large. So Charles and I, Neither one of us had any experience running a business. We didn't have any experience in retail, definitely not in bakeries. So we went into this with the idea that we were smart enough to figure some things out, but certainly we were going to have to hire from the best of the best, whether that was someone from Starbucks or Houston's, you know, these businesses in the food world that we respected.

16:33As soon as we could afford it, we would be bringing one of those people in because they knew all the answers. They had all the answers. And what's ironic is what ended up being so special about Sprinkles is that because we were trailblazing and doing something new and because we didn't really have any legacy knowledge of the industry, so we just had to figure it out and do things our own way. It became such a special culture and people loved working there so much. And we did things that made sense, right? We did things that were preserved the quality of the product that were the best for the customer.

17:10And there wasn't this sort of, this is the way we've always done things. It was like, no, this is the Sprinkles way. And so when we did finally end up hiring those people, they didn't last because they just weren't innovators. They really were just executors. And Sprinkles, really, at the end of the day, was an innovative startup, right? It wasn't really a bakery. It was trailblazing a path in a very sort of mom and pop legacy industry. And so it just didn't compute. And to your point about scaling, the number one thing, particularly in a retail brand, is your team. You have to have feet on the ground.

17:47Unlike maybe, you know, an e-commerce company, you have to literally hire your team, send them to the next location. And we ended up more often than not, I mean, 95 % of the time developing our talent in-house and promoting them. And they so believed and bought into the brand because it really was a brand that was established based on my authentic purpose, my joy. And so that translated. And so people were sort of drawn to Sprinkles because it was a special place to work. We would pour into them. We would develop them. We would send them off and promote them, which is honestly my favorite part about growing a company is being able to promote people that you love who work hard and give them like a better job, more pay.

18:31And it's just, to me, the best part about it. So we were able to, we went into it with that sort of mindset, like, oh, there are people out there that know better. And for sure they did know better, but they didn't know our way. And our way ended up being such a special and unique, like competitive advantage really to our business. Yeah. I remember early on, I was skeptical. I'm like, really cupcakes? This is when I was living in LA more full time. I'm like cupcakes in an ATM. And I remember going to the Beverly Hills store and the lines were so long and I forget where the first ATM was. Beverly Hills.

19:08Was it still? Okay. And I remember going there and I'm like, there's no way. And I remember opening the little box and I'm like, okay, this is good. It's not smashed. It's not whatever. And the ATM freshness seemed to be just as equal to the in-store freshness without all the lines. And so that's what I liked about it. And still to this day, if it's still there, it's been probably about a year, but every time I go to the Grove, I go to the ATM under the stairs and I'm like, I'm just going to go get a cupcake there. Well, thank you for your support. Yeah, I love that you guys were able to figure that out because it is one of the coolest things when you feel like you're a trailblazer and you did something different and you really changed the game.

19:51Because a lot of times people think you need to build a better mousetrap and you do, but you don't have to create a brand new sector. You just have to disrupt something that already occurs. And I talk about that all the time. You think about every single day, there's a hundred products we could talk about. They're antiquated and haven't been changed or industries that haven't changed in 20 years. And you can go in and add these wrinkles in these new technologies and change the game because people want to feel like they're part of something new. So I love your story based on that. Thank you. Yeah, that actually pulls us into our next question.

20:25You know, Robert, we talk a lot about you don't have to reinvent the wheel, right? If a business already exists and you can buy it with the bones already built, simply build upon that and optimize it. So I'm curious, Candice, how did other bakeries at all inspire innovation at Sprinkles? Did you ever say like you walk into one or see something like, wait a second, this process or this idea is great, but because we're going to tweak it a little bit the Sprinkles way, we can make it completely different and we can completely stand out and innovate a specific vertical of this industry. I think the way we did things at Sprinkles was really a reaction to almost more of a rejection of what we saw going on in the industry.

21:02So for example, when I first moved to Los Angeles, I was really studying the market. We moved down from San Francisco to open the business. And I went to all the cafes around town, the bakeries around town. And I'd be like, when was that cookie baked? And it was either a couple days ago or it was either, I don't know. Like, that's not an acceptable response for a baked good, right? I mean, the whole point of a baked good is it's fresh, it's yummy. And so I was like, okay. And also the way bakeries did things, I mean, this could be a whole nother masterclass, but just everything down to the display case.

21:37So the way that traditional bakeries, you know, displayed their goods, they were just sort of on a tray and you would kind of peer into the side of the baked good. And they were always kind of like messy, right? So we had these die cut trays where the cupcakes would sit in their little pockets. They wouldn't move. They were always perfectly placed. So it didn't matter who was like hung over that day and like, you know, arranging the cupcakes. They always looked good. And they were at an angle. So when you walked in and they were the first thing you saw when you walked in, you saw the prettiest part of the cupcakes, the frosting and the dots, the way that bakeries staffed bakers.

22:12Like they would staff one in the morning to bake what they thought they needed for the day. And then by the time you got there at the end of the day, they were having to discount those baked goods, right? That's why you see half off baked goods at the end of the day is because those pastries are a day old. Well, we did this sort of just in time baking where we staffed bakers throughout the day. So by the time you got there at night, you know, I remember in the early days, people were waiting for us to discount. They'd be milling around the outside of the store. And I was like, these are fresh cupcakes.

22:39Come on in. They're full price. There's no discount here. We just made these. Right. So I think the way we were inspired by what was going on in the industry is like, what doesn't work in the industry and how can we improve on it and how can we make it really special? I mean, even just the idea I've heard from so many men who, you know, accompanied their wives to sprinkles in the early days. They thought they were standing in line for like a fashion brand or a jewelry store because it literally looked didn't look anything like a bakery. It looked like a luxury retail brand. I know Robert, for example, he just purchased a pizza shop just outside of St.

23:12Petersburg. Really? Well, we can talk pizza because I have a pizza concept myself. Pizza on it. That was the plan. OK, it's so interesting, though, because like Robert's done kind of a similar thing where, you know, he's he understands the restaurants and he understands all the back end processes. And he was telling me a story. He's like, yeah, man, like they weren't weighing their cheese. And I'm like, what do you mean they weren't weighing the cheese? And he's like, yeah, they would just go. They just kind of sprinkle cheese on the pizza, how it looked. And they liked it like that. And I was like, well, that sounds like most pizza shops.

23:38He's like, right. But what you should do is you should weigh the cheese. You have a specific scooper, this, this, and these different things. And I'm like, man, I had no idea to your point talking about how, you know, the displays are tilted. So the prettiest part is there. There's so many small decisions that go into processing if it's, you know, bakeries and cupcakes and things like that, or if it's restaurants. but there's so many small things that they add up over time and they compound on themselves. So that is what really pulls into the long-term success of these ideas. Well, and I think that's, you're setting the stage for scalability because you can't be on the ground at all times.