Building & exiting a luxury cupcake brand

Welcome to The Stanza’s In The Room interview series, designed to make you feel like you’ve just had a very satisfying and insightful coffee chat with an industry leader.

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This week’s guest is Candace Nelson, who founded the infamous Sprinkles Cupcakes in Beverly Hills in 2005, and started a national cupcake craze. Since then, she sold Sprinkles to a private equity fund, started an upscale pizza chain restaurant called Pizzana, appears as a judge on America’s Shark Tank, and runs a VC fund.

Huge thank you to Candace for being an early subscriber of The Stanza and for being an open book. This interview was so insightful and any entrepreneur or investor in the consumer space can learn from and be inspired by Candace.

Interview Topic Index:

1. What advice would you tell your younger self about taking risks?

2. How did you support yourself financially in the beginning and fund your business?

3. Rebranding cupcakes as a luxury product in a time and place that was notoriously anti-carb and anti-dessert

4. How to discern between correct intuition and an unrealistic idea as a creative entrepreneur

5. Were there ever moments when you wanted to just give up? And if so, what made you keep going?

6. How do you deal with competitors copying your product? Any advice for how entrepreneurs can deal with this challenge today?

7. Building an enduring business through multiple market cycles

8. Consumer psychology and the scarcity effect in hospitality

9. Being featured on The Oprah Show and national visibility, and insights gained from that experience

10. How to create press for your business

11. How to run a sale process to exit your business

12. Challenges in opening a sit-down restaurant

13. Embracing being an outsider

14. Controversial opinions on the food & beverage industry

15. Advice for other entrepreneurs

The story goes that you started Sprinkles after you were laid off from your tech job in 2001, when the tech bubble burst. Scary times. Looking back and knowing what you know now, what advice would you tell your younger self about taking risks?

Well, it's interesting because in retrospect, I think I ended up doing it right. I just didn't know I was doing it right at the time. I was on this track, I had gotten all  A's in school, gone to a prestigious university, and was recruited into an investment banking analyst program. I was not in the habit of taking risks and definitely had no plans to become an entrepreneur. 

I had always loved to bake, but imagined pursuing it in the distant future - in retirement. I wanted to have a little bakery once I retired from the corporate world. But then life threw me a curveball. I lost my job in the dot com bust and all of a sudden I was on the couch, without a plan, watching a whole lot of Martha Stewart and Oprah Winfrey. There wasn't much in the way of entrepreneurial inspiration those days, particularly for women. Martha and Oprah were it. And I just soaked those ladies up, watched them every day, and they inspired me to dream more expansively.

At that time I was also grappling with the fact that I was making it in “a man's world”. I'd crashed through glass ceilings, so to speak, although I was still early in my career. So when I began considering pastry school, and pursuing food as my career instead of the corporate path I'd been on, I worried that it was regressive. I worried that I was ignoring all of the strides we had made as women in the career world. 

It was Martha Stewart who helped me see things differently. Here was this woman who was doing things her way, who had built this incredible empire in the domestic arts. Martha gave me that permission by modeling success on her own terms. 

But, what I would have told myself is: “Don't worry about all the naysayers. Don't worry about what everybody's telling you you should or shouldn't do. Listen to your gut and your intuition. You don't have kids or a mortgage yet. Now is the time to go for it. Because if you fall, you can pick yourself back up, go get a job, and the stakes are much, much lower.”

Definitely. I think entrepreneurship is often framed as very high risk, especially for people who are at that stage of their lives where they haven't had kids, not married, don't have a mortgage - they’re just free agents. But the reality is: it's more risky to stay in a job that doesn't fulfill you and doesn't actually have any real sense of stability in the future because anyone can be laid off at any moment.

The dot-com bust really opened my eyes to that because I was led to believe that I was on a stable path to success. And all of a sudden, it wasn't. Also, it helped that I was still early in the investment banking track. If you stay too long, you develop “golden handcuffs.” You start making so much money that it’s hard to ever leave because every other job is such a drastic step down in compensation. As an analyst, though, I was working so many hours that I could be working 2 full time retail jobs and make about the same salary. And I'm not trying to make light of that, but truly, as an analyst, the number of hours we worked were so insane that by the hour, we weren’t making much at all.

Let's talk about you transitioning to Sprinkles. How did you support yourself financially? How did you get started with funding the business?

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