Texas Pecan Cakes: $40K Deal to Double Ad Spend and Cut Packaging 76%

Nathan: We are all ordering so much food in our apps these days. You ever wonder how that actually gets made? It’s all happening in these ghost kitchens. And I’m going to go meet one of the founders inside, try and learn how much revenue they’re doing. Nathan: What was last year revenue-wise? Scott: 860. Nathan: Wow. That’s way more than I would have thought. 86,000 only selling Texas pecan cakes. In 5 hours of baking — let’s just call it a six- or seven-hour shift — I can make 2,000 small cakes. Nathan: And if I like the deal and I like the founder and like their vision, I’ll write a check live to try to get involved. Nathan: What do you think of that deal? Scott: It’s a tad rich. Nathan: If we haven’t met, I’m Nathan Latka at Founderpath. Over the past 3 years, I’ve invested $200 million in 500 software companies just sitting behind my computer. Today, that all changes. I’m hitting the streets looking for small business owners that have a big idea. If their idea plus my capital could equal big returns, we’ll do a deal right on the spot. Nathan: Shaloo, I’m Nathan. Shaloo: Nice to meet you. Nathan: So nice to meet you. Tell us what you do here at Ghostline and how the operation works. Shaloo: We offer private kitchens, shared kitchens, and then a lot of different amenities. We have about a hundred food businesses that are associated with us. Nathan: Do you want to take us through a little bit? Shaloo: Yeah. So you’ll see it’s basically a big circle, kind of a U-ish. Our approach to the shared kitchen side is probably the most unique thing about us. We use a combination of technology and just really unique design. So this is our private kitchen corridor. We have three different sizes of private kitchens. Nathan: So this is how many square feet? Shaloo: This is roughly 350 square feet. We deliver kitchens with all the infrastructure. They’re pretty turnkey. Nathan: And so what would this run if I was going to be in here full-time? Shaloo: It’s in the four-to-five range. Shaloo: Obviously you love your business model, but it’s always good to hear maybe from one of your customers. There’s a guy over here called Texas Pecan Cakes — Scott. He’s here today. He makes a very Texas-inspired product from the packaging to the product itself. And he actually has a great success story. Nathan: I have Nathan here with me. Shaloo is talking you up. I hope these cakes are delicious. It’s good to meet you, man. Scott: Good to meet you. Nathan: This isn’t a brand that you created from scratch. You actually found it somehow and decided to buy it. Scott: I’ve been in this industry for 25 years. I’m 48 and always wanted to have my own business. I was running the Dallas and Austin market for this fast casual concept company, a health food concept called Snap Kitchen. I opened 51 locations in my time there and I was there for 14 years. I moved up to become the COO at the concept. Nathan: Were you able to get a little chunk of equity when you joined? Scott: I had equity. Real equity, not none of these phantom shares. Nathan: Then why did you leave? Scott: I have three kids, married, I’m 48 years old. What I really want to do every day, what’s really my — every day I’m giving up a day of my life. What will really make me happy? I’m going to go buy a business or start a business. And then midnight I’m just up looking at stuff and I stumbled on BizBuySell and I ran across Texas Pecan Cakes. Nathan: Wow. So you went to BizBuySell.com — it’s an online broker of these companies. What was Texas Pecan Cakes listed for? Scott: $100K. Nathan: Did you know what the revenue was? Scott: The run rate closed a year at $156K. I’m the third owner. The founders started in 2015. The founder was an oil and gas blue-collar worker. He’s at retirement age now. Got laid off during the oil and gas hit in 2015. He said, “You know what? I’m going to go make mama’s cakes.” Lorraine McCoy was mom and he’s like, “I’m going to go rebirth my mom’s cakes,” which really started with these large pans. These are cornbread pans and that’s really what they are in Texas. Nathan: Can we pull one of these out? Scott: That’s a small. This is a small. But this isn’t what he started with. He started basically with bigger ones. The large pan. They’re heavy — they’re cast aluminum. And so they entered into a contest called Quest for Texas at HEB and he won Quest for Texas. First bakery to do it. He won it in 2017. So that unlocked distribution for him. Now these were in HEB. Nathan: And what was his best year revenue-wise before it maybe started going down because of COVID? Scott: $860,000. Nathan: $860,000. Wow. That’s way more than I would have thought. Scott: $86,000 monthly only selling Texas pecan cakes. Nathan: What did you end up paying for the business? Scott: $100,000. Nathan: So you just paid exactly what it said. Scott: All cash. Yep. Nathan: Before we continue, I’m curious if you think Scott overpaid for Texas Pecan Cakes. He paid $100,000 for the business, which had done $160,000 in the prior 12 months. Leave a comment right now and let me know your thoughts. Nathan: Can you show us before we get into expansion plans how one of these things gets made? Scott: Yeah, sure. Whole eggs, vanilla, and maple syrup for all-purposes. Brown sugar, flour, cinnamon, salt. I’m using Texas pecans. And trying to use Texas ingredients as best I can. Nathan: How many of these are you making daily? Scott: I can make 144 cakes every 18 minutes. So in 5 hours of baking — that’s just call it a 6 or 7 hour shift — I can make 2,000 small cakes. Nathan: What’s an average? Scott: An average I’ll make a thousand. Nathan: Do you have to use cast aluminum on this stuff? Scott: There’s no way. Something I’m working on is for efficiency. This is plant fiber base. Nathan: So that will survive in the oven? Scott: Yeah. Plant fiber, biodegradable, compostable, and it has PLA — corn starch as a liner inside of it. You can bake, scoop, bake, take it out. You don’t need to clean the pan. You don’t need to flip it out. So you can make it highly efficient. So for a co-packer at large scale, something like this is what they get excited about because they can do it efficiently and that helps with cost. Scott: There’s three sizes of cakes — small, medium, and large. The smalls are without a doubt the number one SKU. They go pretty much in size as far as velocity. Smalls are number one, mediums are two, larges are three. Larges, however, when you get into the holiday season, crush it. Nathan: What does one of these cost you to make? Scott: They range like 65 to 68 cents depending on the topping. Nathan: Okay. What does that one retail for on your website? Just one small one. Scott: You can buy a 3-count, a 4-count or 6-count on the smalls. So this is $39 plus shipping. The box is all in $50 with shipping. About $9 average shipping cost. Nathan: Wow. So that comes out to effectively something what — like $7 to $8 a cake? Scott: Yep. And then cost of goods sold on this — cakes are $0.65, factor in container clamshell. Current clamshell cost. Stickers — another $0.65 for small. So about $1.20. Nathan: So bringing in a 6 pack you’re getting to around $7 in total cost. Box packaging another $2. Scott: So you end up with about a gross margin of about 60–65%. Nathan: That’s not bad. Nathan: How big did you finish 2024? You bought in August. So you had one holiday season last year. Can you share total revenue last year? Scott: Revenue for 2024 was $160K. The last two months of the year were about $25K per month. So November, December. Nathan: Wow. So like 30% of sales. Scott: I spent $50 in marketing. I did no effort. Nathan: But now you’ve got an agency. Scott: I brought on an agency that’s taking 15% of what they drive out of me. Spent $5,800 in marketing in June. Nathan: That’s to pay the agency or that’s the cut? Scott: Extra cut plus the ad spend total. Nathan: All in? Scott: Yeah. All in. And it generated $18,000 in revenue. Nathan: So not too bad. And the spend was $500 bucks a week. So 2 grand in the month. Scott: Got it. Nathan: So of the $5,800 on marketing, $2K of that went to the agency just to do the work. The other $2,800 was actual dollars going through Meta. And all of that together generated $18,000 in total topline sales. Nathan: Scott, you’re like a smart guy. That ATM prints money. Scott: Not bad, right? Nathan: So why not just do it more? Scott: Yeah, that’s a plan. Nathan: This year, it sounds like you’re doing close to 20 grand a month now in sales. What are you projecting for total sales this year? Scott: So I think negatively, $220K. Optimistically $250K. Probably $250K. I’m in a grocer in Texas right now. I’m in Central Market. And I’ve had guests from three other grocery chains. Nathan: How many cakes are you selling last month? Scott: Probably 8,000. Nathan: 8,000 cakes. That’s wild. Scott: 10,000 in fact. Social, 10,000. Nathan: So you’re doing 10,000 cakes a month across all of your channels in terms of sales. Are your margins different when you sell into Central Market versus when you’re doing $50 shipping? Can you walk me through the margins in Central Market? Scott: The grocers want to hit 50% their margin. They want to hit 50%. So I sell into the grocery channel at $3. Nathan: Okay. And they’re selling this for six bucks? Scott: $5.99. Nathan: $5.99. So they’re taking their cut. You make three bucks off this minus $0.65 for the cake. Scott: And how much is the plastic and the sticker? About a dollar. Nathan: So you’re making $1.80 in gross profit before marketing. Nathan: You’ve got fixed cost here. So rent here. What is that just for this area? Scott: For this space plus my storage — I have freezer storage and dry storage. I spend about $2,200 a month. Nathan: Okay. If you think conservatively you’re going to do $220 grand this year and we haven’t even done the holiday season yet, which is 30% of your total revenues, I just don’t — why couldn’t you hit like $250–$300K? Scott: He’s sandbagging for YouTube TV. He’s going to come back on a follow-up episode and say we crushed it. The goal is always beat the number. Nathan: This is the corporate guy here with an apron on, right? Nathan: If you could wave a magic wand and money wasn’t an issue, what would be the first three things you would do to grow the business? Scott: More marketing spend. No doubt. More marketing spend. And then it comes down to efficiency, because efficiency decides the volume you can do and where you can do it at. That’s why I brought up this fiber material. So this clamshell is $0.42 landed cost at low volume. Nathan: Low volume. Scott: At high volume, this is $0.10. Nathan: What is high volume? Scott: Buy purchase 100,000 units. Nathan: 100,000 units. Get down to $0.10. So 30%-plus improvement in margin. Scott: Yeah. And even 100,000 is not really high volume for grocery, but that’s where the volume goes rapid. That’s where you start to do real revenue — 1, 2, 3 million. Nathan: Which one do you want me to try? Scott: Try the butter. Nathan: Otherwise — okay. Butter. Try another. Whiskey. Okay. Scott: Delicious. Nathan: Oh, wow. It’s slightly sweet, but it still feels healthy. It doesn’t feel like there’s too much sugar in it. That’s really good. Nathan: So I know what amount I want to offer, but I don’t know whether it’s structured as debt or equity. Let’s brainstorm a bit together. What I’d love to do is write you a check today that enables you to increase the ad spend how you want to see fit. So you said you want to double it to $1,000 bucks per week. Assume there’s about four weeks on average in a month. Say the check is $30,000 for the ad spend. Plus, if you want to move forward into retail and drive your cost of goods sold on those plastic shells down from $0.42 a thing down to $0.10, you’ve got to write a check to buy 100,000. That’s another 10 grand. I want to offer $40,000. Scott: Yeah. Nathan: What are you open to? Are you open to a debt deal where I’m making X cents back per those sales? Do you prefer not to take on a debt deal like that and do equity instead? Where’s your head at? Scott: Whether it’s equity or debt, it’s more — what’s the opportunity? What’s the endgame in accomplishing that? That I care the most about. Nathan: So the thing for me is we would be directly aligned if I wrote you a $40,000 check and I was paid back some cents per sale, because the faster we sell, I get my money back quicker and my IRR goes through the roof. Now, if it takes 10 years to get payback, that’s not a good return on my money. So we’re naturally going to be aligned that way. I want to move more volume. Scott: Are you willing to consider starting out with the debt and then when it performs well — which it will — that we then discuss equity and the future of the brand? Nathan: How many cents per sale of these would you be able to pay me back? Then we can do the math on how many years it would take me to make my money back. Scott: I think if you do 25 cents on a cake — it’s 65 cents in cost with another 65 cents in material — because for me, I’m going to want to pay you back as soon as I can. I’ll pay you before I pay me. Nathan: I want to grow the business. And if you’re excited and motivated by it, you’ll write another check. Scott: Yes. Nathan: Top line, 25 cents paid to me per sale on three bucks top line is a little under 10%. It’s basically 8 to 8.5% per unit sale. Nathan: Could we apply that same logic to all the sized cakes — the 8.5% you think would work if you’ve got that flexibility? Scott: Okay. Nathan: How quickly do you think I could make the $40K back based off the volume you know you’re doing? Scott: I think that you’d be paid back no later than holiday season next year. And if I grow into grocery and figure out the revenue stream, you’d be paid back by Q2 next year. Nathan: If you think the return is going to happen in 18 months, I’d want a return of basically 7 to 8% per unit sale until I’m paid back about $57,000 on my $40,000 check. That would equate to about a 15% return. Scott: 15% is a tad rich. I’d be comfortable with 12. Nathan: Okay. Scott: I would like your money, but I also would like your brain. And so it’s more the opportunity to grow the business beyond just cash. Just asking you to provide insight and support based upon your knowledge. Nathan: My offer is $40,000. I’ll move to your rate at 12%. Because I ultimately want to prove to you that I can help you drive volume. We can grow this together. And then maybe you’ll give me a chance at buying a chunk of the equity slug as we grow it together. After that, I’ll ask for 8% of each per-unit sale until I make my money back plus an extra about $15,000 on top of that, which you believe will happen in the next 18 months at your current rates. Scott: Yep. Nathan: What do you think of that deal? Scott: Sounds good. Nathan: You like it? Scott: Yes. Nathan: All right, Scott. Good to be in business together. This is going to be exciting. We’ll grab some coffee next week and go deeper on this stuff, but I love the product. It’s very good. Scott: Thank you. Really, really good. Nathan: Okay, you might be wondering what happens after we finish the live shooting. Do we actually wire the money? Here’s what happens. I email Scott at Texas Pecan Cakes and say, “Hey, create a Founderpath account.” When he does that, he comes in here and clicks the Capital Razor card, which is instantly going to tell him how much money will wire based off his real data. So the first thing I do is I ask him to connect his business data sources so I can verify the numbers he told me live on the show are accurate. We do that via QuickBooks and Stripe and Shopify and bank API connections. Once his connections are connected, our underwriting agent then starts thinking about and reading the data. And in a second here, we’ll actually write a full memo on the business. Then here’s the full memo — executive summary, strengths, weaknesses, any questions I should follow up with Scott, and then ultimately a capital offer at the bottom. If Scott likes the funding recommendation, he’ll say, “Yes, I want the deal. Please send me paperwork — wire to this bank.” And he tells me which bank to wire to right here. Connects his bank, and hits send. It’s that simple. Amazing what you can do with AI these days. If you’re looking for funding to grow your business, visit founderpath.com today. Hey, if you like the deal I just did with Scott, let me know below. Leave a quick comment.