Puppy Cake — Kelly Costello: Business Owner Story

Puppy Cake — Kelly Costello: Business Owner Story

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Fans of the television show “Shark Tank” will recognize Kelly Costello and her company, Puppy Cake. She appeared on the show looking for investors to help her grow her business, which manufactures specialty dog treats, most famously a cake mix for dogs. Though she didn’t land a deal on the show, her business continues to blossom, and she now offers an array of “people food for dogs” on her website and in many independent retailers, including Puppy Scoops Ice Cream Mix, Puptato Chips, and a holiday cookie mix that comes with a bone-shaped cookie cutter.

Kelly recently discussed with us her road to success as an inexperienced entrepreneur who has learned through taking risks and making mistakes along the way.

The Start of Puppy Cake

How did you get started with your business?
Like a lot of new entrepreneurs, I had a pain in my situation. I wasn’t planning on pursuing entrepreneurship when I graduated from college. I wasn’t really happy at my job. I was working at a sales and marketing firm. One of my clients was Pillsbury. One day while looking at their old cake mix ads, I had my “light bulb moment” and thought, “Wouldn’t that be great for dogs?!”

When I had the idea, I began pursuing it by doing research to create my own recipes and then designing the product. I hired a friend of mine to design the logo as well as the product packaging. Then I created a website. About six months after I created the concept, I quit my marketing job and started doing this in a more focused way.

I was really young when I came up with the idea. Just after my 22nd birthday is when I officially, legally launched the business. I was very inexperienced and I learned the hard way. Things weren’t happening as quickly as I thought they should. I wasn’t financially able to completely do this full time.

For the first couple of years, I manufactured the product in my house, in my kitchen, mixing it with a KitchenAid mixer and doing it by hand. I had very slow and crude manufacturing with my KitchenAid mixer and an Impulse Heat Sealer that I think cost $75. Now, I’m in a 2,000-square-foot warehouse. We don’t utilize all of the space at this time, but we have machines that automate a fair amount of our processes now.

How did you fund your business?
In 2007, before the major recession, I had no difficulty getting money. I used personal credit cards to finance the company. I had a credit line of $18,000 for one credit card, another one for $15,000 and another one for $5,000. Nine months later, the recession was all over the news and my credit card limits were reduced to $300 more than what I owed on those credit cards.

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I’m still a fan of “Shark Tank,” especially since I’ve been on the show. Recently, Mark Cuban said on the show, “If you have too much money, that’s when you screw it up, because you say, ‘If it goes wrong, I still have $X in the bank,’ until you run out of the money. Then, when you run out of the money, you say, ‘I can’t do things that don’t work. I can only put money towards what works.’”

That was something I definitely experienced. It was very easy to get money. Then, after the recession, I had to very conservatively spend my money. I had to spend no more money on advertising. I spent $14 on a book on how to be your own publicist, because publicity was working for me, and it was free. I had to essentially pour any money I had extra towards paying for product and packaging and trying to pay down some of that debt which, honestly, I wasn’t able to do for several years.

Running the Business

How did you learn to run your business?
I learned how to run a business through trial and error. I don’t feel like there are a lot of books that are about businesses with $0 — $100,000 in sales. There are a lot of books on getting to millions of dollars of sales.

I just had to swallow my pride, which was a difficult thing to do at age 22, ask questions, accept people’s feedback even if it wasn’t something I wanted to hear, and make little changes like with my website. The website is always an ongoing process. I watch people test it out or make changes when a customer calls with a problem that we can easily tweak.

One of the most difficult lessons I’ve learned is managing cash flow. And when I say that, I mean you have so much money in the bank, you have to keep a certain amount to pay your bills (every month I have a fixed operational cost for my insurance, rent and utilities) and you have to have money aside to finance purchase orders and continue to keep a supply. I had to learn to project out sales accurately, which I did very poorly in my first year of business, and also keep things in mind like
I know I’m going to go to a trade show every year in March, so I have to budget out for that and figure out if I’m going to have enough profit after all my expenses and my bills are paid to put towards that. I learned a lot of this through making mistakes.

Who was your first customer?
My first customer was a friend who purchased some of the Puppy Cake on the website when I launched it.

My first retail customer I got from doing cold calls. I just picked a couple of random independent retailers and gave them a call. One of them said, “OK, I’ll give it a shot!”

I did have to learn a tough lesson of quantity for an independent retailer. I had come from the consumer packaged goods world where I had clients like Smuckers and Pillsbury and Heinz, and they would talk about moving thousands of cases. I thought that those were the same numbers that an independent retailer was going to work with. I think my case sizes were like 48 or 144 or something ridiculous. Thankfully,
one of the first retailers gave me some feedback and said, “I’m used to buying things in dozens. But, 48? What am I going to do with 48 of one of those flavors?” So I said, “OK, we’ll do an assorted case of 12,” and that was the sweet spot to start with.

Landing my first customer gave me some validation and encouragement to keep doing this. It also gave me opportunities for learning. It was a little bit scary and awesome at the same time.

What’s the biggest mistake you made in the first year?
The biggest mistake I made when I was starting out was spending way too much money on advertising for Puppy Cake. I was an international business and marketing major in college and then I worked for a sales and marketing firm that talked about how great advertising is and how you need it. I just spent a ton of money on advertising.

Like several thousands of dollars for a company that only brought in about $20,000 in sales the first 12 months. The amount of money I spent on advertising versus what my actual sales were was totally disproportionate. What I wish I would have done was spend more time on figuring out who my customers are so that when I did spend money on advertising, it was conservative and targeted.

What’s the smartest thing you did in the first year with Puppy Cake?
The smartest thing I did when I was starting out was making sure that I had the best product possible in my genre while still being able to make profit margins. I didn’t skimp on little things.

There was one other cake mix company out there that didn’t have good packaging and that didn’t come with frosting. So I thought, “If I’m the customer, what is the ideal if I want to make a cake for my dog?” That’s why I made the cake mix with the flavors we have and created packaging that looks like cake mix for people so the brain would instantly understand what the product is. And then with adding
the frosting, there’s no reason why we shouldn’t beat out any competitors. Really, spending time on creating a quality product is the best thing I did.

What’s the most rewarding thing about running your own business?
The most rewarding thing is that whenever something goes well, I can take ownership of that. It’s just so satisfying to see something that I’ve created be validated with purchase orders and sales.

What’s the most difficult/challenging thing about running your own business?
It’s a double-edged sword. When things go great, you can take responsibility for that. But when things go wrong, you also have to take responsibility for that.

This last year, I got a little greedy. I was speaking with a buyer at a very large grocery store chain. He committed via email to a very large purchase order. But he did not actually send me a legal purchase order. When someone sends you a signed purchase order, they are legally obligated to purchase those items – it’s a contract. I prepared the order assuming that I was going to get this very large purchase order.

I had my people here almost seven days a week to fill this order. I spent like $20,000 to fill this order. And then he just stopped communicating with me and never placed the order. I was stuck with thousands and thousands of dollars of inventory sitting in our warehouse ready to go somewhere. I had bills that needed to be paid and no money coming in for them. That is one of the biggest mistakes I ever made and one of those times where it really sucked to be the owner, because it was my mistake. I should have known not to pursue filling a purchase order until I had a legally binding purchase order.

What’s the most surprising thing about running your own business?
The most surprising thing has been watching myself get better at this. It’s great to have milestones like looking at where my sales are this year versus last year and knowing I can take ownership of that. I’m like, “I’m getting good at this!”

Sometimes it’s because I started this company so young and didn’t have the experience of working for another entrepreneur that everything has been a little bit of a surprise and a steep learning curve. But I think I’m finally on the lower end of that steep learning curve and I’m starting to get good at it now.

What business owner or entrepreneur do you admire most? Who is your role model?
I don’t really have one, but I like to read other people’s stories. Like the story of Oakley sunglasses. A lot of people want to just get to the end where it says, “He sold it to so-and-so for millions of dollars.” But they miss the part where for eight years he almost went broke and struggled to feed himself before it finally started taking off. I like to hear stories like that.

What I’ve Learned as the Owner of Puppy Cake

What advice do you have for others starting their own business?

I tell this to anyone who is interested in starting their own business. First, before you spend any money, sit down and ask yourself, “What is my goal with this business and how much money do I want to make?” It’s usually that you want to be your own boss and make as much or more money than you’re making now.

Then, look at your business model. If you’re going to offer a product or a service, figure how much you need to sell, taking into consideration the cost of goods sold is usually 40-50 percent, and you’ll have fixed operational costs because you can’t do things out of your house forever unless you’re a consultant or offering another type of service. Think about what you have to do to sell that much.

Let’s say you want to do a wedding venue. Does that mean you’ll have to have 50 out of 52 weekends booked a year in order to reach that goal? How are you going to book 50 weekends? How long is it going to take you to get to that point? If you really sit down and think about how you’re going to get those sales, you may realize it’s something you don’t want to do.

What do you wish you had known before starting your business?

I wish I would have told myself that very thing. I wish I would have said, “OK, you need to sell 60,000 units of your product every year to reach the pay that you want. How are you going to sell 12?” I might have thought, “Oh, crap! How am I going to get 5,000 stores in a year? I can’t. There’s just no way I can when I have just $10,000 to start with.”

I don’t know if it would have stopped me. Maybe. But at least I would have been more educated and goal-oriented.

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About the Author — Ashley Sweren is a freelance marketing writer and editor. She owns her own small business, Firework Writing, located in San Jose, California.

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About the Author — Ashley Sweren is a freelance marketing writer and editor. She owns her own small business, Firework Writing (http://www.fireworkwritingonline.com/), located in San Jose, California.

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