By Frank Witsil
Detroit Free Press.
For a few years, Just Baked seemed to be just the kind of company entrepreneurs dream of being.
The chain of Livonia cupcake shops started as the economy was entering the worst of the recession. It went from a home-based enterprise run by a mom who liked to bake to a multimillion dollar company with about 90 workers and 17 stores, including three in Ohio.
But now that the economy is in a recovery, the business has collapsed.
“It started and grew quickly in spite of the economy,” said Todd Turkin, who cofounded the company with his wife, Pam. “The product tasted so good it muscled through the bad times. But, we over-expanded. We just opened too many stores.”
Last month, Just Baked closed all its corporate stores, including one in Detroit’s Campus Martius district. Five franchise stores remain open, but it’s unclear whether those stores will keep the name or what will happen to them.
In the past few years, start-ups have been heralded as the engines of American job growth and innovation, and their founders, some of whom have become billionaires, are as recognizable as rock stars.
Just Baked’s story is a reminder that starting and running a business can be daunting.
“To succeed despite the challenges of raising funds, establishing operations, hiring and training staff, and attracting customers are miracles that occur every day,” said Paula Sorrell, vice president for entrepreneurial services and innovation for the Michigan Economic Development Corp. “These are the reasons that entrepreneurs are lauded as brave pioneers.”
Nationwide, about half of all new companies fail in their first five years, according to Gallup research. A Gallup study last year identified the traits that drove entrepreneurs to succeed, including: confidence, creativity, determination, focus and risk-taking.
In the end, however, the ambition and risk-taking that made the Turkins successful, also may have led to the downfall of their business.
Todd Turkin, 59, is now struggling to cover bounced payroll checks, pay federal back taxes — and trying to figure out what to do next.
A hobby becomes a business
In 2008, Pam Turkin, now 53, noticed cupcake shops seemed to be popping up on the coasts.
At the time, the nation was going through a gourmet cupcake craze that was propelled, in part, by cable TV shows such as “Cupcake Wars.”
She declined to comment about the business through her husband, but the story of how she started has received media attention.
Her first cupcake tasted like a s’more, the campfire treat of graham crackers, marshmallows and chocolate that makes you ask for “s’more.” She created other flavors and then rented a shop in Livonia. She marketed her treats as “baked fresh daily, using real butter, real eggs, and real milk.”
As sales grew, she and her husband opened other stores.
In 2013, Just Baked had about a dozen stores, and Turkin and her company were being touted as a Michigan success story. When Jack Dorsey, the cofounder of Twitter, held an event in Detroit to talk about entrepreneurship, he invited Turkin to speak on a panel with him.
That year, her limited-liability company also was ranked by Inc. Magazine as the 1,011th fastest-growing private company in America with three-year growth of 426%. The company, according to the report, had annual revenues of $3 million and 70 employees in 2012, up from just $573,606, and 10 employees in 2009.
It kept expanding, and signing store leases, including some in Ohio.
Adding stores, investors
To pay for the expansions, Todd Turkin said, he and his wife sold half of company to metro Detroit investors who they declined to identify.
The investors, Turkin said, also offered a line of credit that kept the company going whenever sales fell short.
But by November, Turkin said, the new partners decided Just Baked — which was struggling to be profitable — was no longer a good investment for them.
Just a few months earlier, Crumbs Bake Shop, a New York-based chain of cupcake shops, shuttered its stores. Crumbs had expanded to dozens of shops, and had planned to open a couple hundred nationwide. Instead, the company lost millions.
At Just Baked, the investors pulled their line of credit and offered to sell their half-interest back to the founders for $1, Turkin said.
Todd Turkin said he and his wife agreed to the deal with the expectation — and hope — that they could find another partner who would put money in the company, which by then had grown about 90 employees.
“We thought there might be a way to keep it going,” he said.
That didn’t happen.
Just wanted to sell cupcakes
With no new investors and no money to pay their bills, the company decided to close all of its stores in January. The decision was so sudden that the company’s own public relations firm didn’t know what was happening or how to respond to news inquiries.
Turkin said Just Baked passed out its last payroll checks, shut its doors — and promised to keep its outstanding commitments.
But in the days and weeks after closing the stores, employees complained their checks bounced.
To cover the bad checks, Turkin said he has been trying to collect from companies that owed Just Baked and using that revenue to pay the former employees — one at a time.
He also is trying to settle the company’s other obligations, which he estimated has come to more than $1 million dollars.
The debt, he said, is crushing.
It is so bad, Turkin said, he can’t afford to hire an attorney — or anyone else — to help him. He is overwhelmed, and he said he doesn’t really know what to do. He said he expects there will be lawsuits from vendors and leaseholders.
He hopes that the franchise owners — which are independent operators — can stay in business.
Turkin said he and his wife are sorry for what happened, and they’ve soured on being entrepreneurs.
“I don’t want to do this anymore. I want to work for someone else. My wife feels the same way,” he said. “We’re not asking for sympathy. You invest in a business and take your lumps if it goes out. We just wanted to employ people, hopefully make some money, and sell cupcakes.”
Founder: Todd and Pam Turkin
Annual revenue: $3 million
Stores still open: Southgate, Canton, Southfield, Troy and Ann Arbor