How Is It Even Possible?

Business By vgcea Updated 16 Aug 2012 , 10:03pm by jason_kraft

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vgcea Posted 14 Aug 2012 , 2:42pm
post #1 of 41

An acquaintance had suggested that I make a cake for her event but never really followed up so I didn't bother with the issue.

Recently I overheard (I couldn't avoid it, they were standing right next to me) said acquaintance describing the order she recently placed with another home-based baker for that event. When asked how much she was paying, she didn't say but mentioned that she had used that caker before and the caker had provided her with a "2 layer cake that served about 100 people for $60." I could have fallen out of my chair! icon_lol.gif

How is that even possible? I could go over my costs 100 times and never be able to justify that price. I imagine even cake mix isn't that cheap, then add the buttercream, cake board, box e.t.c

Seriously, this is not even a rhetorical question, please help me understand what one would do to sell cake at $0.60 a serving and still stay afloat?

40 replies
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ddaigle Posted 14 Aug 2012 , 3:07pm
post #2 of 41

A lot of home bakers have no clue and have not figured out their costs/expenses to know that they are giving cakes away. I see it happen all the time. I give my family huge discounts, but make sure I get compensated for my ingredients. They are the only ones who get discounts.

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Edit Posted 14 Aug 2012 , 3:15pm
post #3 of 41

These kind of prices really just make me want to scream: " PLEASE STOP UNDERMINING THE INDUSTRY!!!!"

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Pearl645 Posted 14 Aug 2012 , 3:18pm
post #4 of 41

I too don't know how this is possible. Sounds like this person is undercutting the competition to get business and is operating at a serious loss. It is always unfortunate to see this happen as it undermines those who run this as a business.

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DaisyDollyDoo Posted 14 Aug 2012 , 3:19pm
post #5 of 41
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Originally Posted by Edit

These kind of prices really just make me want to scream: " PLEASE STOP UNDERMINING THE INDUSTRY!!!!"




Couldn't have put it better!

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Pearl645 Posted 14 Aug 2012 , 3:27pm
post #6 of 41
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Originally Posted by Edit

These kind of prices really just make me want to scream: " PLEASE STOP UNDERMINING THE INDUSTRY!!!!"




I too feel this way. I have had to put a lot of work into building my brand to move up to a higher price point and separate my business from those who are operating at a loss or break-even. I do believe that with forums like CC, as more people join and read posts about being cheap or charging too little that they will realize they need to:

1. Get professional work experience at a bakery or with a cake artist for at least a year before they open their own business, do it as a hobby or do it on the side. I worked with a caterer and cake decorator for two years before I went off on my own.

2. Get financial and legal advice on how to price their goods and operate their business.

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Pearl645 Posted 14 Aug 2012 , 3:41pm
post #7 of 41

What amazes me is that most professionals in fields such as dentistry, medicine, law, etc have to and are required to do a one year internship (or some period of internship_ where they work with someone who has decades of experience in the field they want to pursue.

Why is it so different for the cake business? Is it because there are free tutorials online that can teach someone how to bake and decorate and none to teach someone how to do a root canal? Are CFLs ripping apart the industry vs people who are required to use a licensed kitchen or choose to be professional and take this route and pay legal taxes etc.?

All these below market prices I am seeing cropping up just forces each of us who takes this seriously to push harder and use different strategies to set us apart. While there are no CFLs where I am, my challenge is dealing with people who operate with under the table cake businesses that are not registered. They don't have the quarterly legal and tax fees that I have to pay.

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Lynne3 Posted 14 Aug 2012 , 4:02pm
post #8 of 41

I have to wonder why an acquaintance who discussed a possible order with you would stand right beside you and describe the order she placed with another baker. Is it possible that she did this for your ears to hear?

I always look at people's motives. Sounds a bit odd to me.

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MimiFix Posted 14 Aug 2012 , 4:05pm
post #9 of 41

Many people have no idea what it costs them to make a cake. And many (not all, but many) are too lazy to learn. I cringe when I see people post a thread asking how much to charge. I cringe again when CC members answer with, "Lots of things to take into account, but I would charge xx." I believe it's a disservice to all of us when the poster gets an answer. Because, you know, they will just use that price since they don't want to do the math. Eventually they will realize there is no money in their cake-making "business" and will stop. But new people will always start.

My first year in business, I sold at craft fairs. Inevitably, there was a home baker whose products sold for half the price of mine. At the end of the day, she would swing by my table to complain that she sold out but didn't make any money and would not continue in her "business." In the meantime, I lost sales to her cheap prices. I stopped selling at craft fairs, the ones that let anyone sell anything, no license or permit required.

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kakeladi Posted 14 Aug 2012 , 6:36pm
post #10 of 41

Just remember ........ anyone can charge whatever they want for what ever it is they are selling.
The person telling the story might not be telling the truth.
The seller most likely has NO idea how much it is costing them to make that cake.
Don't always believe what you hear icon_smile.gif

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ibeeflower Posted 14 Aug 2012 , 7:13pm
post #11 of 41
Quote:
Originally Posted by MimiFix

Many people have no idea what it costs them to make a cake. And many (not all, but many) are too lazy to learn. I cringe when I see people post a thread asking how much to charge. I cringe again when CC members answer with, "Lots of things to take into account, but I would charge xx." I believe it's a disservice to all of us when the poster gets an answer. Because, you know, they will just use that price since they don't want to do the math. Eventually they will realize there is no money in their cake-making "business" and will stop. But new people will always start.




I too agree with this sentiment about people asking how much to charge. I know how much my goods cost because I have taken the time to sit down, look at what I spend and factor in what I charge per hour, etc. I also do research on my ingredients factoring in quality and price as well.

As for this cheap cake your acquaintance mentioned, this baker is probably underselling. Sometimes people don't understand that they are giving things away and losing out on it. They are either afraid of losing the business, or don't care about the money loss.

Either way, you do get what you pay for. Who is to say what the quality of this cake is, or what shortcuts she takes.

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jason_kraft Posted 14 Aug 2012 , 7:45pm
post #12 of 41

This is why Cottage Food Laws should require a short class on business literacy (an hour or so should do it) covering at least the basic concepts of pricing before allowing home bakers to start a business, similar to how most CFLs require food safety classes.

It wouldn't be a cure-all, but seeing numbers in black and white (e.g. if you price this way you will earn the equivalent wage of 10 cents an hour) might encourage new CFL business owners to at least think about pricing instead of just throwing out numbers.

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kelleym Posted 14 Aug 2012 , 8:05pm
post #13 of 41
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What amazes me is that most professionals in fields such as dentistry, medicine, law, etc have to and are required to do a one year internship (or some period of internship_ where they work with someone who has decades of experience in the field they want to pursue.

Why is it so different for the cake business?



Because it is. Anyone with an oven can make a cake.

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Are CFLs ripping apart the industry vs people who are required to use a licensed kitchen or choose to be professional and take this route and pay legal taxes etc.?



No, they are not "ripping apart the industry". You're pitting home baker vs. shop baker, again. Why go there? Lots of home bakers underprice. It's not a law's fault, it's not anyone's fault, it's just LIFE.

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I cringe when I see people post a thread asking how much to charge. I cringe again when CC members answer with, "Lots of things to take into account, but I would charge xx." I believe it's a disservice to all of us when the poster gets an answer. Because, you know, they will just use that price since they don't want to do the math.



It's not a disservice to help the person by answering their question in a helpful way. What annoys me to no end is people who won't give an answer, which is what was happening for a while in this forum. Why not help people by letting them see the gamut of prices? Of course I wish they would sit down and figure out their costs. And if they're serious, eventually they will. But it's no skin off my back to tell them what I charge, my prices are right there on my web site.

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This is why Cottage Food Laws should require a short class on business literacy (an hour or so should do it) covering at least the basic concepts of pricing before allowing home bakers to start a business, similar to how most CFLs require food safety classes.



Wrong. Cottage food laws ease the regulatory burden on micro food businesses. What other law do you know of that requires people to take a class to learn to price their product before they can go into business? It's a free country, Jason. Your proposal is ludicrous.

There will always - always- always always always be this conflict, laws or not. Some people like to do cake as a hobby, and charge next to nothing. Some people are trying to make a living at it, and charge what they need to charge to make a living. We can educate people and help them try to charge fair market value, taking into account their expenses and their time, but in the end, as kakeladi said, anyone can charge whatever they want for their product.

p.s. Underpricing drives me mad also, don't get me wrong. But blaming home bakers or cottage food laws, or refusing to tell people what you would charge, or dreaming up new requirements for laws that are supposed to make things easier, those things are counter productive.

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heyjules Posted 14 Aug 2012 , 9:09pm
post #14 of 41

[quote="Pearl645"]What amazes me is that most professionals in fields such as dentistry, medicine, law, etc have to and are required to do a one year internship (or some period of internship_ where they work with someone who has decades of experience in the field they want to pursue.

Why is it so different for the cake business?
quote]

This is truly a misguided, if not ridiculous, statement. While very many small business fail because people think they can just jump into it, comparing training to decorate a cake to getting a medical degree is a huge stretch.

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jason_kraft Posted 14 Aug 2012 , 9:10pm
post #15 of 41
Quote:
Originally Posted by kelleym

Cottage food laws ease the regulatory burden on micro food businesses.



And that's exactly the issue here. The day before a CFL is signed, there are high barriers to entry in the food industry that require new business owners to make significant investments in time and money to get started. The next day, there are virtually no barriers to entry for a good portion of the market.

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What other law do you know of that requires people to take a class to learn to price their product before they can go into business?



Perhaps requiring a baseline level of knowledge in things like pricing would help bring down the failure rate for new businesses in other industries. Do you know of any other law that instantly removes barriers to entry to the extent a CFL does?

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It's a free country, Jason.



I agree, but I'm not sure what that has to do with this discussion. How exactly is my proposal impinging on the freedom of business owners?

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We can educate people and help them try to charge fair market value, taking into account their expenses and their time, but in the end, as kakeladi said, anyone can charge whatever they want for their product.



And that's exactly what I'm recommending, just on a larger scale. Obviously there's no way to force people to price a certain way, but you can at least let them make an informed decision.

If CFLs lead to rampant underpricing by home bakeries, this will only give ammunition to the opponents of CFLs who can and will point to declining tax revenues as an argument to increase fees, tighten restrictions, or even repeal the CFL altogether.

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kelleym Posted 14 Aug 2012 , 9:24pm
post #16 of 41
Quote:
Originally Posted by jason_kraft

Quote:
Originally Posted by kelleym

Cottage food laws ease the regulatory burden on micro food businesses.


And that's exactly the issue here. The day before a CFL is signed, there are high barriers to entry in the food industry that require new business owners to make significant investments in time and money to get started. The next day, there are virtually no barriers to entry for a good portion of the market.



So what? So you're saying if you have enough money, you don't need to take a class? People with more money than sense open businesses every day, whether it's a storefront or not.

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It's a free country, Jason.



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I agree, but I'm not sure what that has to do with this discussion. How exactly is my proposal impinging on the freedom of business owners?



Government-mandated anythings usually end up restricting the freedom of everyone. I'm sticking to generalities because we apparently have a fundamental difference of opinion on how things should be run.

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If CFLs lead to rampant underpricing by home bakeries, this will only give ammunition to the opponents of CFLs who can and will point to declining tax revenues as an argument to increase fees, tighten restrictions, or even repeal the CFL altogether.



Laws do not (theoretically) exist to regulate prices or competition. I think you and I probably have a very fundamentally different view on the role of government in our lives.

Cottage food laws are wildly successful, giving consumers more legal choices for certain homemade foods. When more providers enter the market, the consumer wins. I don't think your scenario is anywhere in the realm of possibility.

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jason_kraft Posted 14 Aug 2012 , 9:51pm
post #17 of 41
Quote:
Originally Posted by kelleym

So what? So you're saying if you have enough money, you don't need to take a class?



Note that I mentioned investments in both time and money. Part of the time investment is learning how to run a business, and with higher barriers to entry there is more of an incentive to learn how to do it right instead of just winging it.

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Government-mandated anythings usually end up restricting the freedom of everyone.



Again, please explain how a one hour class on business basics (similar to the required food safety classes, which are much longer) restricts anyone's freedom. "Government bad!" is not an argument.

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Laws do not (theoretically) exist to regulate prices or competition.



There absolutely are laws that exist to regulate both prices and competition. In fact, there's a whole organization (the FTC) devoted to this task.

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I think you and I probably have a very fundamentally different view on the role of government in our lives.



We're probably closer than you think. I believe government should provide citizens and businesses with the infrastructure necessary to be successful -- no more, no less. IMO that infrastructure includes making sure people who sell food know how to make it safely and sell it at a fair price.

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Cottage food laws are wildly successful, giving consumers more legal choices for certain homemade foods.



Which metrics are you using to measure success?

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When more providers enter the market, the consumer wins.



An absolute statement like that is, to use your word, ludicrous. If there is a flood of new market entrants that underprice existing businesses, consumer demand will eventually shift to the lower end of the price spectrum, and the market will no longer be able to support higher wages for many mainstream vendors. The long term supply of quality products outside niche markets will dry up in favor of transient businesses that enter the market at too low of a price point and quickly burn out. Normally this would not be a big issue, but with zero barriers to entry there is a virtually unlimited supply of these transient businesses so established players can't just wait them out.

If you're just looking at things from a Walmart perspective where low prices are valued above all else I would agree with you (and businesses in other industries would certainly benefit since consumers are no longer spending as much on cake), but you need to look at the whole picture, including long term economic effects.

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kelleym Posted 14 Aug 2012 , 10:05pm
post #18 of 41

Go out and lobby for that amendment to California's cottage food bill, and see how it goes, will you? As far as I know, you're not at all involved in that effort beyond posting (sometimes inaccurate) updates here.

This is just pig wrestling, I can imagine the huge smile on your face. You always have to have the last word, so this is pointless to me. My work in Texas speaks for itself.
LL

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jason_kraft Posted 14 Aug 2012 , 10:12pm
post #19 of 41
Quote:
Originally Posted by kelleym

Go out and lobby for that amendment to California's cottage food bill, and see how it goes, will you?



I don't have the time or inclination to "lobby" for such an amendment, but I did bring it up to SELC when I first heard about the CA bill.

If you have any additional points to add to my arguments I would love to hear them, but the personal attacks are not necessary and do not add value to the discussion.

As an aside, I'm not sure what the big deal is about "having the last word". If you bring up a point and I have a response to it, of course I'm going to post it. If you'd prefer to have a one-sided discussion you are free to post on your own blog so you can control the conversation.

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kazita Posted 14 Aug 2012 , 10:37pm
post #20 of 41

Vegca if you look at my post on here just put here the other day you will see how i really screwed up i did not add up my cost or ask the lady what her budget was , huge mistake! I am now stuck making a cake for saturday and im losing money on the deal. Never again ! My first question will be what is your buget, how many severings do you need and inform them that if they want it delivered there will be a fee for that also. Yes i am a hobbie baker and mostly do cakes for family or friends, but this lady was referred to me through my neighbor i had never met her until the whole cake thing came up i learned a hard lesson and will never ever be so quick to quote a price without first figureing my cost plus labor and the such. icon_confused.gif

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AZCouture Posted 14 Aug 2012 , 10:41pm
post #21 of 41
Quote:
Originally Posted by Lynne3

I have to wonder why an acquaintance who discussed a possible order with you would stand right beside you and describe the order she placed with another baker. Is it possible that she did this for your ears to hear?

I always look at people's motives. Sounds a bit odd to me.


Unfortunately, the decorators do it out in the open around here. Just last night on a local "craigslist" style Facebook page for my town, was an ad that read "Thinking of selling these...what would you pay?" They were decent looking cupcakes with a fondant flower on top wrapped in a pretty cellophane bag. Naturally the responses varied from super cheap to cheap to super cheap, etc. One person offered $4.00, but the decorator said "oh I can do it for $1, wrapped!"

Same person had a cake posted for $20 since "she was just starting out, and it is fondant after all", so it costs more. icon_eek.gif

Then there are some that outright advertise "Cheap Cakes 4 sale". Very sad really.

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kazita Posted 14 Aug 2012 , 10:58pm
post #22 of 41

WOW this is a hot topic and bringing alittle bitterness out in some of us. Now now we are all here to get advice and give advice not to fight with one another. Hmmmm icon_rolleyes.gif that makes me sound like the mother of 3 kids that i am lol. Ok back to the topic and argueing lol

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QTCakes1 Posted 14 Aug 2012 , 11:02pm
post #23 of 41

[quote="kelleym"]

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What amazes me is that most professionals in fields such as dentistry, medicine, law, etc have to and are required to do a one year internship (or some period of internship_ where they work with someone who has decades of experience in the field they want to pursue.

Why is it so different for the cake business?



Because it is. Anyone with an oven can make a cake.

Thank you for saying this, cause I thought it was such a far fetched comparison.

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QTCakes1 Posted 14 Aug 2012 , 11:03pm
post #24 of 41

[quote="heyjules"]

Quote:
Originally Posted by Pearl645

What amazes me is that most professionals in fields such as dentistry, medicine, law, etc have to and are required to do a one year internship (or some period of internship_ where they work with someone who has decades of experience in the field they want to pursue.

Why is it so different for the cake business?
quote]

This is truly a misguided, if not ridiculous, statement. While very many small business fail because people think they can just jump into it, comparing training to decorate a cake to getting a medical degree is a huge stretch.




Thank you! I've been doing this EVER! Though I think we have a specialized skill, I don't think it is on par with a doctor.

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gatorcake Posted 15 Aug 2012 , 12:44am
post #25 of 41
Quote:
Originally Posted by jason_kraft

If there is a flood of new market entrants that underprice existing businesses, consumer demand will eventually shift to the lower end of the price spectrum, and the market will no longer be able to support higher wages for many mainstream vendors. The long term supply of quality products outside niche markets will dry up in favor of transient businesses that enter the market at too low of a price point and quickly burn out. Normally this would not be a big issue, but with zero barriers to entry there is a virtually unlimited supply of these transient businesses so established players can't just wait them out.




In this sector this already happens with or without CFLs. I am not passing judgement on what people do, however, it clear from the regular posts there are people going into business in non-CFL states from home. Even in CFL states I guarantee you will find cakers who are not running legal "enterprises." You claim that there are high barriers to entry belies the fact that many enter the market even with those boundaries in place.

This fact along with the empirical data from CFLs, there are plenty of established non-niche bakeries/cakeries in states with CFLs, emphatically disprove your race to the bottom scenario. Indeed even with the existence of home bakeries and underground businesses, people continue to spend their money in established bakeries. Your vision of the market is simply hypothetical and does not represent how the markets work in CFL states.

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jason_kraft Posted 15 Aug 2012 , 12:58am
post #26 of 41
Quote:
Originally Posted by gatorcake

In this sector this already happens with or without CFLs. I am not passing judgement on what people do, however, it clear from the regular posts there are people going into business in non-CFL states from home. Even in CFL states I guarantee you will find cakers who are not running legal "enterprises."



I absolutely agree, the issue is one of magnitude. There's no doubt that CFLs have greatly increased the number of legal home bakeries...that's not a bad thing in and of itself, but with this increase in new businesses comes an increase in businesses that underprice, since some percentage of those new businesses (definitely not all, to be clear) will not know how to price correctly.

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You claim that there are high barriers to entry belies the fact that many enter the market even with those boundaries in place.



Of course businesses will still enter markets with high barriers to entry, my point was that because much more is at stake they are more likely to spend the time to do things right. And if you are referring to illegal market entrants, they can be shut down relatively easily if they interfere with the market.

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This fact along with the empirical data from CFLs, there are plenty of established non-niche bakeries/cakeries in states with CFLs, emphatically disprove your race to the bottom scenario.



Which empirical data, can you provide a link?

To clarify, I'm not saying it's impossible to run a non-CFL business in a CFL state, it will just get more difficult over time due to the greater likelihood of being undercut by legal businesses, and the number of mainstream non-CFL businesses will dwindle.

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Your vision of the market is simply hypothetical and does not represent how the markets work in CFL states.



You're right that my vision is hypothetical (albeit based on economic principles), because AFAIK no long-term economic data exists analyzing the impact of CFLs on critical metrics like total industry revenue, which would be a much more important figure than just counting how many non-CFL shops are still open.

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vgcea Posted 15 Aug 2012 , 1:52am
post #27 of 41

My goodness! When I started this thread I was not expecting this debate, for one thing I'm a CFL baker myself and support what CFLs stand for. Since I plan to own a store front in the near future, the issues that bigger businesses face are also very important to me.

I'm learning from all these posts so I thank everyone who has shared (and valiantly supported) their position on this issue. Since the debate has come up I hope it's something we can hash out without necessarily attacking each other personally.

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kelleym Posted 15 Aug 2012 , 2:06am
post #28 of 41
Quote:
Originally Posted by vgcea

My goodness! When I started this thread I was not expecting this debate, for one thing I'm a CFL baker myself and support what CFLs stand for. Since I plan to own a store front in the near future, the issues that bigger businesses face are also very important to me.

I'm learning from all these posts so I thank everyone who has shared (and valiantly supported) their position on this issue. Since the debate has come up I hope it's something we can hash out without necessarily attacking each other personally.



While some people are experts at crying "personal attack", there was no attack.

Jason, the fact that you will, on this forum, propose radical and nonsensical legislation, such as forcing everyone in America who wants to sell something to first take a government-mandated class, and then you say that you have "neither the time nor inclination" to actually lobby in the real world for such a thing, makes it very clear that you're simply amusing yourself here.

I am not surprised, at all, that the SELC did not not incorporate this suggestion into the bill draft. It is breathtaking in its scope and overreach. Want to sell a bracelet on Etsy? Oops, you have to take a government-mandated class first.

Now, if the California cottage food law does pass, then it would be a great idea for a private citizen such as yourself to begin offering such classes. They'd probably be a big hit!

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jason_kraft Posted 15 Aug 2012 , 2:37am
post #29 of 41
Quote:
Originally Posted by kelleym

Jason, the fact that you will, on this forum, propose radical and nonsensical legislation, such as forcing everyone in America who wants to sell something to first take a government-mandated class



Everyone who runs a legal food business in the US already has to take a government-mandated class on food safety. I fail to see what is "radical" or "nonsensical" about a similar, much shorter, non-binding class on how to price your products.

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and then you say that you have "neither the time nor inclination" to actually lobby in the real world for such a thing, makes it very clear that you're simply amusing yourself here.



I do enjoy debating business-related topics, but since I sold my bakery and have other higher priority projects on my plate I just don't have the time to lobby for this issue. I'm not sure what this has to do with the points I've made.

I know you think you aren't posting personal attacks, but go back and look at your last post, and examine how much of it was focused on tearing me down as an individual instead of addressing my points.

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Want to sell a bracelet on Etsy? Oops, you have to take a government-mandated class first.



To be clear, my proposal was tied to the CFL, not to all businesses everywhere. So unless you can eat the bracelet, you wouldn't have to take a government-mandated class. And if you are selling edible bracelets, you would already have to take a government-mandated class under the current laws in most states.

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Now, if the California cottage food law does pass, then it would be a great idea for a private citizen such as yourself to begin offering such classes. They'd probably be a big hit!



Thanks for the advice, but SCORE already offers this service for free, as do some people on CakeCentral.

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vgcea Posted 15 Aug 2012 , 4:40am
post #30 of 41
Quote:
Originally Posted by Lynne3

I have to wonder why an acquaintance who discussed a possible order with you would stand right beside you and describe the order she placed with another baker. Is it possible that she did this for your ears to hear?

I always look at people's motives. Sounds a bit odd to me.




I thought this was weird too and I wouldn't be surprised if that was the intent. I'm not sure what effect she expected though.

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