Many years ago I worked for a local bakery as a cake decorator. I was in my very early 20's and a little immature at the time and despised the heat, early hours and hard labor involved, but I did have a lot of natural talent. I quit the job, only making cakes for friends and family. But, I've been bitten by the cake bug again. It's all I dream about, even though I have a fulfilling and wonderful "regular" job as a graphic designer.
So, a while ago I decided to go back to making cakes on a part-time basis, I'm not heavily advertising or anything, but I do want to get my name out there a little and drum up a little business.
So, here's my dilemma. The people who own the bakery where I used to work happen to live in the very same tiny little town I live in. I was considering putting some signage up on the bulletin board of our local tiny little Post Office, but I'm now I'm a little hestitant because of the "competition" aspect of it. I would be far below them in cost, and even though they are quite a lucrative cake and catering business, I don't want them to know I'm the one doing the baking, and charging far less than they typically charge.
Am I being too oversensitive or paranoid? I know a little competition never hurt anyone, but I don't want this to turn into a weird or awkward situation. They also made me sign a contract saying I'd never use or divulge their "proprietary" recipes, but it turns out most of their recipes aren't very original in the first place. They have one extra-special frosting recipe, but I honestly could never duplicate it because it was always made in huge quantities.
Any thoughts?
First, do you have a legal, licensed business? if not, you can be in some trouble if caught.
Intentionally undercutting 'competition' is (in my opinion) unfair to them and to yourself. Cake decorating takes work, and it should be valued fairly.
Doing a cake, now and then, for friends and family is different. If you are going to have a real business, it should be professional.
why would you want to charge "far less?"...don't you want to make money?
they'll find out in a small town it's you in time....
i always like what donald trump says "it's not personal it's business.....sometimes people get way to emotional about business....they prolly won't like it...but it isn't like you are fishing buddies...ha ha.
are you legal?...if not they might wanna call the health dept and let them know what you are doing...ESP if you are going to totally undercut them.
I agree with the others. Undercutting damages everyone in the industry. Charge what the market will bear, which will be something very close to your competitor's prices. Undercutting teaches customers - "Oh, I guess cake really ISN'T worth $3.00/serving!" It also underpays you for your work, puts other hardworking people (like the owners of the bakery you are describing, who have worked VERY hard to build a business that will sustain itself and their family) out of business, and causes VERY hard feelings in the cake community.
I try not to be judgemental on home bakers...heck i even throw some of them business in my little town, (they got way more time than i do...to do the fussy labor intensive cakes)...and not everyone has thousands of dollars to invest... plus the government makes it so hard in some places to do biz....
BUT PULEASEEEEE...for goodness sakes...don't undercut us shop owners.....we have invested our lifes savings...it's just not right....
Heck maybe you could just go to them and let them know you "may get back into cakes"and if they are to busy let them know they can throw some business your way. I know there is a bakery in my neck of the woods that has to turn people away...I would hate to see you get into trouble doing it the other way...it really would only be a matter of time before they got ticked off and turned you in...
Whoa! It's not intentional undercutting... and yes, I am licensed now. I just charge less! It's not that I don't want to make money, they just are overpriced. Again, my concern is that I will appear as if I'm undercutting them, when it's not intentional. Their business is located in another larger town, they just happen to live in the same place I do, and I know they would see the signs.
I mean, if it means I have to charge more, fine, I guess. But I'm still going to be viewed as competition and I'm concerned they will think I'm using their recipes, when I'm truly not.
this has been said before, but if your not legal...you can not advertise!! If you want to advertise and take it to the next level....you have to take the steps to do it legal.
small town....people talk....health dept. could be called and complaint against you...
just my two cents
melody
As diplomatically as possible -- without undercutting them -- go for it. That's what America's all about, remember? Free enterprise. You have every right to go into business for yourself if you want. A little competition never hurt anyone.
Just my two cents... 
Just to put my 2 cents in for the home baker... I don't need to charge $130 for a Wondermold cake with a Barbie in it, because I don't have staff to pay, I don't have rent to pay, and many of those other overhead costs. So I charge $80. And I can't really apologize for that either. BTW, the grocery store charges $40 for that cake. For me, I am comfortable being right in the middle. If someone wants the status of the "specialty store" (which I have encountered) then they can feel free to pay that much. If they want scratch and less expensive, then I am here, and if they want cheap crappy cake they can go to the grocery store.
Since your licensed, i say go for it. Hopefully they won't think you are "stealing" their recipes and stir up any trouble
Your licensed!!! Have at it, signs and all...why not? I see no problem with it all. My husband is friends with plenty of people who do the same work, he also refers work their way when times are busy for him or if it is just something he does not want to do. And they do the same for him. That is just the nature of business...I would just be sure you are not using any of their recipes, especially if you don't want issues down the road.
If you're not doing anything wrong - stop worrying. 
my two cents, so take it for what it's worth...
Their bakery is in another town. You're right there. Yes, they live where you do, but they don't do business where you do. And yes, you'll probably get some of their business from locals, but if they're in a fairly large town, they might not miss the business too much. It would be different if you were hanging a shingle next door or on the same street, even, but you're not even in the same zip code. That should count for something, IMHO
If you're that worried about it, why not contact them and talk to them openly about it, let them see the recipes you're using (and since they're not THEIR recipes, they shouldn't give a hoot), and assure them that you're not trying to put them out of business, just to live your own dream.
If they have a problem with it, well, it's America.. do what you want, as long as you do it legally. And I agree with a lot of posters... charge what you're worth! Try it with prices comparable to their's and see what happens. If folks don't have to drive to another town to get good cakes, especially with the price of gas, you might just be pleasantly surprised.
Whatever you do, good luck with it!
Being middle of the road isn't a big problem, but charging rock bottom prices can be. Not only are you not making enough for your time, but you are de-valuing cake on the whole. I don't say this to sound all huffy, but you really should charge close to what those around you do. I am a legal home baker.. and I charge a very decent amount for my cakes because I am worth it. My time and know how come at a price. Now 80 for a womdermold doll cake isn't bad.. it's a "one mix" according to Wilton and that's abotu 20 servings.. so $4/serving isn't bad at all.
What are your prices? I say GO FOR IT!! Free enterprize and survival of the fittest baby. No need to feel bad because you are not doing anything wrong. 
veronica, that's exactly my concern. Like I said their recipes aren't any more complicated than standard box mix (but in bulk) and a pretty standard version of buttercream that they use to decorate but not to frost. They do have a specific special frosting recipe that is fairly uncommon, which I understand them not wanting to "leak" to the public.
Since my cakes are, and will continue to be, mostly fondant covered, I shouldn't run into problems unless they really wanted to try to cause them for me, I just don't want to have to worry about that.
Since they are a former employer, and obviously taught me some of my skills, I just don't want to run into issues with small-town jobs I might get.
For what it's worth - here are my 2cents -
1. Business is business. Yes, you worked for them many years ago, but that doesn't mean anything.
2. If you are truly much lower than them price-wise, chances are you guys are not targeting the same audience - for example, my customers wouldn't go to Duff and no way Duff's customers would come to me. But as it has been stated, make sure that you are charging the fair/equal market price. It's only fair to everyone involved.
3. If you are worried about them knowing you are behind your operation, then you have no business being in business. I don't mean that in a mean way or anything, but when opening a business you need to worry about yourself and not what your potential competition is going to say or think about.
4. As long as you can prove that you are not violating your contract with them, everything should be fine.
They might not if they saw me in the gas station or something, but if they saw I was doing cakes, I could see them putting it together.
I appreaciate the feedback. I'll stop worrying so much and review my costs as well. Heck, I'm not going to complain about making more money!
I have a question before I give my two cents. Wy do they charge more than you do? Do they use better quality ingredients, do they do very elaborate cakes (like Duff), do they use odd fillings and frostings like mango/papaya or is it simply a case where they are trying to recoup costs? If it is a situation where they just charge that because they can then no you are doing honest business.
Summary: Be competitive friends. See if they can throw some business your way and if you have an order that is too big for you, send it their way. Be honest and straightforward with them if you are asked. I have a small storefront bakery and as littlecake said, we have sunk our life savings into this. I have a woman down the road that has been doing cakes longer than I have been alive and she is pretty crap dang good. She has a home business and she has a loyal customer base. There are sometimes that she can't do a cake due to the labor/time/other stuff and she sends them my way and when I have cakes that I can't do bc of scheduling/time/other stuff, I send them her way. She is $1.00 per slice cheaper and she is great. Moral of the story: this is a free enterprise, just be honest.
I have a question before I give my two cents. Wy do they charge more than you do? Do they use better quality ingredients, do they do very elaborate cakes (like Duff), do they use odd fillings and frostings like mango/papaya or is it simply a case where they are trying to recoup costs? If it is a situation where they just charge that because they can then no you are doing honest business.
Summary: Be competitive friends. See if they can throw some business your way and if you have an order that is too big for you, send it their way. Be honest and straightforward with them if you are asked. I have a small storefront bakery and as littlecake said, we have sunk our life savings into this. I have a woman down the road that has been doing cakes longer than I have been alive and she is pretty crap dang good. She has a home business and she has a loyal customer base. There are sometimes that she can't do a cake due to the labor/time/other stuff and she sends them my way and when I have cakes that I can't do bc of scheduling/time/other stuff, I send them her way. She is $1.00 per slice cheaper and she is great. Moral of the story: this is a free enterprise, just be honest.
since you are legal, go for it!!! if they ask if you are using their recipe, let them know that you are not.
good luck!!
melody
Do you use their buttercream recipe that they wouldn't want leaked out? If you do.. and I wouldn't think that was right.. find a new one then they can't complain.
I have a question before I give my two cents. Wy do they charge more than you do? Do they use better quality ingredients, do they do very elaborate cakes (like Duff), do they use odd fillings and frostings like mango/papaya or is it simply a case where they are trying to recoup costs? If it is a situation where they just charge that because they can then no you are doing honest business.
Summary: Be competitive friends. See if they can throw some business your way and if you have an order that is too big for you, send it their way. Be honest and straightforward with them if you are asked. I have a small storefront bakery and as littlecake said, we have sunk our life savings into this. I have a woman down the road that has been doing cakes longer than I have been alive and she is pretty crap dang good. She has a home business and she has a loyal customer base. There are sometimes that she can't do a cake due to the labor/time/other stuff and she sends them my way and when I have cakes that I can't do bc of scheduling/time/other stuff, I send them her way. She is $1.00 per slice cheaper and she is great. Moral of the story: this is a free enterprise, just be honest.
Honestly, I think they're pretty close to a monopoly and feel they can charge whatever they want to. They also run a catering business and have lots of employees. So, I'm assuming it's a little of all of those things factored in. I know our businesses would never be an apples-to-apples compairson, so I guess I shouldn't feel so bad!
Do you use their buttercream recipe that they wouldn't want leaked out? If you do.. and I wouldn't think that was right.. find a new one then they can't complain.
When it came to making my sister's wedding cake (unpaid) I did a version of it, but again, it's not really the same recipe. In fact, there are several on this site that are similar. It's one of those tough calls because I can't remember anymore what that "contract" I signed even said.
Because we always made the frosting in 50lb batches, it's not like I can divide everything up to equal a 1lb batch or anything, so any recipe I'd use would be modified anyway. Since I don't know how binding that "contract" is, I could easily just have a specific recipe that wouldn't equal theirs anyway, which I think would legally be alright.
But, it's extremely infrequent that I do anything other than fondant or sweet buttercream anyway, so hopefully it wont be an issue!
I will say that buttercream is buttercream.. they all taste pretty similar so unless they wanted to have it tested in a lab to see if it's exact I'm sure you would be fine. Is it a meringue type buttercream? There's only so many ways to skin a cat you know.. I still say go for it!! Where are you located?
Well if your using the recipes yourself I dont know how that is really divulging their recipes. Also, there isnt a law saying you cant opn your own business.
As you said, they are popular so Im sure that it really wont hurt them as much as you think.
If your town is as small as you say it is, then you know most people there are in everyone else's business (ask me how I know). It's only a matter of time before you get caught. I don't know what the fines are there, but they are quite hefty here (up to $15,000), and truthfully, I don't think it's worth me taking the risk.
Please think this over very, very carefully before you do any advertising. I know several people who have gotten orders, and made lucrative earnings, just via word of mouth. If your product is really good, it will sell itself, and you won't have to worry about advertising.
Theresa
She is legal.. no worries about advertising..
If you are licensed then go ahead and start your business! If they are worried you are using their recipe then they can buy a cake from you and see for themselves. 
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