Cookies, Catastrophe and a Comeback King
Kathleen King started selling cookies at the age of eleven from her family’s farm-stand. After a bad business deal, she lost it all and almost ended up in jail. She regrouped to build and sell Tate’s Bake Shop, a business making over 125 million cookies a year.
Interview By: Justin Harlow | Editor
Intro: Today, I’m in The Hamptons at the home of Kathleen King, the Founder of Tate’s Bake Shop. Kathleen started her first business baking cookies for her family’s farm-stand at the age of 11 after her father told her that she was old enough to pay for her own school clothes. After two years at college she returned to her cookie business full-time, where she turned Kathleen’s Bake Shop into a very profitable operation. In 1999, while looking to scale back her commitment to the business, she sold two-thirds of her interest to her book-keeper and his brother. It turned out to be a disaster. Quality suffered, vendors were no longer being paid and Kathleen herself was accused (wrongfully) of stealing from the business. After a costly law-suit, Kathleen walked away from the business with two-hundred thousand in debt.
Determined to learn from those painful lessons, she re-mortgaged the bakeshop premises to pay off the debt and in 2000 started Tate’s Bake Shop, with a promise to herself that this time would be different. There would be no emotion and the sole objective was a successful exit. Fast-forward fourteen years and Tate’s was selling two and a half million cookies a week. The business caught the eye of a private equity firm, which acquired a majority stake.
JH: Kathleen, what an incredible story, it’s great to have you with us today.
KK: It’s so great to be here Justin, thank you.
JH: You grew up on a farm, tell us how that life was and how it influenced your outlook on life and on business.
KK: Now that I’m mature enough to understand it all, really the farm upbringing was everything. I came from two parents that were great role models. My mother was ahead of her time as far as independence was concerned and was not a farmer’s wife, she was a nurse. The work ethic and team-building was essential. There was no role-playing. There was no “That’s my job and that’s your job” or “Boys do this and girls do that”. I never heard that in my life. It was just about what needed to be done today and get it done.
JH: At the age of eleven you start your first business selling cookies on your farm-stand. How did that come about and what did you learn?
KK: Well, my sister and her friend would bake cookies, bread and brownies and they decided they wanted to get a real job when they were 14 at an ice-cream parlor so they could meet boys. The farm was pretty isolated. I was the youngest and my dad said “You need to make these cookies for the farm-stand because you’re old enough to buy your own clothes for school now.” By the time I was eleven, I could already make dinner, clean the house, do laundry, function outside, wait on customers, so I was like “OK”. That was a generation when you didn’t say no, that was not an option. So, I started baking the cookies and selling them and started selling more and more. The joy that the cookies brought to people was really the feel for me. I also liked making money too, but I just loved the thrill of it.
JH: And did you use anything from the farm when you were making the cookies?
KK: Yes. My father first thought of this great idea. He said that he would pay for all the ingredients and then I would make the cookies and wait on the customers. So, I would stand in the kitchen and bake cookies and look out the window and see customers and then I would run outside and say “I’ll be right back as I have cookies in the oven”. Then I would run back in the house. Then my cookies business was doing so well my father said “We need to change our agreement” because it was costing him a lot of money and I was making one hundred percent profit. So, then I went to buy my own ingredients, but I always got my eggs for free.
JH: I guess he was your first business partner in that respect. You paid your way through college, but then return home to start Kathleen’s Bake Shop full-time.
KK: Well, when I returned home from college, I baked cookies at the farm for the summer and I didn’t really have a clue what I was going to do. But my mum said “Well, what are your plans for the end of the summer?” And I was like “I don’t know” and she said “Well, this is the last summer you can use the kitchen.” I was like “Oh, ok.” She said “You know there’s a bakery for rent in town” and I was like “Ok”. So, I went to the bakery to look at it. It was a fully-equipped bake shop for rent. Two businesses had failed there prior to me opening there. Several people had said “That’s a bad location Kathleen, these two bakeries had already failed” and I said “Well, they weren’t good bake shops”. I didn’t have that fear. At the end of the summer I rented the bake shop and I kept it for the winter so I could perfect my recipes on a larger scale and getting everything ready and then I opened up in May.
JH: When did you realize that making cookies was going to be your life’s work?
KK: Well, I didn’t really have a plan. When I was twenty I wanted to be a veterinarian, but at least I was smart enough to know I wasn’t smart enough. So I thought maybe I could do something with these cookies, which is why I went to school for food for 2 years. Then I was 20. What does any 20 year-old want? I wanted a car, I wanted to rent an apartment and move out of my family house. Those were my goals then and I just started doing it. It was very hard. I used to drive to work sometimes at two in the morning and think about hitting a tree. Not to get really hurt, but I wanted to go to the hospital and rest because I was so tired. A lot of people say I have pride issues, I didn’t know how to say “I can’t do this, it’s too hard.” At that point, I said “Oh my god, I’ve sentenced myself to a life of hell”. As time went on, things got better and easier, but at the beginning of any business, it’s grueling.
JH: So, Kathleen’s Bake Shop is going great guns, but as you’ve mentioned, it was a lot of work. In 2000, you decide it might be best if there were other people to share that burden. You decide to bring in two partners. What was the thinking behind that?
KK: I look back and I think “What was I thinking?” I had run Kathleen’s Bake Shop for 20 years, from the ages of 20 to 40. In my youth, I really didn’t do a lot. My life was my business. I started to break out from that and realize that I liked living outside the bake shop also. So, I wanted to create more balance. I had a book-keeper who had been working for me for 5 hours, who at the time I liked very much and trusted. Truthfully, how I proceeded with the deal that I did, I really can’t answer that because now that I’m out of it, of course it was ridiculous, it was naïve, it was just foolish. I didn’t get any money.
I thought with one-third, one-third, one-third that everyone was equal. I didn’t even think about two people ganging up on you and then having two-thirds. I came from a family of good men and led an isolated life and it was just beyond my thinking. [laughter] Then the book-keeper pushed to get his brother come on board, I was never really into that, but how I went along with that part, I don’t know. It was like a bad marriage. You marry this guy who you think is fantastic and then the next day he’s a different person.
JH: That, fast?
KK: Yes, that fast.
JH: So, what did change? What were the early signs that you saw that suggested that maybe it wasn’t a great marriage?
KK: I felt the two of them were sneaky and operating behind my back. Then they moved the production facility to Virginia, which was ok because that was there they were going to expand from. But the quality of the products was beyond and I wouldn’t sell them. Then they would get angry and they told me that my pride issues were getting in the way of the products. I told them that “The day you take your customer for a fool, is the day that you’re gone”. They thought only I knew the difference and I was like “No, the customer knows the difference, they may not be able to explain it, but they know why they want to keep coming here as opposed to somewhere else”.
JH: So, that wasn’t the only think that was going wrong.
KK: No. They didn’t pay people. They weren’t paying the local vendors. I don’t know what their plan was. They were destroying the product, not paying people. They were attempting to grow the business so I think that it was their intention, but how they chose to get there was a very short road to failure.
JH: It sounds like a lot of focus on cutting costs, which from a book-keeper’s perspective doesn’t surprise me. I guess that’s where they thought their value was, but unfortunately maybe they didn’t seem realize that value was at the expense of the value you had already built in the company which was your reputation around quality.
KK: Right. I think their intention was really to get me out so they could have everything. All of it happened very quickly. The book-keeper and I got along well for over 5 years and all of a sudden we don’t get along at all. Truthfully, I think the 5 years was a con-job. Maybe, it didn’t start on the first day, but I think he presented himself as the type of person I would like, full of integrity and values, then overnight, it was weird.
JH: It ended up in a pretty big lawsuit, well actually a collection of lawsuits.
KK: A collection of lawsuits. It started when they came up from Virginia and I came into work one day and they were standing at the door like these two big bullies and they told me I was fired and they had the paperwork. When I went to my desk to get things from my desk they stood over me to intimate me and I had to go into this other room to get a box to put my stuff in. One of them had a wife and she was there. So, after I leave they call the police and say that I hit his wife or something and they went to get an order of protection. The police were like “She’s been in this town for 20 years and we’ve never heard a peep out of her and now she’s beating people up?”
So, my first lawsuit was just in local court because they had an order of protection against me. I believe this was all part of the plan, because now I wasn’t even allowed on my own property. Then they hired a security guard that sat in the driveway with a gun and all. They were setting up a picture that they wanted people to believe. They wanted people to think I was crazy.
JH: How did your relationship with them end?
KK: Basically, it was lawyers. The order of protection was lifted. Then there were more lawsuits about the business and the firing etc. All that conversation was between the lawyers as I wasn’t allowed to go on the property. Now, they were tenants in my building. I lost my name, they got to keep that, but I said “I want my building back.” They were interested in the wholesale business because truthfully that’s where you make the money. The retail business makes a little money and it’s a great branding tool, but that’s it. I wanted the store back (and they agreed) because I knew I could try to make it again.
They had taken a successful, profitable business and driven it to 600 thousand dollars in debt, in less than a year. Though I was not employed or part of it, I had to take a third of the debt because I was the third partner. So, I looked at the list and I picked all the local people that added up to 200 thousand and eventually I paid them all off.
JH: There was also a threat of you going to jail at some point with another lawsuit.
KK: Yes. While my life looked like it couldn’t get any worse, I knew that it had. Thankfully, that did not get into the papers. When I was still working at Kathleen’s Bake Shop, the brother called me and tried to black-mail me for half a million dollars or they would turn me into the IRS. I was like “Go ahead”, because I didn’t think I had anything to hide. But because one of the partners was the book-keeper, god knows what kind of manipulation he had done. I learnt then that you’re guilty until you’re proven innocent. Once they turned me into the IRS, an investigation started and based on what they had turned in my lawyers told me that I was facing 18-months in jail or house arrest. That was a little mind-blowing.
I made the deal with the partners. I got rid of them. I got into my bake shop. I had already owned it because I bought it when I was 23 and paid the mortgage off around the same time. I remortgaged that and got money to start the new company Tate’s. I was still fighting the IRS case as that went on for a year before they said the brothers weren’t viable witnesses. They just dropped it, but what happened to the 350 thousand dollars in legal fees that I had to pay. Nobody covers those when you’re wrongfully accused.
JH: Given what you went through, I think the majority of people would be as far away from a similar business as possible. Even before that whole situation had finished, you’re starting again. Why did you that?
KK: Truthfully, I didn’t have a lot of choice. I had a choice to be a victim and stay crushed or do that. I am a little bit of a one-hit wonder. I just spoke to my husband last night. He’s incredibly talented and smart in many arenas. I said “You know what, in one way I’m really lucky” because I could only really do one thing and I focused on doing it. I didn’t get side-tracked. I didn’t say “Oh, let me go cure cancer over here”. [laughter]
JH: Being with any business that you’ve spent a lot of time on and losing it is tough, it must be tougher when your name is actually on the business.
KK: You’re right, it was. When I started Tate’s, it was tremendously liberating without my name. I was always upset if we sold something that wasn’t great. I knew that if I sold a pie that wasn’t great, that dinner party is talking about Kathleen. It was much more personal.
JH: But you did choose your father’s name?
KK: Yes, I did, but it didn’t feel as personal in a weird way. I chose his name, which is a great name to start with, because it represented the product and my father was a local, well-loved farmer with tremendous integrity and I thought that was a perfect fit.
JH: Right. Especially given that even though the community rallied around you during your problems the first-time, that brand of your father with that integrity….
KK: Right. It still had that connection and those roots from where the business came from.
JH: You said you were a one-hit wonder, which I think does you an incredible disservice, because even though you decided to build another bake shop, you decide that it’s going to be very different this time. What did that mean at the time?
KK: Well, having my experience was a blessing. It was kind of like dying and then coming back and say “Where did I mess up and how can I fix that?” I was able to do that in my business because I was able to see where I had made mistakes and what I needed to do to move forward. I also had my Business Manager who helped me with that. My goal when I opened was to exit, because I had already wanted to exit. Also, with Kathleen’s Bake Shop I gave blood daily and I said “I’m not doing it this time, life is too short. It’s a business. I am passionate about it. I love it. I will maintain my integrity and care. But, I’m not going to kill myself for it.”
JH: I read an interview with you elsewhere that said you were desperate to keep emotion out of the business, but maintain the passion. Those are very similar concepts in many peoples’ minds. How did you manage that?
KK: Again, the blessing of going through the horrible experience of losing Kathleen’s, every emotion I had, had been shredded and messed with. Even from the horror of what was happening to the magic of the community and the support and overwhelming kindness, it was like a constant nerve-ending. So, by the time I opened Tate’s, I don’t know what was left, which was good. I can tell people to take the emotion out, but I can also understand how hard it is, because look what I had to go through to get to there.
JH: When you started Kathleen’s you were 20, you didn’t have the exit plan in your mind then. A lot of people in startups these days don’t focus on the exit, they think if they build something great then the exit will take care of itself. You had a very different approach. How do you think that manifested itself in the operations and the strategy of the business?
KK: Well I think it kept us focused. My Business Manager, later the CEO, was very good at creating different plans for me. I would look at the different plans and he’d say “Which one do you want to execute on this year?” and I would pick one. When you run everything with a plan to sell, it’s all about brand development, placement of product, increasing business every year, showing very profitable growth and a well-branded company. So, when you go to sell, it’s clear.
A lot of time people start their businesses and it’s messy, no-one’s keeping track or maybe the owner isn’t getting paid. Everything was set up with a plan to keep growing and developing the brand. If Target wanted me to make private-label cookies, if it didn’t serve the brand, because a private-label too early doesn’t serve the brand, because nobody knows it’s you and you’re not selling anything, you’re just making cookies. You’re selling cookies which is good if you just want the money, but it’s not good if you want to develop the brand. The exit kept us focused.
JH: And your goal was retirement at the age of 55, right?
KK: Yes.
JH: Were the people you were working with aware that this was your goal or did they just think you were trying to build an incredible business?
KK: Obviously I was getting older and everyone knew that I didn’t have any family to take it over, so everyone knew that someday there would be an exit, but nobody knew when. My CEO and I knew as that was where we were driving the business. I just decided that 55 was a good time to retire, because I would still be young enough to do all the things I love. Things that I had missed when I was in my 20s. I wasn’t going to give up my end years in the business.
JH: So you get to 55 and you put the business up for sale. What kind of deal were you looking for and did any of your prior experiences influence what you were looking for in a buyer or investor?
KK: First of all, all through Tate’s I never took on a partner. I never gave one percentage away of the business, because I just couldn’t do that again. I also knew that the business was also large enough now to seek out a banker, that sells companies, that are professionals that do that. We were getting a lot of private equity firms coming around that whole last year because they just know. They’re watching companies, they know what they’re doing. They want to get there first.
Several people I liked very much, but I told them to go to speak to the bankers. We went with TM Capital, they put our book, called the “Cook Book”, out world-wide. So, I know when I sold Tate’s I got the best deal I could have possibly gotten. I never wanted second thoughts like “Did I sell to early? Did I do the wrong thing?” I knew for sure we did the best that we possible could. It was my end game, I didn’t have the time to make a mistake.
It was about an eight-month process and there was a lot involved in selling the company. Having the banker really helped. They spoke to everybody. They knew how to negotiate. They did all of it, which was a beautiful thing. We had fifty companies bid. Then it got narrowed to twelve, then we met with and presented to those twelve. Then we narrowed it down in the end.
JH: Was there ever a moment when you had second thoughts?
KK: No. I was very clear what I wanted for my life. My Business Manager used to say “Why don’t you just take time off and we’ll run the business?” They were kind of running it anyway. The bottom line was that I still owned everything, which meant that when I went to sleep at night, the two hundred employees I had were my responsibility. The factory could burn down. A lawsuit could come out of nowhere. It wasn’t like I thought about it all the time and it weighed me down, but I really wanted to know what it was like to be free and not have those stresses.
JH: We’ve used the word sale a bunch, but you’re still a minority shareholder in Tate’s, what hopes do you have for the future of the business?
KK: Just that the integrity of the cookie stays true, which so far it has. It’s an exceptional cookie that brings tremendous joy to so many people that if that were to change then that would be upsetting.
JH: It’s an interesting that you say the word “cookie”. This is a really big business and to boil it back down to one cookie, I think says a lot about why you were successful.
KK: Yeah. If you ask anyone that’s in the business, that worked with me or now works with Riverside, everybody will say “It’s all about the cookie, it’s all about that chocolate chip cookie”. It’s crazy, but it is. [laughter]
JH: Now you have a blank page. What’s next?
KK: Well, I don’t know. My parents died about a year and a half ago, six weeks apart, so after I retired they were sick and then they died, so that was a whole process there. This year is when I am getting the real feeling of retiring and next year I’ll start to feel it more.
I like being involved in different things, but I don’t like being committed to anything. I’ve had a life of commitment. I also don’t want to be busy. Americans wear busy as a badge of honor, but when you can get out from under it, you realize it’s really not a badge of honor, because it’s a terrible way to go rushing through your life, crashing and burning. When I see a friend in town and we have time to chat, you take time to chat. You take time to visit an old friend or do things like that. Those things are more valuable to me now.
JH: It’s interesting. It’s almost kind of like going back to the simple farm life in a way, coming full circle.
KK: It’s kind of funny now you say that. I didn’t really put it that way, but yeah, I was happy then. I still make home-made gifts. [laughter] I leave cookies in my friends’ mailbox. I like that life.
JH: Well Kathleen, it’s an incredible story. I’m sure you’re going to have a wonderful retirement. Good luck with building the new house. I might have to find an excuse for another interview based on what I’m seeing in the pictures. [laughter]
KK: I’ll invite you out, bring your family, they’ll have fun.
JH: I’m sure they will, we might not be able to find them. [laughter] I really appreciate your time today. It’s an incredible story and I’m really glad that it was such a happy ending.
KK: Thank you, thank you.
