Ovenly, with two locations in New York City, has become a destination bakery for foodies and a wholesaler to some of the best grocery stores in the city, like Dean & DeLuca and Whole Foods. It had $1.98 million in 2014 revenue, mostly through its wholesale division. CEO Erin Patinkin asks Marcus Lemonis, star of CNBC's The Profit, about profitable expansion. 

"I want to open two stores a year. How do I do it?"

Marcus Lemonis: Aspirations?

Erin Patinkin: I want to be a nationally recognized brand in two years, and in five years I want to be the most-recognized bakery brand in America. How do we best optimize a real estate strategy that will speak to the brand while minimizing our risk?

ML: Locations?

EP: Two years from now, we want 12 locations. And one year from now, we should have four. We're planning on one every six months. Our first goal is to dominate the New York City market. But one of the things we're facing right now is that all of the clients we would want to have in the high-end coffee shop and gourmet grocery store category we pretty much have. We did our first sales push starting at the end of October of last year--we hired salespeople, we brought in a CFO, and we grew 100 percent. Now we're seeing that there are a couple of limitations.

ML: The bakery business is treacherous. Like, lethal. The cost of the product goes up and down so fast. The cost of logistics, even of distributing to your- self, in the New York market is another wild card. If gas goes up $1.50, your model just broke. Going outside of your core market is dangerous.

EP: We've done extensive research into daily delivery in the geographic areas
right outside of New York. Completely cost prohibitive. If we want to expand to other cities, we have to replicate the entire model--wholesale and retail. There are massive financial limitations on the wholesale side in that sense.

ML: You need a commissary model--which you don't have today. You're not going to find that. Instead, if I were going to grow your business with you, I would want to develop a store- in-a-store model, where I'm relying on somebody else's fixed cost structure and I'm not the tenant, I'm the subtenant. You can't sell enough cupcakes and brownies and cookies to pay a $27,000 rent. On a parallel path, go online. I think you should look at selling do-it-yourself kits. The gift business is hot. I think that opening up more retail locations is a death wish.

Was Marcus Right?

Since meeting with Lemonis in July, Patinkin opened up a kiosk in the UrbanSpace Vanderbilt in Manhattan, a food hall that rents to small-scale vendors. It was a move that she had already been planning when she met with Lemonis, and his suggesting a store-in-a-store model confirmed her decision. Within a week, she says, sales at the UrbanSpace matched those at the company's Brooklyn location.

Up Next for Ovenly

"We're really starting to think about how to expand our e-commerce sales," Patinkin says. She hints that Ovenly might begin to sell bakery "related" offerings, like raw ingredients. But she didn't take all of Lemonis's advice, rejecting his suggestion to go the route of gift giving. "That's not really of interest. We're not a kit or gift-basket company."

From the November 2015 issue of Inc. magazine