Pat Lazure·January 2, 2024

Why Buy a Food Product Business | Pat Lazure Interview

Pat Lazure, a 47-year-old former corporate M&A/integration professional based in Omaha, Nebraska, spent about two years full-time searching for a small business to buy while simultaneously starting his own subscription business, Rock Paper Shears, which rents sharpened hair-styling shears to barbers and stylists. His real prize was Flavor Crisp, a Nebraska-based seasoning and breading/batter mix maker for fried restaurant food, which he pursued for two years before its retired-CFO owner, Brad, was ready to sell; a bizarre bidding episode involving the seller's own accountant trying to counter-offer $800,000 ended with Brad selling to Pat and his wife Cara for the original $700,000 valuation, financed with an SBA loan. The business is strikingly asset-light: it uses co-packers to manufacture and warehouse product (never owning inventory or equipment) and runs with just one employee, Pat himself, while enjoying extremely sticky ~25-year average customer relationships and roughly 1-2% annual churn because the flavor itself is what many restaurants are known for. The story includes real risk and hardship -- wheat price spikes from the Ukraine war compressed margins, COVID hurt restaurant demand, and distributors have tried to replace Flavor Crisp with their own house-brand breading -- but Pat's deliberately patient, non-disruptive first year and conservative cash management reflect lessons from watching overconfident acquirers destroy value in his prior integration career. Four and a half years in, revenue has grown modestly from about $700k to about $1 million, and Pat is now positioning to invest in growth (hiring, marketing) for both Flavor Crisp and Rock Paper Shears.

Deal facts

purchase price: $700,000
multiple: approx. 3.3x SDE
sde ebitda: SDE approx. $200k-$225k (most recent year approx. $210,000) at time of purchase
revenue: approx. $700,000 at acquisition; approx. $1 million annual revenue as of the interview
financing structure: SBA loan (10-year term, renegotiated down to 4.79% interest); self-described as 'spouse-funded' rather than self-funded during the search
notes: Seller's own accountant appraised the business at $700k, then separately offered Brad $800k to buy it himself; Brad ultimately sold to Pat and his wife Cara for the original $700k after a voicemail saying they were the best owners/stewards. Gross margins were low 30s% at acquisition, dropped to upper 20s% due to Ukraine war wheat price spikes, since being repaired as wheat prices retreat. Two-year courtship with the seller before he was ready to sell.

Why this business

Pat had a full-time investment thesis: he wanted recurring revenue, high customer switching costs, low customer concentration, a possible platform for future growth, revenue between $2-10 million, and per his own added criterion, 'the more obscure, the more allure' -- an appreciation for weird, boring niche businesses. Flavor Crisp (a breading/batter seasoning maker for fried food) checked those boxes: 25-year average customer tenure, ~1-2% annual churn, an asset-light co-packer model with no owned manufacturing or inventory risk, and a product that is a tiny fraction of a restaurant's cost of goods (about 10 cents of a $10 chicken plate) yet is disproportionately important to the restaurant's identity and flavor -- making customers very sticky and price-insensitive. It was also the first business he looked at in his two-year search and remained his favorite even after evaluating many others.

What's working

Asset-light co-packer model: the company owns no manufacturing equipment, real estate, or inventory (co-packers in Nebraska and Illinois own the finished goods until shipped); the business essentially runs with one employee (Pat himself)
Extremely sticky, long-tenured customers (average ~25 years) because the specific flavor/recipe is what restaurants are known for, so churn is only about 1-2% per year
Low relative cost but high importance to the end customer (roughly 10 cents of a $10 chicken plate), which insulates the product from being targeted for cost-cutting or renegotiation
Redundancy with multiple co-packers (four available, two active) protects against single-source supply chain risk
Deliberately slow/patient first year (did not try to change anything) to avoid the value-destruction he'd seen from overconfident acquirers in his prior M&A integration career
Cash generated by the business is kept inside the business (not moved to personal accounts) to be redeployed for SBA repayment or future acquisitions, a deliberate risk-management/psychological choice
Parallel small subscription business, Rock Paper Shears (sharpens and rents out hair-shears to stylists/barbers), which built organic word-of-mouth marketing among stylists who talk to each other all day

What's hard

Heavy exposure to commodity input costs: wheat is the main ingredient in the breading, and the Russia-Ukraine war (Russia and Ukraine produce about a third of world wheat) nearly doubled wheat prices and compressed margins from low-30s% to upper-20s%
COVID reduced restaurant demand and caused some customers to permanently close
Distributors (the direct customers, e.g. Sysco, US Foods) hold significant power: some have developed their own house-brand breading via co-packers and have tried to replace Flavor Crisp with higher-margin alternatives, and they generally do little to create new pull-through demand or introduce the product to new prospective customers
Growth has been slow/patient by design -- revenue grew only from about $700k to about $1 million over roughly 4.5 years -- and Pat has been slow to raise prices to customers despite rising costs
Carrying an SBA loan with a personal guarantee is a constant psychological weight ('white knuckle driving' in the early days); Pat says he thinks about the loan every day
For Rock Paper Shears, the main source of churn is subscribers who fail to update expired credit cards while still holding the company's physical shears, effectively creating an asset-recovery problem unlike pure digital subscription churn
The business is customer-concentration blind in a sense: Flavor Crisp doesn't always know which end restaurants use its product because distributors are the direct customer, making it hard to pursue and identify growth opportunities

Notable quotes

In hindsight I feel like buying a business, entrepreneurship through acquisition, is the entrepreneur's best kept secret.

It's absolutely not the case, starting a business and even buying a business is not for most people, because it's risky.

The more obscure, the more allure.

It took me way too long in my career to realize that recurring revenue is the Holy Grail of business.