State Fair Mini Donut owner finally is living off the fat of the land

Many eons ago, when I had a lot more hair and it was a much darker color, I drew the assignment for several years to write daily features at the Minnesota State Fair, a chore that required miles of tramping from the barns to the midway to the exhibit halls.

Despite all the exercise, I generally wound up gaining about 10 pounds every year, the product of a congenital inability to resist a warm, deep-fried treat called the mini-doughnut.

Dan Sher clearly had folks like me in mind when he registered the brand name State Fair Mini Donuts in 1986. Whereupon he spent nearly 20 years in an expensive, largely futile series of strategies for capitalizing on what he was convinced was "a great name with a world of potential."

He finally has found a workable strategy, but it has been a painful struggle.

Sher started by selling to area grocers out of a small bakery he bought, but it was a low-margin operation that left him with little capital to finance growth. So he took to cooking his mini-morsels at area supermarkets, an initially successful ploy that finally collided with state regulators who frowned on unvented deep-fat fryers operating indoors in a public place.

That was followed by a concession trailer parked at a tourist stop.

At the stop, along Lake Mille Lacs, he wound up opening a miniature golf center, then a go-cart track and finally a small restaurant in a hapless three-year effort to boost traffic for his doughnuts.

"I was working 16 to 18 hours a day, six days a week for about $12,000 a season," said Sher, 48. "It was the most stressful time of my life -- at least to that point."

Sher finally opted for appearances at carnivals, parades and other outdoor events, keeping less-fattening food on his table by working as a bookkeeper at a small group of photography studios owned by the woman who was to become his ex-wife.

Can you say "obsession?"

Good news for a change

The good news is that Sher finally stumbled on a business model that works, and is reveling in a revenue stream that approached $500,000 last year.

Seeking a way to produce his mini-doughnuts in a grocery store or office building without the deep-fat fryer, he wound up four years ago with a commercial conveyor oven that duplicates the warm, irresistible State Fair taste in doughnuts that have been fried elsewhere and then flash-frozen.

Trouble was, he wasn't thinking big enough. His initial strategy was simply to take his oven to various retail sites and produce the mini-doughnuts himself.

That ended when Sher tried to persuade Muller Family Theatres to let him set up some ovens in its chain of Twin Cities movie houses. The company was interested in the product, but insisted that its personnel operate the ovens.

Voilà! Sher had found his business model.

In August 2004, an oven was set up at Muller's large Lakeville location, and the results surprised Muller director of operations Dale Haider, who had ordered less inventory than Sher had advised.

"We started making them on Friday night and ran out by Saturday night," Haider said, which required a rush order for the Sunday run. The upshot: Before you could smack your lips twice, the ovens were operating in seven of Muller's eight theaters.

Since then Sher has placed machines, which are manufactured by an Ohio company, in 250 locations in 18 states and three Canadian provinces, with sales growing from $230,000 in 2005 to $380,000 in 2006 to $475,000 last year. They can be found not only in movie theaters, but also at swimming pools, skating rinks and other community recreation centers, not to mention the Metrodome, Target Center, Mariucci Arena and a couple of Home Depots.

Realizing the dream

The success has bought Sher a five-bedroom, 4,000-square-foot Minnetonka home that serves as his headquarters.

At first Sher relied on a small suburban bakery to supply the frozen mini-doughnuts, which he and a friend delivered themselves. But the demand quickly outgrew both the bakery's capacity and his own ability to deliver.

So he cut a deal in late 2005 to have SuperMom's Bakery handle production of the mini-doughnuts, which are delivered by six distributors in Minnesota, 12 in other states and two in Canada. That leaves Sher to supply the ovens, provide the point-of-purchase promotional materials and otherwise beat the drum for his tasty treats.

Now he's a contented man: "There've been many years of hard, lean times," he said. "But now it's happening; the dream is finally coming true."

Dick Youngblood • 612-673-4439 • yblood@startribune.com