An economic shutdown just after you lose your anchor client: It’s hard to rebound from that, especially if your product isn’t exactly known for its bounce.
Clyde McClellan, though, had seen the economy hit the floor before, and his American Mug & Stein Co. hadn’t shattered then. A survivor from a once-thriving center of the domestic ceramics industry, the company kept the kilns firing after the Great Recession, thanks in large measure to a contract with the biggest name in hot beverages. “Every bit of new business we’d gotten over the past eight or nine years was because of the relationship with Starbucks,” said McClellan.
As 2020 approached, Starbucks opted not to continue buying McClellan’s mugs. He wasn’t sore about it. He could still count on an assortment of gift shops and coffee houses.
Then COVID-19 shut down all of those clients. “My business at that point was almost nothing,” said McClellan.
After the Great Recession, the formula for recovery had been a grand contract with Starbucks and a splash of financing from The Progress Fund. The COVID-19 crisis called for a more robust brew.
“Businesses with solid fundamentals, smart ownership and a source of short-term cash — like The Progress Fund — were best positioned to survive the crisis and eventually recover,” said David Kahley, president and CEO of The Progress Fund.
Should we add “a little luck” to that formula? Or do survivors make their own luck? Read on, and then decide for yourself.
How to get from ‘don’t send anything’ to a new firing range
East Liverpool, Ohio, once dominated the American ceramics market, with more than 200 pottery factories. By the end of the Great Recession, only shards of the industry remained.
Starbucks, seeking to deepen ties to domestic manufacturers, reached out to American Mug & Stein. The Progress Fund refinanced the company’s debt to enable it to handle the coffee giant’s orders. McClellan’s four-decade-old kiln stayed hot — until 2020.
Starbucks moved on. “Then we started seeing, like, our Smithsonian customer say, ‘Don’t send any more orders. … We’re going to have to shut down, or there’s rumors that we’ll have to shut down.'” McClellan recounted. “We had some presidential libraries saying, ‘Don’t send anything.’
“I came in every day and tried to get orders out, just to keep a little bit of money coming in.”
The Progress Fund, meanwhile, had responded to the pandemic by rapidly transforming from a vigorous community development financial institution into a full-service hub for small-business resources. A call from The Progress Fund alerted McClellan to the availability of Paycheck Protection Program [PPP] loans, and staff there helped him to apply.
“We got our first PPP money I believe in May,” said McClellan. “It basically saved 10 jobs and has allowed us to stay on top of paying our bills even at a dramatically reduced revenue.”
You’ve read stories about employees coming back to work but having nothing to do. At American Mug & Stein, that would not be the case. Those employees would soon prove crucial.
Consumers started buying online — a market McClellan had never mastered. But a merchant with experience on Amazon, and affection for domestic products, took a shine to American Mug & Stein’s wares. He liked the products so much, he urged McClellan to launch a new line of French butter crocks, and even arranged to craft a prototype using a 3-D printer in Idaho.
The Amazon-based business picked up quickly. If McClellan had retained the Starbucks contract, he would have been hard-pressed to handle the volume.
Then along came another new client, who asked American Mug & Stein to finish ceramics made elsewhere, for sale to hotel chains. The client even agreed to a payment schedule that allowed McClellan to upgrade his kiln.
“It increased my firing range by 300 degrees,” said McClellan. “It allows us the opportunity to go after products that we couldn’t make before, because we couldn’t fire hot enough.”
McClellan has been known to say that his product line “hadn’t changed in 100 years.” Now, though, he’s coming through the pandemic with a more diverse mix of offerings.
“In the middle of a shitstorm,” he said, “all of the sudden the sun started to shine.”
Festivals? No. Instagram? Sure.
The Progress Fund, a nonprofit community development financial institution, has been financing small businesses since 1997, but its mission has always been both simpler and deeper.
“Goal number one is to build industries and help people,” said Kahley. “We didn’t set ourselves up just to lend people money. We’re going to continue to innovate, change, adapt and augment to reach goal number one.”
When the pandemic threatened industries that had been painstakingly nurtured over decades, The Progress Fund did some things that are decidedly uncommon for lenders: It first deferred, then cancelled, several months of payments for most of its portfolio. The Progress Fund also refocused on connecting businesses to the aid flowing out of Washington and Harrisburg, even though there was little to nothing in those programs to cover its operating costs.
Kahley’s message to his borrowers: “We’re not going to take any money until we know you can prosper, we know you can survive.”
That pause in payments, along with the PPP program, kept Red Pump Spirits from tanking when its main distribution channel dried up. The Washington, PA distillery, which bought its equipment with a loan from The Progress Fund, built its brand around Washington County’s role as a battleground in the USA’s first major crisis, The Whiskey Rebellion.
Products like Rebellion Rye Whiskey and Washington Cherry Liqueur are big sellers at fundraisers, farmer’s markets and festivals, especially those with a hint of a frontier vibe. “We do a lot of outside events,” said Red Pump co-owner Ed Belfoure.
Cue the latest crisis, COVID-19. “Everything started being cancelled, and it was pretty obvious that it wasn’t coming back soon.”
Red Pump’s other major distribution channels — sales to restaurants and bars, and in-store cocktail sales — stopped cold with Pennsylvania’s closure of on-premises alcohol consumption. For around six weeks, Red Pump switched its vodka production line to hand sanitizer, though it ended up giving away the vast bulk of that suddenly precious concoction.
A chemist by trade, Belfoure turned to the soft sciences of customer service and social media.
As cabin fever struck the nation, Red Pump implemented free delivery for orders of two bottles or more. From a web shop that had “just kind of staggering along,” he shifted hard to web-based sales and even pushed the message via Instagram.
The year 2021, Belfoure said, “kicks off with online being a big part of the business.”
Economic reopening, meanwhile, appears likely to add kick to Red Pump’s off-the-top-shelf sales. Pennsylvania’s wine and spirits stores have approved its products for sale, and a new boutique in Pittsburgh’s Shadyside neighborhood will feature Red Pump.
Is that luck? Not according to a chemist with two fingers on the public’s pulse.
“We have a pretty loyal customer base,” said Belfoure. “Despite all the pressures and the stuff we had to deal with, we’re pretty optimistic.”
This is part of a series sponsored by The Progress Fund. Read all stories here.