I’ve been tasked with writing an update on East Fork’s performance over the last 90 days—a Q3 report. When I’m in the right headspace, financial reporting can put me in the mood of a subtle ecosystem ecologist, tracking the flow of energy (money) into and out of one small community of living organisms (East Fork) within the vast and complex surrounding topography (our economy). So in that spirit, I’ll try to keep this financial report fun and narrative-based and not too graphy.
The third quarter of 2019 was a bit of a turning point for us: since moving into our new facility in Nov 2018, we have been operating below our break-even point, but in August of 2019, we finally ran an operating profit for the period. To unpack that a bit: all the increased expenses we incurred by moving into our larger production space and opening a store in Atlanta (more rent, more payroll, more insurance and tax, $$$) dramatically changed the amount of pottery we need to make and sell in a given period to pay for it all. To cover all our expenses nowadays, we need to make and sell around 16,500 pots a month. For context, I used to feel pretty pleased with myself for making 400 pots over the course of 3 months back in the woodkiln days.
If you’re anything like me you read that and you’re like, “16,500 pots? Just to break even?? Where does all that money go???” And I’m like, “Yeah, tell me about it”. But a large swath of our expenses are pretty straightforward—the majority of that money goes to the people who work here, through payroll. This year we will spend around $2.7M on payroll, and next year we will spend just over $4M. Currently at East Fork, our average gross base compensation is around $45k annually. (That base compensation, along with the cost of health insurance, IRA matches, and payroll tax + annual raises will cost East Fork about $56k annually. That figure multiplied times the 70-75 projected employees for 2020 gets you the $4M payroll budget, if you’re doing the math along with me at home) The Bureau Labor Statistics reported a median personal income for a full-time worker in the US in 2017 at $44,980 annually. So we’re a pretty good microcosm of the middle of the US Economy more broadly (no flashy silicon valley salaries, a $15 minimum wage company-wide).
This points to one of the animating reasons behind our growth: to be able to use the value we create with our pottery to prioritize solid middle-class jobs here in WNC. Jobs that let people who work here reap the well-documented benefits from that safety and security. Our payroll is one very concrete tool that we can use to bring our values to the wider economic system in which we operate. It’s a way for us to bring about different outcomes. And we’ve still got plenty of room to improve, but looking at a $4M payroll budget for 2020 does feel like we’re making strong progress towards that goal. But circling back to the 3rd quarter: we knew that we would have to grow into our new production space gradually, and that we would be operating at a loss until we grew to the right size. Given everything we knew at the beginning of 2018, we projected that it would take until September 2019 for us to reach that breakeven point. So, it was with both the nerdy Type-A pleasure of a complex reality living up to a well-laid plan, and the more real pride of dramatic group accomplishment, that we greeted our first breakeven month in August, slightly ahead of schedule. From January 2019 to August, our monthly production capacity grew by nearly 7,000 pots, almost doubling. In the month of August 2019, we sold almost twice as much pottery as we did in the entire year of 2016. It really feels like quite a milestone.
And this points to another value behind our growth—to pursue growth thoughtfully and responsibly, not for its own sake, but rather in service to our mission, vision, and values. We approach growth like a team of mountain climbers—planning a route that takes us up steep faces when need be, followed by plateaus of sustainable rest. While considering our growth plan, we ask ourselves these 6 questions:
- What is unsatisfactory about our current level of operation? Where are we falling short in relation to our vision, mission, and values?
- Would growth remedy the problem?
- To what scale do we need to grow to remedy the problem?
- Is that scale sustainable and profitable? What new problems would this growth introduce?
- What resources (time, money, human capital, raw materials) do we need to grow to that scale?
- Can we access and implement those resources sustainably?
Our annual planning for 2020 will be in full swing for the next 90 days, and we are asking ourselves these questions in earnest. We want to continue to staff up to sustainably support our operations. We want to increase the compensation we are able to offer. We want to be able to offer subsidized childcare. We want more space for warehousing and order fulfillment. We want to be able to dedicate more resources to training and employee support. All that translates to a higher breakeven. So over the next 3 months, we will plan another ascent, look for some resting spot higher up the mountain, tie one long rope around all our waists like in the movies and head out.
Like I said, financial reporting sometimes feels like ecosystem ecology to me. And I wanted this note to give a bit of insight into one of the most important aspects of our small East Fork ecosystem: the people who work here. But I also hope that you are able to see what role that you, the customer, occupy. Extending the metaphor: maybe you are the sun, falling on all our upturned leaves and driving all our photosynthesis. Or perhaps you are some rare moth that comes out only at night, pollinating our flowers so we can bear fruit. Or maybe you are the fruit tree, under which we eat and work.