In 2010, Agatha Kulaga and Erin Patinkin founded Ovenly, which they originally envisioned as a bar-snack business, providing bars with better alternatives to beer nuts and potato chips. Over the course of ten years, Ovenly transformed into a combination wholesale/retail bakery, with four retail locations and a healthy wholesale business selling to coffee bars and upscale grocers. By March of 2020 it had grown into a business with more than fifty employees and a new, about-to-open location at Kennedy Airport.
Then, when the pandemic struck, it had to close up shop both as a baked goods retailer and as a wholesaler. And in what Agatha called the most heartbreaking decision she has had to make as a pro-socially-minded businesswoman (many of their employees were people who have faced high hurdles entering the workforce), Agatha and Erin had to lay off just about their entire staff. On this episode of Special Sauce, we get to hear the Ovenly story in Agatha's own words.
Once you hear Agatha tell her story I'm sure you'll want to do something about the situation she and the hundreds of thousands of small food-business owners—and their millions of employees—find themselves in. I urge you to visit the Independent Restaurant Coalition's website to find out what you can do.
Production note: With everyone hunkered down in place we are no longer able to record Special Sauce in a fully equipped studio with an experienced and skilled engineer. So if the sound quality of this episode isn't up to snuff, know that we are working on all aspects of the production within the context of the new reality we're all living in. Better things and better sound lie ahead.
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Ed Levine: In 2010, Agatha Kulaga and Erin Patinkin founded Ovenly, originally a maker of bar snacks that, over the last 10 years, has morphed into a combination wholesale retail bakery with four retail locations and a healthy wholesale business selling to coffee bars and grocers. By March of 2020, it had grown into a business with more than 50 employees and an about-to-open location at Kennedy Airport. Then, when the pandemic struck, it had to close up shop both as a baked goods retailer and a wholesaler. And in what Agatha calls the most heartbreaking decision she has had to make as a pro-socially minded business woman--many of their employees were people who have faced high hurdles entering the workforce--Agatha and Erin had to lay off just about their entire staff. On this episode of Special Sauce, we get to hear the Ovenly story in Agatha's own words.
EL: Nice to talk to you, and congratulations on all that you've achieved in your business. Although, like all this-
Agatha Kulaga: Thanks. Yeah. Thank you.
EL: Like all this-
AK: It's a weird time, but I appreciate it.
EL: Yeah, it is a weird time. So, please identify yourself.
AK: My name is Agatha Kulaga, and I'm the cofounder and CEO of Ovenly. We're a bakery business based in New York City.
EL: Tell us about when the business formed, why you did it, what you were doing before, how it was financed, and all that stuff.
AK: That's a lot of questions at once.
EL: Yes, I know. You can take your time.
AK: So my business partner, Erin, and I started Ovenly in 2010. That's when we actually formed our LLC, but we had met the year before and were formulating different ideas for what our business would look like. Then, in 2010, we launched Ovenly, which we actually ... it started as a bar snack business. We would make elevated bar snacks for bars, obviously, that would be packaged to sort of take the place of just regular old peanuts or potato chips that you would normally see in bars. We really envisioned it to be a CPG company down the road, and so we were making bar snacks and a few of my favorites were our old salties, which were bacon fat roasted old bay peanuts. One of our first customers was Brooklyn Brewery. We started doing orders for them, but we were also baking and doing menu consulting on the side. I had always loved baking and one of my friends, Heather Millstone, was opening up a bar in Greenpoint and she essentially said, "I'll sell your bar snacks, but I'm going to be open during the day. Will you make my pastries for the cafe in the morning?" When you're starting a business, you're scrappy, and you don't say no to anything,
EL: But it seems that you were not an experienced or trained baker, right? I read somewhere that you were a psychiatry researcher going into this.
AK: Correct. So, my previous career, I worked at NYU School of Medicine for almost a decade and was just baking from home and that's ... Erin also did not have any formal culinary training and we both met and had a passion for cooking and eating as well, and that's really what got us to starting Ovenly.
EL: Got it. So, was it bootstrap? Did you take any outside financing, or …?
AK: We used our savings to start the business and then we had a very small angel investment when we first started doing the wholesale bakery piece of it. Then, two years into that, we did a small round of investment where we raised some money. Since then, we also did an interim round where we raised additional funds, mostly from private individuals and investors and friends and family.
EL: Right, right, sort of like Serious Eats. That's the story of Serious Eats.
AK: It is, yeah. That's the story of many small businesses.
EL: It's true. So, but there was also a ... you had a pro-social mission as well, right?
AK: Yeah. So, Erin and I obviously came from different careers that were not in the culinary world. She had worked in nonprofit arts education and I worked in nonprofits and obviously at NYU School of Medicine. A lot of our work was around helping others and we felt that we were very dedicated to the idea of entrepreneurship, but at the same time, we very quickly realized that, in addition to baking amazing treats, we wanted to use business in a positive way. So, when we opened up our first bake shop, we had our kitchen there and that was really the first time that we had a face to the company. One of our customers at the time was a social worker who was working at Getting Out and Staying Out and he approached us about hiring the young man from his program who had been previously incarcerated and they would get job training and eventually get placed into positions at Ovenly. So, when he approached us about it, we said yes.
AK: That was really the first time that we started thinking about our hiring practices and thinking more intentionally about what we were doing as a business to make a positive social impact. So then from there we started partnering with other nonprofit organizations around job training and placement with the individuals that were coming from their programs. So they would get referred to us and we would do on-the-job training. Generally, they often started as interns, and then they would be hired into a position, and it really worked for us. It was rewarding for us to be able to do and provide jobs to people from marginalized communities, and it was also a great way to hire without having to scramble and go to Craigslist. It made sense as a business to do that because, again, we had access to individuals who were looking for work. When we hired those people, they were invested, obviously, in developing their skills and their jobs and they were in need of jobs, so we have people that, up until obviously the pandemic, have been working with us for several years that have come from those programs.
EL: So the business is a little over 10 years old and how'd it been going before the pandemic?
AK: We had gained so much momentum and we were doing incredibly well right before this happened. We're a small business and we show slow and steady growth. We're not a tech company, we're a bakery business, and so it's taken several years to obviously get to a position where we were finally doing well and we've been profitable, but we had our best holiday season yet. In February, which ... usually for many food businesses, January and February are our slowest months and it can be a wash, we had the strongest February we've ever had. Then, obviously, March was when things started to really happen in a fast paced way related to the pandemic, and we ended up shutting down our operations temporarily on March 16th.
EL: Tell me the arc of the effect of the pandemic on your business, in terms of chronology, what steps you had to take, when you knew that the shit was really hitting the fan.
AK: Yeah. So we have four retail locations and a bake shop in JFK Terminal Five. Today was supposed to be our grand opening, so that would have been our fifth location. In addition to that, we also have a very busy wholesale business, so we deliver pastries to cafes, coffee shops, gourmet grocers all over the city, and so that's a big part of our business as well. I would say the week prior to March 16th was when we realized that there was obviously going to be a public health crisis that was starting to happen and our business was not really affected. The week before, we started monitoring our sales every hour of every day to see how our retail locations were being affected, but also we were looking at our wholesale partners. What we started noticing the week before March 16th was that many of the cafes and coffee shops that we were wholesaling to were either reducing their orders very drastically. At that point, I put a spending freeze across the company on anything, because I knew that things were going to start drastically changing very quickly.
AK: That weekend prior to March 16th, I went into our bake shop and removed all of our tables from the cafe and then went back into the cafe an hour later and my staff had actually taken the stools in the back so that there was no seating capacity. That was the first moment that I realized that my staff did not feel comfortable with customers in the cafe. So, that was really the determining point for me of, my staff does not feel safe, and the priority right now is the safety of my staff and our customers. On Monday, I went into our office and met with our management and essentially talked through what that week would look like. I told them that my instinct was to shut down all our operations at the end of that day, but I wanted to get their input if they felt otherwise. Ultimately, by the end of that meeting, we decided that the safest decision and the decision that would make the most sense for our business, in terms of preserving our cash as well, was to just shut down so that we can keep people safe and be able to actually have the money to reopen when we were ready.
EL: So then you basically had to furlough all of your employees so they could qualify for unemployment?
AK: So we had 67 employees, that included me, and on that day I had to make the decision to lay off our entire team. That was obviously to be able to allow them to apply for unemployment ASAP because I knew that the unemployment office would be swamped, starting immediately, and so I wanted to be able to get them to a place where they could obviously apply for unemployment benefits as soon as possible. It was the most heartbreaking decision that I have had to make in the history of this company. It was also especially heartbreaking to have to make that decision and not be able to communicate that in person because obviously we are across several different locations. So I met with my management team and we had a conversation about the messaging to our staff, but our managers had to obviously communicate that to teams in person, and then if people were not working that day, they had to call them and we also sent out an email, but the message was, "We're making this decision. This is a decision around safety and keeping this business alive and ready to reopen as soon as we are able to, and this is temporary," but to have to do that many layoffs at one time, obviously I've never had to do that.
EL: Yeah, I'm sure it was brutal. So you're closed down. Have your landlords been understanding or you're still having to pay the rent every month?
AK: What was ... that week, I basically scrambled to contact all of our vendors and every single company that we work with and that we obviously pay invoices to, including our landlords as well, to let them know that we were shutting down operations and we were temporarily suspending our payments across the board. The impact and the severity of doing that felt very real in the sense that you see the domino effect that this is going to have on the economy. That was also just so devastating to actually sit ... to have that insight into what was actually going to be happening. So we had conversations with our landlords and they've not been easy ones. Some landlords have offered us reduced ones. Others have been understanding and have ... and negotiate deals with them where obviously we cannot pay rent right now, so what does it look like to resume rent payments once we reopen, but those payments have to be abated and amortized over the next 12 to 24 months because obviously if that rent burden is owed once we reopen, it will be impossible for us to survive as a business.
EL: So what are your thoughts on the various programs the government has enacted, like PPP? Is it enough? And what do you need from the government?
AK: It is absolutely not enough, and I can talk about this for hours.
EL: That's okay.
AK: So obviously the government did mobilize, and through the CARES act, they did provide funding that was made available to small businesses. However, related to PPP and the CARES act, the obvious challenge and the things that don't work about it are that the CARES act was meant to save small businesses. It was meant to provide funding while businesses are obviously being affected by this public health crisis. What ended up happening is that the government mobilized to get this act together, but by the time ... and it was intended also to obviously reduce increases in unemployment, but by the time that the funding came through, most businesses had already shut down or reduced their operations, so by the time the funding came through, most businesses were closed and the stringent regulations that PPP has does not make sense for small businesses in any way.
AK: So, the economics of it does not work when you're offering to forgive a loan based on paying people, so either having them return on payroll or continuing to pay them, but if most businesses are closed, people have already been laid off and using 75% of those funds on payroll for eight consecutive weeks when you're closed and having to match the headcount that you did as of February 15th does not make any sense when you are closed. So the only businesses that the PPP supports, where it actually makes sense, where the loan will be forgiven, are businesses that are currently operating and or have people working from home, which, for the food industry, does not make any sense.
EL: Got it.
AK: So, with this funding, there is ... first of all, many small businesses receive no funding and it was publicly traded companies, massive businesses, that ended up benefiting from getting these funds. What is it, like 87% of small businesses did not receive anything?
AK: That percentage may be off, but a very small amount of small businesses that actually needed it got it. So, there was a solution of, well, you can pay people to stay home and get it forgiven that way, but when we are actually going to need the money is when we reopen because that is when our sales are going to be down by 70%, and we are going to have to ramp up very slowly and that's when the funds are actually needed. People are on unemployment now and the unemployment benefits are oftentimes now higher than what people were making before if they were making less than $20 an hour, so there's no incentive to even go off on unemployment to stay at home. So, the funds at this point would not be forgiven, and in two years, Ovenly would have to pay back $410,000 with a 1% interest rate.
EL: Right, so that's crazy. So now I guess the real problem is that, in order for the loans to be forgiven, you had to pay them back. You have to keep people employed. There was no-
AK: Or rehire them.
EL: Or rehire them, and there was no sense in doing that if you're still closed. It's going to take you a lot longer to build your business back up than the time they prescribed.
EL: Then, finally, the people may not ... there's no incentive for them to want to come back if they're making more money on unemployment.
AK: Correct. None of the math makes sense. This is the current situation that most small food businesses are facing, because even if businesses are currently operating at 80% capacity with delivery and takeout, which we do not do, those businesses, those funds still don't work for them because they cannot meet the headcount that they did prior to all of this happening. So, even if they are using that money to maintain the operations that they currently have, that money will still not be forgiven. So most people that have applied basically are saying, "I cannot use this money because it will not be forgiven."
AK: Then with the EIDL, under the CARES act, it's a great program in terms of a low interest rate and a long, long maturity on the loan. However, that loan is personally guaranteed. So you're a business owner and you're facing the economic hardship and you have to personally guarantee a loan, “what does that look like for you as a business owner and as an individual? And what is the risk that you are taking to personally guarantee that loan?”
EL: Let me see if I understand this. The thing is about the loan that would be forgiven is that the conditions were you had to keep all your people on and the loan would only be forgiven if you kept all those people on, and-
AK: And 75% of the money was used towards payroll.
EL: Right, and so right-
AK: And you can only use it towards payroll, rent and utilities.
EL: Right. How much money was that? It was two months worth of run rate? Or ... what I'm trying to figure out is how much was going to be forgiven?
AK: So the loan amount that you could request was two and a half times your average monthly payroll expense.
EL: Got it.
AK: So, the loan that you received, the maximum amount that you can request was that, and the challenge, as well, was that obviously we know that you had to go through an SBA accredited lender, and if you had a relationship with your bank that was an SBA accredited lender, you can apply through their portal and get access as soon as possible, hopefully. If you did not work with a bank that was an accredited lender, then you had a much harder time, but what turned out to be the case was that the community banks were the ones that really pulled through the quickest, but the problem with the community banks was that their cap on what you could ask for was oftentimes lower, the max was lower than what these big banks could offer.
EL: It sounds like a Kafkaesque scenario.
AK: It does. It does. What small businesses need right now is another massive round of funding for small businesses. The eligibility requirements need to be adjusted to not include publicly traded companies and to actually benefit small businesses with 500 employees or less. These loans, where the maturity should be extended much further out. It should go back to 10 years, which is what they initially had suggested, and the ... So right now, if you get your funding, you have to use it within eight weeks, 75% on payroll. The moment that it hits your bank account-
EL: You get the money...
AK: You have eight weeks.
EL: That makes no sense for you, because what's going to happen in eight weeks? Nothing.
EL: Right. Even the three months is a very rosy scenario.
AK: Absolutely. Most businesses are going to be at, let's say 20 to 30% of what their sales would normally be, and it's going to take a very long time to ramp up. For businesses like ours-
EL: Yeah, probably a year right? Eight to 12 months for a business like yours?
AK: Absolutely. They're saying ... If you look at what's happening in China, they started to reopen businesses after eight weeks. What the trend shows is that there was a very, very slow ramp up and people were at ... let's say food businesses, specifically, were at between 30 to 65% of sales, but many of those sales were also for takeout and delivery, so they were electronic orders that happened. So, if businesses don't have the capacity to do takeout and delivery if it's not over the apps, if you know it's not doing it through the delivery companies, then it's going to be even more challenging because obviously people don't want to be in small spaces. And-
EL: Right. So I assume you must be very ... What are your future prospects or thoughts about the future?
AK: What does the future look like for Ovenly? We had an incredible team and we were doing extremely well before all this happened, and I do believe that we can slowly regain some of that momentum, but I think it's going to take time and it will definitely take one to two years, but it also ... just in terms of what things look like on an employment level, as we slowly ramp up, that means that we're not going to be able to rehire our full staff right away. So, just in terms of job prospects and what employment is going to look like, I feel confident that we will be able to reopen and reunite our team, but this time, this public health crisis, and this time that we are closed really has offered me an opportunity to reevaluate every single aspect of our business and rethink what was working and what parts of the business were not working before. That's what I'm looking at right now is just evaluating every single part of our business and thinking through what made sense, and if I actually pull the plug on this part of the business, what would my business look like?
AK: So, I do think that businesses are going to be really reshaping themselves and re-envisioning how they do business. What's going to be interesting is that we may not recognize the businesses that ... some of the businesses that operated a certain way, they might completely re-shift their focus. For us, retail is ... that was our strategy before, and I hope that it will continue to be that, but I think the retail industry is going to change because people are going to be more hesitant to be in smaller spaces.
EL: Yep. You sort of have to call on all the optimism that your entrepreneurial nature requires.
AK: Yeah. I've built this business in a way that was very scrappy from the beginning with my business partner, and it's evolved a lot and we have been able to survive almost 10 years and that's now with a pandemic shutting us down. Aside from that, I do believe we would be still going full force and doing really well, but I remain hopeful. The only outlook I could have is that, ultimately, I hope that we will come out of this stronger on the other side, and whether that means potentially on a smaller scale, but in a stronger way.
AK: I have to also credit my team for what they've been doing behind the scenes to keep this business alive. It's not just me. I'm working more, I think, than I've worked in the past five years, but I also have an incredible team that's been doing a lot behind the scenes. I hope that, when we reopen, that that commitment and dedication will just make this business stronger. We've also had such incredible support from our customers and our fans, and that piece is also just giving me inspiration and keeping me encouraged and keeping me fighting because it’s really what we're really living on right now. So, I greatly appreciate that, and also with the resurgence of baking at home and cooking at home on a much different level, it's just been so amazing to see so many people baking from the Ovenly cookbook, and that's been keeping me going too because it feels good and especially without being able to see our bakery operating.
EL: Great. Thank you so much, Agatha. Truly appreciate it, and we'll be back in touch.
AK: Thank you, Ed.
EL: All right.
AK: Okay, sounds good. Thank you.
AK: Thanks Ed. Talk to you soon. Bye.
EL: Now that you've heard the Ovenly story, I'm sure you want to do something about the situation Agatha, Erin, and the hundreds of thousands of small food business owners and their millions of employees find themselves in. If that is indeed the case, I urge you to log on to saverestaurants.com.
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