Success is Surviving

When Robin Petravic and Cathy Bailey bought Heath Ceramics from the company’s founders in 2003, they promised to keep the dinnerware maker and its manufacturing workforce in its home base of Sausalito, California. The pandemic provided an opportunity for Heath to recommit to this pledge and create a Living Wage Initiative, which in turn prompted a radical overhaul of the company’s 401(k) program. Robin Petravic comes on REWORK to talk about walking the walk on equity, resilience, and equipping Heath for the next 200 years.

Robin and Cathy wrote about the Living Wage Initiative in Heath’s January newsletter.

• Heath Ceramics website | Instagram - 1:02
• “Edith Heath: A Rebellion in Clay” (KCET, 2019) - 1:14
• “A New Year, 166 New Owners” - 6:30
• “Marin County’s intensive effort drove down a COVID surge among Latino residents” (San Jose Mercury News) - 10:46
• MIT Living Wage Calculator - 15:46
• Eau de Space - 25:16

Transcript

Wailin: (00:00:00) In 2002, Robin Petravic, and his wife, Catherine Bailey went on a bike ride in their new town of Sausalito, California. While exploring the area on their bikes, they came across a mid-century modern building that caught their eye.

Robin: (00:00:15) The posts were about eight feet apart, sort of single story posts with single sheet panels in between. Single pane aluminum frame windows. There were some haphazard tile installations on the outside of the building. We peeked in the windows, as you do when you see something intriguing, and the windows were very dusty. And you can see old machinery and you could see carts and you could see plates lying around. And you weren’t really sure when was the last time somebody was in there. Somebody last ran that machine. It kind of had that feel. And I thought this place looks amazing. It couldn’t possibly still be running, could it?

Wailin: (00:00:55) Robin and Cathy learn that the building with the dusty windows and glazed tile installations belonged to a company called Heath Ceramics, which was still operating despite its appearance. And actually it had been making dinnerware in the Bay Area for over 70 years.

Robin: (00:01:11) The company was founded in 1948 by a woman named Edith Heath. She was a potter, a ceramicist. Her husband, Brian Heath, who later joined during the business, built her a kick wheel out of an old sewing machine as the legend goes. And she started throwing pots, and it was good timing because it was postwar. A lot of the primary channels for ceramic products, [unclear] dinnerware and dishware were gone because they were destroyed by the war, that overseas production from Europe or Japan. So there was a real opportunity for American manufacturing, pottery, in this case, to start, to create a place of its own, a name of its own. The company grew, got more into scale manufacturing and moved across the Golden Gate Bridge. In the late ‘60s, early ‘70s had a real heyday making dinnerware for restaurants and started to go downhill a little bit in the following decades of the ‘80s and ‘90s.

(00:02:04) And by you know, the early 2000s, the company really needed to be sold, or find some way to live on. Production was still happening and it had about 21 employees at the time. Edith Heath was in her early 90s at that point. Brian had already passed away. And we came in the front door and said we’re interested in buying the company,

Wailin: (00:02:25) Robin and Cathy maybe weren’t the obvious choice to buy Heath, but they were drawn in by the company’s products and ethos,

Robin: (00:02:31) I really didn’t have a connection with pottery, I was like everybody else. I made an ashtray in fifth grade. Cathy and I both came from a design background. She was an industrial designer, I came from a background in product design and product engineering. I mean, we appreciated the design of the product. These were pieces that were not streaming out. These are pieces that as you live with, they get better and better and better. These are pieces that you look at and you’re intrigued, and then you pick them up. And then the way that they feel in your hands, makes you more intrigued makes you love to be even more. And that’s really complete and holistic design.

(00:03:06) And then the process is what really drew us in. As designers working in the Bay Area in the 1990s, we started to see the transition of you didn’t get to go to the factory anymore. There was more of a handoff. The factory was not in the US anymore. So if you were to go, you’d have to fly overseas, to Asia, typically. And there’s a disconnect in the way that products were designed and made. We felt that we really wanted a stronger process to connect the two and have them really be intertwined and working together. That making and designing, one informs the other.

(00:03:42) Heath having a factory where all of its products were designed, made, and sold under one roof, that really sealed the deal for us.

Wailin: (00:03:51) The couple bought Heath Ceramics in 2003. At the time, the business had under 30 employees working out of that mid-century building in Sausalito, an area that was undergoing rapid cultural and economic change.

Robin: (00:04:03) There were other interested buyers. But you know, we worked with the trustee of the Edith and Brian Heath estate. She was really remarkable in her vision for how she wanted Heath Ceramics to live on. And the reason why she ultimately ended up selling the business to us is because we share that vision for Heath Ceramics to continue. And I don’t think she felt that from a lot of the other buyers. I know some people were more interested in the Sausalito real estate, which would have had a lot of value or maybe they would have taken products and stop making it there in Sausalito. And that was one of her requirements of buying the business, that we didn’t balk at. She said, you know, you got to keep all the employees. We said fine because we want to keep making the product. And I think a lot of other business people looked at the company and the making of the product and the making of it in Sausalito, in Marin County was a risk, if nothing else, or a burden.

(00:04:58) At the time, I certainly had people that I went to for advice. And I was often told that, yeah, maybe you can make this work. But you’re probably gonna have to take a lot of the products and have them made overseas. And after I heard that one too many times, Cathy and I put a line in the sand and said, like, No, that’s not what it’s about. You know, it’s not about the business. It’s about the value that comes from making your own product locally in the place where you live. Continuing to enable these kinds of jobs in manufacturing and the skill and the craft that comes with it. That’s our focus, and we are going to build around it and we’re going to find solutions to help make that work.

(00:05:39) Broken By Design by Clip Art plays.

Wailin: (00:05:39) Welcome to REWORK, a podcast by Basecamp about the better way to work and run your business. I’m Wailin Wong.

Shaun: (00:05:44) And I’m Shaun Hildner. Today on the show, we hear the story of how Robin and Cathy’s commitment to keep Heath Ceramics going in Sausalito has played out over their 18 years of ownership.

Wailin: (00:05:55) During that time heats ceramics has gone from $1.2 million to $30 million in annual sales, and from 25 to over 150 employees, all still based in California.

(00:06:07) As you’ll hear in today’s episode, Robin and Cathy’s commitment to stay in the Bay Area and retain local manufacturing jobs led to decisions during the pandemic that were tough, but necessary, because they want Heath to be around for the long haul. And that means taking steps today that make their business more resilient and equitable.

Shaun: (00:06:25) We’re going to start the story in 2018, when Heath became employee owned through what’s called an ESOP, or Employee Stock Ownership Plan.

Robin: (00:06:39) We thought about it for a long time in thinking about what is the future of the business. And I think one thing that struck us with Edith, Edith Heath was that the succession plan wasn’t really there. It almost led to the business going away. And so that had always been our mind to think about that early on. How do we enable, Heath to be a business that goes on for, our goal is 200 years. We’re not going to be here to find out but our goal is for that to continue. And there’s, I think, very few ways for that to really happen in terms of setting things up the right way. And we felt that this would give things the best chance. It wasn’t going to be a family business. But with employee ownership it had the opportunity to not shift direction so much, which is what might happen with a sale. It brings the employees into it, gives them the sense of legitimate ownership.

(00:07:38) It’s really a retirement fund. It’s a sort of a different retirement vehicle. But the key aspect of it is that the company really buys the shares from existing shareholders and gives them to the employees at no cost to the employee. So there’s no out of pocket expense. So somebody who’s earning $20 an hour, doesn’t have to try to save up that $20 an hour paycheck to buy an ownership stake in the company that they were offered, and then pay taxes on that gift. Employees are able to cash out when they leave the company, ideally by retirement.

Wailin: (00:08:13) And that is a really great segue into talking about the Living Wage Initiative and some of the other more recent policies you’ve put in place. Can you talk about the genesis of the Living Wage Initiative?

Robin: (00:08:24) The beauty and the challenge of a company like Heath is that, in that we make all of our products and we sell our products, we design all of our products, we market all of our products, is that there’s a lot of different functions, complex functions that have to work together to make that happen. We’ve got people in the factory, we have people in the retail showroom, we have our designers, all these different levels of education, of experience, socio-economic background, cultural background. They’re all intertwined in the business and it makes it complicated.

(00:08:57) For myself, you know, I went to design school at Stanford, I have a graduate degree in product design and in my first job everybody was just like me. What’s beautiful about Heath is that almost everybody’s different than me. And you have to try and balance those things out and connect them. One of our wonderful pre-pandemic traditions that we have to bring back as a potluck celebration at Fourth of July, and at the holidays, bringing all these cultures together and everybody cooks a dish that’s important in their family.

(00:09:28) But we also started to notice that in recent years, it was less and less affordable for people to do that. So that awareness has always been there. But the pandemic really heightened it. We are talking today on March 17, otherwise known as St. Patrick’s Day, but to us known as the first day of shelter in place in California, in San Francisco. When our jaws were on the ground, and our entire business was shut down. Our factories, our warehouses, our retail showrooms, everything. We did have to go through some painful layoffs, about 30% of the business and as we slowly brought people back, the people that started to come back first, they were the people in the warehouse, some of the lower paying jobs we had.

(00:10:07) And it took a week after we realized that they were allowed to come back to work for them to feel comfortable. And you sort of get that feeling of like, okay, your lowest paid people are the ones you’re going to put out in the most vulnerable position first. That’s the reality of what was happening in the pandemic. At the same time, people have kids, and they’re not in school, but they got to go to work. And they’re vulnerable. We started to see that the sort of selection that that pandemic made of who was put out, had to go to work, didn’t have a choice.

Wailin: (00:10:38) As was documented last year, COVID disproportionately affected Black and brown communities. This was true Marin County, where Heath is based and the company’s Latino and Asian employees were among the ones that had to return to in person work first during the pandemic. This group was also some of Heath’s lowest paid employees. And while Heath’s base pay was $16 an hour, above California’s minimum wage, Robin and his team looked at the cost of living in the Bay Area and realized it wasn’t cutting it anymore. So they made $20 an hour the new baseline.

Robin: (00:11:11) We were already starting people at $16 an hour, we’d felt pretty good about that. A lot higher than minimum wage, though this whole process has made me question what is minimum wage?

Wailin: (00:11:24) Did it feel pretty daunting to find the money to go from $16 an hour to $20 an hour for your base pay after just coming back from such a painful period of layoffs and having been closed?

Robin: (00:11:24) It was a scary commitment. But, just like with putting the stake in the ground that we’re gonna keep on making our own product, it was one of those things of we’ve got to do this. And the challenge, really, for our team, is to figure out how,

Wailin: (00:11:54) And it was through this process that you then revamped your 401k program, right? So it’s like one thing kind of led to another?

Robin: (00:12:02) It was, because we started looking for, specifically, how are we going to pay for this increase? We knew that we had a lot of productivity gains through the pandemic. We’d really kind of doubled down on cost savings, how to be more productive. Our teams were so much more engaged, and we wanted to keep that momentum. But then we also started looking at are there other ways in which we were spending money before that could be put to better use?

(00:12:28) The biggest place where we found money was in our 401k matching program, where it meant a lot to our higher earners. 19% of our higher earners took 50% of our matching funds, and 30% of our employees weren’t even able to put anything in their own 401k accounts. Looking at it from that perspective really highlighted for us that you got to meet people’s basic needs first. And it has to be across the board before you can start to think about those kind of extra benefits that are more like the icing on the cake.

(00:13:04) Which is, a lot of the pressure that you get from this professional world where everybody has a graduate degree from Stanford, and you’re earning high six figures. So there’s a lot of pressure for those kinds of benefits. And you don’t necessarily hear about the sort of the everyday challenges of somebody who’s earning less than $20 an hour. And how 401k match, or even a 401k account doesn’t mean shit if you’re really watching your pennies.

(00:13:32) Sorry, can I curse on this podcast?

Wailin: (00:13:34) Oh yeah, our own executives curse the most out of anyone on this podcast, so.

Robin: (00:13:38) Okay, I won’t make it a goal, but, in case it slips out. So our employees don’t carpool to save the planet. They carpool to save money, because a tank of gas is expensive. It was something that we had lost sight of, to some degree. It was important that we take care of those things first. So the 401k matching program, which sounded great in the white collar world, but really at a place like Heath, there’s a lot of inequity. Matching is free money. I was a big receiver of that benefit, because I, as far as a Heath employee, I’m the highest earner in the business, I got lots of free extra money because I had extra money left over to put into that 401k and have it matched by the company. So why do I get free money just because I have money to spare? That doesn’t make any sense.

(00:14:30) So we’ve stopped that program. And we explained our position about why it was important and why the equity just wasn’t there. Because we were taking things away from people like myself. We had a lot of good conversations and people started to see what wasn’t fair about it, and why it was important right now, especially after the year that we’ve been through to reset our commitments and our priorities. And so our 401k match is gone We still give a contribution to everybody saving for retirement so important, but it’s a flat contribution based not on how much you make, but on how many years you’ve been here. And there’s not a whole lot of difference if you’ve been here for five years, or 30.

(00:15:14) And half of what we spent on the matching is now going towards pay equity. And directly to that increase to bring those 28% of employees up to the $20 an hour mark. And I think overall, we lifted up everybody earning less than $75,000. So 49% of our employees saw an increase back last fall as part of this Living Wage Initiative. It’s something that we’re committed to and the living wage is reset, the index comes out every December 31st. This is the MIT Living Wage Project. And that’s going to be our marker going forwards.

Wailin: (00:15:49) Were some of those conversations a little bit tricky? Because I think about… I come from a very white collar world. And the 401k match is untouchable. You’re right that it does feel like a pay cut if this is something you’ve counted on for your entire professional career. And I think that oftentimes moves toward equity, they feel fine until you feel like you get something taken away from you. Can you talk a little bit about how you navigated conversations with the higher earners?

Robin: (00:16:22) We thought long and hard about how do we roll this out? And we realized that we couldn’t just say, hey everybody, we’re doing this. And this was gonna happen in two months. And it comes from the top, right? That’s what you learn in manufacturing. The idea is one thing, the execution is what really makes it work.

(00:16:45) The advice I got was to talk to everybody, and have our employees solve for the issues, for them to get behind it. And with 160 people, that was a challenge. And we just said, you know what, let’s have small group meetings, about 10 people each. That’s about 16 meetings. Crap, that’s going to be a real commitment. But let’s get it done in the next two weeks. And we did. We just scheduled it.

(00:17:09) And we mixed groups. So we had people in production, talking to people in design, and they were all in the room together. And there were people that have never talked to each other necessarily, but we heard from some different perspectives. And in group sizes that small, we would start to hear from people that you never heard from before. You know, we provided translators, in some cases. And we just heard some great thoughtful ideas and perspectives. And we put out there, so this is what we’re thinking about doing, all the details, aren’t there yet, help us shape those details. What should we be concerned about? How are we going to make this successful? It was learning through that feedback and I think slowly convincing people it was the right thing to do by having those conversations as opposed to being told this is what we’re doing, and this is why and you’re losing your match because it’s not fair. It was a discussion that evolved everybody.

(00:18:03) And you know, look, there are people that are probably still mad at me and think it’s unfair, because they lost something, they did lose something. And there’s different ways to look at it. And that’s fine. But I think that in this moment of the pandemic, that was a time to sort of see that plainly and to reset and recommit to your commitments.

(00:18:24) I look at it from my perspective, wow, I was lucky, I was in the front line for a long time, for reasons I didn’t really deserve. So maybe it’s time for me to let somebody else be in the front of the line or just kind of step back in line. But for some people, for others, it is more meaningful, and they did have something taken away. But that’s also the challenge at Heath of balancing an organization where you have such a diversity of people. It really does mirror society, which is really, as we know, especially in the past year, can be really messy. And I hope we don’t ruin this word, because we have a tendency to ruin words. But the difference between equity and equality is very poignant in this situation. What’s meaningful for one person in their situation is not necessarily meaningful for another person in their particular situation. And that’s really what living wage comes down to, is in meeting those basic needs first for everybody, and then you can get into the discretionary of benefits.

Wailin: (00:19:29) These values make Heath an outlier in the tech-dominated culture of the Bay Area.

Robin: (00:19:33) Our goal is to survive for a long time. It’s not to, make this big X profit margin. It’s not to sell for this X multiple, it’s not about ROI. It’s to be able to survive with our values intact for a really long time. Those are the values from which employee ownership and the ESOP came from and where the living wage came from. They’re always important to keep on reinforcing with people, but people, a lot of people do work at Heath, and people stay at Heath for a long time because of those values, whether they realize it consciously or not.

(00:20:05) The challenge of making pottery in the Bay Area is that we can, especially on the higher end, if we want a great marketing director, we want a great designer, we’re competing with Googles and other companies that are really paying a lot and have a lot of other fringe benefits. They got 401k match, and they got free sushi all day long. So we didn’t have the option to take away the free sushi to put towards more equity, but we had the 401k match.

(00:20:35) I think what I’m trying to say is people don’t always join Heath because of pay on the higher end in those kind of white collar office jobs, they join because of values.

Wailin: (00:20:44) I’m really struck by how different the Bay Area must have looked and felt when the Heaths started the company, versus where you find yourself now, making pottery amid this sea of you know, venture and private equity backed tech companies. It’s actually really hard for me to get my mind around.

Robin: (00:21:05) I can’t get around it. I first showed up to the Bay Area in 1994, we’ve been through a lot of change cycles. And Heath becomes more and more of an anachronism throughout those cycles. And I don’t know where things are going in the next couple of years, because again, the pandemic has also shifted those things once more. But you’re right, as a sort of very different sort of ideal that the Heaths lived in. They looked out in Marin and they bought an old barge, and they beached it on the beach and stuck piers underneath it and built a house on top. And that’s how they lived. And maybe they didn’t even have permits when they did that. So it was a very different era, for sure.

(00:21:45) Design was more focused on the kind of work that they were doing, then where design is focused today. It’s very different and some of the pay disparity numbers that we started to pull historically, looking back 20 years start to, from a data perspective, sort of paint a picture of how the Bay Area has changed. I think there’s, I think from between 2000-2014 I believe it is, 11% of middle income, manufacturing type jobs have gone away in terms of the overall job market in the Bay Area.

(00:22:16) And what’s so interesting about that is that those middle income jobs went away, so what did they get replaced with? Really high paid jobs in tech, and then really low paid jobs that provide services, making sushi, making lattes and espresso drinks for those really high paid people. And that just creates a wide socio-economic gap.

Wailin: (00:22:40) You’re playing the long game here, right? 200 years, so you’ll probably live to see many more cycles.

Robin: (00:22:46) Yeah, I’ve talked to people that have the same goals in terms of businesses that they want to see survive for centuries. And ultimately, what’s the measure of success? Surviving. Just that you are still around, because you do see a lot of these cycles come and go, and you’ve got to keep on evolving. But ultimately, if you’re surviving, and you’re still doing well.

Wailin: (00:23:12) And that’s exactly what Heath is doing, surviving. It’s continuing what Edith Heath started and what Robin and Cathy took stewardship of when they bought the company in 2003.

Robin: (00:23:22) Edith, at that point, she had dementia. So, while we met her, conversations weren’t able to go as deep. Her caretaker bought her by, I think a few months after we bought the business. And I don’t think we even saw her, she just kind of came in and she came out but the one comment she said was, they’re still making my pieces. I think that really sticks with me.

(00:23:45) History, where you’ve been, is really important. We don’t want to buy a business and make a nostalgic brand or have nostalgic product. It’s an anachronism but historical reenactments are not what we’re into. But we believe in evolving legacies. And that really starts from the history. In order to evolve you’ve got to remember where you came from. You’ve got to remember those roots, what the values are, what’s important to you, what that identity is so that you are able to stick true to that course. And keep on growing stronger.

(00:24:20) Broken By Design by Clip Art plays.

Wailin: (00:24:24) REWORK is produced by Shaun Hildner and me, Wailin Wong. Music for the show is by Clip Art.

Shaun: (00:24:28) You can find Heath Ceramics online at HeathCeramics.com and on Instagram at @HeathCeramics. If you’re in California, they have four retail showrooms in the Bay Area and Los Angeles that are back open in a limited capacity.

Wailin: (00:24:40) We are online at rework.fm and you can find us on Twitter at @reworkpodcast. If you enjoy our show, please subscribe to us in the podcast app of your choice and tell a friend.

Shaun: (00:25:05) Um, Wailin.

Wailin: (00:25:05) Uh huh.

Shaun: (00:25:06) Candles are dead. It’s all about cologne now.

Wailin: (00:25:11) Okay, tell me about these new scents you bought.

Shaun: (00:25:13) Okay, I bought these from a company called Eau de Space.

Wailin: (00:25:15) Eau de Space.

Shaun: (00:25:16) They are… I never wear cologne but these are really fantastic. They are scents based off of interviews with NASA astronauts about this sort of weird smell that sort of lingers on a spacesuit after a spacewalk. And it smells like really clean and metallic and a little chemically. It kind of smells like ozone, like after a static electricity charge, you know?

Wailin: (00:25:46) Interesting. They captured that in a cologne?

Shaun: (00:25:48) It’s wild. I’ve never smelled anything like this.

Wailin: (00:25:51) It’s interesting to me because I have a hard time picturing a metallic smell that I think I would enjoy wearing as a cologne or perfume.

Shaun: (00:26:01) I don’t think this is for everyone. It’s very bizarre.

Wailin: (00:26:05) Have you worn it out? I mean, I guess it’s like, we’re not really interacting with people and we’re not supposed to get close enough for anyone to smell you.

Shaun: (00:26:12) No, I’m actually taking a page out of your book. And I’ve been wearing it in the morning. Like a nice little, I don’t know, get ready for the day thing.

Wailin: (00:26:19) Oh, yeah, I have been wearing perfume throughout this entire pandemic. It’s great. It’s like part of my little morning ritual. You know, I just like—

Shaun: (00:26:27) Its such a treat. Yeah.

Wailin: (00:26:28) Do a little spritz. It’s just for me.

Shaun: (00:26:31) Before I lock myself in my little closet office, you know?

Wailin: (00:26:34) Yeah, I’m like, every day literally, perfume and sweats. You know what I mean?

Shaun: (00:26:39) It also isn’t very pungent and doesn’t last very long.

Wailin: (00:26:43) Oh, interesting.

Shaun: (00:26:45) You know?

Wailin: (00:26:45) Yeah. Unless, you know what’s interesting about perfumes is that they react so differently from person to person with that person’s individual body chemistry and the oils and their natural musk or whatever. So maybe it doesn’t last long on you, but it could potentially smell different and last longer on someone else.

Shaun: (00:27:05) Yeah, I mean, no scent can compete with Eau de Shaun, which is—

Wailin: (00:27:08) Gross.

Shaun: (00:27:10) My new line.

Both: (00:27:11) [Laugh]

Wailin: (00:27:12) I’m kidding.

Shaun: (00:27:13) Well, thanks, Wailin.

Wailin: (00:27:15) I’m sure you smell like a field of flowers.

Both: (00:27:18) [Laugh]

Shaun: (00:27:21) Oh, man. Are we done?

Wailin: (00:27:22) Yeah, that was a good review.