Oregon small business owners grapple with inflation, supply chain issues

Unemployment is at its lowest rate in more than 50 years, with employers adding nearly 530,000 jobs during the month of July, according to the latest data from the Labor Department. But the strong job gains obscure ominous signs elsewhere, including a historically high rate of inflation, continued supply chain bottlenecks, and staffing shortages related to the pandemic.

We talk to three small business owners about what they have been experiencing. Paula Hayes is the founder and owner of Hue Noir Cosmetics in Beaverton. Thomas Angel is the co-owner and co-founder of Altitude Functional Beverages in Bend. Alfonso Herrera is the owner of Mid-Valley Auto Body and Service Center in Woodburn. They join us to talk about their hopes and fears amid the economic uncertainty.

Note: The following transcript was computer generated and edited by a volunteer.

Dave Miller: From the Gert Boyle studio at OPB, this is Think Out Loud, I’m Dave Miller. The last two and a half years have been a challenging time to run a small business to say the least. First came the jolt of the shutdown, when so much in public life just came to a grinding halt. Roller coaster waves of successive variants followed, along with evolving and sometimes confusing guidance from federal and state governments. Then came massive staffing shortages, hits to the supply chain, and 40 year inflation highs. Now there is talk of a recession.

So we’ve invited three small business owners on to talk about what they’ve been experiencing and what the future looks like now. Paula Hayes is the founder and owner of Hue Noir cosmetics in Beaverton. Thomas Angel is the co-owner and co-founder of Altitude Functional Beverages in Bend. And Alfonso Herrera is the owner of Mid-Valley Auto Body and Service Center in Woodburn. Welcome to all three of you.

Paula Hayes: Hi, it’s nice to be here.

Miller: It’s great to have all of you on. Paula Hayes, I want to start with you, because you actually started your business the longest time ago, back in 2009, which was really coming out of another really challenging time, the recovery from the Great Recession. What was your initial idea for your business?

Hayes: Yeah, it’s interesting, it was coming out of a previous recession. So my business is really based on the idea of using science and technology to create beauty products, primarily color cosmetics, that work for um customers regardless of skin tone.

The interesting thing about a color cosmetics company is that, in most periods of time, if there’s a recession, there’s always something called the lipstick index. It’s the idea that when the market sees a downturn and people’s wallets start to tighten, there’s traditionally been one true thing in the beauty industry is that lipsticks normally take a pretty big jump in sales. And so I actually started with lipstick at the end of that recessionary period, and it was a good launching point for my business.

Miller: So did you know about this curious fact, the lipstick index, when you started?

Hayes: I did.

Miller: So what’s the reason? Because I would have thought that with a recession leading to a lot of people tightening their belts, restricting money that they’re spending on stuff that’s not totally necessary, why is it that lipstick seems immune to that?

Hayes: It’s really the idea that if I, as a consumer, can’t necessarily go out and afford to splurge on, say, a really expensive outfit or a pair of shoes or something really indulgent for myself, one thing that is within reach is maybe splurging on a $15 tube of lipstick that’s going to last me the next year, that brightens my mood. And so that’s been traditional. COVID was something different.

Miller: Well, we’ll get to COVID and masks as we go. So you started with lipstick. My understanding is that you started your business in 2009. But how many years was it before you actually were up and running, and had products, and had sales?

Hayes: So outside of lipsticks, which is something that I had already formulated, we took about five years just to build a database, and the information we needed, and to formulate, and to figure out all the pieces of the puzzle and the supply chain. We were really doing it from a different landscape. So it really wasn’t until 2015-16 that I started to then get retail feedback from major retailers on the brand, and started making some of their recommended changes. So the brand as you see it, we hit the market in a much broader way in 2017. It was really 2017, 2018, 2019 that we started to really fly.

Miller: Alfonso Herrera, what about you? I mean I gave the name of your business, Mid-Valley Auto Body and Service Center, which seems pretty self evident. But can you give us a sense for the services that you offer?

Alfonso Herrera: So, we provide automotive repair. We serve Woodburn and the surrounding areas here. Our strategy is helping folks navigate through the insurance claim process. So most people, when they have an accident, they file a claim with their insurance carrier. And sometimes that gets pretty complicated, most people don’t know how to get around that. So my background is actually insurance. I come from working with a large insurance carrier, and also the collision repair facility. So kind of combined both those experiences into our own business now.

Miller: Am I right that you started your business in August of 2020?

Herrera: Yes, we did.

Miller: Why? Why then?

Herrera: It was a good opportunity to start at a slow time. Starting the business with the size that we had in mind kind of made sense at the time. And so we just took the risk, my wife and I. She’s a registered nurse and thought, well, if all else fails, she can go back to being a nurse and I can go back to insurance. And here we are.

Miller: And so far, no thoughts of returning to your previous lives?

Herrera: No, no. We’ve been growing continuously for the last few years, and continue to grow this year a little more.

Miller: What were the personal factors that led you and your wife to leave those professions and start a new life in a new business?

Herrera: We always wanted to have something of our own. We didn’t know what or when until things aligned. Opportunities came up. It was something we had explored about five years back, and couldn’t do it then. And the opportunity arose, and we took advantage of it.

Miller: Was 2020 a good time to actually buy a business? Was it cheaper then, because a lot of people were terrified of what the future would hold in terms of business?

Herrera: I think it was, because of so many unknowns, it was a good opportunity for us. A lot of businesses were hurting. Some of them closed down because of the pandemic. And at the same time, it created opportunities for others.

Miller: Others like you.

Herrera: Yes.

Miller: And Thomas Angel, as I noted, you’re the co-founder and co-owner of Altitude Functional Beverages. Can you describe your business?

Thomas Angel: Yeah, thank you for having me, Dave. As we have in our title, we do functional beverages, which ultimately are beverages that provide some sort of benefit to you. Specifically, we’ve got two lines, a line of oat milk lattes with hemp derived CBD, turmeric, and what they call functional mushrooms. So kind of a better for you latte to start your day. And then we recently launched a line of sparkling white tees that are essentially alcohol alternative beverages. So we put a line of amino acids in there that give you the feeling you seek from alcohol with absolutely no alcohol.

Miller: What do you mean by functional?

Angel: Yeah, so this is the question that we get all the time. I think ultimately the functions that we’re trying to provide to people are the things that people seek in vitamins and supplements. And that’s certainly why we started the company, my wife and I. Things like hemp derived CBD is a great anti-inflammatory. However, it’s mostly in powder and tincture form. And so being able to put that into something as routine as a cup of coffee makes it a whole lot easier to stay consistent with that routine. Ultimately, there’s a lot of functions to the ingredients that we put in our beverages. But the number one thing for us is about making it accessible, putting into something that you would already drink. And ideally something that’s a routine based beverage.

Miller: What were you doing before you started this new company?

Angel: I was working for Boeing. And actually, during the pandemic and prior to that, we were living in Beijing, China for a few years, and unfortunately got caught outside of China during the pandemic and couldn’t return. So that was part of our origin story for starting a business during the pandemic.

Miller: You couldn’t go home. What did you do?

Angel: We actually spent an entire week in Washington DC, going to the Chinese embassy, trying to get a re-entry permit. This was June of 2020. And when we realized that there really wasn’t gonna be a path to return to our home in Beijing, we kind of had a “what are we gonna do with our lives” moment. And I wouldn’t say that immediately, the first idea was to move to Bend, Oregon and start a beverage company. But after about a couple of months of trying to reintegrate, through repatriation back to the United States, we decided that maybe this is an opportunity to get into entrepreneurship, something that we had talked about for years. Also at the time we had just turned 30, didn’t have kids, didn’t have a mortgage. So it maybe a silver lining out of a rather unfortunate situation.

Miller: If it hadn’t been for the novel coronavirus, do you think you would still be living in China right now, working for Boeing?

Angel: Yeah, most likely. Our assignment was all the way through this year. So for all intents and purposes, we probably would still be in Beijing if it wasn’t for coronavirus.

Miller: Why Bend? It seems like you could have lived anywhere in the world, maybe but China.

Angel: Yeah, that’s a great question. I think it’s a confluence of things. I grew up in the Portland area and had fond memories of visiting central Oregon as a kid. I think the second reason was probably trying to find a completely different place from Beijing. It’s a city of 22 million people. Very polluted. Bend’s about 100,000 people and as close to nature as you can get while still having good amenities.

And I would say the third thing is it’s quite a beverage town. Everybody knows Bend for all the breweries like Deschutes, but there’s quite a lot of non-alcoholic companies there as well, like Humm Kombucha. And for a town of 100,000 people, that’s a lot of beverage companies. And so we just kind of decided if we were gonna start one, it’s probably better to start it in a community as small as Bend, and as inclusive as Bend as well.

Miller: Thomas Angel, a lot more to hear about your company. But Paula Hayes, I want to go back to you, the founder and owner of Hue Noir Cosmetics based in Beaverton. So you explained the fact that, when you started out of the Great Recession in 2009, lipstick really kept you afloat for a while because that seems recession proof. But then the pandemic came, and with it, mask mandates in a ton of places, and basically no or very few special events for a long time. What did that mean for makeup sales?

Hayes: That meant that makeup sales in general took a tremendous hit, something bigger than I could have ever guessed given this category. It meant I needed to figure out how to be really innovative and adaptive if I was going to get through this period. And that’s exactly what we did.

Miller: What kind of adaptations or innovations did you put in place?

Hayes: One of the things that’s unique and special about what we do is that we do our own manufacturing. Especially coming out the gate for any new product, we will manufacture up to a certain point before that product, whatever it is, needs to go to a much larger contract manufacturer. It’s part of my background. And being someone with a background in product chemistry, cosmetic chemistry, it means that there’s a whole lot that I can formulate.

And so as the pandemic hit, first and foremost, I’m a mom of two kids who I was still sending off to school before everything shut down, and I couldn’t even buy them hand sanitizer. So I started making sanitizer, really to make sure my kids were okay. But then I just saw this huge gap that most places, most stores just weren’t carrying the product. So I turned to my investors and said during this period, we’re going to pivot and make hand sanitizer. My machines can handle it. It’s far easier than making makeup, and I think it’ll keep us afloat. And so we focused on that for 2020.

Miller: And that and that worked business-wise for you?

Hayes: It worked business-wise, I mean we definitely weren’t doing the same kind of volume. But it was enough to keep us afloat, and it was enough to focus on one product through a lot of the supply chain issues that were going on. So, again, it was a lifesaver in 2020 for sure.

Miller: Supply chain issues, a phrase that many of us had never heard before 2020, and now it’s inescapable. Early on, what did that look like for you in terms of the cosmetics business? Where had you been getting all the various stuff that goes into cosmetics from? And how much were you able to get it when the world shut down?

Hayes: That was the biggest surprise. I try to get most of the ingredients that go into our products stateside. And that wasn’t a huge issue for us during the pandemic. Some things were more readily accessible in larger quantities than others. But fortunately, with the makeup part of my business dipping, we were able to manage that.

The biggest issue are all of the bottles and tubes and components that those various substances go into. So for instance, when I started making sanitizer, I was able to source some of those bottles that I ultimately used stateside, until all the stateside suppliers just couldn’t provide anymore. That meant I was gonna have to look towards suppliers that are in China. Now in the beauty space, most components come from China. So my biggest a-ha moment in surprised that things were going to be tough was the first bottle of first order of plastic bottles that I placed during the pandemic, and realized that not only was it going to take about 6 to 8 extra weeks to get what I needed, but that the freight costs were going to be four times the cost of the actual components.

Miller: And this was two years ago. This was way before the big increase in fuel costs and the inflation that has become international news over the last six months. So even two years ago, this was already a major issue for you?

Hayes: It was already a major issue shortly after the pandemic hit. This is by May of 2020.

Miller: Alfonso Herrera, what did supply chain issues look like for you early on in the pandemic when you were starting out?

Herrera: Dave, have you heard the term back order?

Miller: I think everybody has.

Herrera: Yup. That’s the story for our industry, parts being on national backorder, or local, can’t get them. And so with supply chain issues, whether parts are coming across seas or even within our country, distributing the parts was an issue. If parts start becoming unavailable, original parts, manufactured parts, the next alternative parts, aftermarket parts, or used or reconditioned parts, those start being used up as well. And pretty much you end up with no parts, because everybody’s used them all up and there’s nothing being restocked or available. So that was one issue.

And then the other issue is distribution, getting all these parts distributed. And with the challenge of COVID and employees, it was hard. Something that should have been here the next day or two or three days FedEx or UPS was now taking a lot longer to get to us. Therefore repairs are taking a lot longer to do, and so it just opened up a whole bunch of challenges for our industry.

Miller: I imagine that one way you could sort of proactively respond to that would be, for certain kinds of parts that aren’t super specific to some make or model, but maybe would be more likely to be used more often, you could just perhaps buy them in advance, thinking or assuming that at some point you’ll need them. But that would cost money and, and space. How much were you able to plan ahead in response to supply chain issues?

Herrera: It’s very tough because we work on a lot of different makes and models of vehicles. Anywhere from Toyotas, Mazdas, Hyundai, Subaru. So it’s very hard to try to plan. We can be as proactive as we can based on the superficial damages that we can see after an accident. There are several steps that go through the repair process. And you usually order parts a couple of times, two or three times throughout the repair process. Initially you can see all the damage from the outside of the vehicle. Once the vehicle is in the shop disassembled, now there’s more parts, more damage underneath. So an additional parts order has to be submitted.

So yes, we can be proactive and order the parts that we can visually see from the outside. But until the vehicle is in the shop disassembled and we know the extent of damage, we can’t really order a complete parts work for each vehicle, which is parts for vehicles or vehicle specific.

Miller: How understanding have your customers been about these issues that are obviously out of your control, but you’re still the bearer of bad news, you’re the one saying “sorry, we can’t fix your car for five weeks”?

Herrera: This is where we’ve coached our team to communicate and be as transparent as we can be with our customers, and just educate as best as we could up front. And that way, everybody is aware. And because this affected everybody across multiple industries, everybody has been very understanding. Most of our customers understand the process. We communicate with our customers at least once a week, and touch base with each one of them and give them an update. Even if there is no progress, if we’re still waiting on parts, customers still appreciate that, um that we still keep them in mind, we still call them, tell them nothing’s changed, but there’s you know what we look forward to. And so as long as we can continue being transparent and communicate with customers, I think things are gonna be okay.

Miller: Thomas Angel, to go back to you, my understanding is that you and your team chose to contract out with existing beverage manufacturers instead of building your own whole facility. How did you decide on that course?

Angel: It’s two pieces. One is capital expenditure. It’s pretty expensive to start your own production facility. And even though that was romantically our initial intentions by starting the beverage company in Bend out of the same page of a lot of the other breweries there, it’s quite expensive. And especially when you want to make a non-alcoholic product, typically you have to pasteurize it in order to make it shelf stable. And that type of equipment, as we came to learn, can be over a million dollars. And when you’re a bootstrap startup, allocating any amount of capital has to be pretty strategic in terms of your returns. And with that expensive of capital expenditure equipment, those returns typically take several years.

The second part, which was a little bit of just going up the learning curve, is it’s quite hard to run a production facility. And unless you have experience doing so, you have to bring on that experience, which is 1: pretty hard to come by, and 2: especially in the labor market that we’ve seen through the pandemic, especially hard to come by. So the opportunity to work with contract manufacturers whose sole specialty and background is production, it enables us to outsource an element of our business that we don’t necessarily have the skill sets in, and utilize people who specifically do.

Miller: You mentioned staffing there, another famously challenging part of the last couple of years. What has staffing been like for you?

Angel: I would say this has been more of a recent issue. As we’ve started to grow, we’ve been fortunate that our oat milk latte line has now launched nationally with Sprouts Farmers Markets in nine states. And as we grow into new markets, it’s quite imperative to have brand ambassadors, to have people that represent your company and your products in these new states, these new cities.

Miller: Beaning people setting up a table at a supermarket with free samples? What are you looking to hire?

Angel: Yeah, a combination. That’s, at a base level, probably from a quantity perspective, the most amount of hires that we’re looking for. In addition to that is territory managers, people to manage those brand ambassadors in larger markets like Los Angeles or Dallas. And in addition to that is starting to hire sales representatives to start to get a higher concentration of stores around our Sprouts Farmers Markets.

Miller: Have you been able to hire the people that you feel like you need to hire to enable this expansion?

Angel: Long story short, no. I think it’s something that we’re starting to dedicate more time, energy, and resources on. Once again, [we] probably underestimated the amount of work required, especially in this environment. One of the biggest things that we’re seeing is it’s very competitive. The rates at which people are being hired at is much higher than expected for a small, still bootstrapped company like us-

Miller: Meaning the salaries that you’d have to pay to be competitive to hire people are higher than can pencil out for you right now?

Angel: Yeah, exactly. Some of these brand ambassador jobs, which we kind of figured would be somewhere in the $20 to $25 range, sometimes are going north of $30, $35. And we’re certainly all for paying people competitive and fair wages. But it does start to become a little bit of a stretch for our budgets, especially when you’re talking about needing to hire 10, 12, 15 people to get the type of reach that we’re looking for with our expansion.

Miller: So Paula Hayes, what about you? What has staffing looked like for Hue Noir cosmetics?

Hayes: Yeah, it’s been an interesting, you said in the beginning of the interview, rollercoaster. At the beginning of the pandemic, I worked as hard as I could to keep my team intact. We were pretty successful in 2020, like I said, with the move towards sanitizer. But as the pandemic continued to last, we started to see a lot of the influxes that many people see. It was also exacerbated by a couple of people who were on my team who had childcare issues, with young kids. And with kids not being in the classroom, learning from home, that started to disrupt our team as well. I kept salaries flat in 2020, again, not really knowing where things were going to go.

But the biggest hit for me was 2021, because I decided I really had to start to wane us off of sanitizer, we were gonna make it back to our primary market. So I did see some layoffs in places that are painful for me, things like folks who know how to properly manufacture and craft a lipstick, that’s a very specialized skill set. And so I worked really hard to try to keep those positions as stable as I can, because no matter who I hire, I’m going to have to train them. So it was a really interesting period.

We’re starting to see things level off this year and return to a sense of “normal”, normal as they can be right now. But I still worry about if we get into a period with high growth, we’re going to be stretched very thin.

Miller: And Alfonso Herrera, what about you? I’m curious, even just in terms of numbers, how many employees you had when you started in August of 2020, and how many you have now?

Herrera: When we first started, we had a handful of employees, and now we’re at about 14. So we’ve tripled in size in the last few years. But it’s been a challenge for sure.

Miller: What kind of challenge has it been in terms of hiring people?

Herrera: Well for some time, you put ads out there and put a sign out front of the building, and you’re not attracting any applicants. And it’s tough when you don’t see any traction there, no phone calls, no applications. You start wondering what are we doing wrong, what else can we do? Social media, the team talked about putting a radio ad. What can we do?

Also this year we had to add a benefits package to become attractive, and also retain the employees that we have. Being a new business, two years old, we didn’t have benefits to start off until recently. So now we offer our employees a benefits package, dental, medical, vision, and retirement. And also increased wages, whether it’s the current team and new positions that are being offered or opened up, they have to be competitive. That’s just where the automotive industry is, the labor costs have just gone really high.

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