Get Ship Done Podcast Episode 6: Tower Paddle Boards: Standing Up to the Big Guys
Tower Paddleboards may have cracked the ecommerce code: simply sell a quality product at a lower price than your competitors. Ah, if only it were that simple! Yet, that’s exactly what CEO and Shark Tank-funded entrepreneur, Stephan Aarstol, has done time and time again with his many business ventures. In this episode, we sat down with Stephan to get to the heart of how he has succeeded in ecommerce, how he ships out oversized products, and what his businesses have done to stand out in a monopolized industry.
From tips on diversification and paid marketing techniques, to knowing how to recognize a good business opportunity when you see it, this episode has it all!
Read the full transcript for Get Ship Done Podcast Episode 6: Tower Paddle Boards
J.B. Hager (Host):
Hey, it’s J.B., and welcome back to another episode of Get Ship Done, where we sit down with CEOs, founders, and small business owners to uncover the secret behind the success of their ecommerce business. Some of you may know our next guest from season three of Shark Tank, where he landed a $150,000 investment and turned it into more than a $40 million company. Or perhaps you know him from his book, The Five-Hour Workday, where he highlights how he was able to increase productivity and happiness in his employees by challenging a workplace standard that hasn’t really changed since the industrial revolution. I’m really excited to talk to him because it’s a great story.
Stephan Aarstol, how are you, man?
Stephan Aarstol (Guest):
Good. Good. Thanks for having me on, J.B.
J.B. Hager:
It’s exciting to have you on because you, in a way, are a pioneer of direct-to-consumer and figured it out. You figured out a couple of things, how to do it and how to cut out the middleman and get a price point down on something that people were craving and they couldn’t get fast enough. So you started Tower Stand Up Paddle back in, what, 2010?
Stephan Aarstol:
Yeah. So Tower Paddle Boards, 2010 is when we started. And when I started it, I didn’t even really call it a direct-to-consumer brand. I mean, I knew we were direct-to-consumer, but I had another direct-to-consumer prior to that, buypokerchips.com, since 2004. And it was direct-to-consumer because we couldn’t get distribution in retail essentially. But then I started to slowly learn the advantages of being direct-to-consumer, cutting out the middleman. And I was sort of a witness to the transformation of retail, really.
J.B. Hager:
Yeah. And I’m going to jump backward for a second because I watched several interviews with you, Stephan, and no one talks about what Stephan was doing before selling poker chips and standup paddle boards. Tell me a little bit more just about you personally. What was going on in your life at that moment before you became this ecommerce guru?
Stephan Aarstol:
Sure. So I got out of grad school in 1999, and they were just basically handing out internet jobs. This was before the crash, maybe six months, and they were handing out internet jobs with your degree, basically. And I was a bartender up until that point and went to grad school basically to get out of bartending. We were in the middle of the dot-com boom. I went into a radiology company in … It was sort of an internet portal for the radiology community, information, news, education. And we went from basically a startup with five people to a dominant industry leader in three years to where we took out all of the traditional trade journals and magazines, education, and everything. And we created a monopoly. And that’s where I learned the entire internet tends towards monopoly, basically.
J.B. Hager:
When did you first see a standup paddle board and go, “Hmm, I see an opportunity”? Do you know exactly where you were?
Stephan Aarstol:
Yeah. So I was in La Jolla here in San Diego, and my buddy, who I traveled around the world with, he’s a very adventurous dude. And whenever he comes into town, he’s dragging me out to do something else. So it’s 5:00 in the morning, and we’re out on La Jolla shores here on these big surfboards paddling around. It was instantly, it was a lot easier than surfing. And so-
J.B. Hager:
By the way, surfing is one of the hardest things I’ve ever attempted in my life in sports. I’ll vouch for that. Our mutual friend, Chris Cantore, is a San Diego legend. He’s tried to teach me to surf many, many times, and I nearly drowned every time. Hey, and if you’re going to surf, you want to go with a local one too.
Stephan Aarstol:
Exactly. Chris is a great guy and a local legend as well as a local surfer. Yeah, surfing was so hard, but paddle boarding was so easy, and I had lived in Hawaii, and I sort of understood like, “Wow, this will get a lot of people out into the surf.” So I went and bought one or tried to buy one, and they were just so expensive. It didn’t make any sense to me. And it was-
J.B. Hager:
Yeah, they were what? Probably $1,500 and up, maybe?
Stephan Aarstol:
Yeah, it was 1,200 to 1,500 bucks. And for a large surfboard, it didn’t make any sense. So when I really looked at that, it was like, “Wow, this distribution model is broken. We can sell these for half price, direct-to-consumers.” And I could do what I did with the poker chip company in paddle boards. And that’s where we started it.
J.B. Hager:
At about the time you started it, I had heard about standup paddling. A friend of mine was in Hawaii, and another legend, Laird Hamilton, took him out on the water, and he’s like, “Oh, it’s this great core workout.” I mean, it’s like it could be as easy as you want it to be or as hard as you want it to be. And I was like, “Wow, I got to do that.” And I couldn’t buy one here. You didn’t have them in Austin, Texas.
And so I went online, the California companies who made these. So I’ve seen this explosion and flood in the market. And we’re going to talk about the COVID hit too, which was insane. I can’t imagine what happened to your inventory overnight. But then now, when I was first doing it, again, people would stop me at a gas station like, “Where are you going surfing? Are you heading to Galveston?” I’m like, “No, no.” I would joke with them, and I go, “There’s a lake with a big slope on it, west of town.” They did not know what it was. And then the evolution of which I think is really fascinating.
Now, when I go down to what we call Lady Bird Lake, it runs right through downtown. I don’t know if you’ve been here for SXSW as a tourist. But it runs right through the town, and there are no motor boats on that lake. And you would start to see some standup paddles and then more, and then a few rental places and then trucks pulling up and renting them out the back.
And now when I go through there today, and this is where you were very early, Stephan, was the inflatable, which until you’ve seen one and stood on one, what you tend to think of is the cheap Walmart rafts you had as a kid, right?
Stephan Aarstol:
Yeah, totally.
J.B. Hager:
These are a completely different animal and they become rigid. They can go in a backpack, you can throw it in the trunk of your car. You don’t have to have a surfboard. You could ship them a heck of a lot easier.
Stephan Aarstol:
That’s the big thing, really.
J.B. Hager:
Yeah. So, I mean, you crafted your own style of inflatable paddle board starting when?
Stephan Aarstol:
You know about we were on … We aired on Shark Tank or not aired, we pitched on Shark Tank in summer of 2011. And that’s when we had our first inflatable prototype. And we didn’t even talk about it on the show, but it was there on camera. And we rolled that out about six months later. But the funny thing is that we didn’t really invent the paddle board market. Like you said with Laird Hamilton, he was really doing this five years before us in Hawaii. He had a Laird, they had their own brand or whatever. Laird and Gabrielle Reece actually talked to us about licensing their name for our inflatable paddle boards at one point.
But the inflatable paddle boards had even been around for five years, but everybody was coming from the surf industry. And the inflatable paddle boards at the time were 4 inches thick, which is … A surfboard is maybe two and a half inches thick. So 4 inches thick seems like that’s really thick. It’s a bigger surfboard. We’ll make it a little thicker. But they were horrible. So even the inflatable surfboards, it was like, you could take one to Costa Rica on the plane, and you’d have something to surf on, but it was not a surfboard, a totally different experience.
So the paddle boards were these things that went bananas through the water and they were horrible. 1% of the market when we came out with our 6-inch thick paddle board. Basically, were not from the surf industry, and we just said, “Man, I would really love to be able to sell a bunch of those inflatables” because they get into a UPS box, which I can ship all over the world, whereas the hard boards go by freight. It’s 10, 12 feet long, 3 feet wide of-
J.B. Hager:
Likely to get damaged.
Stephan Aarstol:
Yeah, I mean, it was like 15% damage. It was a nightmare ecommerce business. And I’m coming from the background of being in a poker chip business, which is like ideal. My warehouse is in a spare bedroom, and I can keep a hundred thousand dollars of inventory in a spare bedroom. All of a sudden, you have
these massive boards. You need a massive warehouse, these shipping nightmares. And they’re breaking all the time, and it’s $150 to ship it and $150 when that person ships it back to you. So you lose $300 every time you fail to meet the customer’s experience.
So I really wanted the inflatables to work. So we started just sort of experimenting. We said, “Let’s just make this thing cartoonishly thick. Let’s make an 8-inch thick paddle board,” which we did. And we’re like, “Holy cow, that fixed it.” Because if you make a board, if you double the thickness, it’s an exponential effect. The rigidity increases by eight times. So by increasing the thickness by 50%, we increased the rigidity by four times. And essentially, inflatables became as good as hard boards.
And in a period of five years, inflatables went from 1% of the market to well over 70% of the market. And we were sort of on the leading edge of that.
J.B. Hager:
What price point were you coming in with your first version?
Stephan Aarstol:
Yeah, well, that was the thing. When I went to buy a paddle board, they were 1,200 to 1,800 bucks. And there were a few, I would call them direct-to-consumer companies, but they were just sort of the fly-by-night type. No real branding behind it. And they were selling you the crappiest product they could possibly make. Anything online was considered discounter products. We said, “We’re going to go to the top factories.”
And in fact, when we started the paddle boards, the top factories wouldn’t make it for us once they heard. They were all gung-ho to go, and about two months into it, they saw what we were going to sell them for, and they stopped communicating with us. And that factory over in Thailand made products for the top three brands in the world. And those brands said, “Shut this guy down.” And there’s actually an article I did in Fast Company about price fixing in the paddle board industry. And people did not want these direct-to-consumer companies to come in and disrupt.
So we had to go to a Chinese manufacturer. At the end of the day, the manufacturing, especially of inflatables, all transferred over to China anyways. So we were a little bit on the leading edge of that, but we were able to sell these things. We started at 500 bucks when most of them were going for $1,200 to $1,600. And we sold out our first container of hard boards before they even landed on US soil.
And then when we got into the inflatable business, I mean, the cost to make a board was pretty similar. So we were in that same price point, probably from about 500 to about 800 bucks is where we’ve historically played.
J.B. Hager:
So when you hit the market with Tower Paddle Boards, there had to be a lot of people just going, “What just happened? What just happened,” that big disruption like that. I remember something similar. I had a friend in the drone business. And at that time, drones were $2,500, $3,000, and up. And all of a sudden, Mavic came by with this little hand-sized one that was under a grand, and it just disrupted everything. It sounds similar to what you went through.
Stephan Aarstol:
Well, the thing was that we were so cheap that people assumed we were a crappy product. So it took two years for us to basically educate people and for people to try our brand because nobody knew our brand. But once they tried it, they’re like, “Wow, this is probably one of the best inflatable paddleboards in the market. So they’re the best in quality. And if I pick up the phone and call this company, they answer the phone.”
Well, sometimes you get me on the phone. You get the people who were shaping the boards, you get people who really have expertise. So we had the best product, half the price, and you could contact us and get an incredible customer experience.
And we’re doing the same thing with our Tower Electric Bikes now, but it just takes a while for people to really trust like this product is half price. So it wasn’t an overnight disruption. It was sort of this slow thing that started to snowball.
And then when we got on Shark Tank, and we got Mark Cuban to invest, then we became, almost like overnight, we went from being the Tower brand to the Mark Cuban paddle board brand. So we attached a legitimate known brand to it. And there was a little more trust there. And then things really took off from there.
J.B. Hager:
Wow, and I know it’s old news to you talking about your Shark Tank experience, but I love the show. I’m obsessed with the show. And I’ve had the pleasure of interviewing Mark Cuban a couple of times. And I like the guy a lot. Did you go in with the intent of getting him or had no idea?
Stephan Aarstol:
Shark Tank called me out of the blue one day. It was right when we were getting that first container of paddle boards, and we were super busy. I had hired my first employee three weeks before, and I just got a phone call, and this guy wanted to put us on TV. And I thought it was a scam. I thought they were going to try to get some production fee for us to be on TV because I’ve gotten those calls before from media, and they wasted an hour of your time.
So I just cut to the chase, and I said, “Look, I don’t have a lot of time right now. If there’s going to be any money involved here, we don’t have anything. I’d love to be on TV, but …” And he’s like, “No, no, no. We’re on ABC on Friday night.” And I’m like, “How have I never heard of this show? This sounds like a great show.”
J.B. Hager:
Yeah, it was early on the show. What season? Would you say season three?
Stephan Aarstol:
Season three. But they called me in season two and-
J.B. Hager:
It was very new, yeah.
Stephan Aarstol:
Yeah, and I had never seen it. So anyway, maybe five weeks later, I’m up in LA sequestered in a hotel for four days while I’m preparing for this. And you kind of had to go through a dry rehearsal and all of this. And then you could get cut at any second. And two days into that, they said, “Oh, by the way, Mark Cuban is going to be your guest shark.”
I didn’t know who any of the other sharks were. I was worried about forgetting their name on TV. But Mark Cuban, I’m like, I know who he is. So he instantly didn’t become my target, but I was just like, “I’m going to value that guy’s money a lot more than I value the other people’s money.”
J.B. Hager:
Because he was familiar.
Stephan Aarstol:
Yeah. It’s a celebrity endorsement, really, is how I was looking at it.
J.B. Hager:
Yeah. From my research, I couldn’t find anyone who asked you this, and I’m dying to know because I think you would have succeeded with Tower Paddle Boards without Shark Tank and without Cuban. Do you agree? And if so, what would that have looked like?
Stephan Aarstol:
Yeah, it would’ve looked like buypokerchips.com. So it was the same thing without Mark Cuban in there. And we became the top of that industry. But then that industry commoditized. Everything commoditizes online. You have some success, and you have a bunch of people that sort of copy you. And then it gets the margins trimmed down and stuff like that.
So I had seen this picture before at a slower pace, and I thought I was going to retire in 2004, six months before my son was born, because the poker chip business was exploding, and it sort of capped out, and then-
J.B. Hager:
Because it was popular on TV?
Stephan Aarstol:
It was the same thing. It was kind of not a new product, but it was a new trending product. And that was an easier product to start a brand in. That’s why the paddle boards were so perfect because it was like there weren’t established brands, and it was trending, and it’s easier to start an online brand with $0 in that type of market.
The same thing with e-bikes; while there’s 500 brands, there isn’t really one e-brand that most people … Most people don’t even know what an e-bike is, but they certainly don’t know who the e-bike brands are. So it’s a good environment to start a new brand.
But the online world is hardcore and getting harder core, especially with what Amazon is doing. It’s getting harder and harder to compete there. And the paddle boards, it really exploded for a couple of years. We went up to about seven and a half million in revenue, and half of our revenue was going through Amazon, and we were trying to diversify because I knew it was going to get commoditized. It’s going to come down.
So that’s why we started electric bikes. That’s why we started our Tower Beach Club. We’re diversifying offline. We’re just trying a bunch of different stuff because we know it’s sort of a dog-eat-dog world in ecommerce, and you’ve got to fight to keep alive.
J.B. Hager:
Well, I get the sense again, going back to the poker chip thing, it was all of a sudden we were watching it like sport on television. A lot of guys I know were obsessed with watching. They became stars, the poker players.
And then, you talk about this paddle board craze and then e-bikes which I do want to talk more about because it’s common like crazy. And I get the sense, Stephan, that you can just sit back, like say all this went away. You could sit back and look for another trend and launch that tomorrow. You’ve got this model of finding what the new things are going to be. And if you can hit it right, I feel like you could do this with 20 more products.
Stephan Aarstol:
Well, I don’t have the confidence that you have. So when the poker chip started to fail, I literally bought this book. It was a catalog of catalogs. It was 11,000. It was a directory of 11,000 product catalogs in the US. And I read the thing cover to cover, basically doing what you’re talking about there.
I was trying to find the next target that I was going to go into, and I identified 30 or 40 targets. I mean, there was just all kinds of crazy stuff like beekeeping equipment. One was cheerleader costumes or something. There were all these weird specific catalogs, but I didn’t really have any success in any one of those. Where I’ve been successful is in living. And I just sort of identifying what products I’m using. It’s like the poker chip company. Poker was hot on TV. I had a poker game with some friends. We couldn’t get the same chips you get in Vegas. And I said, there’s an opportunity.
But without actually pushing yourself to live part of it, you don’t identify that yet. So I live in San Diego here, and I live on the bay. And on the bay, you can just look off my patio, and I see, okay, there’s one paddle board. Next week, there are two paddle boards. Then there are five paddle boards. My buddy came down who traveled the world, and he took me out. And I could have said, “Eh, I don’t want to get up at five in the morning and go out there.” But he took me out, so that experience led to it.
The same thing with e-bikes. I live on the boardwalk here now, and you can just see the electronic world evolving in front of you. You’ve got skateboards, and these scooters, and bikes going down the boardwalk. So you really just have to pay attention to trends. So it’s not like I can go out and hunt and find something. But if you put yourself out in the world and experience stuff and just keep your head on a swivel and say, “What is different? What is trending?” That’s how you find it.
But I found I can’t force it. I can’t just go get a catalog and read through that and pick a product. I’ve got just to push myself out to live and then wait for something to happen.
J.B. Hager:
I think I read at one point your poker chip company was, you making like 50K a month. Does that sound close?
Stephan Aarstol:
We were doing revenue of 50K a month. That’s when I quit my day job. And I said for the first time I went out and became an entrepreneur, and that was in 2004. I had done it as a side gig up until that point. And then I went off on my own.
J.B. Hager:
And then where did the poker chip business start to falter? And what did you learn from that?
Stephan Aarstol:
Yeah, it started to falter about two years into it. So it was this rapid increase, and then it got up to maybe $600,000 a year. So it was a small business, but it was a one-person business. And then I started to optimize everything in the business, and it went down to $550,000 the next year, and then $500,000. But I was really working hard to try to maintain this business. And I said, “I mean, that’s kind of ridiculous. Maybe I should spend my energy on something that the tides are rising in.”
And so I intentionally started to compress my day, the time that I worked in my poker chip business and I was trying to start something else. That’s when I told you about the catalog, searching through these catalogs, that was the period that I was doing this. But I was unsuccessful because the poker chip business just took all of my time. It absorbed it like a sponge. One day, I said, “I’m going to go work on my shipping desk when I’m out doing new business development, and I’m going to work at my regular desk.”
So I got my regular desk time down to 12 hours a day. Monday, Wednesday, and Friday, I started only shipping three days a week and about four hours each day. And that’s all the time I really needed to run that poker chip business. And the rest of the time, I would go to my other desk, and I was in a different mindset and on a different computer. And I was saying, “Okay, what’s the next business I’m going to start.” And that’s where I really started to get into efficiency, training, and learning how to work differently, basically.
J.B. Hager:
That’s interesting. Two different workspaces for two different mindsets.
Stephan Aarstol:
Yeah, totally. Otherwise, your space just sponges because what you’re doing, your emails pop up, and stuff like that. You really got to separate it.
J.B. Hager:
I like that a lot. Can we talk about it, I have a lot of people in the bicycle boating industry. And I remember a friend of mine who has a DFW surf, that’s Dallas Fort Worth. They have a lot of boards, yoga classes, and paddle outings. He was coming down to Austin trying to buy, at the beginning of COVID, every new or used standup paddle board he could get his hands on because he saw this coming. And anything outdoors just went on this huge trajectory and sold out. I’m guessing that happened to Tower Paddle Boards pretty early on in COVID.
Stephan Aarstol:
Yeah. And I didn’t see it early on. It definitely happened to us, but we were in a unique situation. So 2019 was our rough year. I had told you we had walked away from Amazon. We were doing about seven and a half million in revenue in 2015 and 2016. And about four and a half of that was through Amazon. But we had realized the Amazon ship has sailed. It’s impossible to make money there as a brand. At the end of the day, Amazon wins all of that, and they’re just sucking all the profit out of that.
So we walked away from four and a half million in revenue and became a smaller company. Downsizing a company is very challenging. You got to do a lot of things, and we started to diversify, and we were cost-cutting. And we thought our paddle board business was going to decline, and we needed to diversify and do another business and get that off the ground before the paddle boards went out of business. So then our bank got nervous. So we had a defaulted loan, more than a million dollar loan that was defaulted. That was 2019 for us, a scary year and going in-
J.B. Hager:
I love real honest entrepreneurs because there are some nights where you have a tough time getting a good night’s rest, I’m sure.
Stephan Aarstol:
For sure. During this period, I thought Tower was going to go under, and I was just like, “Okay, I’ll go do some ecommerce consulting or do something like that.” And it really made me reflect on what was the good part about this business. And it was honestly all the people I worked with and the fact that we were creating a cool product that a lot of people enjoyed. Even if that disappeared, it was like you can’t sort of taking that away from us, all these people and the great experiences we had together.
And I was like, the money it comes and goes, but that was really the important part. And so it was an interesting revelation. It was kind of a near-death experience for a company and for an entrepreneur without actually going under. And then so going into … And we had turned around honestly. And going into 2020, we had diversified into Tower Electric Bikes, which was all of a sudden going through rocket ship growth.
We were now officing out of a beach club here in San Diego, so a 4,500 square foot beachfront. Basically, it was an old paddleboard shop that we turned into an event space. And now we rent out for $6,000 a day for weddings and stuff like that. So we have negative rent. We have a diversified ecommerce business that makes money in the real world as well. Now, we have an e-bike repair shop here in San Diego, again, an offline diversification.
So I thought we had positioned ourselves to be very anti-fragile going into 2020, but the bank was nervous, and then COVID came along. And I said, “Man, this is going to be the death blow.” I said, “We’re done.” And basically, we said, okay, we were kind of still selling on Amazon for the same price, but we weren’t focusing on it. So we said, “Screw it. We’re going to charge, and I think, 26% more on Amazon. We’re going to drop our prices 30%.”
And we did that in April, I want to say April 13th of 2020. This was about a month into the pandemic. And instantly overnight, without even announcing this, our conversion rate tripled over just from 11 o’clock till one o’clock. When I came back from lunch, I’m like, “Holy cow, this is price sensitivity.”
J.B. Hager:
Do you think people were finding the item on Amazon and then searching that item name and going, “Wait a minute. It’s a lot cheaper over here.”
Stephan Aarstol:
Yeah, some were. But we still get 10% of our sales on Amazon. Amazon is a convenient store. Some people, don’t care about the price anymore. But we were getting some of that, but we had a lot of traffic on our site, and it just wasn’t converting well. So I think we had … Everybody that was copying Tower Paddle Boards, their prices were up here and they were spending $200 or $300 per paddle board sale on advertising. And I just sort of refused to do that because it seemed crazy to spend more money on advertising than on our product.
And then you had on Amazon, you had the Chinese brands undercutting us on price. So we were in no man’s land. So by dropping our prices, and refusing to advertise, we got our price down close to this Amazon sort of non-brand Chinese brands on Amazon, but with a brand. So now we were close to them in price. The people that were trying to advertise to copy us. They couldn’t afford to match our price.
So we corrected the price thing, and sales started taking off. And then a month later, the COVID boom that you’re talking about for all outdoor companies. We don’t know exactly when that happened, but it seemed like the first, or second week of May. So about three or four weeks later, boom. Then it started taking off, and we were able to basically sell through all of our inventory, and it was a great year. And e-bike is the same thing. I mean, the e-bike market is already growing at just a breakneck pace. And then on top of that, I mean, you could go into a bike shop here in San Diego, and there were no bikes in the shop. Yeah, it was crazy.
So that was interesting, but it makes it hard to; now we’re in 2021, and we’re trying to make projections about what sales are going to be this year. What effect was the COVID bump that, and then you’ve got the whole thing with your distribution channels are all sort of screwed up right now? It takes 800 days to get tires for bikes right now. Imagine that, two and a half years. It’s crazy. And so all this is going to filter out into the market. There’s going to be blood in the water, I think, in the next couple of years.
J.B. Hager:
When we come back, we’ll have more from Stephan on the struggle many direct-to-consumer businesses face with the hyper-competitive and a somewhat monopolized world of paid advertising.
J.B. Hager:
Online shopping isn’t slowing down anytime soon. In fact, it seems like I can’t go a week without an online order showing up at my front door. And if you run an ecommerce business, you want to make sure that those orders reach customers quickly, affordably, and with minimal effort from you and your staff. Did you know that over 100,000 ecommerce sellers trust ShipStation to help them manage and fulfill their orders with just a few simple clicks, no matter what platform they sell on?
Elevate your delivery experience with branded tracking pages, simplify customer returns and build automation that can save you time and money on shipping so you can focus on scaling your business. Make the switch to a solution that simplifies all your domestic and international shipping needs. Visit shipstation.com/podcast and use the offer code, getshipdone, to receive two months free of no-hassle, stress-free shipping.
Can you elaborate a little more on your comments on Amazon? And I’ll throw into this Google AdWords too because it’s kind of a necessary evil of sorts. There was a time, if anyone listening is old enough when you had to buy a yellow pages ad. You were sort of you had to if you were an existing business. If you wanted to sell a car, you’re going to decide if you put a sign in your driveway or you buy an ad in the newspaper. Those were your choices.
It’s kind of similar in the modern world with Amazon and Google AdWords. But it sounds like there’s a love-hate, maybe more of hate. Tell me more. What’s wrong with the system?
Stephan Aarstol:
I think this is a very interesting topic because it’s similar and it’s different. With your yellow page ad, I mean, people thought yellow page ads were expensive, and you would spend 400 or 500 bucks a year. But you paid one flat rate amount for the year. And if you had a better business or a more efficient business than the guy next door playing that flat $500 a year, your business thrived. And so that was like a good use of advertising.
Today’s advertising world is a much more efficient system to suck all of the profit out of an industry. So you’re bidding against each other in live time. So if you go onto Yelp, let’s take that as the modern yellow pages. Now you’re going to pay if you’re … Five years ago, if you were on Yelp, it would be a dollar a click to get people. But now, okay, well, people realize more people use Yelp. More people are in “the yellow pages.” Now it’s $5 a click. So now they’re taking $500 a month from these companies. And then if somebody will give them $600, they do that.
And what this does is it’s an efficient market. And this goes back to my days with auntminnie.com, the radiology company in 1999, is there are efficient monopolies. The entire world tends towards these efficient monopolies. So now you have yellow pages of today will suck all of the money out of every local business because they take all the profit, and they get all the actual businesses to sort of bid against each other and who’s willing to give their profit over here to get an additional customer. There’s no flat rate, and then you have a better business, and you win. It’s the person in the middle who wins every time. And this is why you have Amazon and you have Google because of AdWords becoming trillion-dollar company.
And these are very, very dangerous middlemen, in my estimation. And just going through this Amazon process where I told you about 2017, we started intentionally walking away. Our revenues on Amazon were still going up, but you could see the trends there that we’re making less and less money. And now you can’t just be listed on Amazon, now you got to advertise. So they’re taking 30%, 40%, 50% of every transaction on there. It’s not sustainable. You’re not building a long-term business. So don’t get addicted to the revenues; look at what’s actually happening with profit.
So we walked away from there, and it almost put us under. It’s a very difficult environment when you have Amazon taking half of all transactions in the US, and you’re an ecommerce company. And we ended up creating a business called nomiddleman.com, which is an aggregation of all of the direct-to-consumer websites online. And it’s just an information site. And you want to find the three to five best companies who sell ski boots but sell them direct-to-consumer, you can go on there, find these. And it’s kind of like a search engine.
And I think this is almost the Amazon antidote where you have these direct consumer companies like Tower Paddle Boards, Tower Electric Bikes, that if they want to have a sustainable future, they’re going to have to throw in together and share leads and help each other without that middleman in there. Because of Google AdWords and Amazon, it’s very seductive to use them to build your company. But what are you really building if at the end of the day, they’re going to suck all of that profit out of you, not only your company but your entire industry?
J.B. Hager:
Now, we can talk about some e-bike stuff because I love San Diego. And you said you live on The Boardwalk, so it completely makes sense why you saw the e-bike thing coming. I live in an area called SoCo, South Congress, which is full of young people. It’s like a boardwalk without the ocean. And I’m like, “Does anyone walk anymore or pedal a bike?”
Everybody’s on some kind of e-device, whether it’s a one-wheel or the Bird scooters or bikes. And some of the bikes, they’re sitting knees forward like a scooter style. Some look like traditional bikes. My head is spinning on all the different devices, moving 20-somethings up and down South Congress, and I’m sure you saw the same thing. At what time was that timeframe where you go, “We’re going into that space”?
Stephan Aarstol:
It was about 2016 when I first noticed it. We didn’t launch our first e-bike until I want to say, late 2018. We developed a regular bike first. We weren’t in the bike market. Making a bike is a lot more complicated than making a paddleboard. I mean, making a good bike, I should say. I can just go to a Chinese factory and say, “Make me a bike and put a motor on it,” and then that’s what most companies do.
But when we enter our market, we only want to enter at the very high end. I try to do everything from, will this business be around in 20 years? Are we adding value or are we just making a transactional business? So we created the world’s best beach cruiser. We did a belt drive, aluminum frame, and thousand dollar beach cruiser basically, and sold it for 500 bucks.
J.B. Hager:
Your e-bike looks very San Diego, right? A bike maker here, an e-bike maker here wouldn’t make it look like a beach cruiser. But where you live, that makes absolute sense.
Stephan Aarstol:
Yeah. And the funny thing is when you look at like … Traditionally, bikes are recreation. You’re going out on a bike to get exercise and to sort of have fun or whatever. E-bikes are transportation. This is a utility thing. It’s a totally different thing.
A lot of bikes that you’re on, you’re hunched over this bike, and you’re engaged with the pedals. It’s like an active sports type thing. You don’t drive a car like that. It’s almost like the difference between a laid-back Harley-Davidson and a Ninja. Nobody takes a Ninja for a 500-mile ride because you would just be dead at the end of this, right? But most bikes are actually like Ninjas.
So in my opinion, people are saying, “Oh, electric bikes are around. We’re going to take our bikes and we’re going to electrify them.” That doesn’t make sense for 90% of bikes. A beach cruiser is a transportation at the beach. That’s why people use them. It’s not for recreation. I’m not going out to get some exercise. I want to go to the bar, and I don’t want to get a DWI, or I don’t want to have to deal with parking. And it’s laid back, and that’s what an electric bike should be. And obviously, we’re a beach lifestyle company.
So Tower Paddle Boards, everything we do, we do skateboards and surfboards. Everything is, if it doesn’t fit the beach lifestyle, it doesn’t really fit our brand. So we’re not an e-bike company, we’re an electric beach cruiser company. So we were just in the right place at the right time. But I think you’re going to see beach cruisers, electric beach cruisers now go into other parts of the market. There’s no beach anywhere there like your area.
And it’s interesting, I mean, you’re in Austin. There are certain areas in the country where you just see the future happening before it happens everywhere else. And that’s where you want to be to see these trends. But what you’re seeing now is going to be in Des Moines, Iowa in five years. And so you can see that future.
J.B. Hager:
Why do you like to ship such big things?
Stephan Aarstol:
That’s the funny thing.
J.B. Hager:
What’s next for you? Truck campers? Come on.
Stephan Aarstol:
So when we started the paddle board market, I was just like, “This is a great market. We can do this from ecommerce.” And then I realized freight is a nightmare. And then we luckily pivoted into the inflatable paddle boards.
Now, I cannot deny that the electric bike market is just booming, so we need to get in there. It fits our brand perfectly. But all of a sudden, we’re back to shipping these massive boxes that cost us a hundred bucks to ship them. And if there’s any damage, you got to send it back. So we’ve spent a lot of time on boxing and making these things bulletproof. We spent 50 bucks just on our boxing. For the foam, we have a metal fork plate, so nothing gets damaged. We have super expensive boxes. But as a direct-to-consumer company, you learn to invest like that. You’re in the business of delivering a beautiful box. You’re not just in the business of delivering a product.
So, I’m learning. But when I saw the little scooters, you guys have probably seen the little Bird scooters that you have there. Some of those fall down. I was like, “That’s my inflatable paddle board there. We’re going to go on that market.” But right as we started to think about doing that, five companies raised a billion dollars, and they just blasted them everywhere. And I’m like, “Okay, that market’s already ruined before it even starts.”
So we’re now in the business of selling large boxes online. But I think it’s still a pretty good business because it’s not a hundred-dollar product. Ours, we’re direct-to-consumer, and we have about a $1,900 product right now. There are a lot of tariffs and BS built into that price right now, so that will come down over time. But that e-bike in a store will cost you 4,300 bucks.
J.B. Hager:
You seem to have a knack. I don’t know if you back it up with research or if it’s kind of a gut, but it sounds like you’re good at finding this price point that will bring a lot of people into the standup paddle market. If I’m 22 years old, living in San Diego, and I’m five miles from the beach, what’s my pain point on buying an electric cruiser? Thousand dollars? I’m like, “Yeah, I’m in.” But if it’s $3,000, no, it’s not happening. Tell us a little bit about how you come up with that pricing. Do you do some research?
Stephan Aarstol:
I mean, it’s tricky. A lot of it is, we don’t try to zero in on a price and then make a product for that because I know companies who do that, and I think they just make a lot of crazy trade-offs, and we saw this in the paddle board market. And those companies were able to sell a ton of paddle boards. And they sold a ton of paddle boards, and they spent a ton on advertising and the companies blew up and flamed out because they weren’t creating an incredible product for the customer. They were targeting a price point and giving them whatever product would fit into that box.
So we take a little different approach. I think because we’re direct-to-consumer, we’re already disrupting because, okay, you can go buy an e-bike in the store and people get sticker shock. When they see a $4,000 e-bike, they’re like, “This is the price of a used car. That’s insane. Why would I buy an e-bike?” So that only has a certain market.
But as soon as you take that direct-to-consumer, you’re chopping about half of that cost off. So it becomes more palatable. But still when people see our $1,895 for an e-bike, they’re like, “That’s extraordinarily expensive,” especially if they don’t know what an e-bike is. Once somebody rides an e-bike, a light goes off in their head. They’re like, “Okay, I don’t have to park. I don’t need gas. This is insane. I can actually … It’s about a 15-minute drive to my office. It’s about 12 minutes on my e-bike. It’s faster than a car.”
J.B. Hager:
I call them giggle-makers. You may be some purist cyclists, and I know a lot of those people. I bike raced for years. You get on one, and you’ll have a big … You won’t be able to wipe the smile off your face.
Stephan Aarstol:
And what you say about a giggle machine is funny because e-bikes are new in the US. Even though they’re trending, it’s happening in places like Austin, it’s happening in places like San Diego and beach towns. A lot of people don’t understand. If I say an e-bike, they’re like, “What is that? What do you mean, electric bike? I don’t get it.” They don’t know what it is. And they certainly have never been on one. The first time people get on it, I mean, I explain it as a life-changing experience.
And these are the type of products at Tower that we like to create. Anybody can, we could sell anything we want to online. We could sell payday loans or something like that. We can sell products that make a lot of money that really doesn’t help the world or are a net negative to the world. But as an entrepreneur, I think you have a choice of what products you’re going to do. And when I find a product like that, that I use myself that is this giggle machine or whatever, you’re just like, “Oh my god, this is a freeing thing.”
The paddle board is kind of the same thing. When you get out there, you’re like, “Why am I not doing this every day? What an amazing experience.” And so if you can bring products like that into people’s lives and introduce them to that, I think that is the basis for building an incredible brand. And that’s really what we’re trying to do.
And the e-bikes, I would say, are 10X what paddle boards are because once people get on there, it brings you back to basically being a child where you’re used to bike around your neighborhood. And most people that are 50 years old, unless they live in a beach town like I’m in, they haven’t been on a bicycle in 20 or 30 years. And when they get back on, it brings them back to that childhood experience of just like enjoying your neighborhood. I think it’s life-changing.
J.B. Hager:
I would agree. And the geometry of a beach cruiser makes you feel like a kid too. I love that. I love that. But I know you have become a regular, speaking to Harvard students through a connection of yours. And what’s that like? And I’m sure year by year, the story changes, right? But what would they be wanting to hear if you were doing it tomorrow?
Stephan Aarstol:
Well, the interesting thing about how the Harvard thing happened is in 2015, I moved the whole company Tower to a five-hour workday, working 8:00 AM to 1:00 PM straight through, no lunch. And we were going to do it for the three-month test, and we ended up continuing it for about two years. And it was basically squeezing people for time, getting more productivity out of them, and basically giving them their life back. And if they couldn’t keep up, they would get fired. So there’s pressure on them.
I was turning everybody, giving them the same motivations and benefits that an entrepreneur has. And it was a slow experiment we did. And it really resonated with some people. So after about a year, we wrote a book. For every paddle board that goes out, we put this Five-Hour Workday book in there.
Anyway, we got a lot of press around this and just a lot of notoriety. And one of the people that reached out to me was a Harvard professor and his wife; and they wanted to come to have lunch, and they wanted to talk about this because they’re like, “Yeah, the work world has changed.” They were very interested in this. And I started talking to this professor about Amazon, and he was an ecommerce professor. And he was like, “Man, you know everything about Amazon.” I mean, literally, we were in Jeff Bezos’ annual letter to the stockholders in 2015. We’ve kind of risen up with Amazon. We really understand what’s going on there.
So he was interested in the Five-Hour Workday, but then he wrote a Harvard Business case study on selling on Amazon at Tower Paddle Boards, basically. And okay, here’s the opportunity, here’s the threats of Amazon, what would you do? And here’s your four options. So that’s the case he wrote in, I want to say, 2015 or 2016. So I now spoke about that case at Harvard over half a dozen times. And every year, it changes because that’s how fast the world changes now. And the decision to make about Amazon in 2015 or ’16 is a 180-degree difference from what you would do now.
But the interesting thing about that experience for me is, that this professor is kind of surprised that I would fly back and speak live at Harvard. I did it once. And then next year, he’s like, “Would you want to come again?” And I’m like, “I’ll come anytime I’m invited.” First, because I couldn’t get into Harvard when I was a student, so it just makes me feel sort of special, I guess. But the other thing is you go into a Harvard MBA class, and you see what’s going on in the business world. I mean, the diversity there is just insane, and these kids are super smart.
So they’re discussing this case, and I’m learning from these kids talking about this case. A lot of kids, like probably 25% of the class, have already worked at Amazon because they’re in an ecommerce class. So you really see the changing world and everybody’s perspective on it. And it’s very educational for me to see.
J.B. Hager:
Yeah, they probably fire away on the Q&A part. You could probably walk in and open with that and do hours.
Stephan Aarstol:
And just super smart kids thinking about that. I think it’s a learning experience for me.
J.B. Hager:
Do you have another book in you?
Stephan Aarstol:
I was never very good at English. I probably read five books in high school and college. I never thought I would write one, but I ended up writing a book. It’s a guy in Austin, Tucker Max. He started a company called Book in a Box, and he was talking at some conference about this is how you get people that actually have knowledge in their head to actually publish stuff. He’s like, “If you look at the history of the world …” And it was a very compelling speech that he gave. “If you look at the history of the world, the only time stuff gets written down is where the person who has something interesting to say is also a writer. And if those two things aren’t in the same person, that information is just lost throughout history.”
So the goal of his company, it’s called something different now. I forget, like a Scribe Media or something.
J.B. Hager:
Yeah. I think that’s it.
Stephan Aarstol:
It’s not ghostwriting where somebody else just writes a book for you, but they do an interview style, and they create a book.
J.B. Hager:
With deadlines, like you’re on a schedule, right?
Stephan Aarstol:
Yeah. But they’re interviewing you and transcribing all the text, sending it overseas, writing it down, bringing it back, having a real book editor go through this and sort of creating the story arcs and stuff like that. It’s just a very efficient way to write a book. So I would write a book like that again if I had something to say, but just going to a cabin in the woods for a year sounds like just complete misery to me to write a book. I don’t think that’s a pleasurable process for most people, certainly not me.
J.B. Hager:
And can you give people just a couple, two or three takeaways of what you probably do not expect as you’re going into a new ecommerce business, a direct-to-consumer business, or something similar?
Stephan Aarstol:
Well, I think the first thing is when you were talking earlier about, “Hey, just go out and find … You could find another business, it’s easy.” That’s actually very hard. And every time I’ve tried to create a product and then go out and try to sell that product, I’ve failed every time. The only times I’ve succeeded is when I somehow stumbled across demand, unmet demand. “Okay, paddle boards are trending, and they’re super expensive.” Sell for half price, and there’s demand there.
In the e-bike market, I mean you have in the US in 2018, there were 300,000 e-bikes sold in the US, 300,000 in a year. In about 5 to 10 years, that’s going to be seven million a year. That’s more than the number of cars that are sold in the US every year. So that is just booming.
And what’s happening there is Americans used to look at bikes as recreation. And now they’re looking at them as transportation. If you go to Asia or Europe, they already sell 10 million e-bikes a year in Asia and Europe both of them. Because historically, in China, people ride a bike to work. That was transportation, a regular bike. Now that it’s electronic, that’s just a better version of the transportation they were already using. But there’s a transformation happening in the US.
If you go to Hawaii as a tourist and you rent a car, especially in Waikiki, it’s a miserable experience because it’s $50 a night to park this car. You got to pay a hundred dollars a day for the car. If you want to go anywhere, there’s traffic. It’s hot. You’re from the Midwest. And all of a sudden, it’s like 85 degrees, and you’re in a car, and you don’t know how anything works. You don’t know where you’re going. It’s horrible. It’s like a miserable experience to get around.
Now, if you get on a scooter and the people like the locals that live there, as you’re driving this scooter, you get air conditioning. It’s like you’ve got a breeze in your hair. You roll it right up to the beach right where you want to go, and tie it up to a no parking sign. So you eliminate the parking. You eliminate the cost. You have an air-conditioned cruise. It’s all of a sudden like transportation is pleasurable. It’s a different experience.
And that’s what e-bikes are as well. It’s the same thing. It’s a scooter. You don’t have to wear a helmet, and it’s transportation.
J.B. Hager:
I got to ask you something that you said much, much earlier in this interview that I’m not going to let go of. Because you said when your son was four, you were going to retire. How old is your son now?
Stephan Aarstol:
No, that’s not when he was four. That was in 2004. That’s when he was born. We were in the hospital, and I was like … He was going to be born, and I was in there reading a yachting magazine, deciding which yacht I’m going to buy.
J.B. Hager:
I want to hear why you’re still working, is where I’m going with this stuff, and go on.
Stephan Aarstol:
It never happens when you think it’s going to happen. But a year earlier, I had my day job. Six months earlier, I quit my day job to go off on this business that I want. Revenue-wise, I’m doing $50,000 a month. In the month of December, I made more in that month than I’d made in an entire year in my job. I was on this trajectory where I thought there was no end in sight like this is easy, game over. I don’t know what; I was 32 at the time. I was like, “Life is easy. I’m a brilliant entrepreneur.”
But what happens is, okay, you found success. Everybody’s like, “Well, what’s he doing? We’re going to do that.” They sort of copy you. And then the windows of opportunity open, and they close. And I’ve seen this happen so many times in the last 20 years. You identify something like pay-per-click advertising, like Google AdWords.
I was using that with the radiology company two years before Google AdWords existed with something called goto.com. We were paying a penny a click to build a business. But that opportunity window opened, and then in about maybe six years, then you had big corporations using it, now it’s $5 a click. Now, you can’t make any money doing that. Windows of opportunities open, and they close. That’s because people just sort of flock to it.
That’s what happened in the poker chip business; that’s what happened in the paddle board business. Although we still have a viable business there because we created a legitimate brand. So you have this sort of snowball effect of a brand that starts rolling down the hill by itself. And in the bike business, before we’re even getting started here, there’s just more and more people starting it. So that’s just sort of nature. Business moves so fast today, it’s crazy.
And this is one thing I talk about in the Harvard case study that I do. If you look, I saw a study, and they were talking about in the … I don’t want to say the ’60s or ’70s, maybe even the ’80s. It was on the S&P 500. If you look at the companies on there, what is the average age of a company, or how long do they enter the S&P 500 before they completely are off the S&P 500? And it was 40 years.
So, these are the everyday brands that you know, the Coca-Colas, the Southwest Airlines, those types of companies. If you look at that in, and this was even in 2010, the average age of an S&P 500 company from initiation to being dead was 18 years. Fast forward that out; companies don’t even survive like a decade now. We’re a startup at Tower Paddle Boards and now Tower Electric Bikes. We started in 2010, so we’re in our 11th year. I mean, what I consider success is just still being in business that long because if I look at the paddle board companies that disappeared, I mean major companies that got huge, huge funding. They went into Costco, they seem to be the dominant brand. They’re gone. All of the small brands are gone.
In the e-bike industry, I see companies raising $25 million, and $150 million. I’m just like, that company will be out of business for five years. I would bet you a dollar right now, I could almost pick the companies that are going to be out of business because I saw the same companies do a similar thing in the paddle board business, and it just doesn’t work for building a long-term company.
So that’s why I feel optimistic, even though it’s a very challenging business world. If you do it in the right way, you can survive the long term, but you got to make your company anti-fragile. This is a critical thing. You’ve got to think when is the other shoe going to drop. And that’s what I learned by almost retiring in 2004 was, don’t believe the hype because it’s all going to come crashing down. And you need to figure out the next train to ride up, and that one’s going to crash down. So it’s this flow.
J.B. Hager:
Stephan Aarstol, thank you so much for your time. I think people definitely were pulling out their pens and writing down things to guide their new businesses. This has been super, super helpful. If you want to check out towerpaddleboards.com, I would highly recommend that and towerelectricbikes.com. Any other socials or contacts you’d like to give out?
Stephan Aarstol:
I think the biggest thing because you guys have a lot of entrepreneurs, is nomiddleman.com. I mean, essentially there, we’ve sort of aggregated and curated about 400 of the world’s top direct-to-consumer brands. And we have them maybe in about 2,000 or 3,000 product categories.
If you look at Amazon today, there are maybe 14,000 categories of products of everything that’s sold on earth. So, there are a lot of empty categories for direct-to-consumer brands. And when I was talking about earlier, the businesses I have had success with is where I identify unmet demand. So, go find a category on there that is vacant and say, “Okay, is that an opportunity or is that aligned? Can I add something to that,” because I think there is a huge amount of opportunity in the entrepreneurial world. It’s not easy. It’s not like let’s go raise $10 million and let’s buy AdWords and sell the stuff on Amazon. That doesn’t really work. It’s not easy, but there is a lot of opportunities out there.
So I think for entrepreneurs, that’s a good place to just sort of search and find opportunity. I mean, in addition to customers wanting to just identify products, it’s a search engine to identify cool, interesting brands at the best deal you’re going to get around.
J.B. Hager:
And I would recommend everyone pick up a copy of Five-Hour Workday, available on Amazon.
Stephan Aarstol:
Yep. It is. I love Amazon. I’m telling you, I do my Christmas shopping on Amazon, but it’s a convenience store. And if I cared more about money, I would shop around more. But I’m kind of like whatever. It’s super convenient. I love it.
J.B. Hager:
Oh, man. Thank you so much for your time. If you enjoyed this podcast, pass it on to your friends, especially if they’re in this industry. If they’ve got a startup, this is inspiring. Like and subscribe to it wherever you get your podcast. Stephan, thank you so much.
Stephan Aarstol:
Hey, thanks for having me on, J.B. I appreciate it.
J.B. Hager:
Today’s episode of Get Ship Done was brought to you by BigCommerce. BigCommerce is a leading ecommerce platform that empowers merchants of all sizes to build, innovate, and grow their business online. BigCommerce combines simplicity and ease of use with enterprise-grade functionality, giving you the flexibility and powerful features you need to future-proof your online business. Discover everything BigCommerce has to offer. Visit bigcommerce.com and start your free trial today.
J.B. Hager:
Thanks for joining. I’m J.B. Hager, and this episode concludes season one of Get Ship Done. We’re excited to pick back up season two with a whole new lineup of inspiring entrepreneurs, shop owners, and online merchants who tell the story of how they found success in ecommerce. In the meantime, feel free to follow at ShipStation on Instagram for additional spotlights on individuals making their business dreams a reality.
