How I Partnered With Mark Cuban To Start A $250K/Month Company Selling eBikes
Hello! Who are you and what business did you start?
Hello! My name is Stephan Aarstol. I'm the CEO of Tower Electric Bikes.
Tower Electric Bikes is direct to consumer eBike brand I co-founded with Mark Cuban. We make electric bikes we love, and are proud to recommend to our friends and family. Electric bikes so beautiful they exude heart and soul. We believe eBikes will change the way people get around, and we believe we can accelerate this shift by selling beautifully crafted ones direct to consumers for half what they cost in retail.
Tower began as a paddleboard company in 2010 and has since evolved into a holistic direct to consumer beach lifestyle company. We produce and sell everything from paddleboards to beach cruisers, to sunglasses, to surfboards, to skateboards, to inflatable docks, to electric bikes. The primary focus of our future growth is in eBikes so that's what I'll speak to in this article. It's a story about the evolution of a brand.
In October of 2019, Tower was named one of the "Top 20 Shark Tank Products of All Time" in USA Today. We've done over $36 million in sales since getting a $150,000 investment from Mark Cuban in 2012.
What's your backstory and how did you come up with the idea?
I live right on the boardwalk on the beach in San Diego. I get a good sense of up and coming trends in beach lifestyle while just kicking back on my patio with a Margarita and watching the world go by. In the last three or four years, there has been an explosion in electric powered things buzzing down the boardwalk. They've always been there, but it used to be one dude cruising the boardwalk with some kind of homemade electric skateboard or something once a week. Then the trend started growing exponentially in the last few years and you could just see the future.
My main form of transportation down the boardwalk has always been a beach cruiser. While bikes are also recreation around the beach, unlike many places they're a central form of transportation for anyone who lives at the beach. Why sit in aggravating coastal traffic and then search for scarce parking when you can just cruise down the boardwalk with the wind in your hair and an ocean view. A rusty beach cruiser literally offers you a better quality of life than a car which might set you back $50K. Not to mention the rent for a garage to park said car might be $500/mo.
The thing about electric bikes that most people don't get is that they're basically the perfect form of transportation. This is NOT just a "different kind of bike". Aside from kids, beach dwellers like myself, and what my son refers to as "butt darts" (those odd and colorfully dressed Tour de France type road cyclists), normal people just don't use bikes as transportation in the US. Bikes are a recreation with a side of exercise. Electric bikes can be better described as a replacement for a car. It's like a scooter that doesn't require a helmet and you can ride on paths, boardwalks, sidewalks, across the lawn, wherever. The first time you ride one, the light bulb goes off in your head... wait, this is fun, requires no effort even up hills, let's me avoid traffic, doesn't require a parking spot, has a range of 30-60 miles, and if the battery does die I can just pedal the rest of the way home.
At the time this all donned on me, Tower was a thriving start-up primarily selling paddleboards, but we wanted to diversify our products and business to make our company healthier. We were expanding into other beach lifestyle products like surfboards, skateboards, and sunglasses. Building the world's finest electric beach cruiser was a natural fit. When I looked at the market, it was a fragmented mess of ill-conceived products and brands. Apparently, anyone could Frankenstein together an eBike, or piece together one with a conversion kit, and start an "eBike company", and so that's what happened. Hundreds of competitors. Very few goods, a handful of bad, and a lot of ugly.
If you ask a person on the street anywhere in the US to name an eBike brand they couldn't. Many wouldn't even know what an eBike was. But worldwide it is already a massive industry with an estimated 30 million units sold per year, and it's expected to grow to 75 million in the next 10-20 years. In 2018 in the US, 300K eBikes were sold. This is expected to grow 20x to 7 million in that same time frame. So the plan was we would do exactly what we did in the paddleboard industry - make high-quality, low-cost products easy to find. By focusing on that simple premise, we created the #1 fastest growing company in San Diego in 2014, then the following year we ranked #239 on the INC 500 list of America's fastest-growing companies.
So that's our aim. We're going to create the world's first famous eBike brand. It is a brand void waiting to be filled. Our first product is aptly named the Beach Bum. It's a high-end electric beach cruiser that would sell for $3750 in retail, but we sell it directly to the consumer for under $1,700.
Take us through the process of designing, prototyping, and manufacturing your first product.
Product design is critical. Not just the aesthetic look of something (which is also critical), but the functional choices you make in product design. You've really got to take a blank slate approach and get to the heart of what the product you are designing will be used for. This is an area that I've found I kind of excel in. I'm a fair contrarian thinker so I don't just accept the status quo and go along with what everyone else is doing. I challenge everything. If everyone is doing something one way, my assumption is that it's probably the wrong way to do it. Herd mentality and groupthink take things in the wrong direction a lot of times. Maybe most of the time.
When we launched in paddleboards back in 2010, part of the reason I started was when I went shopping for my first paddleboard I learned that these things cost like $1200-$1600 for what was basically a big surfboard. And you could buy a cheap surfboard for $300. It didn’t make sense. Ninety-five percent of these paddleboards and the ~80 or so brands at the time that were making them were using a traditional retail sales model with brands, distributors, wholesalers, salespeople, and retail stores. As a result, SUP boards were selling for 4-5 times what they cost to produce. Additionally, the majority of brands seemed to perceive paddle boarding as a different kind of surfing. Lastly, there was this oddity called inflatable paddleboards in the market that had been around for years, but they were horribly designed and only represented about 1% of the market.
Keep your burn rate low. Worry less about the competition putting you out of business and worry more about yourself putting you out of business.
Our process was to assume that what the bulk of the market was doing was probably stupid, especially if they were all doing it, so we hypothesized, "What if we do the exact opposite?" Then we did just that.
We sold direct to consumers only, and at a single markup. By doing so, we offered consumers a better value proposition - half-price paddleboards. We intentionally ignored the sexy surf and race market's that all the other brands we're aggressively trying to stake their claim in. We looked at paddleboarding as more like kayaking than surfing, and when you looked at the numbers, 80-90% of the market wasn't surfing or racing. We also refused to advertise in magazines like all the other "serious" brands, and we still to this day have never attended one industry trade show. Then we took a hard look at the viability of those inflatable boards, as they fit our direct to consumer mail-order business model better anyways. We discovered that inflatable paddle boards, with a little re-engineering, worked just fine for tooling around bays, lakes, and harbors, and were actually far superior to hard boards in terms of storability, transportability, and durability.
Within 5 years, without advertising one dime the first 4 years because we couldn't keep stuff in stock as is, we built Tower into one of the strongest brands in the paddleboard industry. Today, surfing and racing are tiny segments of a quite large paddleboard market. And the last time I looked at market stats, inflatable SUPs were 70% of the paddleboard market. In 2017, our co-branded Chris Craft inflatable paddle board was rated the #1 paddleboard in the world by the prestigious Robb Report, over some boards that sold for $2500 to $3500. Ours sold for $650 at the time.
In the eBike market, with Tower Electric Bikes, we're taking a similar look at what the industry is doing that makes sense, what is groupthink, and what is just plain stupid. In 5 years, we'll see what happens, but I'm optimistic. As an entrepreneur, sometimes you find yourself in the very fortunate position to see an opportunity that looks oddly familiar to something you've seen before. When that happens, you can almost see around corners.
Our first product, an electric beach cruiser called the Tower Beach Bum, is starting to gain traction already, and we've just barely started.
Describe the process of launching the business.
While we had rolled out a diversified portfolio of beach lifestyle products beyond paddleboards over the years, we knew going in that our eBike wasn't just going to be another product. This was a massive market that was seeing explosive growth with a brand void. This was more akin to us starting a paddleboard company in the first place, so we separated things out and treated the opportunity with the same serious attention to detail.
We had a very healthy going concern in Tower Paddle Boards, so we didn't need to rush into anything. We took our time and did things right. We first prototyped and rolled out a regular bike (non-electric), which we considered to be the world's finest beach cruiser.
We over-engineered the thing so we knew what it took to create a really great bike. One interesting thing about selling direct to consumer is it allows you to offer very high-end products at very reasonable prices so you can tread where others won't go because they fear pricing the product out of the market. For starters, our beach cruiser came with a belt drive. Many beach cruisers sell at retail for just over what our production cost of just the belt drive system was, so this was definitely distinctive. It's about as high end as you can go on a beach cruiser!
We brought in a serious product design studio. We went with a stretched, lightweight, rust-free aluminum classically styled beach cruiser frame. We used all premium components. We put innovative, and patented, passenger pegs on the rear wheel. Then we added premium wheels with 48 spokes as you'd find on high-end mountain bikes, and top of the line tires. The design aesthetic itself was black on black, with a matte black frame and glossy black logos, a brown leather seat and grips, all accented by unique brown whitewall balloon tires. It's truly a work of art.
Our eBike design was based on this frame design and aesthetic, but we took a blank slate approach on the eBike because we didn't want to be boxed in by our bike design. Bikes are more about exercise and recreation. At the very high end, they have style, but basic bikes are about functionality. When that gets ported over to eBikes and electronics get tacked onto them, they tend to look like bike mechanics for engineers built them. They're contraptions, halfway between weird looking bikes and homemade motorcycles. They've got noisy tires, they shift awkwardly at times, they've got their brand name in big letters plastered all over the place (imagine that on a luxury car), and they're just kind of obnoxious. That's kind of the state of the eBike market.
We view eBikes as transportation with a side of recreation, more akin to an improved version of a scooter, or a convertible sports car. They're not a different kind of bike, in my mind, We call our electric beach cruiser the Beach Bum. Our tagline is, "Stay cool. Be Free." The 'stay cool' part is about the fact that it's stylish first, like a beautiful car that just plain looks stunning. And it's got air conditioning built in to keep you 'cool'. The "be free" part is the light bulb that goes off in your head the first time you ride one. You realize you can go on a 30-mile bike ride and up any hill so it frees you to go anywhere. It expands your local circle of familiarity from the half-mile or so you are willing to walk, to about a 10-20 mile radius. And perhaps more importantly, you're no longer constrained by traffic, or roads even as you can hit any path you want, or by available parking spots. You have freed yourself.
For funding this new company, we use profits from our paddleboard cash cow. Even if we have to invest a good chunk to get things up to speed, it's all tax-free as we're reinvesting profits. So much more advantageous than starting from scratch. Even better, we're able to leverage our entire infrastructure so our incremental burn rate to add an eBike company to our existing operation is basically zero. Just add inventory. That gives us a huge operational cost advantage over the competition. We already have a warehouse. We already have a competent marketing team on staff. We already have the shipping function taken care of. We already have a customer service team.
The most important difference between how we started the paddleboard business and our eBike business is that we now can see the future. Mostly, we're only doing things that work. We're definitely avoiding our prior mistakes. And with Mark Cuban as a co-founder this time, we have the ability to leverage his celebrity status in a meaningful way to separate us from the hundreds of me-too eBike brands out there. In a way, we're talking more about Mark Cuban's eBike company early on instead of the Tower Electric Bike company because we know that is more meaningful until we get the brand well established. It's like Tesla. There are a handful of electric car company start-ups out there, but most people only know Elon Musk's company, in part because he's Elon Musk. His reputation and proven record speak volumes.
Since launch, what has worked to attract and retain customers?
Our objective is to make high-quality, low-cost electric bikes easy to find. It's a very simple strategy. Everything emanates from that.
I get a lot of people calling me because they've heard we're killing it and they want to know our secret. They've maybe seen me on Shark Tank talking about our SEO expertise ("Search Engine Optimization"), so they'll call saying they want to hire me on a consultant basis for their company. Or they'll have invented some product and say all their missing is the marketing guy and I'm their guy. Let's partner.
But there really are no marketing secrets, and when there are it's not for very long in today's fast-moving world. I've been at an executive level in the online marketing and business development space since 1999, and what I've learned is that there are these arcs of opportunity with each newly identified marketing tactic.
In 2000, two years before Google Adwords even existed, I was leveraging GoTo.com's invention, PPC search advertising to buy search traffic clicks for a penny a piece. It worked fabulously and big companies wouldn't even start using it for another 5 or 6 years. It still worked then, but less so, and it's gotten crowded in the past decade and now only works selectively. Even then, Google has a monopoly now and just sucks the profit out of everything they touch.
Then it was email. Then it was group buying in discussing groups, the predecessor to Kickstarter. Worked great for a while, then the window of opportunity closed for the most part, for most people. Then social media came and the organic following was great. Then because they had a monopoly, they made it pay to play and that seemed bad but it was actually another even more fantastic opportunity with highly targeted FB and IG marketing. Then influencer followings exploded and that became the new window of opportunity. Then Amazon marketplace became an untapped marketplace that was getting huge overnight, and that window opened and closed... because they're a monopoly too so they're correctly sucking out all the profit. And it continues. Windows open and if you're early, you can do well. And once everyone clues in 5 years later, it stops working as well, then it gets crowded and the opportunity passes.
So our plan is to not worry about the next online marketing window to come along, but rather to make a really high-quality product. Obsessively focus on that. And then make it relatively low cost for consumers. Not making cheap products by cutting corners, but rather figuring out ways to get your amazing product into consumers hands inexpensively without any middlemen. That's why we go direct to consumer, and largely starve our advertising budget. It forces us to identify hacks.
The next step is to make a good web site, pitch how great your product is to the press in whatever creative way you can, and get butts in bike seats locally so people can find us thru referrals. Start locally, and grow things organically from there. Pass all our savings onto customers from our lean operations, not advertising, and no middleman. Execute well with a smart team and customers will start to tell their friends about us. Most of all, don't really worry too much about the "marketing". The best marketing advice that I always give (that no one listens to) is "fix your crappy product," which often translates to "fix your crappy value proposition". That's the only viable marketing plan in today's transparent world. Marketing is really quite easy with a brilliant product, and it's impossible with anything else. So start there.
The windows of opportunities I see on the horizon today are currently only two:
1) Start a direct to consumer brand - I've spoke at Harvard Business School four times over that past 3-4 years and the #1 thing that those students are looking to do is start a direct to consumer brand. I've been working in one intentionally since 2010, and unknowingly in one back as far as 2003. Hundreds of brands in hundreds of categories have been started. The top 25 have raised over $2.5 billion in venture funding. Many of these companies are already unicorn status. And there are scrappy companies in many sectors that you wouldn't expect. Consumers won't know these brands for 5 years, but these are the brands that will own the future. They are the future of retail.
2) Throw in with other direct to consumer brands to exchange free leads - Don't advertise and give Google 50% of every revenue dollar you take. Don't sell on Amazon and give them 50% of every dollar you take. At least don't make that your long term strategy. Others will, and you'll beat them when they realize that's a losing proposition long term.
A few years back as I started to realize that as Google and Amazon we're becoming more and more monopolistic. What started as a truly free, direct to consumer market place online was quickly circling back to retail like normal. We were heading back to a place where brands would sell thru retail and give the retailer 50%. The retailers used to be physical stores on the right street. The only difference now is that the street is the information superhighway and there are only a couple stores, Google and Amazon. Instead of thousands of middlemen, there are just 2, and they're becoming the biggest companies and biggest monopolies the world has ever seen. Going forward, they'll take 50% of all transactions everywhere.
A market reaction will happen, though, because that's pretty stupid to give them 50% of everything people buy. So a few years ago I started to think about what the reaction would look like. My thought is that it might involve all the direct to consumer brands throwing in together to leverage their collective reach to exchange free leads to each other. I started The No Middleman Project to do just that. The first initiative, NoMiddleman.com, is what I envision could be the Amazon antidote. It launched in October of 2018 to a great reception by media and insiders (made the front page lead story on INC Magazine all day at launch), but like everything, it will likely be five years before the masses clue into what is going on. In the meantime, it's an incredibly valuable product search tool for consumers to find the best direct to consumer products in any category. Currently, the site has something like 400 brands in over 1500 categories. More interesting to entrepreneurs, there are over a thousand completely vacant product categories on NoMiddleman.com waiting for smart entrepreneurs to start a world-changing direct to consumer brand. And there are likely 10,000 more product categories that aren't even listed on NoMiddleman.com yet.
How are you doing today and what does the future look like?
Tower Electric Bikes is profitable today, but we're really just in our infancy. Our burn rate is incredibly low as we are able to tack this onto an existing, profitable direct to consumer eCommerce business.
We've launched with one SKU, an electric beach cruiser that has been fairly well-received by the industry media. We're very encouraged by early sales traction, and even more, encouraged by the number of referrals we've got versus our installed base. eBikes really seem to be something that once people try a good one, they get it and buy one. The metrics are way better than what we saw early in the SUP industry. I think eBikes just appeal to a larger percent of the population.
We're having a local University of San Diego student team take a crack and putting together a strong local marketing plan of attack as a class project. We expect good things out of that and it's free labor!
Through starting the business, have you learned anything particularly helpful or advantageous?
Part of the benefit of having Mark Cuban as a business partner is that I also get him as a sort of mentor by default. All his feedback is a learning opportunity. One thing that really bugged me early on with Tower Paddle Boards was that we never had enough access to capital to be able to grow as fast as I wanted. The first 5 years our revenue grew as from 3K, to $265K, to $1.3M, to $3.1M, to $5.1M, to $7.5M, which looks impressive when I look back on it, but those first 4 years really we were constantly out of stock of our best products at bad times. We'd frequently come into our summer season and be out of stock of our best seller for 2 months. To me, this was maddening. I felt like we were missing out on so much because of a stupid constraint... lack of money. But he always seemed to have the opinion of don't worry about forgoing upside so much. Worry about going to zero. Because stuff always goes wrong at some point and you need to be prepared to handle that and survive. And stuff did go wrong. I've started to adopt his thinking on that front a lot more.
When the SUP market started to level off and decline even, a bunch of competitors started to copy us, and the online landscape changed with Amazon's power, this mentality started to make a lot more sense to me. That thinking has probably saved us, while there is a lot of other blood in the water in the SUP industry and more to come in the next few years.
Keeping our burn rate low has been engrained in my mind. I've never had a company that could afford to lose money for a long period of time, so survival is all about burn rate. I view everything through that lens, especially as the world starts to move faster and faster. I see our lean operation as a strategic competitive advantage. That's what really excites me about our Tower Electric Bike company. It has zero operating cost, or about as close to zero as is possible. That gives us a huge advantage. And once it takes off and becomes a significant profit center, that gives me a paddleboard company with a near-zero operating cost if I want to look at things a little differently. That gives me a lot of strategic flexibility in what we can do to take the Tower Paddle Boards brand to the next level.
One of our cost-cutting measures was to figure out a way to have a retail store without paying retail rent. This led us to stumble upon an opportunity to rent a waterfront kayak shop in San Diego, dress it up, and turn it into a part-time high-end event venue when it wasn't our retail showroom. We figure the event rental fees would cover our rent and we'd do pop-up retail in the space between events, and have our offices housed in the back. It not only worked, but it also worked incredibly well. I think we may have stumbled upon a great solution for the retail, real-world presence for a direct to consumer beach lifestyle company like Tower. The brand experience basically.
We've been up and running for about 4 months now, and we've got a nice little diversified event venue rental revenue stream coming in that easily offsets our rent costs a few times over. The place is a beach club and it's decorated with our stylish direct to consumer beach lifestyle products on the walls like an art exhibit, even when events are happening. So events become automated brand activations. We've held events for 1400 people. That's a lot of brand activations to do, all while making a tidy profit. More importantly, there's no reason we can't replicate this in other beach towns. That's our future roadmap now.
The last thing that I've learned is that I should probably incorporate, or I just end up paying a lot of taxes until my business goes under some time in the future. We're experiencing a few lean years as we've re-invested profits heavily into launching the Tower Electric Bike business and the Tower Beach Club, so it's not critical immediately, but it's kind of a huge mistake to try to grow a fast-growth company that's also a highly profitable business with pass-thru income. If you make a million dollars, you have to pay half that in taxes regardless if you only take out only enough to live on and reinvest everything else into building an inventory asset. It seems like you should be killing it, but you're not really. And then if things go south, you're worse off then you started, but you've made the government a lot of money... and there not really going to help you when you have loses. They only take half when you make money. That's problematic for start-ups that grow fast, change fast, and sometimes die fast. I'm all for paying my fair taxes like the next guy, but when you pay a lot for years and then end up owing the bank money that you may not even be able to pay back, something seems wrong with the equation. I think that's why corporate retained earnings were created... just I'm a little slow on all this financial wizardry as I'm just focused on making high-quality, low-cost products easy to find.
What platform/tools do you use for your business?
We use Americommerce for our shopping cart. The thing I love about it is that it allows us to have a single back end to feed multiple front end websites. All our inventory is in one system, all our products only have one instance. This is different than before where we had a separate eCommerce login for each of our websites. This is a huge problem for many entrepreneurs that have been around for a while as you tend to collect businesses! With Americommerce, the same back-end feeds all 4 of these sites:
Not all of these use the same site design as well, so that's additional cost savings to us, but it's not necessary. You can have totally different designs to fit each site if you like.
For our merchant account, we switched to Stripe a few years ago. It's a no brainer switch from any other merchant account, which is a fairly shady business for the most part. Stripe just makes things simple, and fair to you as the vendor.
We use a variety of productivity tools that all of my team has contributed to identifying. In June of 2015, I moved the entire company to a 5-hour workday. We worked 8 am-1 pm straight thru with no lunch. I gave my entire staff their lives back, but then also put the pressure on them. If they couldn't get as much or more done in terms of productivity as they could before, then they would be fired. We were doing it as a 3-month test. It worked very well. We ended up just moving to it full time for 2 years. Our revenues increased by 50% over the next year. Today, we work the 5-hour workday in our busy season from June 1st to Sept 30th, then go back to start-up hours in the off-season.
One of the key benefits or our 5-hour workday was that it squeezed people for time and forced them to identify productivity tools and better methods of doing their job. I ended up writing a book on our experiment called The Five Hour Workday. It got press is 20 countries and spread the idea to over 10 million people worldwide. A bunch of companies has gone on to do their own experiments. It's perhaps started a trend. At the website at the link above, you can download the first 50 pages of the book for free, and also get a list of amazing productivity tools that my team identified.
What have been the most influential books, podcasts, or other resources?
I loved everything I read from Seth Godin when I first started into the online business in the late 90s. I love books by other entrepreneurs or about them. Love Branson's books. Love the book on Bezo's, The Everything Store. I've actually gotten to know the author a bit as he works on his sequel. Love the Sam Walton book, Made in America. Love the book on how Jack Ma built Alibaba. Love Phil Knight's book, Shoe Dog. Love the Steve Jobs book by Isaacson. Love the Elon Musk book by Ashley Vance.
I'm also a big fan of the 4 Hour Work Week by Tim Ferris. Obviously, my own book title is a homage to Tim's revolutionary book on how an individual can break away for the 9-5 and outsource his life. Our 5-hour workday experiment and my subsequent book explore how many of the same principles can be applied to a large organization or society as a whole.
Advice for other entrepreneurs who want to get started or are just starting out?
Keep your burn rate low. Worry less about the competition putting you out of business and worry more about yourself putting you out of business because your burn rate bloats.
Start early. This is a corollary to the above because your personal burn rate grows as you do. Many college kids worry about their lack of experience being a disadvantage when starting a business, but they fail to see that their ability to live with 5 roommates, eat mac and cheese every night, have no kids or wife or mortgage, and still live enjoy a high quality of life, but cheaply is a massive advantage. The opposite is also true. The older you get, the higher your personal burn rate gets, and the higher your opportunity cost of walking away from a six-figure job gets, the bigger disadvantage you have over a competitor that doesn't face those realities.
Where can we go to learn more?
- Towerpaddle boards.com
Social Media for Tower Beach Club
Social Media for Tower Electric Bikes
Tower Electric Bikes has provided an update on their business!
3 months ago, we followed up with Tower Electric Bikes to see how they've been doing since we published this article.
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