Sharks and Paddle Boards with Stephan Aarstol

Jake Aaron Villarreal: Welcome to From the Ground Up, the podcast where we delve into the inspiring stories of entrepreneurs and their journey to build successful startups. I'm your host, Jake Aaron Villarreal, and in each episode I'll sit down with the founders to learn about the experiences, the challenges they face, the lessons they've learned, the insights they gained as they turn their dreams into reality. Today we're going to share the exciting story of Stephan Aarstol, the founder of Tower Paddle Boards, and how his appearance on Shark Tank changed his world forever. Stephan's story is a testament to the power of resilience, adaptability, and passion. It's about seeing potential, seizing opportunities, and having the determination to succeed even when the odds seem stacked against you. Now as Tower Paddle Boards continues to grow, he has expanded the business into electric bikes, events, and much more. Stephan Aarstol remains committed to providing quality products that improve people's lives while staying true to the core values that made the company a success.

Okay, Stephan Aarstol is here with us today. Stephan, thanks for joining. Uh you know we have a podcast really about startup founders and your story and what that experience has been like. But more importantly why you do it. And uh many people have various reasons for doing it. But we'll dive in and get into your story. And you know as a company ourselves, we work with organizations from San Francisco to New York uh with founders and we hear their stories and what made them become entrepreneurs. So I guess before I dive in and talk about your company Tower, um tell us a little bit uh Stephan about you. What early experiences helped you shape yourself into becoming an entrepreneur?

Stephan Aarstol: Sure. Yeah, thanks for having me on Jake. Um yeah, so I guess early experiences uh you know, my, my dad was an optometrist, uh which is kind of half a doctor uh half an entrepreneur. And just sort of seeing him like you know, run the office and sort of have a flexible schedule uh, that was, that was definitely one, one influence. And then you know, my mom was a banker, so I saw the sort of the other, she was sort of working underneath people, especially as you know, [a] female in the banking industry, really not getting her due. And um, so I think seeing both those things uh just sort of pinpointed to me that uh you know, owning your own business is, is probably a pretty good idea. Um you know, but I also saw my dad struggle with things for years you know, we probably could have made more money doing other stuff, struggled for years and then he sort of leapfrogged you know everybody else. Um so that's kind of the experience I had as a kid. And then also you know I was, I was kind of I guess you would say an adventurous kid um, and always sort of somewhat of a thrill seeker I guess. And I, I see business really as just another adventure right? Like go on this whole adventure, you pick people to go with you, uh you have sort of a direction of where you're going and you sort of go through that adventure. And it's just sort of a fun way to live this life is just uh one venture after another. And if you can do that for a living, like, like why wouldn't you?

Jake Aaron Villarreal: Yeah, no that's great. Yeah there's a lot of adventure, there's also some risks and a lot of rewards if you do it the right way. Lots of left and right decisions to make, and you know it's what makes I think it exciting but also the journey itself has many episodes as you go through it. Um, you have your company today, Tower, and we'll get into that. But prior to Tower, walk me through a little bit about what prepared you for that? Where did you start off in getting into online sales and digital marketing, and how did that come about?

Stephan Aarstol: Yes. I graduated, I was a bartender after college and it was just, I was making good money while you know bartending through college. And I, you know I couldn't just go to a regular job because I'd have to cut my salary in half. But then at some point I realized like, I don't really want to be a 50 year old bartender, so I went to grad school. I mean really for no other reason than that, because my first job out of college they were paying me eight dollars an hour you know, and I was just like this is insane, I can't even pay my rent. Um, and so I went to graduate school and immediately uh you know they just doubled your salary, just they thought you knew more. And I really, having an undergraduate business, I learned nothing incredible, but they doubled my salary so I'm like "well that's great." Um but uh I, it was very good timing. So I graduated from college in 1996 and then I graduated from grad school in 1999, and they were basically you know handing out uh internet jobs in 1999 with your graduate degree. Um so that's where I started. I started with this company called AuntMinnie.com, it was a portal for the radiology community at that time. And portals were the big thing then. And we basically with a small team went from sort of upstart to like dominant industry leader in a period of about two or three years. And so I, I saw the early stages of um sort of the internet and the idea that everything tends towards monopoly. And all of a sudden you're going to have uh you know a few companies that run the entire world, and it was very obvious to me because we were nothing, nobody in in medical imaging, and all of a sudden you know we took over uh from these, these companies that had been around forever. So that was uh that's where I really cut my teeth. I was in that job for about five years, and then I started on the side. I started a poker chip business selling high-end poker chips, like to consumers that have a poker game in their garage. And uh after about a year of that, it was making more in the um in my side business than I was in my regular uh company, and so I said I'd you know, I jumped ship and went off on my own, and that was 2004.

Jake Aaron Villarreal: So going from working at a company like a lot of entrepreneurs do, and then you have an idea that comes up, and you start thinking "maybe I can make something happen on my own" or "maybe I should take a risk" or maybe just a side hustle where you start making a few extra bucks, and then it starts to turn into something more than your current career. Um, it's a choice you have to make, it's probably not always easy, you take a little bit of a risk, but if you're young enough maybe it's easier. How did, how did you identify poker chips as something that people would want to buy online, and how did you even start creating them?

Stephan Aarstol: Yeah. So, so at the time I was you know in the internet industry, and I saw the early stages of uh internet marketing, essentially like pay-per-click marketing, which a lot of people associate with like Google AdWords today. Like we were doing that in 2000. There was another site called Goto.com, and that's basically how it, you know, helped build... I was a business development guy at AuntMinnie.com and we were paying a cent a click you know, to bring in traffic, and literally a few months before we were paying thirty thousand dollars a month to buy banner ads right? And so and you know, magazine ads and stuff like that. So I saw the transition. All of a sudden you can get for a thousand dollars a month we could get what we were getting for 30,000 a month a couple months before, and probably you know half a million a month six months before, you know? And I saw that change.

And then part of my job was we were this portal, so we had to sell internet advertising to our, you know, the radiology companies, the MRI companies, the CT scan companies. And [I] explained to them why they should advertise on our, on our website. So we were using internet advertising to build this company, and then we were trying to pitch this idea which nobody would really understand for about five or six or seven years. Yeah, and so I knew that. And a big part of that was uh you know, advertising within search engines, so I got really to know search engines really well. And essentially poker chips were... I had a poker chip game with a buddy, and at the time you could search uh you know certain words and it would tell you how many, how many searches they were getting per month and very exact information. You could still get this information today but it's largely obscured. Google realizes they have a monopoly on that, they're not letting anybody have that information because they want it, because it's very valuable information. So when you can, when you can understand exactly what people are searching on and how many searches there are, you, you basically have a footprint for demand. And then you can just look at supply, and is there enough supply for this demand?

And at the time I was in this, hit this uh sort of group that had a regular poker game, and we were playing with these crappy chips. And I said, "Why don't we get some of the chips like they have in Vegas?" And I went to look for them, and it took four to six months to get them. And it was just sort of crazy, so there was no supply of these things. And I knew poker was blowing up at the time, it was going on TV. I knew there was massive demand. So I bought like just, I just made my own custom set of poker chips, very generic style, started you know selling those to people. But I would sell, ship them overnight right, you can get them right away. And poker players are just of that nature that they want stuff right away and they don't care what it costs. And so it was just, it was some success. And I couldn't, couldn't keep up with demand. And really you know that was sort of a golden period, that was in 2004 to probably about you know 2015, it was about a 10-year period where you could really do that. Um that's kind of how I started the paddle board business as well um, was I could see there was this huge demand for paddle boards. Uh the supply was you know, going behind a paddle board at a retail store for 1600 bucks, it was insane. Um we could do direct-to-consumer and we sort of took over both those industries.

Jake Aaron Villarreal: So a part of it sounds like the trends that you're able to see is a little ahead of the curve. What is it that you have inside that's able to see around the corner before other people can and get into markets before the market's really there?

Stephan Aarstol: I think that's uh you know it's just being in the right place at the right time in, in one sense. You know I'm, I'm in San Diego, so you, you start, you see trends earlier in like Southern California just than in the rest of the world. Um so you see that in fashion, you see that in music, you see that in a lot of things. So, so being in San, San Diego is helpful, you know. We saw, I saw e-bikes, that's another company we've started, too. Uh paddle boards, I could just see them off my deck on the bay, you know, just there's more paddle boards every day. "What's going on? What the hell are these things?" And uh you know, poker was not so much that, was more on, on TV, but you know so you can see trends in things. And just being involved in things. Being involved in travel, you can go to other parts of the world and bring things from there to here, I think is a big way to spot those trends.

But then as far as industry trends, that's largely luck. Like I told you when I graduated, I mean I really should you know have founded a much bigger company at this point, getting out of college in '96 and grad school in '99. Uh I'm pretty much a failure looking at like what should have happened with those timings. So yeah, it was right, right time to see the internet marketing, and I've been in this for like you know 25 years now, so yeah, I could, I could really see like we were doing uh like Kickstarter type stuff like you know three or four years before Kickstarter existed. Um and at Amazon it was very early in Amazon, we got off Amazon like in 2017. People are still talking about "Oh, you gotta start an Amazon business." I think that ship sailed like five years ago, you do not want to be doing that right now.

Jake Aaron Villarreal: Yeah, that's uh, that's really wild to know that um you're able to, to based on proximity, be able to know like where trends can be. Um I, I think I look at Silicon Valley and probably very similar where you can kind of see what, what's being developed and what a company is building. And you know, "Why are they doing it? Why are they getting funded?" They could start to see maybe you know there's some trends of different things happening. I, you know, artificial intelligence for example now is kind of a big, a big thing that's come out, but it's been in development for years. So, but I've got proximity, I think that really is important. So you, you start off and you get into digital marketing and you have this poker chip company and it does well enough to leave your company, and then you get a call, and you get a call from Shark Tank. Walk us through that because I don't think... I'm sure a lot of people know your story, but tell us about how that happened and what that experience was like uh being on Shark Tank.

Stephan Aarstol: Yeah, so that was really with my second business. So Tower Paddle Boards. And at that time so I had some success with the poker chip company, they were sort of dwindling, it was, it was, it was falling away and I needed to find something else to sort of ride the wave up again. And so I found uh stand up paddle boards. And I was being a little more picky at that point. I was like "Hey, you know I've kind of done this. I kind of know what I'm doing. I want to do something that I'm interested in." And so my dream job was to be like the CEO of a surf company, because I'm in San Diego here. And then a buddy took me paddle boarding and I looked at the stats on the, the internet of it and I said, "Wow, this is a perfect fit, right. This is being the CEO of a surf company." So I was going into something that I wanted to go into. And more importantly, I was going into something where I thought like, this was a cool product that actually added to people's lives. It got them out on the water with their family and friends, it got them fit. You know, I was getting it for basically fitness, I had a four-year-old, five-year-old at the time, something to do with my son. And I was like, "this is a good business." And I could attack this business from a way that actually adds value to the world, right? Like if they're selling paddle boards for 12 to 1600 uh you know in a store and I know down the street you can buy a surfboard for 300, 400 bucks, I'm like "This is basically just a big surfboard, right? It shouldn't be that expensive. Something's broken." So that we decided we're going to go direct-to-consumer, direct-to-consumer only and sell half price paddle boards. So I felt like I was creating a business that could like add something to the world. And in doing that, the business really exploded because I identified demand and I was, I was adding something, and people are going to give you their money if you're sort of adding value in, in a unique way.

And so Shark Tank called about I want to say about nine months into that business. I just hired my first employee uh maybe three months prior. And they just sort of called out of the blue one time, and I never even heard of Shark Tank. I thought it was kind of one of these media calls you get, and then you get into the phone call an hour in, they got you all excited about being on TV, and they say "Oh by the way there's a pre-production fee of nineteen thousand dollars." And they're like, "what? There's no money, why are you just wasting my time? Goodbye." And so I, I rudely interrupted the producer uh, Shark Tank end up having like 40 producers um, and I said like, "I just want to jump ahead here. Like there's some pre-production fee or this or that you know, I, I don't want any time, I'm super busy, we're going into a busy season because it was like June." And he's like "Oh no, Shark Tank. We're on ABC on Friday nights." And I'm like, "How have I never heard of this show? It sounds like something I'd be interested in." And I'm like, "Yes, I'll be on your show." So I you know, had sent him a video within like a couple days um, and then five weeks later I was uh pitching, pitching to the Sharks.

Jake Aaron Villarreal: Wow. Now coming out of an experience, you ended up getting funding from Mark Cuban. And uh in that experience of getting funding you, you really have a big branded individual who's got a lot of visibility on TV and in the business world, and you also get funding from him. What, what are the pros and what were the cons of that experience?

Stephan Aarstol: Yeah, I mean that's an interesting question because sort of being on Shark Tank and the effect of Shark Tank is kind of a microcosm of entrepreneurship in general. So I went on that show just randomly, something fell in my lap. But it kind of fell in my lap because I had you know discovered paddle boards was this trending thing, and I was good at search engines, so if you Google "paddle boards" we were at the top. So how do producers of shows look for people to be on their show? They Google "paddle boards," and they find these, they're the same way consumers do. So you actually get a lot of media attention to this. So I did that, had the lucky break they called, we go up uh you know when I pitch on the show. But of course it's a reality show. I'm known as like the worst pitch in the history of Shark Tank that still landed a deal. I fell apart up there, they started making fun of me, I was like stuttering and stammering, you know sort of really a humiliating uh you know performance on TV. But at the end of it I ended up you know getting a deal. I sort of had to like on the spot sort of like compose myself and sort of come back and you know, and it was really sort of this sort of Rocky-like turnaround on [the] show. And I think the TV guys obviously liked that. They used that as like the lead-in for the couple weeks coming into the show like "Look at this idiot, you can't even talk." And so... but then we ended up getting a deal with uh Mark Cuban for 150,000 for 30% of the company, plus he negotiated for first right of refusal to invest in any business I do in the future, which was a first on Shark Tank. Um and so then you know we... they invested, it took about three or four months for the investment to close. Um and it was, it was a bit of a process. Um but it aired nine months later.

Um we didn't really get the huge boom that people would think about from being on Shark Tank. Everybody's like "Oh, you've been on a Shark Tank, now [you're a] millionaire and this, no." We were on Shark Tank and we had four days of sales which were 15,000 a day. So sixty thousand sales, and then that wave kind of disappeared right. We were doing 5,000 a day before we went on Shark Tank. So it's not like you get on this TV show and that it's, it's a done deal. I mean it might be if you sell like an app or like a 20 item that people see "oh on TV," and then they you know dial it up on their phone and buy. But a 600 paddle board at the time was not that. And so, but the real benefit came to us was uh really the press we got around it. Because I was in the SEO business, I knew getting links from these powerful press sites was really the value here. And Shark Tank called, I was not really even that interested in raising money or being on the show, but I was like, "Jesus, we'll likely get a link from ABC.com for this. You have to put us on their show." That was the exciting part to me. And we ended up turning that into links in a lot of uh new... every newspaper you know from my childhood home, to where I went to college, to university newspapers, whoever I could get that knew me, I wanted them to know that we were on this show and get that link. And that really, that propelled the company from an SEO perspective and that's really what grew Tower Paddle Boards. Now on a conversion perspective, having Cuban's face (and this is part of what I negotiated with them) have his face on the home page of the website was, it became you know "the company from Shark Tank owned by Mark Cuban" as opposed to "Tower Paddleboards," which nobody knew anything [about]. And we were able to ride that for, for years.

Jake Aaron Villarreal: Yeah, that's great. I mean the leverage of that brand, of someone's personal brand can take a product from obscurity and, and really make it a global brand, which is I think the story and an incredible one. Um, when you take capital you have pressure to, to create profits and also to respond to the people that are investing in you. Did you feel that pressure when you built that partnership with Mark?

Stephan Aarstol: Um, it wasn't so much pressure like when, when Mark invested. They didn't even find this out on the show, but I had a hundred and five thousand dollars in loans. I had maybe 60,000 in loans from one of my buddies at 65% interest rate, and then another like 40,000 from my brother at a zero percent interest rate because I helped him grow one of his companies so he was just like "Here, you can use my money for a while." And then Cuban found out like "Jesus, you have a hundred thousand in loans you're paying 60%? This is crazy." So this 150 basically we just went to paying those guys off. And then as soon as we aired, Cuban was like, "Well write me back a check for 50 grand, you had a good month." So I wrote him a check. So we basically built the whole thing with no money.

So I didn't feel a lot of pressure because, especially I felt pressure for getting my brother and my friend their money back. But Cuban, I saw more as opportunity. Like I was like, "Okay, we've been on this show, now we got Mark Cuban, put his face on the website. But if we could be you know the best company to ever be on Shark Tank or Mark Cuban's best company, then we could, we could ratchet this, this up into something uh you know more meaningful or more powerful right? Because then we can really leverage his brand." And also because of the you know the negotiated deal on the show, which was his right to invest in future companies, I was kind of like, "Okay, if I really knock it out of the park on this one, you know I have my money guy for you know any other you know investment I want to do down the road." So it was a pressure in, in sort of a negative way, it was like, "Okay you've got an opportunity here." So... and what ended up happening is you know he basically put in 150,000, he got his 50,000 back, so his investment was kind of a hundred thousand, and then we uh cashed him out in dividends over a million dollars over about the next five years.

Jake Aaron Villarreal: Wow. Great deal for him, you're doing all the work, but also a great deal for you for launching your company and the brand. And so you, you go from stand-up paddle boards. Um for people that don't know, what's the process of taking an idea and building that um product? Like where do you start building a product that you have to get raw materials from different parts of the US, maybe internationally? How did you know where to even start?

Stephan Aarstol: Well with the poker chip company um you know was sort of my first experience in like some product-based business. And so I wanted the poker chips that were in the Vegas casino. So we went to Vegas and found the manufacturers for those, and there was only like two in the world. So uh we found those manufacturers, talked them into making stuff for us. And they were already making it, they just put a different label on it. So it's essentially private labeling poker chips, which is you know where a lot of businesses come from today, because today almost everything is made in China right. And so even in the poker chip business I wanted a low-end poker chip. So I went to China, got them to private label one, started shipping poker chips in volume over here for a low-end line from China.

And that's sort of where I really sort of started to learn about how cheap things were in China. Like you know you can get like a hat that sells for 20 bucks here and it's like you know a dollar twenty eight. And "Oh that's a crappy hat, you want the really good hat, that's a dollar 49." And people in the US think like a 20 dollar hat you know, [is] a little better than the 10 dollar. No, they're all the same price, they're all super cheap. And all the, all the price you're paying on anything is basically what somebody makes up or it's all in the distribution channel. Like with the paddle boards being you know 12 to 1600 had nothing to do with... the, the paddle board cost 250, 300 to make. It had to do with getting you that paddle board and the marketing and you know all of the nonsense in the business right. Um anyway, so we, I learned sort of private labeling stuff in China.

And with the paddle boards um of course we were in hard boards initially, um and so we... we're in San Diego here, there's one surfboard shaper. So we said "Well, we got to get a paddle board with a good shape. What's on the market, what do we do, what's our design?" And we had local shapers like you know put these boards together. And we said like, "Look, we're going to take this design and we're going to take it to China. So you tell me whatever you want. I'm not, it's not going to be a long-term business, but I'll pay you very well to basically prototype for us here in the US." And so we did that. We got the design, we got the design files, sent it over to China. And it wasn't really "send it over to China and just sort of like"... I never traveled to China, but there was, there was a site at the time, it's called Panjiva.com. This is another one of those things where there was this golden age of where you could use these tools and information that was freely available or cheaply available to start businesses. That's all by the locked down now and you can't really do that anymore, that doesn't work so great. But at the time Panjiva, you could see like containers of goods, where they started from, where they ended. It was all public information due to 9-1-1 right, or 9/11. And so you could search this database and say "I want to see you know poker chips," and it would say "Okay, well here's the four factories in the world that make poker chips, and here's to where they're sending them to." And you can track all this stuff over time and you know volume and different brands. You can even zero in on a brand, "Well where are they getting their stuff made?" Zero in on a factory and say "who are they producing stuff for?" So is this magical information that existed, and you were, you were not only finding somebody who could make you poker chips, but you were getting a quality score. Were their shipments going up or down? Did they provide for good brands or bad brands? Um and you know, were they losing customers? Were they gaining customers? So you could, you could basically zero in on a good factory and then you could write them a you know fifty thousand dollar check and know that you weren't just sending that [to] some scam artist in China. So that's what we did with poker chips, and I'd already kind of gone through that, so I was able to do that very quickly uh with the paddle boards.

And then we went into uh inflatable paddle boards, which we actually introduced the inflatable paddle board to the market, like on Shark Tank. If you'll see, there's this board on the floor, it was our first prototype of a six-inch thick inflatable paddle board. And they went from basically one percent of the market to today, well over 90 percent of the market are these inflatables. But because at the time they were four-inch thick inflatables, they were just crappy things like you know, you're a surfer so you know like the inflatable surfboards. You take that to Costa Rica or something and it's easy to pack, but it's a crappy surfboard right. That's where inflatable paddle boards came from initially, was they were these thin crappy things. We said "screw it, we just will make them thicker and that will make them better." And it did. And uh that's what we introduced basically on Shark Tank. And, and they didn't even talk about it on Shark Tank or they didn't air any of the stuff that we talked about on that. But that was the introduction of inflatable paddle boards to the world.

Jake Aaron Villarreal: That's incredible. So you actually created a new category for stand-up paddle boards and it's 90% of the market now. Now you, you created a category and I know you're good in observing trends, your proximity in the beach community is really good. At one point or at what point did you say, "Look, we need to grow the company, we need to grow the brands, we need to look at new products." And what were the products that you added to your portfolio um that again maybe took the same model and said "Hey, maybe we can make this better, different, cheaper, more cost-effective, whatever it is." What's, what's the Tower brand look like today and what are the products that you are selling into the market?

Stephan Aarstol: Yeah, so really the back story on that is I'd gone through this poker chip company right, where it just ramped up. And like uh my son was born in 2004, six months after I, I jumped out of my day job into that. And the month he was born was the biggest month ever, I made more in a month than I'd ever made in a year in you know my prior life. So I was basically reading like you know magazines about yachts you know, and there in the delivery room there. And I was just taking it, "this is easy, I'm retired now. This is great. I figured this thing out." That was the peak of it. And then it just sort of slowly started to come down. And that's why you know six years later I ended up starting paddle boards, because it almost completely disappeared, it was one tenth of what it was at the height. And that's because something's introduced online, everybody sees what you're doing, they copy it, it becomes a commodity. Everything gets commoditized online.

So when we found the paddle boards, I mean we weren't even one of the early companies in there selling paddle boards. There were a bunch of brands that were sort of jockeying for position. Um they were already in the surf or windsurf industry. We came in and did it a little differently. We went direct-to-consumer. But I knew we were kind of early and we sort of rode this wave, but I was, I had no qualms that this was going to do the exact same thing as the poker chips. It would peak up and then it would start to come down. But this one was much bigger than the poker chips. So you start believing you know, drinking your own Kool-Aid and you, you think "no, I really have hit it this time. Like now I'm gonna retire." And the same thing happened, just, just when you think that's going to happen all of a sudden it levels off and starts to go back down. So I, but I knew going in, "we're going to diversify." So a couple years before that happened we, I said you know, and my sort of the dream was to be this CEO of a surf company. It wasn't just to be a, run a paddle board company because I like paddle boarding, it was you know... and I know the surf shops around here, they sell clothing, right? So I, so this, the paddle boards were sort of the tip of the spear into this larger beach lifestyle brand. So that was always the plan, it's just "when can we get enough money to do the rest, rest of this?"

So maybe about 2014, 2015 we started, we launched a sunglass company. Um we launched uh surfboards, we launched skateboards, uh we launched snorkel equipment, we did beach cruisers. Uh you know, we had about 25 of these categories, and I was pitching this to Cuban and we did a follow-up show called Beyond the Tank where we uh you know went up and visited Amazon and we did this huge deal with Amazon and they filmed it all for... it was just like a Shark Tank follow-up show. And um but part of that show was me unveiling these 25 categories that we're going to go to. And there was even like you know Tower Hotels and Tower Airline and Tower this and Tower everything right. And so the Cuban was like "this is insane. Insanity! Like, focus!" Um so that never really transpired. We did start the sunglass company, we did start um, we did make surfboards, uh skateboards, uh but then the real, none of those really hit um because like I said the world had kind of changed a little bit at what we were doing in 2010. And certainly in 2004 was not working so well anymore. And we didn't really have a huge product and I was kind of trying to force it. But then we stumbled, the one, one that was actually really big, so that was electric bikes. So we started Tower Electric Bikes.

And the electric bike market is just booming right now. But it's a different world today. Um it's, it's much harder to land. These uh sort of the monopolistic tendencies that exist in the online world um have now taken full root. And so this sort of golden period of entrepreneurship online uh is, is gone, and it hasn't been here for four or five years. And so now it's turned into this, uh into a world really where it's all controlled by you know Google and Amazon and uh you know Facebook. And basically all these efficient markets with commoditized products, all of the profit from that goes to these three companies. And then who becomes the bigger brand right now is who raises the most money and then who can, who's willing to lose the most money the fastest to grow their brand in hopes that at some point they don't have to pay these monopolies. And uh and then they have something after that, which they don't.

And so you had this whole direct-to-consumer thing happen in the last like probably 10 years. When we started Tower Paddle Boards direct-to-consumer paddle boards, at the same year Warby Parker started uh you know direct-to-consumer eyeglasses. So that was the big trend and it seemed to be working, seemed to be working. There's very few of those brands left. There's a lot of just sort of blood in the water. And now we're you know, we're sort of a small company struggling. And we're having to shift our focus because we were always uh direct-to-consumer. "We're going to sell half price paddle boards, this is what we're going to do." But now you know the free ride's over, you can't be found doing that model. You have to you know be willing to pony up or you're going to pay you know Google or Amazon you know a million or two million a year, three million a year in advertising to be found right. And we didn't do that, and we sort of were holding out that the world has changed and all of a sudden you have globalization has made stuff cheap, right? So if you can make shoes for four bucks in you know India, you can actually sell them for 10 bucks in America because everybody is one click away from the maker. But the reality is the, all the middlemen disappeared in, in sort of the onset of the internet. But now these, these larger middlemen, which is you know Google and Amazon, have taken up you know the vacuum, created these monopolies. And now all of a sudden that four dollar shoe is still 120, maybe it's even 150 now. And so, so consumers are basically, now we're back to retail. There's no advantage to consumers of globalization. And so it's just, we're spending more money on advertising now where it used to be you're spending that money on your retail channel, of developing this retail channel. So it's really a weird world we're in right now. [It's] a tough one for online brands to survive.

Whereas like Tower Paddle Boards is fairly healthy and we can survive because we can get our costs down and we have an established brand. But I'm trying to build the same thing with our electric bikes and it's virtually impossible today to do that from starting from scratch. And we even can piggyback off of our other brand, but it's just very difficult to do.

Jake Aaron Villarreal: Yeah. So if you're an entrepreneur out there and you're looking to start a company and you have an idea and it's going to be a product you might create, develop on your own and bring to market, what advice would you give to that individual that you know is trying to break into a new market or maybe bring a new product into [the] market without really knowing what that road is going to look like today?

Stephan Aarstol: Yeah, I think I, I'm not sure that the product business is, is good. I think a lot of people think of that like "I'm going to be an entrepreneur, I'm going to create some product." Even in the businesses that we did, we didn't really uh create some new product. What we kind of did with the inflatable paddle boards, we just improved what was existing because it worked better for our model. But really what we innovated on was the distribution. We went direct-to-consumer only. We, we just said the distribution channel of selling stuff through retail and having distributors and sales people and all of this nonsense that makes a 300 surfboard you know sixteen hundred dollars, that's insane! We're just going to sell this, mail it to the person. So we disrupted um distribution, we didn't change the product at all, right? Our products were quality but they weren't, there weren't any crazy innovations on these products. Um so even then I don't know that just coming out with a fancier widget was, was the thing.

But today I would say that's definitely not the thing to do. Because you're basically going to launch into a category and you're going to create this product, it's going to get knocked off by you know 100 Chinese... like today if you Google, or not Google, but if you look for paddle boards on Amazon, the first 50 results are brands that you can't even pronounce. It's just all Chinese you know, yeah the non-brands. Um so that's what's coming for you right, if you start a product business. And then on the other side of that you're going to have, like in the, in the paddleboard industry uh, out of, I'd say we're one of the top four brands in the industry. Now the other three were all acquired by uh in the last two years by um basically like you know hedge fund type businesses, you know billion dollar corporations, just, just money people just sort of aggregating all of these things. And then they're gonna go out there and spend you know millions on advertising and sort of, and then get that stuff into retail stores and they're, they're going back to the old model. So trying to like start as like a small entrepreneur, I don't think it's really going to happen.

I would, I would focus on service based businesses. I would focus on things that can't be affected by the online monopolies until this whole thing gets sorted out, and can't be affected by globalization that you know China can make it cheaper than you. For example, Tower... and one of the, one of the other pivots that we did here during this whole uh you know, we were looking at other things to go into and also cost cutting to get our costs down so we could sort of make ourselves antifragile to survive this sort of shakeout of this, the online world. We opened a beach club here in San Diego, it's our offices. It was an old kayak shop, we basically renovated it, turned it into this 4,500 square foot event space and started renting it for you know corporate cocktail parties and weddings and stuff like that. That's doing really well, that's a protectable business for a small business. I mean that's like you know our cash cow now. And the other is just uh see if you can survive, or can you lose you know a couple hundred thousand, two hundred thousand, five hundred thousand a year for 10 years and hold on to that business and maybe you know the craziness will, will change in the online world. But yeah I think the opportunities are really these offline businesses. Now another business we start-, started was an e-bike repair shop. Just fixing e-bikes, because you have you know a million e-bikes coming in the market every year and nobody wants to work on them. And they're just going from a purchase to the dump right, and if you can fix those... So again that's a, that's an offline defensible business. And a lot of these businesses aren't like super sexy when people are thinking about starting businesses, but I think uh in my opinion those are the opportunities right now.

Jake Aaron Villarreal: Well yeah, those are also, require a ton of money.

Stephan Aarstol: Yeah, they don't.

Jake Aaron Villarreal: And also it's sometimes I don't want to use the word boring, but it sometimes is the one that, that can get you through the, the down markets and you can build a sustainable business. So I think that's really a smart way to diversify if you look at you know, products to services, or products to products that aren't necessarily um only consumer-focused items. Um talk to me just a little bit about the Tower um space you have there on the beach club. So where, where is the focus and how much of that is online marketing to get visibility because you're competing against you know hotels and other organizations that have been in San Diego for, for a long time. But you're seeing success. Like what have you been able to do that's carved out a little niche there in that, in that market?

Stephan Aarstol: I mean, you know I don't know, some of this may have been luck. But we have a waterfront event space in, in San Diego, which there just aren't a lot of them. So you have very few competition, and then most of your competition is hotels right? You want to throw a wedding at a hotel, you know, you're going to spend 50, 80,000 dollars on that thing right. Because they're going to force you to buy their drinks and their food and stuff like that. We just rent the event space for... you know, we rent it for the month for 8,500 bucks, and we rent it out for the day uh you know between about three thousand and about eight thousand dollars a day. And...

Jake Aaron Villarreal: Wow.

Stephan Aarstol: So just an incredible economics on the, on the business. It's, you know you're making people happy, you're having weddings. Um we kind of did this and we got into this because we needed an office and we figured how do we collect rent instead of paying rent. So that was the idea. "Well, office in the back, we'll have our pop-up retail in the, in the shop, and then when somebody wants to throw an event (we thought we'd have a couple of these a month), we'll push everything into the back room and we'll you know let them do their event and we'll have free rent" right? Well it turned into like, the event business is an incredible business! I mean like, you're just an idiot doing this like online stuff. This is cra- it's got a total flip-flop over the last 10 years, right? And uh, and the marketing of it is easy. It's kind of like in the, in the early days of the paddleboard business where you know, we had half-price paddle boards and they were the top of the search engines. So what we, what we engineered there was our value proposition was incredible compared to the competition, and we made that visible. So in the event space, we have an incredible value proposition on a beautiful space and we've simply made it visible. If you, if you get the product right and you know your, your distribution of the product right, the marketing just takes care of itself. And a lot of people think it's completely opposite of that, like they're just like, "I'm this marketing genius, I need to figure out the marketing of it, and then, oh you got to make a product," and we do this. No. The design of your product and your value proposition, that's like 95% of the game. You do that and any idiot could market this thing is, that's sort of my experience in this, in the world over the last 20 years.

Jake Aaron Villarreal: Wow, that's, that's incredible. So Tower Beach Club is a place that if you're going to get married or uh have any type of event is a place to check out, it's on the water in San Diego. Now, um where do you go from here? You've had product companies, direct-to-consumer, space on the water. Um it sounds like there's trends that are out there that are still evolving that if you want to take some risk and get into you can. I mean I know that the electric bike industry is, I mean we're out of Southern California as well, and it's incredibly lucrative in Orange County area and LA markets as well. Like where, where do you see your brand going forward?

Stephan Aarstol: Yeah, so I mean that's the thing. In a lot of these, these trends or industries that you see now, it's like you can see them growing. But are they making money? That's the question now. Like the e-bike market is, you know, tremendous growth, we had 500% growth in uh during the pandemic. Um but we were kind of break even, losing money. And then it tailed off, and then we were losing a lot of money. There's the big companies that you know raised huge amounts of money, they had like, there was one company Rad Power Bikes, they had like a 1.5 billion dollar valuation, right? And that was you know 16 months ago. And now they've fired like you know 80 percent of their staff and they're probably not worth 100 million dollars. And it's like, you can't just go lose money forever. And what's happening now with the, the economy is all of these investors that were chasing these sort of crazy dreams are drying up. Those companies are not able to raise, so you have to prove profitability. And I think you're, you're already seeing the, the early stages of this. But my guess is in the next two, three years it's going to be something like you really haven't seen in a lot of people's lifetime that I'm, that I'm employing, because we're going to see really these, these dark period of years where businesses are just going under. So you have to find something that is not only growing, but it's, you can do it profitably and sustain yourself.

So that's really the focus at Tower today. And that's why we've done these, you know, these offline um uh diversifications to our online diversifications. Because like during the pandemic, um you know they closed down events, so the event venue went to zero. The e-commerce business went really good, and then especially like the outdoors bikes and that went great. And then you had this sort of big boom of everybody bought that stuff. Pandemic was over, those dropped off, and the event venue went up because nobody been out for a long time. So these diversifications are working uh nicely. But it's still, we're under very stressed times right now. And so our, our goal over the next five years is survival. We survive to live another day, and whoever survives uh those, those are going to be the uh the companies that can do well you know. So yeah, it's all about survival for us right now.

Jake Aaron Villarreal: Yeah, I, I hear what you're saying. Um I, I think what a lot of what you're sharing is innovation and pivoting and diversify where you need to. But also marketing, I mean innovation and marketing I think are the keys to success in business whatever business you're in. It seems like you're continually able to kind of do that, look around and take some risks. But diversify is a key. I mean, I go back to proximity, I think that's a, such a big part of business too. And you know you look at the Midwest, you have automotive. You look at Northern California, Silicon Valley. Southern California is you know action wear and different types of um sports and whatnot. But um as an entrepreneur I always believe that the freedom is the essence of what we do. It gives you the opportunity to decide what you want to build, how you want to do it, what space you want to be in, and make changes if you need to make changes. And it's really up to you to figure out how to do it. But shows like this that can give insights to others that are in the process of building something or innovating or surviving, I think is incredibly helpful.

And you know, I just want to kind of leave with one thing here. Um you know, the startup story and the startup founder story is incredibly important um I think in business. It tells you about the person who's behind the brand, and also allows you to connect with that person and just hearing their story. They've done a lot of studies on happiness and oftentimes it's not the outcome or the destination where you're trying to get to, many times it's that journey, that experience of going through it. And part of that experience is progress, which leads to happiness. So in your career now spanning 20 plus years and doing what you do, what has been the progress you've seen individually as an entrepreneur and the progress you've seen currently in your company that you look at and you say, "this has made me feel pretty good and happy in my experience"?

Stephan Aarstol: Yeah. I think you're nailing on a, on a good uh, or a good note there. And this is a note that, that entrepreneurs really have to internalize. And I talked about earlier, entrepreneurship being really like traveling right. It's this adventure you go on, you plan the trip, you go on the trip, you know you're off there for months, you're going to meet all these people, you're going to come back, the trip's gonna be over right. That is entrepreneurship in, in a um, in a nutshell. And on that trip, inevitably there's going to be horrible things happening right? And when those horrible things happen it seems like, "this is horrible, this is going to ruin my trip" or whatever. But the, when you come back, those are the things that you actually remember. So those are the actually the most memorable. The hardest times you're going through are the most memorable. So after you've done a few of these trips, you start to be able to realize, "Oh you know, I'm in the, I'm in the horrible part right? But this is actually going to be the most memorable." And you can flip the script on that. And as an entrepreneur, if you can't figure out how to do that, you're not going to survive.

So this was like when I went on Shark Tank and I you know, made an ass out of myself and I'm you know, I'm in there for five minutes, I'm stuttering and stammering, my presentation is off, the Sharks are making fun of me. I had to in the moment say, "Oh this is going to be one of those memorable moments where this, this will probably make everything great. And I'm going to remember that I did, I'm not going to remember the rest of the presentation or how I felt or whatever, but I'm going to know this." And if you can flip that switch in your mind, that's how you can you know succeed to the next day. And in you know, in Tower, for, we've been around for 12 years. We've gone through a number of these. I mean the roller coasters that you go on as an entrepreneur... I mean it's not for everybody, and it's not this like rosy like "Oh I got my free time and I've got all this money now." It's sleepless nights, it's you know we've gone almost bankrupt you know once. I just sold my house last week to try to survive, keep this company to survive you know for a couple more, and they you could lose everything at all times. But now I'm able to say "This is one of those really like hard times um that we might not, this might be the death blow to us. And but who cares? It's, it's the, it's the adventure we were on, and the people that you were on that adventure with." Because that's what you walk away from. And I think once you can do that, then you're um, you're unsinkable, right?

Jake Aaron Villarreal: Yeah.

Stephan Aarstol: They can take everything from you, but they can't take, they can't take that away from you. And once you have that opinion, you know, you're invincible.

Jake Aaron Villarreal: Yeah, no that's great. I love the attitude. I think that's a, the grit comes from the experience. If somebody wants to visit Tower um, your, your, your space there in San Diego or find Tower Paddle Boards online, where, where can they go to find you?

Stephan Aarstol: Yeah, so we're still fairly decent in the search engines, even though you're mostly advertising on there these days. But Tower, Tower Paddle Boards, or you can just Google anything "paddle boards," and then Tower Electric Bikes.com. So towerpaddleboards.com, towerelectricbikes.com, and towerbeachclub.com. Uh we're fairly easy to uh, to find.

Jake Aaron Villarreal: Perfect, great. Stephan, I've known you for a long time. Uh not just somebody who's an entrepreneur but a friend. Thanks for joining us and we'll catch up uh on our next episode, but thanks for joining here today. Take it easy.

Stephan Aarstol: Thanks for having me on Jake.

Jake Aaron Villarreal: Before we wrap up, I want to give a big shout out to all the entrepreneurs that are joined to make this podcast possible. And for all the listeners for listening, it means the world to me that you chose to spend your time with us today. I'm your host Jake Aaron Villarreal signing off for now, but can't wait to connect with you all soon on the next episode. Take care.

This show is sponsored by Match Relevant, a company that helps venture-backed startups find the best people in the market and they do it in three simple steps. First, they sit down with founders to understand their story. Second, they tell their story into multiple candidate channels. And third, they schedule interviews within 48 hours. Find us at matchrelevant.com to learn more about how we do it.

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