On the show with me today is Stephan Aarstol; founder of Tower Paddle Boards and a number of other direct to consumer brands. Back in 2010, Stephan was barely 6 months into his venture when he received a call from a TV producer for a show he’d never heard of.

It was called Shark Tank – and it changed Stephan’s life.

After hearing Stephan’s pitch, Mark Cuban decided to invest $150K in Mark’s company, and that company went on to become one of the biggest success stories in Shark Tank history. Since then, Mark has been a partner in virtually every business Stephan has started.

In Stephan and I’s conversation, we talked about what it was like to start a company in a highly competitive market, what it was like to work with Mark Cuban, and why he eventually implemented (and wrote a book about) the 5-hour workday in that company.

If you are an entrepreneur looking for ways to make your company stand out, this episode is for you.

Full Transcript

Trent:                  Hey there everybody. Welcome back to another episode of the Bright Ideas Podcast. As always, I’m your host Trent Dyrsmid and I’m here to help you discover what is working in e-commerce today by shining a light on the tools, the tactics, and the strategies in use by today’s most successful eCommerce entrepreneurs. On the show with me today, it’s a fellow by the name of Stephan Aarstol. Aarstol, Stephan is the founder of Tower Paddle Boards, a company that was founded in 2010 and funded by the billionaire Mark Cuban. Tower Paddle Boards is one of the biggest success stories in shark tank history with only a hundred thousand dollars in sales. At the time of the pitch in 2011, Cuban invested just $150,000 and since then tower has gone on to do over $36 million in sales, landing it at the coveted slot of number 239 on the 2015 inc 500 list. So we’re going to welcome Stefan here.

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Stephan:             Thanks for having me. I appreciate it.

Trent:                  So what made you, uh, come up with the idea for tower paddle boards? Where you a a paddle board aficionado?

Stephan:             Not, not really. I, uh, I’ve had an online business selling poker chips. Poker chips that I’d had since about 2003. And I’ve been in the internet space since 1999. And the paddock or the book chip company was sort of winding down. There was a big peak and then it sort of fell off. And so I was looking for a replacement and a buddy took me out paddle boarding and it was quite fine. A lot easier than surfing. I went to buy one and it was just super expensive. It was like 1200 bucks. Yeah, it doesn’t make sense. So I said, well maybe I’ll, you know, produce these and sell for half price and do a direct consumer. And so I looked at the search statistics of it and this industry was growing hundred percent a year and it was just exploding. That was in 2010 when I started the paddle boards.

Trent:                  Okay. So you went from selling something really small and thought, Hey, I’m going to go to the other end of the spectrum and sell something really, really big on the internet. Did you know anything? Did you know anything about making paddle boards?

Stephan:             Uh, no, no. And that actually in my opinion is benefit. I knew nothing about making poker chips when I started that too, but I wasn’t a great poker player by any means. But I understood it enough that I felt I understood poker players and I could, uh, you know, make any business out of it. And with paddle boards, actually being an outsider was an advantage in that industry because everybody, you know, it was sort of doing group thing and they were all acting the same company. A lot of the people were coming from surfing or they’re coming from wind surfing and they were going after the sexy mark, which was surfing and racing. And really those sexy markets accounted for about maybe 10% of the entire market. It was this mid-market that was being ignored. We said, we’re just going to make products for this mid-market.

Stephan:             Um, you know, giving them a good product. And then also, um, a couple of years in, just like you said, you know, poker chips are a great e-commerce product because it’s very easy to ship. A paddle board is like, you know, 12 feet long, three feet wide, it has to be on a truck, right? 20% of these are getting damaged. It was a nightmare eCommerce business, but there were these inflatable paddle boards. And so, I mean I really wanted the inflatable paddle board to work because it just worked better for this, you know, mail order business. And so we basically started experimenting with inflatable paddle boards and at the time they were 1% of the market. And so we made a paddle board, they used to be four, it’s just thick, whichever everybody in the industry thought it was just stupid day. Right? Or do like, you know, two and a half inches thick.

Stephan:             We made one six inches thick and one eight inches thick because we felt like the thicker it is, I mean it’s just sort of physics, the more rigid it’s going to be and basically fixed the inflatable paddle board and instead of it being like going like a banana through the water, it was super rigid going thicker. And today the playable market is about 70% of the market. I mean, and that was in a period of four years when for 1% to 70% and we sort of led that charge and that’s precisely because we knew nothing about paddle boarding. You know, when we started this and we were just completely a blank slate.

Trent:                  Yeah. So you went at it from a different perspective thinking, well, I have this logistical problem to solve and that I want to make something that’s easy to ship. I don’t know how to make paddle boards the way they’re made now. So what else could we come up with? None. Now did you pioneer the idea of inflatable paddle boards or was that already around in a very small thing?

Stephan:             Yup. It was around for probably five or seven years, but nobody in the industry took them seriously. They didn’t like them. Absolutely. It wasn’t a real paddle-board and you’d still get people today. It’s like, Oh, inflatables not going to work, but you’d be amazed and we can put this thing over a 10-foot span and a 200-pound pack and stuff on it and barely flexes. So we took another look at it and we basically just tweak the design of them and improved it and then everybody has followed essentially.

Trent:                  Okay. So the level of competition in the niche, when you got into it, you’d mentioned that there were these incumbent players that were in the industry and they were the surfers and the windsurfer for people and how much competition were they for you in the segment that you and that you were going to go after and was that segment, did it change? Like when you launched the company, did you already know you were going to go after this middle-market or did you sort of stumble your way there through errors in pursuing the hardcore?

Stephan:             No, I mean we initially sold other people’s products cause I was testing demand and I didn’t want to go into production and my other business was dying. I was literally job hunting while I was starting this business. Nobody would call me because I was an entrepreneur. But we definitely knew we wanted to go into that mid-market. Um, yeah. What, what was the other rest of the question more?

Trent:                  How much competition? So I’m trying to get a feel for how much competition was it, cause a lot of the reasons for this question is this many first time entrepreneurs, they look at a market and they see incumbents and they think, Oh, there’s too much competition. So they don’t enter the market and many times maybe miss out on a tremendous opportunity because they make that wrong assumption about competition.

Stephan:             Yeah, that’s a great question. Yeah, there were probably 80 brands selling paddle boards. I mean it was a crowded market at the time and we were barely early into it. And there were companies that were already doing, you know, 10 million a year in sales, um, in paddle boards. But most of them were selling at the time in 2010 most of them were selling through, they were trying to get three or four coveted spots, retail stores or you know, selling through small surf shops. So they are all using the same business model. We were going direct to consumers at the time. There was maybe only one of two of those companies were employing a direct consumer strategy, but they were doing sort of doing a bastardized version where they were doing direct to consumer, but they really wanted to be in the retail stores. So they would sort of doing both of that. Also selling on eBay and a very confused distribution strategy. We wouldn’t just pure direct consumer. If you fast forward to today, there are probably 150 brands in the paddle board market, so there’s more competition. But my personal perspective is all every business that I’ve ever done that’s been successful is basically we’ve identified demand and I’ve found a way to put us, build a good brand within that demand. If there’s no competition, you don’t necessarily know if there’s demand.

Stephan:             Our business now, we’ve expanded into other beach lifestyle products and the latest company we launched about a year ago is tower electric bikes. And if you want to talk about a crowded industry, I mean there’s probably 500 brands of electric bikes out there and, in the last 15 years, there are companies that have invested $100 million in gone bankrupt in e-bikes. There’s definitely demand and it’s growing, significantly. So we think we’re going to make, you know, with Mark Cuban, we’re going to do the billionaire bike and e-bike and we’re going to, we’re going to take over this industry.

Trent:                  So let’s go down that rabbit hole a little bit if we may. And you can use either the bikes or the boards to answer the questions. I’m really not too concerned, but where I want to fill in the gaps is for entrepreneurs who are at that and that inflection point of, you know, do I move forward or do I go back to my drawing board? Because if I move forward, I have to invest capital and I have to invest time and therefore there’s the risk of failure and all of the things that people are always trying to avoid kind of helped me get inside your head when you were doing that research. So that we have a greater understanding of what was it that enabled you, cause now you’re a little bit more experienced, but maybe let’s go back to, you know, with the boards when you were a little less experienced and maybe not as high level of confidence and you didn’t have the backing of Mark Cuban of course. What was it that allowed you to think, yeah, I need to move forward with this?

Stephan:             Well I think at the time it was when people were selling paddle boards through the regular distribution channel and it was broken. Like why does something that costs $250 or $300 to produce, sell for $12 to $1,600? It’s not because we haven’t found a cheap enough way to manufacture. We certainly have, but distribution models and retail are just broken. That’s why the entire retail industry is going out of business now. Amazon is sorta, you know, taking over, um Oh that’s a simple problem we were solving. It had nothing really to do with paddle boards. It had to do with fixing broken distribution systems. I’ve started another company called nomiddleman.com which aggregates the top, you know, three or 400 direct consumer brands that operate in every little niche. This is sort of a movement that is, that is taking over. That’s the problem. We fixed them; paddle boards we, although we did modify the inflatable paddle board, we didn’t really come in with any huge, you know, innovative new paddle board stuff, really our business model.

Trent:                  So “Shark Tank” came along. You had $100,000, I think in total sales by the time you got on “Shark Tank.” So, so how long did it take you to get the hundred thousand dollars? First of all, in sales.

Stephan:             That was probably over about six months, but it was ramping up fast. I think in the month before shark tank, we did 35,000 of that. So it was ramping up and it was sort of already taking off and, you know, in our run up to, uh, you know, in the show airing or the pitch, um, you know, we were, we didn’t even have paddle boards like in stock yet. We were basically pre-selling paddle boards. Um, you know, so it was a different, uh, sort of sales experience once we had boards landed on the ground and we could ship them out immediately.

Trent:                  Okay. So now you’ve applied to “Shark Tank”, you’ve got accepted to be one of the pitchers and you have this opportunity to get up and stand in front of the billionaires. What were some of the leg work you did to make sure that you were ready for that? And then well let’s deal with that one first.

Stephan:             So, at first we didn’t get a, we didn’t apply to be on “Shark Tank.” So I just, you know, while I was running this business, I had just hired my first employee about three weeks earlier and we just got a call one day out of the blue and it was this guy saying, Hey, we’d like you to be on. And you know, I get calls like this quite a bit, even with the poker chip company, the poker chip company was on TV, but because it was a hot trending industry and paddle boards was a hot trending industry, we get a lot of media calling and saying, we want you to be on our show. And then you talked to them for an hour and at the end they say, Oh, by the way, there’s a $19,000 production. Every entrepreneur has got this call. And so I just get tired of that.

Stephan:             So, I was sort of hostile towards this guy and I said, uh, yeah, you know, it just so we’re upfront here, I’m not interested in paying you to be on your show or whatever. And he’s like, no, no, no, no, no, no. And I’m like, well, I’ve never heard of this show Shark Tank. What is this? Cause it was season two, this was, and they said, well, it’s on ABC on Friday night. And I’m like, what are you talking about? How do I not even know about this show? That’s about entrepreneurs raising capital on prime time on ABC? Yes, I’ll be on your show. And I was pitching five weeks later. Um, so there wasn’t a lot of prep. I was literally in the hotel, you know, the night before, we were sort of sequestered for four days up there. Um, you know, trying to memorize my pitch and try and memorize the name of all five of the sharks too. Cause I, you know, I feared going on there and calling somebody by the wrong name. Ended up stirring up my pitch. Uh, sort of my memorized pitch. I have a horrible memory and I’m known as the worst pitch in the history of shark tank that still landed a deal cause I went in there, I froze, I got called a nerd. I got called a leprechaun. I got told this day in my life and come back and I ended up getting a deal.

Trent:                  What was it? Cause I’m sure you must’ve asked Mark this after the fact, you know, in spite of your, um, less than Academy Award-winning performance, what was it about your pitch that caught Mark’s attention? Was it that he was a super enamored with the product or was he just super enamored with you or some combination of both?

Stephan:             Well, when the deal was actually he got a 30% of tower paddle boards for $150,000 plus first ride refusal to invest in any business I raised money for in the future. And this was all in Shark Tank history where there was this sort of little flyer on any future businesses and they didn’t like the paddle boards. None of them get, I mean three of them were out right away. Of course, it made an idiot out of myself, but they’re just like, there’s 80 brands in this. Like, what are you going to add? You’ve got no intellectual property, don’t idiot, you’ll never anything here. And so they thought that the paddle board was just a stupid idea. So I essentially, in the middle of the pitch, I just pivoted and I started pitching them the idea of a business flipping service. I would use my SEO skills to, we would go, I said, it’s really hard to take a business from zero to a million dollars in sales, but it’s really easy to take a business from $10 million to $20 million in sales.

Stephan:             So, we’ll use your guys’ war chest of cash. We’ll buy a business for $10 million while Jack what I know and we’ll sell it a year later for $20 million. And I said, “That’s the way to make easy money.” And you know, this sorta confused, but Cuban and Mr. wonderful were like, this is great. Like I would love this. I could just inject this into my existing businesses. And so then this bidding war, you know, I was on recorded for probably an hour and they had to cut this episode so it made sense to viewers. S,o most of that got cut out of there. This guy making an idiot out of himself and then all of a sudden Mark Cuban offers him a deal. Let’s just future companies. So it didn’t make a lot of sense the way it was cut, but it made for good TV because it was this sort of Rocky-like comeback.

Trent:                  Yeah. So, he did invest in the paddle board company, but did you ever go and do the slipping in addition to that?

Stephan:             No, we’ve done it with businesses though. Like now, we’ve got the owner of the bike business; we’ve got a tower of beach clubs, which is like an event space as we do pop up retail within it. Um, and then, No Middleman. So he’s in other companies. Um, you know, it hasn’t had to put any more money in. So that’s, it’s worked out good for him, but we haven’t done the business flipping idea. Um, another thing is that, I mean the world has really changed since 2010 and since I’ve gotten to the internet space since, you know, my poker chip company was started in 2003. Um, I mean it’s dramatically changed. I mean, the opportunities are much different today than they were, you know, awhile ago.

Stephan:             Like Amazon, like the opportunity to sell on Amazon is almost like a window that is closed to profit, make money on Amazon as a third party vendor. Amazon is just suck all the profit out of that half of, you know, search original product search from Google. And so Google is sorta trying to hang on to stop. So they’re throwing more ads in and more Google products. So it’s almost like organic search listings were disappearing from the internet and Google takes half of everything that’s sold on search and Amazon takes half of everything else and everybody else is dying. I mean, it was hardcore retail, but I think there’s sort of a reckoning coming with the ability to sell anything really.

Trent:                  So what do you mean by reckoning? Talk me into that.

Stephan:             Well, we’ve got such a concentration of power between Amazon and Google then basically sucking the profit out of everything. So 80 paddle board brands and the only way they can sell is, you know, through Amazon or through a paid search. Um, it’s, it’s just a, it’s just a fight to the bottom. And, but Google and Amazon are taking, you know, 50% revenue. If I sell a paddle board today on Amazon for $600, Amazon will take $200 or 50 to make. I’ll keep 150 and those economics are getting worse every year and every month really, that isn’t even the metrics anymore. And Amazon, Amazon will take 300 today and then if I sell it on Google using AdWords or something like that, Google will take 200 I’ll get 150 give manufactured 250 those metrics are getting worse. So the only one who’s going to survive long term is these, uh, these monopolies. This is really what the, nomiddleman.com business was about is you have to basically band together with other sellers of direct consumer products because that may be the only, uh, future way to sell products in my opinion.

Trent:                  Interesting perspective. What was it like working with Mark Cuban, as an investor?

Stephan:             It’s been, it’s been good. I mean, and it’s, he’s kind of a mentor, in a sense, too. And I didn’t really realize that I would have direct access to him. I’m like negotiating the deal prior to sort of signing on, I was just dealing with his lawyers. Um, and then once the deal was signed and they’re like, okay, CC me on everything. And I think the first or second email I sent, you know, he was swearing back at me, don’t be an idiot, don’t do this.

Stephan:             It was really piecing the rest of the team and he was, he was going to chime in on everything. So I was like, you know, I’m, I’m getting, you know, visibility, but I’ve learned a lot from, um, you know, and I don’t think he entirely trusted me. You know, the first year I sort of had this level of trust and once I felt that, um, you know, it’s, it’s been a very valuable situation. He doesn’t always tell me what I want to hear. And so I’ve learned, I don’t ask unless I really value or concern with his opinion and then I’ll use that to base my decision because I can’t ask. And then he says do this. And then I say, Nope, I’m going to this. If I just want to do it, I do it. And I informed him and if I really am like, I don’t know, let’s go with what you want.

Stephan:             What do you think? So you got to learn how to deal with somebody like that. Cause it’s a, it’s a total not-balance of power, right? So I have a majority stake in the company, you know, he’s in a much more powerful position to help you with other businesses in the future, you know, especially because we have that sort of side of deal where he’s got sort of first right of refusal on investing in any business.

Trent:                  And what if you are starting a business but you’re not raising any money. Just this first right of refusal store, giving me opportunity to buy it.

Stephan:             If it doesn’t, it’s only if I raise money. But, um, the no middle man, uh, company, I sort of did that on the side for about a year and I was going to go pitch him on shark tank and the producers were like, yeah, this sounds cool. Uh, you know, we’ll have you come pitch it. Um, but Mark can’t know anything about it. So I kinda had to do it in secret on the side, right to the point of where I had to create yellow. So, you know, I was talking to my lawyer and he’s like, you can’t go pop this on your business partner that you’ve been doing a side project for a year and I on national, this is not going to go well. So I had to sort of tell him, and when I told him, I said, realize I have an employment contract with you, but this was all done on the weekends, evenings, you know, my own money. And I said, but you know, which way do you want this all? And I’ll give you, if you want to invest 1 million bucks, I’ll give you know, preferable deal and then we’ll go raise money somewhere else or we’ll just use that money.

Stephan:             Or if you feel if this is rightfully yours and you know you’re going to have 30% and we’ll go on. I sent him that email with you know, a 30-page business plan and spend four hours writing this email. He replied in like nine minutes on a Saturday afternoon and said, I love the idea. It’s definitely gotta be under tower. That would create all kinds of problems. If we don’t do that and we need to tweak the model here and we need to have a bidding structure, basically processes analyze this made a recommendation for this in nine minutes. That’s, that’s how you become a billionaire. I guess honestly.

Trent:                  That would be why he’s a billionaire and all right, so if you were to, cause I know what my audience is going to be asking about Mark, so you learned a lot of things from him. Let’s say shade them with one more thing about Mark. What would you say is the greatest lesson that you learned from working with Mark?

Stephan:             I think protect your downside. I mean, if you look at Mark how Mark made his money, it’s almost like he’s a little paranoid. Like he, he basically got out of the internet bubble before the bubble burst. I mean, you can probably count on one finger the number of people that did that in a major way. And so when, um, you know, we started tower, it was like we were growing so fast, we weren’t advertising for the first four years and we were just growing. We never had anything in stock. It would be June 1st where water sports company, we don’t have our most popular product in stock for six weeks. And I was just like, Mark, this is consuming a lot of capital because I’ve got to buy this stuff gotta pay three months ahead of time. I mean, like, I can’t keep stuff in stock. Why don’t you just give me a million-dollar line of credit and we’ll blow this thing up to 10 million right away. And he would just ignore those emails. And he, and you know, I kept telling him, Eric got cashflow and he’s like, look like everybody has cashflow problems, deal with it.

Stephan:             And I’m like, but I’m leaving upside on the table. And he’s like, quit worrying about your upside. He’s like, worry about your downside, worry about going to zero. And I thought, you know, real money to me already. But for him, this seemed like insignificant money that he could’ve just threw fuel on the fire and made them much return for him. But he’s very, I would say almost tight, like conservative doesn’t even make sense to me, but now that we’ve sort of peaked and come back down, um, it’s made a lot more sense. Like we’re much more protected as a Vista industry as it is going in a downward cycle and, you know, optician, Amazon taking over half the market and so that protecting your downside, it seems really stupid. But, uh, that’s something that I’ve really, uh, you know, learned and taken away and I think that will serve me well in the future.

Trent:                  I would agree based upon my own several decades of being an entrepreneur. That is a lesson I took a long time to learn and have found now finally learned it in. And now when we have big wins, I’m not in a big hurry to spend all the money because I like to protect my downside. I like to be very flushed and have as much liquidity as possible because you just cannot predict. Uh, you know, a year and a half ago in one of my businesses, we lost three of our key product lines and revenue went down 70% in a quarter. Yeah. And that was, and that was after growing at 20% per quarter for eight consecutive quarters. So, you know, we’re on fire and then all of a sudden we just got our head chopped off.

Stephan:             And that is happening more and more today because the business cycles are faster. I mean, I speak at Harvard, you know, probably once a year and you know, I’m telling these kids like how fast the cycle is going now. Like it used to be a company would be on like the uh, what’s the, the S and P 500 companies used to be on that for like years, right. Today are on there for 16 years. In 10 years it’s going to be like five years. That’s on the S and P 500. That’s these big topic. So small companies are just coming and going and coming and going. It’s so fast. Um, you, you can’t, uh, you can’t rest on your laurels at all.

Trent:                  No, you cannot. All right. So I discovered you originally, uh, because of this five-hour workday thing, and I had read an article that wasn’t about you, about some company that had adopted this five-hour workday. And I thought, well, that’s fine for them, but they don’t have any history with it yet. So I don’t know if it works. So I started Googling around and I found an article about you and I think you did this with tower. If memory serves me correctly, and you know, it was back in 2011 or 12 or something, you can correct me. But I thought, well, I want to reach out to this guy and see if this five-hour workday thing actually worked out. Now that a number of years have gone by since the article is published. So let’s, let’s dive into that a little bit. Tell me about when did you do it? What company was it? Why did you do it before?

Stephan:             It was in 2015 and it was with tower paddle boards and you know, today we’re accredited with basically inventing five-hour workday. Um, you know, and I initially did it as a three month test. Um, basically it’s kind of how I’ve been working for the last 10 or 15 years. And a lot of my entrepreneurial peers that were doing well were working sort of these compressed days. You come in, head down, get your work done. And so I thought, well, let’s roll that out to an entire company. How would that work? So it was basically sort of a test we were doing and it wasn’t just a test. Um, you know, part of it was socialistic, like I wanted to, we were doing well, we were just, you know, named the fastest-growing company in San Diego and as we’ve proven and we can be successful, but where the speech lifestyle competent that’s working like a startup, let’s live our brand.

Stephan:             So that was really the intent of what we’re going to do a three-month test and see how this goes. Um, and it worked so well that we just kept doing it. We did it full time for two years and today we do it in the summer months. There were some issues with it. Um, but you know, productivity was not one of them because there’s a lot of waste in the workday and you know, what we found is you just compress it. People just sort of figure out how to work a little faster.

Trent:                  Let’s dive down in that rabbit hole for a minute. You said you didn’t lose productivity when you rolled this out to your team. Walk me through, you know, what you said to them and the changes they needed to make so that they could get eight hours worth of work done in five hours.

Stephan:             Yeah. Against them. No instructions. I basically said, I’m going to give you her life back. We’re going to work a day on one damn straight through. We’re getting rid of lunch. That’s going to cut out a lot of waste. So before we were working, you know, roughly a nine to five job, which sounds like eight hours, but you have an hour left in there. Is that one hour a day?

Trent:                  Yup. So, you’re really only cutting out two hours.

Stephan:             Yeah. That, that was it. And the other thing was after you go to lunch, you know, if you have a heavy and all American lunch, he’s your dad for like an hour. Right. And that’s it. And there’s, there’s actually you can trace like people’s, you know, power levels or sort of how they can pay attention and you really can’t do much in the two to three, especially if you’re eight after you’ve eaten.

Stephan:             So, I didn’t think it was much of a cut at all, but I said, okay, I’m going to give your life back. You’re living, we’re going to walk out the door at 1:00 PM so every day during the week you’re going to have one til 10 or 11 or whenever you go to bed and then you’re going to have a weekend. You’re going to have a work week. It’s better than most people’s vacation week. That’s the gift. The ask is that you’ve got to figure out how to be as productive or more productive, and if you can’t figure that out, I’m going to fire you and I’m going to find people who can do that. Because this was really a recruitment and retention strategy. We wanted to get all the people that are not just the four to three times the speed of everybody else. If you go into any office in America, there’s a small group of people who are really hardcore performers and there’s, you know, the masses and I just wanted a company of just those people and that’s really what we wanted to do.

Stephan:             And this was about a year into this experiment. I mean, it was working so well and I was writing articles about it and they were getting a lot of press. So, and this was, we really, we were living our brand. So I wrote a book and the idea was we’re going to put a cook in every patent board that we ship out and we’ll get, you know, 10 or 15,000 of these out there and people will learn about our company or buy this grant. That book ended up getting pressed on about 20 countries. What you probably read this article in the wall street journal about a German company. Um, it’s spread around the world to, you know, over 10 million people. There was like a Huffington post video that got four and a half million views. Uh, so people really, they understand the concept that we’re wasting a lot of time work. And, uh, this was sort of a model to compress that. And it’s just like finals, we can call it, you compress it and he put pressure on people and they just figured out the ways. So, but there was no rules, you know, that I said, well you gotta do this and this and this. You’re going to become your own efficiency experts and if you can’t figure it out you’re going to be fired.

Trent:                  So, the article that was published more recently, I think one of the tricks that they used was everyone put their cell phone in their backpack, you know, in the, in the whatever. So nobody is, you know, on social media during the day. Nobody’s texting during the day. Cause you know, the, the cell phone is a huge big time pig. Probably much more so now than it was back in 2015 I guess it wasn’t that much different. So did you implement anything like that to help put guard rails on your policy?

Stephan:             We didn’t. And you know, I don’t, I don’t know how realistic that that is to be perfectly honest. There’s, there’s a German company that is doing this now that was, who was in the wall street journal and they were in the New York times and they, I mean they’ve done like a media tour on this. Right? I think a lot of that may be BS, to be perfectly honest. Um, you could implement rules, but I don’t think people will even have a, those in today’s world, we’re just too connected, right? Like, you know, let’s say you got kids in school, you can’t have your phone in your backpack and not use it during work hours. That’s not a, that sounds like something that you might do, but that’s not realistic. Um, you have to, you have to identify productivity tools is the idea. So things like, uh, there’s a little application you can get for your phone that will, uh, you know, like cut it off or you can’t get access to social media.

Stephan:             So you could do those to yourself. And I think things like that, a technology that will help you focus, um, will definitely help. And you know, we spread those around because everybody in our team was identifying productivity hacks and somebody would find one and then they would pass it to everybody. Like when we started this, I was using a word document for my passwords and somebody introduced me on the team, introduced me to LastPass. And I mean this thing has saved me like so much time. It’s, it’s unbelievable, right? Saves me an hour just sort of a password storage and retrieval admin to much more secure something that’s been around for 10 years and I’m not using it. You know, a lot of these tools that we’ve identified, I’ve introduced to other companies, it’s tools that have been around for 10 years and people are not using them and they’re free.

Trent:                  Yeah. Okay. So you created a culture of productivity hackers where everybody knew that Hey, collectively if we all help, we’re all gonna be better off and not get fired and still have our five-hour workday.

Stephan:             it’s a renegotiation with labor. Like there’s something very tangible walking out the door at 1:00 PM it, it basically gives you the experience of being an entrepreneur, right? You have extraordinary life and work is just something you do, you know, before noon to afford this. So there’s some, it’s not just telling people to work harder and figure out how to work faster. They have this tangible, we give, it’s like, Holy cow, this is a great lifestyle. I don’t want to lose this. I’m going to buckle down at work. You know, and when you, when you only have five hours to do stuff, you find that you can’t waste a lot of time. There is pressure.

Trent:                  So why did you then make the shift from being five hour days all year to only five hour days in the summertime?

Stephan:             So two things happen. One, the paddle board business got more difficult when we started to drop in revenues and this was just a test. I wasn’t going to live or die by the five hour workday. So I said, well, maybe we need to buckle down and work a little harder here. But I had this highly productive group and I figured we could get twice as much done if we, you know, worked on hours. But, um, more importantly, the, the part of it that I thought would work that was not working was recruitment and retention. I had a team of nine at the time and I had lost four of them in the prior 90 days. And I mean these were people that were making, you know, $70,000 a year, had a five-hour Workday and they were in their young 20s and people are leaving the company.

Stephan:             This doesn’t make any sense to me. I fired one of the guys, but the other three left a one, you know, when in a band with her boyfriend around the country, another one moved to Mexico, another one went into a, you know, a marketing agency or something like that. And so I’m losing good people and I’m thinking like either they don’t appreciate the five-hour workday where it’s not really achieving what it was, what it was meant to achieve. So if I’m not getting that benefit, why do I really have that? And that was, I was sort of angry at first. But then when I really look back on it a few months later, what’s happened is we’ve lost our company culture as a startup. Like, cause when you’re in a startup and you’re working these long hours, you’re basically in the trenches with everybody. You formed these really strong bonds and it’s hard to leave those.

Stephan:             Right? And we destroyed that. When everybody’s walking out at work and one o’clock, the rest of your life comes much bigger. It becomes very small. So we didn’t have those strong bonds. So when we tweaked the experiment, what we did is we kept the five hour days during summer, but for four months and that is the busiest four months. That’s what we do. 70% of our revenue. So we’re squeezing people for time during the busy season. So we still get the productivity hacks every year we’ll identify new sort of product could be hacked or way to do what we’re doing better. And then in the offseason, we go to a startup work culture where we work these projects and we work long hours in the trenches together. And so I think that gives us the benefits of both. Um, that’s where we’re at right now. I’ve thought of doing, um, you know, kind of a 10-year thing.

Stephan:             So maybe after you’ve been in the company for five years, then you go to a full time, uh, by a five hour day. Because the other element was I think some people are not ready for this. Like when we rolled it out to the whole company, everybody had kind of earned it the five-hour Workday, right to hire new people in and these people were just gifted a five-hour work and it didn’t, it worked differently for those people and brought in some people and they just work like an old eight hour day over five, five days. He didn’t get a whole bunch done. So I think it would be a disaster if you like, you know, the US economy just said, okay, we’re moving everybody to a five-hour Workday. I think it’s going to happen very organically. I don’t think people are ready for it.

Trent:                  Okay. You just turned your camera off by accident, by the way. So let’s finish up with for anyone who’s considering it, are there some pearls of wisdom that you would like to offer?

Stephan:             Yeah. So I would say to check out the book, it’s Five Hour Work Day, uh, you know, on Amazon or fivehourworkday.com. Um, but the, you know, the, the wisdom of any company can benefit from a three-month test cause basically, and with the telling everybody, you’re going back to a regular workday, so don’t get used to this. This is going to be a full-time thing, but I’m going to give you the summer off so we can enjoy the summer. We’re going to walk out the door at one o’clock and you know, give them the same thanks. I’m getting your life back from the summer. You’ve got to figure out how to, how to do your job faster. And if you don’t, you’ll be fired.

Stephan:             And it has to be really real teeth to this. And what you’re going to do is you’re going to force everybody to examine how they’re working and figure out what productivity hacks and share those productivity tasks with their neighbors. And then when you go back to the eight hour day or 10 hour day or whatever it is, you’ll have a workforce that can do twice the work. What company would want to do that? Is that not worth the three-month test and giving your employees this sort of like great summer vacation? I think that’ll work for any company and a lot of people say, well this works great for, you know, you guys are an internet business, you’re all marketing guys. We did this in our retail store. We changed the customer service hours. We only answered the phone for five hours. Our warehouse went to five hours, you know, in the warehouse for example.

Stephan:             It used to take them about five minutes per package, you know, shipping and doing everything. The processing by the, you know, within I think like two months, that was down to 2.6 minutes. We didn’t have the accurate, they just figured out how to use the software that they already had on their computers, figured out how to use it better. They redesigned stuff and they just figured out how to do stuff faster. And why had they done that for the, you know, the three or four years before, they weren’t forced to. That’s what the American worker is today. People are just throwing, you know, time and stuff and productivity is up thousand percent in the last 30 years. But productivity in America is up 80% from 30 years ago when, you know, my mom was working in a bank with a typewriter, writing out letters and mailing them to people as a way to communicate and she has a phone that’s tied into the wall and she doesn’t even have a computer on her desk. And you’re telling me the workforce is only 80% more productive. So today that’s some sand. If the internet goes out, what do you do? People we don’t, we just go home. It’s pointless to even be here.

Trent:                  Yeah, very true. All right, last question for today. What is your best advice for today’s entrepreneurs who are interested in building a direct to consumer business?

Stephan:             Yeah, I mean there’s a lot of opportunity. I mean that, nomiddleman.com site that I put out there, we have 3000 categories and probably 1500 of them are empty. Um, so there’s a lot of categories that peak, there is no direct consumer brand attacking that category and there’s a lot that there’s only one or two. And then there’s like mattresses and there’s like a hundred companies you know, going after that. I think it can be done in any category. So I mean that picks a product, pick a good category and go direct to consumer and you know, keep your costs low. That’s the thing. Unless you’re willing to, in today’s environment, you know, raise $100 million and give half of that money to, you know, Google ad words and then, you know, take a loss on all of your Amazon sales for five years to build your brand.

Stephan:             It’s difficult to start a brand today. It’s not like it was, you know, five or seven years ago or 15 years ago for sure. So what you have to do is you have to keep your day job and do this as a side gig. And keep your, your, your burden rate extremely low, grow it organically until it gets sort of legs a bit of itself because the environment is getting a lot harder. Uh, I mean I’m, you know, I’m an optimistic person, but part of me thinks that maybe the window of opportunity of making and selling stuff is past. I mean, everything’s going to be private label, you know, Amazon basics are there other 120 you know, brands and it may be that we’re in a, we’re in an environment now where there’s such concentrations of power and such strong monopolies that these, there will be, you know, four or five companies that just sort of make everything and control everything. I mean, I think we’re in a very dangerous position. It’s like we’re, we’re in the 1920s again and I think we need to basically break up these monopolies or there’s going to be some really, really bad outcomes.

Trent:                  Interesting perspectives and lots to think about. And I’m definitely can find some areas of what you said that I agree with in some areas that I don’t, and that is what encourages thought. So thank you so much, Stephen, for making some time to come be on the podcast. Um, you’ll get an email afterward asking links to the things that you talked about, so I can put all of those in the show notes, so please make sure that you reply to that. So for anyone who wants to learn more about you or contact you via LinkedIn or whatever, they’ll, we’ll have links in the podcast or in the post rather to be able to do that.

Stephan:             Awesome. Well, thanks. I appreciate it.

Questions Asked During the Interview

[02:20] How did you come up with the idea for Tower Paddle Boards?
[03:19] Did you know anything about making paddle boards?
[05:44] How long had inflatable paddle boards been around when you launched?
[06:44] How did the level of competition back then compare to now?
[10:16] Why did you feel that you could be successful entering this market?
[11:30] How long did it take to get the first $100K in revenue?
[12:15] How did Shark Tank play a role?
[14:35] What was it about your pitch that appealed to Mark
[19:18] What was it like working with Mark as an investor?
[22:44] Of all the things you’ve learned from Mark, what was his greatest lesson?
[26:41] When and why did you decide to convert to a 5 hour workday?
[29:31] Why did you choose to make this shift to a 5 hour work day?
[32:24] Tell me about some of the productivity hacks that your team discovered?
[33:45] Why did you shift to 5 hours days in the summer only?
[34:20] What was the impact on recruitment and retention?
[35:30] How has it evolved since and why?
[36:51] What advice would you give to others thinking of trying it out?
[39:10] What is your best advice for today’s entrepreneurs interested in building a direct to consumer company?

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Today’s Guest

With over 20 years of Internet experience, Stephan is an Internet industry veteran. Stephan holds an MBA in New Venture Management from the University of San Diego, and is a widely published entrepreneurial thought leader. He speaks regularly at Harvard Business School on the recently published HBS case study, Selling on Amazon at Tower Paddle Boards.

Founded in 2010 and funded by billionaire Mark Cuban, Tower Paddle Boards is one of the biggest success stories in Shark Tank history. With only $100K in lifetime sales at the time of the 2011 pitch, Cuban invested just $150K, and since then Tower has done over $36M in sales, landing it at #239 on the 2015 INC 500 list.

In 2015, to challenge long-held delusions about unhealthy start-up work culture, Stephan moved his whole company to a 5-hour workday. He later wrote a book titled The Five-Hour Workday chronicling the experience, which would spread the idea to tens of millions of people worldwide, and get press in over 20 countries. As companies are now emulating Tower’s 5-hour workday around the world, the idea is going viral.

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