Update: Why We Ditched Amazon In The Interest Of Long-Term Growth

Stephan Aarstol

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Published: March 31st, 2022

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Stephan Aarstol

Founder, Tower Electric Bikes

$300K

revenue/mo

Founders

Employees

Tower Electric Bikes

towerelectricbikes.com

from San Diego, California, USA

started June 2010

$300,000

revenue/mo

Founders

Employees

Discover what tools recommends to grow your business!

Discover what books Stephan recommends to grow your business!

The Everything Store: Jeff Bezos and the Age of Amazon Brad Stone

Sam Walton: Made In America Sam Walton

Shoe Dog Phil Knight

Steve Jobs Walter Isaacson

Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic F... Ashlee Vance

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Living with a SEAL: 31 Days Training with the Toughest Ma... Jesse Itzler

Good to Great: Why Some Companies Make the Leap and Other... Jim Collins

Want more updates on Tower Electric Bikes? Check out these stories:

1. How I Partnered With Mark Cuban To Start A $250K/Month Company Selling eBikes (2019) ➜

This is a follow up story for Tower Electric Bikes. If you're interested in reading how they got started, published almost 5 years ago, check it out here.

Hello again! Remind us who you are and what business you started.

My team and I created Tower. We create and deliver direct-to-consumer value on premium quality beach lifestyle. We started in the paddleboard niche in 2010 with the plan to expand upon that foothold to create a holistic beach lifestyle brand. Today, we operate:

Tower Electric Bikes (direct to consumer (“DTC”)value on high-end electric beach cruisers at TowerElectricBikes.com)
Tower Paddle Boards ( DTC value on high-end paddle boards at TowerPaddleBoards.com)
Tower Beach Club (4300 sq ft indoor/outdoor beachfront event venue in Mission Bay in the heart of San Diego’s beach community Pacific Beach)
Tower eBike Repair Shop (We repair any brand of electric bike at TowerEBikes.com)
NoMiddleman.com (Everything showroom for the top DTC brands)
(coming soon) Tower Wake Surf (Concierge level fractional ownership of $250K wake surfing boats at Tower.Surf)

Today, we’re a diversified and stable beach lifestyle brand. Our success and reach expands each year like a flywheel. We’re just getting started.

tower-electric-bikes-79f65a5e-8112-4e8b-bf48-acfa2f6ae0d1

Intimate concert at the Tower Beach Club with G. Love (of G. Love & Special Sauce)

Tell us about what you’ve been up to! Has the business been growing?

Going into the pandemic we had invested heavily in diversification while simultaneously walking away from Amazon to re-focus on offering true direct-to-consumer value (with Amazon taking a 50% cut of everything) and taking a ~$4 million revenue haircut in the process.

It was a challenging transition and while we were making all the right long-term decisions in my opinion our bankers didn’t like the sudden change in trajectory. They panicked and froze our ~1.3M credit line and term loans put them into what’s called non-monetary default. It’s a rare thing where the bank can put you in default based on financial ratios and bank covenants even though you have never missed a payment, nor is there risk of you ever missing a payment. They can just get nervous and panic. This was around Christmas of 2019.

It’s a brutal time to be in business, and it’s only going to get more brutal over the coming years. Unless you are antifragile, you face extinction.

Going into 2020, this bank action created real problems for us and at one point we even considered selling the business. It was not something I wanted to do, but the bank had liens on all my personal assets and could basically take all of my houses at any moment they wanted.

Then the pandemic hit. We had just invested about $300,000 in building out our Tower Beach Club, an event venue. That business unit went to zero overnight. On the flip side, and this is where our diversification investment paid off, our eBike business took off as people were locked down. It grew 500% in a year. In a lot of bike stores, you couldn’t even find bikes.

EBikes was already a fast-growth industry and it exploded with the pandemic. Our paddleboards grew significantly as well. All in all, we doubled revenue in 2021 and stockpiled enough cash in our accounts to pay off all our lines and loans outright. Without any money to work with as our lines were frozen, we positioned ourselves to transition our financing to another bank.

Fast forward a year, and we’ve extended into starting the Tower eBike Repair Shop, a 12,000 square foot facility serving San Diego where we work on all brands of electric bikes. Coming out of the pandemic, the event business rebounded significantly and we’ve had a banner year doing events. Out new experiment is about to launch if the fastest growing water sport in the US, wake surfing.

We’re doing our concierge-level take on fractional ownership of a quarter of a million-dollar wake surfing boats with Tower.Surf.

What have been your biggest lessons learned in the last year?

The biggest lesson I’ve learned from the past year is that it’s a brutal time to be in business, and it’s only going to get more brutal over the coming years. Unless you are antifragile, you face extinction. We’ve made ourselves antifragile by diversifying online and offline to prepare for the coming storm brought about by the concentration of power into anti-competitive monopolies like Amazon and Google. I love them both, but that kind of concentration of power will always get abused and that’s not good for business and the power of capitalism to raise the standard of living.

It’s a dangerous time, but it’s also a very easy time to manufacture revenue. Anyone can raise money, buy ads, and drive revenue growth, but so can anyone else. Unfortunately, doing that really gets you no SCA (“Sustainable Competitive Advantage”). People think revenue and revenue growth equals a business, but it doesn’t. Businesses go from start up to failure at a faster rate than any time in history. To survive, you have to drive profits. Driving revenue and growth profitably, and in a sustainable fashion, is a different subject. That’s the challenge today.

Tower started in the summer of 2010. That was over a decade ago. It’s not easy to do these days. We’re very proud of that accomplishment and look forward to a bright future.

What’s in the plans for the upcoming year, and the next 5 years?

The business we’re building is an authentic beach lifestyle brand.

Focus on your product or value proposition above all.

We don’t really advertise. It’s sort of a founding principle at Tower. We want our products and value proposition to be so remarkable that people talk about it and spread the good word. The best companies in the world didn’t really get where they are by advertising. Tesla didn’t really advertise. Google doesn’t really advertise. They provide value so undeniable that people can’t ignore it. If you do that and not take the easy path, it forces you to get creative and create a hack that leads to sustainable competitive advantage. That’s our plan. We want to offer direct to consumer value for anything beach lifestyle. And we ant to do it in a way that’s sustainable, not propped up by smoke and mirrors. We’re on the 20-30 year brand building plan. That’s our very simple plan.

It’s hard being a bootstrapped company starting from zero and not always for the reason you envision. As an eCommerce company we have $1M plus inventory asset, but that started at $0. We begged, borrowed, and pre-sold at the beginning to get around the fact that we basically had no money to operate. The problem is even if you make a ton of profit, you have to pay taxes. If you have an investor, you have to pay them too. Mark Cuban owns 30% of Tower. He’s been a great asset to our company and so we take care of him like you should an investor, and in reality 30% of all profits are his as he’s 30% owner. So if we make $500,000 and if I as owner use $100,000 to live off of, that leaves $400,000 more cash that we started the year with. But as I own 70%, then whether I remove the money or not from the company I still own taxes on another $280,000 (so $380,000 with my $100,000 living expenses draw). Assume taxes are 50%, which they are when you factor in living in California, and I have to pay $190,000 in taxes. Since I don’t have any money, I have to take our $190,000 cash from the business to pay said taxes. When you take a disbursement like that from a partnership, you have to disburse it to all “owners” so Cuban gets his 30% (as he should). So that’s another ~$81,000 to Cuban. Add all that up and we made a profit of $500,000, which seems awesome, but $371,000 was distributed so we only increased our company equity $129,000. If you’re starting from zero and need to get to $1M+ in inventory, you need another 7 years of half a million dollar profits to get there.

Now grow faster and do the math. You pay a lot of taxes and then if there’s any kind of hiccup, your bank might come say we’re going to take all your houses. That’s what I learned over the past 5 years, so over the next five I’m adjusting to that reality. We’re going to grow slow and steady, like a flywheel. At first, every push only moves the wheel a tiny bit, but the momentum builds. Things seem slow. But at some point, there’s an inflection where the momentum takes over and your every push becomes less than the momentum and the whole thing becomes self-driving. We’re just getting started on what will eventually be a really great company is the way I look at it.

Have you read any good books in the last year?

I read “Open” about Andre Aggasi. I read “Living with a Seal” by Jesse Itzler.

I read “Amazon Unbound: Jeff Bezos and the Invention of a Global Empire” by Brad Stone, who also wrote “The Everything Store”, what’s widely considered the biography of Amazon and Bezos. I’ve become friends with Brad and we’re quoted in Amazon Unbound.

And most recently I’ve read, “Good to Great,” by Jim Collins.

Advice for other entrepreneurs who might be struggling to grow their business?

My advice right now is to:

1 - Focus on your product or value proposition above all.

We live in an increasingly transparent world. You can fool people for a while, but it’s not a long-term strategy. What is a good strategy is creating amazing products and an amazing value proposition. Do that, and make it visible, and you’ll do fine.

2 - Keep your burn rate low.

I think we’re on the precipice of a very turbulent time in the business world. Monopolies are running unchecked. The gap between the rich and the poor is expanding at an increasing and dangerous rate. What you’ve got to do if figure out a way to weather the storm, and that starts with getting your burn rate low and figuring out a way to survive. At Tower, we’re looking to create a negative burn rate by diversifying online and offline. We’re on a mission to become antifragile.

Are you looking to hire for certain positions right now?

We’re a pretty lean organization that targets about one headcount per $500K to $1M in revenue. We’ve evolving though into uncharted territory with our event space and our eBike repair shop.

While we’re always open to hiring A+ players regardless of if we have a current positon for them, we’d be extra happy to find talented eBike mechanics as they are extra hard to come by these days.