400+ DTC brands in 2,300+ product categories! Subscribe to receive deals from brands

A Mark Cuban Company

Segment 4: How Tower Paddle Boards Sourced Factories

Below is an excerpt from our 2019 interview with Stephan Aarstol, the Founder & CEO of Tower Paddle Boards, who continues his conversation with Brad Kauffman of NoMiddleman.com. If you’d like to read or listen to the full interview, visit the Tower Paddle Boards blog post.

 

Brad: Multiple questions on the factories and the sourcing. Well two questions:

One, how did you go about finding factories?

Two, is this still something you’re running into today? Where factories just won’t work with you because of the existing arrangements?

Stephan: Yeah. So I’ll handle the first part of the question, how did we find the factory. I’ve been sourcing out of China, because most stuff in the world is just made in China. Literally you can go there and within a 20-mile radius, everything on earth can be made in these little industrial districts within China. So it’s very easy to source stuff.

I went to China for the first time in 2015 and I had been sourcing there for 12 years. In the early days of the poker chip company, I used Alibaba. To identify a factory, you would just search for poker chips and (Alibaba) would show you all these factories that make poker chips, but not just factories. There are middlemen in the factory industry, so there are these agents, like trade agents in China. There would be fake factories, and there would be real factories.

In the early days of Alibaba, it was somewhat useful. But then it became a bunch of noise, and by the time we started into the paddle board industry, Alibaba was essentially useless. You would type in paddle boards, and there would be two thousand results. Well, really there are only 15 factories in the world that make paddle boards. But those 15 were mixed in with 500 fake factories, where you would send them a check for $50,000 and never get anything, you’re just completely scammed. And a bunch of trade agents posing as paddle board factories, but they’re not really— they’re middlemen and mark everything up 30 percent.

So by that time, I wasn’t using Alibaba anymore, and there was a different website that we were using called Panjiva, which is just a goldmine. After 9/11, the Homeland Security Department was developed, and all the sudden every container that came into the U.S. had to be documented. It had to be public information: the weight of the container, where its origination was, where the destination was, and the destination brand name company name. And then a general description of products in there.

So for something like paddle boards (hard paddle boards), you fit about 110 of those in a 40-foot container, and it’s just paddle boards. So the description of the container is paddle boards, and they weigh about this much.

Panjiva aggregated all of this public information required by Homeland Security. Now you can go on Panjiva and type in paddle boards and it will show you every shipment container of paddle boards, where it came from and where it went to.

You can even put in a paddle board brand name and it will show you all of the containers that came in to their location, and where they came from. You can identify all the factories they use. And there’s historical information based on time, like how many in 2010, how many in 2011, how many in 2012. So you can see if their shipments from one factory increase, or if they used one factory for a while and then stopped using them.

So you’re getting a quality score on on factories—and not a Yelp thing that can be manipulated… this is real data. If this is a legitimate brand that has good products on the market, and they’re increasing shipments from this factory, then that’s a solid factory. And then you can zero in on the factories.

And then once you find a factory you zero on the factory and then you can buy every brand that they supply. So you almost get like market share information here on what’s going on and you can very quickly zero in on. Okay, here are the top three or four factories in the world. And then you reach out to those factories directly. So that is incredible information.

And that’s why I’m able to source out of China without actually going to China, because I have a quality score on these factories and I can just say no this factory is good I know I can send them a fifty thousand dollar check and they’re actually going to send me paddle boards. So, a very useful tool.

Brad: Is that still of use? Or that’s more for new businesses and sourcing?

Stephan: No Panjiva is still (useful)… It used to be a lot cheaper, I think it’s like a $1,000 a year. But we’ll use that whenever we’re sourcing a new product. … It works better for products that get shipped in a container of homogenous goods. Not really small goods (that get) mixed… apparel or something like that, maybe a container of flip flops and T-shirts and other stuff. It gets harder because then the general description would just be “apparel.” Well you don’t know whether that was their flip flops, or the shirts, or whatever.

Brad: Gotcha. Okay. And then the second part of that question then, factories and their exclusive agreements? Is that still a problem?

Stephan: Yeah. This is something you run into all the time. When we went into electric bikes, when we went into even just regular bikes, we did a bike with a belt drive, and there was another U.S. company that was doing bikes with belt drives. That’s kind of how we found the factory and the factory was like, well, hey these guys don’t really want you guys making bikes that with belt drives too, so we might not be able to. You basically have to pitch them on being able to do that.

And we had the initial problem of getting the high-end paddle board factory to build for us. Well okay, we found a factory in China, and we’re making our product all in one factory. And the factory was good, and we’re going along.

One of the brands that was selling there, all the sudden got their their paddle boards in Costco. So their volume went up substantially and they went back to the factory and said, oh by the way, Tower is an annoying competitor of ours, (with their) notoriety from Shark Tank. And they said (to the factory), we don’t want you to make product for Tower anymore. So the factory came to us and said, “Sorry, but you’re just gonna have to find another factory.” And we’re like, “What do you mean we’re going to have to find another factory?” (And they replied) “These guys don’t want us making your product anymore.”

These are actually illegal tactics. If you do this in the U.S. and it’s a U.S. Factory, you can go after them. But in China, who are you going to go after? It’s no man’s land. They can price fix all they want. Factories can deny you and do whatever they want. So you just have to deal with that. And it’s an ongoing problem.

Brad: So over there, even if you have some type of agreement in place, it’s kind of still the Wild West? An agreement is only as good as your ability to pursue it?

Stephan: Yeah. And the dollars rule and (if factories) get a big customer, then that customer can start pushing around other customers. It’s sort of an unethical way to do business. If we got huge as a brand, I would never go to the factory and say, “Look, you can’t make (products for) my competitor.” I don’t think that actually serves the brands. If you’ve got to do weird stuff like that, you’ve got a problem. And that should be your first sign.

I talked about the three brands that were dominating the industry, that all used the one factory. I think one or two of them went out of business. The next five years they went from being a market share leader to going out of business, because they were doing goofy stuff like price-fixing. It doesn’t work in today’s world. It’s so transparent.

Brad: How easy was it to find another factory? Were there more at that point?

Stephan: If it’s a hot product, you have a ton of factories that just pop up. But factories in China, it’s weird, because a factory will be super strong, and then it will be weak, and it can it can change overnight with their management or whatever area they’re in. Maybe the ecological rules change with the government, and it sort of shuts a factory down.

So factories pop up and go down, so you constantly have to be sourcing stuff. The number one thing in a product business like ours is getting a solid factory. If you have that, that is a competitive advantage. Because there are so many factories that you’ll just go through a couple years, but then you have to switch to a different factory, and getting ramped up is a nightmare. So if you get a solid factory, you’re in a really good position.


Next: The Retail Equation At Tower Paddle Boards

“We never want to be that company that just pads our direct-to-consumer margins so we can accommodate retail partners that are taking a 50% cut,” Aarstol explains. In this segment, you’ll learn how Tower Paddle Boards uses their core principles to evaluate retail opportunities. Read more >>


 

NoMiddleman Logo with Slogan

 


Full Interview: Tower Paddle Boards

If you’d like to skip ahead or go back for previous content, no problem! See below for links and summaries for every segment of our amazing interview with Tower Paddle Boards founder Stephan Aarstol.

Segment 1: Introduction To Tower Paddle Boards And Founder Stephan Aarstol

In this segment, we dive into where it all began for Tower Paddle Boards. We cover Aarstol’s background in online marketing, and how he pivoted away from his poker chip company to pursue his hunch that paddle boards would soon be mainstream. Read more >>

Segment 2: The Shark Tank Effect At Tower Paddle Boards

When Shark Tank came calling, Aarstol answered, and Tower Paddle Boards took off like a rocket ship. But it almost didn’t happen—Aarstol froze on stage, delivering what he calls “the worst pitch in Shark Tank history.” Learn how he crashed, recovered, and landed a deal with Mark Cuban. Read more >>

Segment 3: How Tower Paddle Boards Cut Out The Middlemen And Delivered More Value To Consumers

How did Aarstol figure out how to cut out the middlemen and deliver Tower Paddle Boards direct to consumer, for half of the retail price? In this segment, Aarstol explains how he overcame the price-fixing of the industry’s dominant players to bring consumers lower prices, higher quality, and better service. Read more >>

Segment 4: How Tower Paddle Boards Sourced Factories

When building a direct to consumer business, finding a dependable factory is a competitive advantage, Aarstol says. In this segment he reveals his best tools and tips in sourcing factories: how to find the best ones, how to avoid the scams, and why anti-competitive behaviors are a sign of bigger problems. Read more >>

Segment 5: The Retail Equation At Tower Paddle Boards

“We never want to be that company that just pads our direct-to-consumer margins so we can accommodate retail partners that are taking a 50% cut,” Aarstol explains. In this segment, you’ll learn how Tower Paddle Boards uses their core principles to evaluate retail opportunities. Read more >>

Segment 6: Tower Paddle Boards on Amazon

For direct to consumer brands, Amazon is the elephant in the room. In this segment, Aarstol explains how Amazon has become expensive for consumers and crowded for brands—and why he believes Amazon is merely an online convenience store, carrying the high markups of offline retail middlemen. Read more >>

Segment 7: Disadvantages Of Amazon For DTC Brands Like Tower Paddle Boards

Amazon was good for direct to consumer businesses—until it wasn’t. In this segment, you’ll see the astronomical sales numbers Aarstol enjoyed in the early days, but also the growing challenges: disconnected customer service, increased return rates, and increased fees. Read more >>

Segment 8: Will Tower Paddle Boards Walk Away From Amazon?

Is it time for direct to consumer brands to leave Amazon? How will they survive if so? In this segment, Aarstol explains the two consumer behaviors that he believes will not change in the future, and why that’s good news for brands like Tower—helping them survive without Amazon. Read more >>

Segment 9: On The Horizon At Tower Paddle Boards

What’s next for Tower Paddle Boards? In this segment, Aarstol reveals his perspective on the ideal balance between pricing and quality, and how keeping expenses low (and advertising minimal) impacts Tower’s ability to expand into popular products with exceptional value for consumers. Read more >>

Segment 10: What Informs New Product Ideas At Tower Paddle Boards

By living the beach lifestyle themselves, Aarstol’s team has insights into new products and quality design. “If a company out of New York is creating beach lifestyle products, they really don’t understand the market as well as we do,” Aarstol says. “Our brand has this authenticity, because we’re making products that we know.” Read more >>

Segment 11: What Tower Paddle Boards Is About (From A Value Standpoint)

Tower Paddle Boards went in two unique directions, when it comes to delivering value. Product development is focused on what the consumer needs (not what it costs), and team productivity is fueled by Aarstol’s revolutionary idea to live more by working less—with a five-hour workday. Learn the secrets behind Tower’s popular products and productive culture. Read more >>

Segment 12: Tower Beach Club Offers New Experience With Tower Paddle Boards

In this segment, you’ll learn how Tower Paddle Boards is taking the beach lifestyle experience to an entirely new level with the launch of Tower Beach Club in San Diego. Whether you’re a fan of Tower, or a direct to consumer brand exec, you’ll want to read the innovative retail plans and fun experience ahead for Tower customers and visitors. Read more >>

Segment 13: Connecting with Tower Paddle Boards

As we wrap up the interview, we provide links and information on connecting with your favorite Tower brands—from paddle boards to sunglasses to electric bikes—as well as how to reach out to Tower Founder & CEO, Stephan Aarstol. Read more >>