How I Started A Passive Income Business Online At 16 Years Old

Paul Kaster

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Published: May 14th, 2019

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Paul Kaster

Founder, Crooked Branch Studio

$2.5K

revenue/mo

Founders

Employees

Crooked Branch St...

crookedbranchstudio.com

from Kansas City, Missouri, USA

started January 2016

$2,500

revenue/mo

Founders

Employees

Discover what tools recommends to grow your business!

platform

Shopify

Amazon

Etsy

shipping

ShipStation

freelance

Upwork

crm

Streak

Discover what books Paul recommends to grow your business!

Want more updates on Crooked Branch Studio? Check out these stories:

Hello! Who are you and what business did you start?

Hi guys! My name is Paul Kaster and I’m the owner of Crooked Branch Studio. I started the business in 2016 making handcrafted wooden bow ties, but I’ve since expanded to carbon fiber bow ties under the sub-brand Carbon Cravat.

Back in 2016, I spent dozens of hours per week in the woodshop, painstakingly crafting each bow tie by hand, assembling the product, and shipping it to customers. Just three years later, I now spend less than 1 hour per week passively managing my business from halfway across the country.

After outsourcing most of my day-to-day work to contractors around the United States, my business now consistently pulls in around $1000/mo in profit with minimal upkeep. If you’re interested in learning how to turn a labor-intensive business into a self-running income stream, I’ll be diving more into specifics later.

how-i-started-a-passive-income-business-online-at-16-years-old

What's your backstory and how did you come up with the idea?

In 2015, I was given a wooden bow tie from a friend who knew I loved bow ties and wood. It would seem like the perfect pairing, right? Well, although I loved the idea, I was disappointed by the execution, and having build wooden side tables and cutting boards before, I thought that I could probably make a better one.

There are many theories of how to attract customers, but what I’ve seen from most successful brands is that instead of focusing on one, big thing to attract customers they instead focus on getting many, small things right.

After playing around with designs for several months, I put a couple wooden bow ties up on Etsy with what I thought was the very high (at the time) price of $40. The bow ties ended up selling within a week, and I realized that given the amount of time it had taken me to make one, it might be profitable to start making these bow ties more seriously.

Here’s a picture from my first wooden bow tie listing:

Take us through the process of designing, prototyping, and manufacturing your first product.

Because I already had woodworking experience coming into the development process, I started by quickly iterating through mock-ups trying to determine the ideal size, shape, and thickness of a wooden bow tie. One of the most underrated elements of a bow tie made of any material is the contour of the outline.

For example, a fabric bow tie is defined by an uneven, organic looking profile of several edges. This would lend to a profile like this (one of my early sketches):

However, on wood, an organic profile can also look unprofessional or low quality because we expect wooden items to have clean, straight edges and cohesive contours. Because of my limited modeling experience, I ended up choosing my favorite edge and reflecting it across every quarter of the bow tie in Powerpoint (so low-tech, I KNOW).

This quartering reflection led to the following profile which (with re-illustrations in computer aided design software later) I have used on every bow tie sold from Crooked Branch Studio and Carbon Cravat:

From there I had to pick the woods and fabrics for each wooden bow tie design. I had decided I wanted to incorporate fabrics because it would make the bow ties seem less cold and rigid and because it would allow easy customization. The woods I selected were mostly just ones that I had laying around in my woodshop or which I had used in the past successfully. For each of these woods I then sourced around 4-5 fabrics to try and see what looked best.

During this process, I ended up using old dress shirt material from thrift stores to make prototypes. This caused MAJOR issues later on because I could not find any more of those shirts despite looking for hours online. Many of my product images use this fabric and it has caused issues with branding and confusion from customers. A takeaway here for those of you looking to build a scalable product-based business is to keep in mind the long-term sustainability of your design because once you start producing and selling at a medium scale, your designs are essentially set.

The cursed thrift store plaid in its full Walnut (bottom bow tie) glory:

Describe the process of launching the business.

At this point, I had created a couple of initial prototypes, photographed them, and had a general idea of the aesthetic I was going for. I decided that crowdfunding might give me an avenue to refine my design, get some initial publicity, and most importantly,* put a strict timeline on the project to keep me accountable for progress*.

I now knew that there was demand and I had sold several dozen pre-orders in the campaign, but I still didn’t know how to make them at a large scale. There was no secret to figuring this step out except trial and error.

In fall of 2015, I launched my first ever Kickstarter at the age of 16. Because I was under 18, I ran into a couple of legal issues with Kickstarter over liability and contracts, but after sorting that out, I went live with my 3 original designs (which I still use today) at a price of $30. The campaign was very rudimentary and I produced it all myself, but it got the message across and I started to get good attention from people who weren’t family and friends.

At the end of the campaign, I raised a bit over a thousand dollars which I used to buy a CNC machine, a computerized woodworking tool which I thought would help me scale production. However, after running into many issues with the CNC, I reverted back to making the wooden bow ties by hand. Later on, I converted that CNC machine into a laser engraver which we now use to engrave initial, names, and dates on the back of our bow ties.

Back to the Kickstarter, I now knew that there was demand and I had sold several dozen pre-orders in the campaign, but I still didn’t know how to make them at a large scale. There was no secret to figuring this step out except trial and error. After many hours looking for boxes, ribbons, and woods, I had everything I needed to get going with producing the bow ties from my wood shop.

After the dust settled from the campaign, I began the process of building my line of wooden bow ties on Etsy. In the first quarter of 2016, I was adding a new design every other week, taking about 20 hours per week to design the bow ties, shoot photos, and write listings. Of course at the time, I was going to school full time so the time which I could find had to fit within my existing schedule.

During 2016, my sales quickly grew to $1-2k in revenue per month and I began to look to other streams of revenue having seen my Etsy sales plateau somewhat.

It’s for this reason that in 2017 I diversified my revenue, adding:

My own Shopify store
Wholesale contracts
Amazon handmade store

Since launch, what has worked to attract and retain customers?

There are many theories of how to attract customers, but what I’ve seen from most successful brands is that instead of focusing on one, big thing to attract customers they instead focus on getting many, small things right. This is the philosophy I took to attracting and retaining customers.

Some small items which many people don’t think much about but I put great thought into include:

The thickness and weight of our custom boxes
Ensuring the light balance is even between photos
Finishing the bow ties with food safe wax and oil (in case of unruly dogs and kids)
The texture of the grosgrain ribbon and its sheen
Not running sales (it devalues the brand)

However, the more major themes of my strategy which are transferable to many businesses include:

Taking great photos
Using the highest quality materials
Providing quick, generous, and personal customer support

For marketing, we rely primarily on word-of-mouth, social media, wholesale stores, and organic search. I’ve attempted in the past to bring paid traffic into our business but in the end we essentially broke even on the ads. I’ll explain each of these methods below:

Word of mouth

The concept of wooden bow ties is unique, and the world is small. Many of our orders have come from people who heard about us from one of their friends who’s boyfriend saw our products in a retail store...okay maybe not that specific but something along those lines.

Social media

We mainly market on Instagram which is especially lucrative with their product tagging integration through Shopify. Instagram routinely ranks among our top referring sources in traffic analytics and it’s not uncommon for customers to use instagram as a customer service tool, asking us questions and following up on orders through the app.

Wholesale stores

We currently sell about 200 bow ties per year in wholesale partnerships. That is around 4-5 stores. We often have clients who see the bow ties in stores, but want something customized or want to order more for their wedding. For this reason, we include a business card in all of our boxes including to our wholesale partners.

At first, I did a lot of work reaching out to stores to see if they might want to carry our products, and I was not that successful. I contacted more than 100 stores and only heard back from one of them (however, they are now our best wholesale client). Over time, as we got bigger, stores started to reach out to us and that’s currently how we get most of our wholesale relationships.

The margins on wholesaling are predictably lower than on retail sales, but for my business it has absolutely been worth it. Because our bow ties are made out of wood, a natural material, there are often pieces that looks much different than the model depicted in our online listings. These ‘different’ looking bow ties then get sent to our wholesale clients because the color or grain not matching a photo is unimportant to them. Thus, our wholesale relationships help us decrease waste while increasing the likelihood that our products match customer expectations.

Organic search

As wooden bow ties have become more popular, more people start searching for them. We oscillate between the second and third page of google for wooden bow ties and routinely rank in the top on Etsy searches.

How are you doing today and what does the future look like?

We have been profitable ever since the first wooden bow tie sold and have maintained this profitability for every month of our operation.

The business has maintained pretty consistent sales and most of my effort has been focused on finding ways to decrease the amount of time I personally spend on the business while maintaining our high level of customer service.

Our sales breakdown is as follows:

49% Etsy
36% Shopify
12% Wholesale
3% Amazon

And our gross margins are around 60%.

Because I’ll be graduating college soon and moving into a corporate job, I’m actually looking to sell the business some time in the near future. I’ve spent the last couple of months consolidating detailed financial statements for future prospective buyers as well as counting existing inventory to get a sense of what financial position the business is in.

As I mentioned earlier, my business is currently automated and outsourced to a large extent and I thought it might be helpful to outline the specific steps it took me to get there.

1 - At first I was making all of my bow ties by hand and shipping them out by myself. I would get an email about a sale, then go into my basement and start cutting wood to make the bow tie, sewing fabric to make the strap, and gluing it all together. I would then go into the marketplace the bow tie sold on and print a shipping label there, then tape it to a mailer and drop it off at the post office.

2 - My next move was to hire a person to help with production. I ended up taking on a friend of mine at my school who was smart and hardworking. He was great at making the bow ties, but I still had to help with parts of the process. This kind of transition I’d call work augmentation because he helped me do what I was doing better, but in the end he was not replacing me, which is what I wanted.

3 - The next thing I did was look for an outside manufacturer to make my bow ties for me. I started off with one I found on Etsy Manufacturing (had to find it there to stay in line with Etsy terms of service over what is ‘handmade’). I put in an order for $2000 of wooden bow ties and was very excited for how this would help me scale, but when I got the bow ties, they were coated in a cheap-looking wax that looked terrible. That was $2000 I would never get back, but after a couple more iterations, they found a formula that emulated what I was doing.

4- Now that I had my wood manufacturer, I needed the neck straps made. I looked all over the Etsy Manufacturing page and eventually found a seamstress that I thought looked like a good match. When I got her quote, I was floored. She could do what I was doing for less than ½ of the price. Awesome!! I still use her to this day.

5 - Back to my wooden bow ties, I was having quality issues with my first manufacturer and I couldn’t get as consistent of a product as I wanted. Plus, they were a little hard to work with. I got back out and searched for another manufacturer who first sent me a laughably bad sample, but then sent me a PERFECT sample (go figure!). The new manufacturer was able to use computer-aided manufacturing equipment for carving while still using a hand-sanded finish and waxing. This combined my aspirations for a consistent, high quality product that still had a handcrafted touch. Here is a pic of my new manufacturer at work:

6 - With my wood and fabric components successfully being produced through partnerships, I was left to assemble the final product, talk to customers, and ship the bow ties. So, for my final task, I needed to find someone to take over the assembly and shipping so that I could focus full time on customer communication and business development. Luckily, I had a close family member who was up for the task and had some free time. I gradually taught her how to assemble the bow ties and put in a new software called Shipstation (which I outline later) which combined all of my storefronts into one software and made fulfillment and shipping a breeze.

7 - At the end of the process, I now spend an average of 1-2 hours per week talking to customers, checking in with my contractors, and making sure everything is running smoothly. In reality, the time commitment is less consistent than this average. There are many weeks that I spend 0 minutes on the business, and about 3-4 weeks per year where I will spend up to five. While I was pretty successful in outsourcing the business, know that this is a commitment you should be confident about because it is long and can be expensive when mistakes occur. Steps 1-6 took me over a year and half to execute, and if I wanted this to just be a side hobby instead of a scalable, sellable business, it would not have been worth it.

A lot of people might wonder why I would want to sell a business which is making me such easy money. It’s hard to explain, but I’ve been selling wood items through the internet for almost six years, and I’m interested in moving into the next phase of my life with full focus. Also, because I love the brand so much, I would rather sell it to someone who will put effort into improving the sales of the product and be more diligent with the marketing than see the business start to slip because of my inattention. If you’re interested in learning more, you can contact my broker here.

Through starting the business, have you learned anything particularly helpful or advantageous?

Absolutely! What’s been very interesting for me is to see how trendy youth entrepreneurship has gotten while at the same time building my business in high school.

Everyone on the outside expects that you are succeeding, and it can be hard to ask for help when you’re struggling because your friends and family can’t help you.

In general, I think that people are too hard on the ‘9-5’ jobs and vastly underrate how stressful and lonely it can be to be an entrepreneur. There were months when sales would drop and I wouldn’t know why, and I felt like it was my secret and I couldn’t burden anyone else with it. Everyone on the outside expects that you are succeeding, and it can be hard to ask for help when you’re struggling because your friends and family can’t help you.

Entrepreneurship can be an emotional rollercoaster, and you can alternate between feeling invincible and feeling like a failure every couple of days, but hopefully more of the former than the later. In the end, you have to remember that you’re probably neither of those extremes but somewhere in between. Keep in mind that I experienced all of this while still being in school supported by my parents, I can’t imagine how high the stakes are raised when you’re financially independent.

Here is an example of the high, being named NFIB Youth Entrepreneur of the Year Finalist and being flown out to Washington D.C. to meet with state senators:

What platform/tools do you use for your business?

I think that this is one of the most interesting and important questions that nobody ever asks me. Here is what I use:

Online marketplaces:

Amazon Handmade - Fees: High
Shopify - Fees: $58/month for two stores +$28/year for two domains
Etsy - Fees: Low

Shipping software and weekly analytics:

Shipstation (allows me to connect all online stores and ship from one location) Fees: $9/month

Email:

Streak (tracks when people open emails) - Fees: Free

Freelancing:

Upwork (to hire occasional workers for repetitive tasks) - Fees: Around $15 an hour

My favorite tool by far is Shipstation. For $9 per month, it connects all of my online marketplaces and imports the order to one interface. You can assign shipping profiles to each item meaning that shipping prices and dimensions are automatically calculated at the standard commercial discount rate. The app sends notifications to the customers and the marketplace when items ship and it can even process returns, sending customers emails with their return label.

Every week I get an email from Shipstation detailing how many orders I sold, their value, and what percent increase or decrease this represents. To top it all off, I can export CSVs of each store individually, letting me know how much customers are paying for shipping versus how much it costs (there can be discrepancies). This app has literally changed my life and has simplified the management of my business significantly.

What have been the most influential books, podcasts, or other resources?

I find the TV show The Profit to be both entertaining and useful for running a business. In the show, Marcus Lemonis intervenes in failing small businesses and shows the owners how to turn the businesses around. As an entrepreneur, the show makes you think critically about what in your business is broken and what you could/should do to fix it.

Advice for other entrepreneurs who want to get started or are just starting out?

I’m skeptical of the value of generic advice because every person has a different idea, life stage, and skillset. In my experience though, the most successful entrepreneurs are the hungriest, people who refuse to take no for an answer and won’t stop until they reach their goals. I could certainly benefit from being a bit higher in this category. If you don’t fit in that personality type then you might not like the lifestyle of entrepreneurship.

Are you looking to hire for certain positions right now?

We are currently looking to find someone to take over the assembly and fulfillment of our wooden bow ties. The pay is around $15 an hour and you would have to be able to store limited stock (less than 15 square feet) and not be traveling too often. Email me here if you’re interested!