Jewelry

How Two Childhood Friends Bootstrapped A $5 Million Jewelry Company - Forbes

Tal Masica, 30, and Zeke Araki, 31, could have gone the conventional route and pursued corporate careers after college and beyond. But what really excited them was the idea of starting their own business. So, in 2015, the childhood friends teamed up to form Pavoi, a Miami-based company that sells fast-fashion jewelry, priced from $10 to $100, on Amazon. The majority of pieces sell for under $15.

To launch the business, Masica had to live at home with his parents for the first six months and each of the partners ran a side business to pay the bills. It wasn’t easy. “It took discipline and a willingness to give up a lot—until the business took off,” says Masica. Still, they managed to stay focused on their long-term vision for their startup and where they thought it could be in three years.

“The thing that drove us into this business was freedom,” says Masica. “I don’t have an office. I was able to spend four months in Europe with friends. I don’t know how many people have total freedom the way we do.”

Their calculated bet on Pavoi paid off, and last year, their self-funded business brought in more than $5 million in revenue through various channels and turned a profit. Now that the business is established, Masica has plenty of time for his recreational passion—kite surfing—while Araki hits the gym. 

In this column, I often write about $1 million-dollar, one-person businesses and partnerships. I rarely have a chance to profile those that have broken $5 million.

That’s because they are so rare. Just 316 nonemployer firms (the government’s name for businesses with no employees except the owners) brought in $5 million in 2016, the most recent year for which data is available.

For context, there were 36,161 nonemployer firms that brought in $1-2.49 million in revenue and 2,074 that brought in $2.9 million to $4.9 million that same year.

And even these are outliers among the roughly 25 million nonemployer businesses in the U.S. in 2016. The average revenue for these firms was $47,153.

Masica and Araki can teach any entrepreneur valuable lessons about running a hyper-efficient, ultra-lean business. Here’s how they pulled it off.

Stick with what you know. Both Masica and Araki grew up around the jewelry business. Araki’s father ran fine jewelry stores in the Washington, D.C. area while Masica’s dad was a local fine jeweler, selling engagement rings.

Although neither of their fathers had any background in e-commerce or is involved in Pavoi, the partners had learned a lot about the industry through osmosis, while growing up. "It made a bit of sense to us," says Masica. "It was not a completely foreign object." That enabled them to get a running start.

Also in their favor was the fact that Araki had started another similar business, called Flytime, a watch seller on Amazon, in 2010. It had grown to seven-figure revenue.

Because of Araki’s track record in the watch category, he’d gotten invited to sell fine jewelry on Amazon—the rubric that

Pavoi’s merchandise falls under on the giant e-commerce site. Fine jewelry is a closed category on the platform, meaning you have to be vetted and approved to become a seller. “They’re trying to control the quality there,” Araki explains.

Invest in your future. Realizing they needed about $40,000 to purchase inventory and not wanting to turn to investors, Masica and Araki each put up $20,000 in savings. Later they tapped the majority of their savings, as well as a loan, to fund the business’s growth. “You can’t grow without cash to fund inventory,” says Masica.

Masica, who’d started his career at a private equity firm, had been lucky to receive a substantial dividend from a fund it had invested in. He used much of the post-tax payout for his startup financing. Araki tapped into his income from Flytime to invest in Pavoi.

The money they contributed came in handy. As it turned out, they would not be able to take any salary from the business for the next two years, as they got it off the ground. Araki had to live on the income from Flytime, while Masica made engagement rings for private clients. “Maybe I’ll do 20 deals a year and make enough to get by throughout the year,” says Masica.

Fortunately, they had kept overhead low. Both work remotely from home. “Our minimal footprint operationally allows us to sell more affordably and deliver value to any consumer,” says Masica.

Divide and conquer. With only two people on their team, Masica and Araki realized they would only be able to build a thriving business if they each played to their strengths. “A lot of it has to do with operating extremely efficiently,” says Masica.

Araki had a lot of experience writing Amazon listings, so he handled that part of the business. At the time they were starting out, organic search results were more important on Amazon than paid, so that was critical.

“Sponsored products weren’t what they are today,” says Masica. “We relied a lot on optimizing our Amazon listing.”

Masica’s strength was operations, so he handled that part of the business, automating as much of it as possible using tools such as inventory management software and A/B testing sites such as PickFu.

They outsourced mundane office work to contracted virtual assistants. That allowed them to focus on higher-value activities like business strategy and driving revenue.

Find a way to stand out. Although fine jewelry is a closed category on Amazon, there was plenty of competition, so Pavoi’s founders knew they had to differentiate themselves. “We focused hard on price and quality,” says Araki. “You’re competing against millions of other products."

Their first product was a set of freshwater cultured pearl earrings with Sterling silver posts that sold for $13 to $50 a pair, depending on their size. In a specialty retail store, similar earrings typically sell for $100 to $500, he says. In order to charge competitive prices, they flew overseas and hunted for factories and suppliers who would work with them at the right price, then bought the earrings at volume.

Keep your eye on the future. With Amazon constantly changing up the way it does things, so do the founders of Pavoi. “It’s a constant battle to know what to do,” says Masica. “We’ve budgeted a significant amount of money to continuing R&D for products.” Meanwhile, the business is currently developing a proprietary analytics and inventory management software to heighten its advantages.

Never stop learning. Both owners of Pavoi are avid podcast listeners and readers. Masica's recommendations for podcasts: The Tim Ferriss Show, The Joe Rogan Experience, How I Built This on NPR, Masters of Scale with Reid Hoffman and the Y-Combinator Podcast. As for books, he's found inspiration in Principles by Ray Dalio, Tony Robbins' books and NIKE founder Phil Knight's Shoe Dog.

"I turn to podcasts and audiobooks to keep educating myself with new things and things I'm interested in so I have more expertise as I grow," says Masica.

His advice to other entrepreneurs who want to build a high-revenue solo business or partnership?   

“It’s never as easy as it looks,” says Masica. “It’s always going to take hard work and grit. You have to give up a lot of your comfort to get to that point—but it’s all worth it.”