On this episode of Honest Ecommerce, we have Lucas Cao. Lucas is the founder and CEO of Squid Industries, an American manufacturing company with a focus on the butterfly knife and trainer industry. We talk about investing in passion and in the community, effectively conveying your idea to manufacturers, vertical integration and quality control, and so much more!
Lucas Cao is the President and CEO of Squid Industries, an American manufacturing company with a focus on the butterfly knife and trainer industry.
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Lucas Cao
For me and my story, what I tell others is that it was successful because of the passion that I had. I myself was so invested in the product and I was a user of my own product.
Chase Clymer
Welcome to Honest Ecommerce, a podcast dedicated to cutting through the BS and finding actionable advice for online store owners. I'm your host, Chase Clymer. And I believe running a direct-to-consumer brand does not have to be complicated or a guessing game.
On this podcast, we interview founders and experts who are putting in the work and creating real results.
I also share my own insights from running our top Shopify consultancy, Electric Eye. We cut the fluff in favor of facts to help you grow your Ecommerce business.
Let's get on with the show.
Hey everybody, welcome back to another episode of Honest Ecommerce.
And today I'm welcoming the show Lucas Kao.
Lucas is the founder and CEO of Squid Industries, an American manufacturing company with a focus on the butterfly knife and trainer industry.
Lucas, welcome to the show.
Lucas Cao
Thanks so much for having me, Chase. It's an honor.
Chase Clymer
Awesome. I'm excited to dive in. So I alluded to it. You've got a big focus on butterfly knives and the trainers that go along with that.
Can you elaborate a bit more? What are the products that you guys are making and selling online?
Lucas Cao
Yeah. So we're selling balisongs and balisong trainers. People commonly refer to them as butterflies, but the true term is balisong.
A lot of companies make this particular product as well. But the extra emphasis that we put on is that we have a special focus on the flipping portion of it.
So the manipulation where you're doing tricks between your hands, we specialize in that particular part of the balisong industry.
Chase Clymer
Awesome. So take me back in time. Where did the idea to start a business in this industry come from?
Lucas Cao
Yeah. So, you know, back in 2013, I had just actually just graduated high school. And one of my best buddies, Lucas, ended up going to our local Chinatown and buying a butterfly knife.
And it really captivated him and at the time, I was really into pen spinning, which is an incredibly niche hobby for doing tricks with pens and pencils.
And he thought that I would be super interested in it because it had similar hand dexterity skills. I mean, the tricks don't overlap, of course, but they both require intense hand-eye coordination and tight fingered dexterity.
So he showed it to me and I was initially a little bit a little scared because doing tricks with good knives is definitely not a natural thing to do.
But over time, I did see the appeal as I practiced with it and eventually ended up learning all these tricks and being able to string one together with another to form combinations. And so I found that quite fun.
So what ended up happening is that I ended up becoming really active as a collector.
I wanted to basically buy the ones that had different weights and feels and balance points so that I could optimize my flipping, similar to how an athlete would choose specific gear, a racket, a club, and it kind of modifies the experience.
So I was kind of chasing that dream feeling of what's the best balance, what's the best curvature that fits my hands, and my skill level.
And in doing so, I joined a lot of online communities and ended up finding others who were interested in this very, very niche hobby.
So what ended up happening is that as I joined these communities, I started becoming more active in helping other newcomers make their way into learning to do what I do, which is flipping and collecting these incredibly niche products.
And what I saw over time was a trend. I saw that a lot of newcomers were looking for products that were very, very affordable.
So to give you some background, the top end of the market was around $200 to $500.
I'm sorry, I'm going to go back. The top end is…It could have been upwards of $500 to a thousand, but the entry level price point was around $200, which is relatively expensive for, um, let's say a 12 year old who is looking for something that's maybe a maximum of $25.
So what ended up happening is that as I'm giving advice and recommendations to all these newcomers, a lot of people are being turned away because they didn't simply have enough money and break that barrier to entry.
So this happened for quite a few months.
And so in 2015, I was going to community college, I was actually working at my parents' machine shop. It's a very, very small shop.
We only did repair work into very small products in small runs. It was not an advanced shop by any means. We did a lot of used equipment. It was very, very old. It was just enough to get by.
It wasn't really a main manufacturing center, but we had quite a bit of equipment and in our downtime, we've had quite a bit of that because unfortunately, the business was in decline.
I had the idea to perhaps make a Balisong trainer of my own, maybe something that had top tier flipping characteristics but didn't have the expensive and high-build quality of perhaps some of the other brands at the time.
So I started posting my work on Instagram, telling people, hey, I'm going to try to make something of this nature. And I kind of amassed a small following from that.
And when I ended up releasing the first four units at the end of, I think at the end of December, December of 2015, I basically posted online and said, ‘Is anyone interested?’
And I had, I think 30 to 40 people message me directly saying like, ‘Hey, like I'm actually interested in this.’
It kind of shocked me, in terms of the popularity that people wanted something like this. I guess I kind of saw it coming, because obviously I wouldn't have done that without the feedback I'd gotten across a couple of years that I had been active online.
So seeing that incredible response really motivates me.
So what I ended up doing is I asked my parents to help me fund a smaller batch of 50 units.
So I already had the resources at the shop and business was still slow. So, they really didn't have much to do. So we were basically gonna make my product.
So I ended up releasing 50 in February of 2016. I took a... I let everybody know that I was gonna do that.
And when I sold it, when I sold it, I'm sorry, I told everyone I would do that and that they could purchase one by pre-ordering it.
They basically pay full price, which at the time was kind of typical, because typically pre-orders aren't 100% of the cost.
It's typically a little bit lower than that. So I find it funny in retrospect.
But within 24 hours, I ended up selling all 50 units, which amazed me.
At the time, I had no website. I just had my Instagram profile and the payments were people sending me PayPal.
So I think that despite having such a little proven tracker–I'd only delivered four units– people were so hungry for such a product that they were willing to trust some random college kid to make them their product.
So I spent six weeks making that and I delivered and it went extremely well. The reception was incredible.
And so across the next, you know, across the year, I did a couple more batches. And they all went phenomenally.
I think that by the end of the summer, I had sold about another 250 units across three batches. I had some manufacturing trouble in between each one. I ended up switching some of my classes so that I could take computer aided design.
I learned SolidWorks to model the product as my parents' business got busy. I ended up sending that work to local machine shops around me so that I could have that outsourced from another company.
And then I would just take care of the assembly as usual.
And every batch ended up selling quicker and quicker and quicker rather than 24. The next one sold in a couple minutes, like 2 or 3 minutes.
I've read the exact one, I think it was 50 or 100 units. So it was gaining popularity and it was shocking me every single time to see these products instantly evaporate. So that was really, really exciting for me.
But unfortunately, at the end of 2016, that summer, I ended up transferring to UC San Diego for mechanical engineering to my parents' delight, but not to mine.
So I had to take a break. But during that break, where I basically didn't work in the business at all, I didn't produce a single unit, I made plans by ordering a large volume of parts in the spring of 2017.
So when I returned back for the summer of 2017,I had several hundred units, I think 400 units worth of parts that I could basically sell.
And luckily, I was still very active in the community, not social media. And the audience was still strong, if not stronger.
So I was able to continue the business right where I had left it. And obviously, I'm only one man. So assembling 400 units is kind of impossible.
It is but obviously, it wouldn't be feasible. So I ended up hiring a couple local guys that I had met at these meetups, these flipping meetups and collection meetups.
So when I went back to UC San Diego, I ended up keeping these guys part-time. And so they would come in and just put together the product.
And while I was at San Diego doing my undergrad, I was essentially running things like customer service.
I was doing the marketing, I was doing product design, I was ordering the parts from all these various different vendors, you know, nuts and bolts here, all these different kinds of manufacturing centers to get all these parts together so that my team at home could put them together.
And that continued on for two years. I ended up basically running the business remotely. I'd come back each summer, work with them, go back to school and do everything remote.
We'd go to trade shows. I'd fly from San Diego to a trade show. They'd fly from Sheard Bay Area. And that's basically how we did the business.
Now in the fall of 2018, we ended up being able to have the opportunity and save enough money to afford our own manufacturing equipment.
At the time, I was a little bit unhappy with the timing. Our vendor at the time was very, very great. Great pricing, great quality, but wasn't necessarily the best timing and I was holding this back.
We had demand but our guys would sit around and wait for a product. So I figured, what better way to expand the business than to make the product ourselves.
And so I invested in our first Haas VF2 SS. It's kind of a... If you're not familiar, it's probably the most common vertical CNC machining center in the United States. It's a USA branded machine from Southern California.
And it's not regarded as the best machine in the industry, but it's regarded as the most, I would guess the best word’s bang for your buck. In that price range, it's the first real industrial machine for manufacturing.
There are hobbyist grade ones. But this one is like the first true industrial grade one.
So we're all very excited for that. And I ended up taking a quarter off. I wanted to learn how to use it. So I took a quarter off. This is winter 2018, December 2018 when we received it.
And at the end of the three months, I had learned it.
And rather than actually training somebody and passing on that information and going back to school and finishing my last year of my undergrad, I ended up buying a second one and ended up withdrawing from UC San Diego.
And basically chose to continue the business full time from that point on, from March of 2019.
So yeah, that's the main core of the story from that point on.
We added product lines, we added people. We've kind of expanded our products to a whole range of price points so that people could not only have more affordable options, you know, cheaper than the first one I made.
But there are also more expensive options for the collectors and the hobbyists and the enthusiasts who are interested in the best materials possible.
So I'm trying to really vertically integrate the company so we can do everything under our roof and control the timing and the quality.
And also, the customers provide them as many options as possible no matter where they are on the journey.
Chase Clymer
That's amazing, Lucas. I've got a bunch of questions, man.
So first and foremost, when you did that first initial batch, after you made the first 4 prototypes at your parents' machine shop and you did that first batch, did you have any inkling that you were going to be building a business from there?
Or was this more going to be a side hustle?
Lucas Cao
You know at that stage, I had absolutely no idea. I felt confident that the product would sell because as an enthusiast myself, I was like, man, these are really good. I think people will like these.
But I didn't imagine it would scale to what it is today.
Chase Clymer
Now did you brand these knives or were these just like, ‘Hey, I'm Lucas, I made these knives,’?
Lucas Cao
Yep. That's it. I'm Lucas.
So for your reference for all of your listeners out there. So the company name is Squid Industries. At the time, back then, my Internet handle on Instagram and all social media platforms was Squidmaster23. And my first product was called the Squid Trainer.
So I make balisong trainers. And so the first product was called the Squid Trainer.
So I didn't have a brand name at the time. I didn't have a company established. But I did name the first product.
And then from that squid theme, I ended up adding the word industries. It also wasn't branded as well. There's no logo on it, by the way, just for reference. There's nothing on it.
Chase Clymer
Absolutely.
So when did the business become named? I guess like an entity, for lack of a better term?
Lucas Cao
Yeah, that's a really good question. I would say that after the... I think that when I sold the first four and then I decided to make the first 50, I think it was after the very first batch of 50 that I decided to name it.
Because the first batch of 50, I actually just serialized them one through 50, but I still didn't have any wording on it.
But after that batch of 50, I actually put Squid Industries on it. So I would say right around the time that I... Yeah, after that. So it was probably like March of 2016 if I had to guess.
Chase Clymer
Absolutely.
But you weren't letting a name get in the way of selling a product and testing the market and seeing if it was a good idea.
Lucas Cao
No, no. Absolutely not.
I mean, it's funny you mentioned that. We can go down a huge rabbit hole but our name is actually, is and was, one of the more challenging parts of the business, because I'm extremely strict on what the products are going to be named.
For one, I need everything to be aquatic-themed because I feel like that makes a... I don't know. It creates a better story. And I personally find it fun that there's a theme.
Two, it needs to sound cool. Not everything aquatic sounds actually cool. Cool is obviously a very subjective term. Yeah.
And three, it can't be something that's already in use. So the knife industry loves aquatic-themed names. And unfortunately, the pool is very small. So my options are dwindling.
And so not only that, I consider the amount of syllables and the bigger the word, the more expensive I try to put that name to a product and the smaller the word and I try to make that.
It gets hilariously difficult. More challenging than I think it should be.
Chase Clymer
Absolutely.
I guess that where I was going from it, though, was just from a getting started perspective and going from zero to one.
You made these products, you got out there and sold them before you really had, quote, unquote, the busy work for a business done.
You didn't have a name, you didn't have a website, you didn't have an LLC or anything. You were just selling the product, which I think is a big barrier for a lot of young entrepreneurs is they think they have to do that busy work first.
Lucas Cao
Yeah. That's a really good point, Chase.
I guess for me and my story and what I tell others is that like, it was successful because of the passion that I had. I myself was so invested in the product and I was a user of my own product. That's what inspired me to create it.
And so I was already very invested and well aware of the needs of the community.
And so finding the audience, finding the market to sell it to was very natural because I recognized that hole in the market and I was able to fill it.
And I think that I skipped over a lot of those traditional steps of establishing, you know, common elements because even though I was confident that it would be a good sell, I guess I was still verifying that by documenting the story online and posting online and kind of inviting people to show their interest rather than spend a bunch of time and money upfront, kind of developing behind the scenes and then releasing and seeing what would happen.
So I think I just wanted to get it to market as fast as possible.
And at the time, I had no expectations. No one had any expectations of me.
I was only interested in making the best product possible. I didn't really care about the other elements like brand name and website.
When I shipped those products, I actually wrapped them in a paper towel and then a single layer of foam. And that's how I shipped it.
So as a packaging experience, that's absolutely horrid and it's funny to look back on the photos now.
But I think it contributes to the success because I was really only interested in one thing. And that's what gave me focus.
And that was to make the best products possible. And everything else was secondary.
Chase Clymer
Absolutely.
You mentioned earlier that you had a team helping you part-time while you were still in school and you were focusing on the marketing elements.
Could you share anything around how many units you're selling or maybe what growth was like during that time of the business?
Lucas Cao
Hard to remember all the data from back then. Since we weren't manufacturing our own products, we were working on these batches where we'd order a considerable amount and work through it.
If I had to take an educated, estimated guess, I would say that at that time, we were moving around… in the first year that I did that, maybe like 50 units a month, sometimes less.
And then perhaps the year after that, like 2018, before I got the first machine, maybe like 60 or 70 units a month, but it was very low.
Sometimes we'd have months with no products, people, but we just didn't have anything. Either we have a delay on the vendors or we just would sell them faster than we expected.
So it was very, very sporadic.There's no schedule whatsoever. There's a lot of high months and a lot of low months.
Chase Clymer
And it often went back to just not having the product available.
So when you got the machine and you were now in control of the manufacturing, how did that change the velocity of production?
Lucas Cao
Yeah. Well, it's funny you mentioned that. The velocity went down because it actually took me a little bit more time than I expected to learn the technology.
I'd done all this homework to figure it out beforehand, but obviously, running equipment and watching videos on how to run equipment are not the same thing.
So, vertically integrating is a beautiful thing to do, but it is much more challenging than I think most people anticipate.
That obviously depends on the industry, but manufacturing itself is a fairly challenging industry to take on.
And I was very lucky that I had my parents' space to do that.
I think that for other businesses, it's easy to start in your own garage, your own home, an apartment, but for manufacturing, an actual machine that requires an immense amount of electrical, I was very lucky.
That was an opportunity for me that I think others might not have had. To have just the space, the actual concrete and the power to run it. So that was very fortunate for me.
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Chase Clymer
When you worked the kinks out of the process and you decided to double down on the machining and to drop out of school, how did that change the business? What happened?
Lucas Cao
Yeah. So, I was really happy that I was able to create new product lines with it and be much more versatile. For manufacturing, prototyping is extremely expensive.
Most manufacturing is done in batch work. Most of the work done is in the setup. So when you do the programming, you do the physical arranging of the fixtures in the machine and the tools, and that takes most of the actual hard work.
Once all of that is set up and it's been verified, I'm loading in bars of metal and letting the machine do its thing and churn it out.
That's the easy part. You just kind of just sit and wait for it.
Obviously, there's more than that but a bulk majority of the work is upfront, which is why prototyping is so expensive.
For two units, let's say, when I was trying to outsource the work, two handles would be $150 each.
So if I wanted to make a revision, I'd be paying $300. But if I were to order, let's say 200 handles, it'd only be $8 each because of the scale of manufacturing.
So versatility was really important.
When I made a product, I could easily make little modifications with little to no cost because I just changed little tweaks numbers here and there.
And it also let me control the course, the quality. When we run into certain issues, customers would give us feedback. I could easily implement that.
In the past, if I made a design error, and I ordered hundreds of parts from a manufacturer, well, I'm kind of stuck with that design error because I've committed because the manufacturer has most likely completed all of them.
If I was lucky, they’re delivered in phases and I'd be able to change in the middle, but that's rare.
So versatility was really important for that.
And also just controlling the quantity, the timing. I could choose how to order things.
If I saw popularity in one product, I could schedule that ahead of the other one. And I could reduce quantity or increase quantity.
So it was a very, very powerful thing to manufacture now.
Chase Clymer
Awesome.
So once you worked out the velocity issue with the product and you were no longer bound by that, how did you expand your marketing and get more customers and more eyes on your product?
Lucas Cao
Yeah. So I think that for us, at the beginning, we mainly did influencer marketing.
I was friends with and was aware of a majority of the people who are good at flipping. I think most people who are good at flipping typically like to share their unique flipping routines and tricks and combinations. Sometimes it'll take them weeks, months or years to develop the skills necessary to put them together.
And the community is very, very tightly in it. It's a very niche community. So it's easy to know who's the best.
And those are the people that I approached and say, ‘Hey, I'd love to sponsor you and provide you a product.’
That's mainly what I did apart from standard marketing, like newsletter and social media posts and whatnot. Itt was mainly just contacting as many of the best flippers in the community and just providing them with products and hoping that they'd be willing to work with me.
And most of them did.
I think it's because at the time, we were the only brand to really focus on flipping.
Like I said before, there's a lot of other companies that make products just like us, but they didn't have that emphasis and that background.
Other companies were just interested in making a product that had, let's say, build quality, but not necessarily balance and ergonomics made specifically for flipping.
Chase Clymer
Absolutely.
Now, my listeners would be mad at me if I didn't ask.
Because of the type of product you're selling, is it considered a vice product per se and are you not allowed to use some more traditional advertising mediums like Meta or Google?
Lucas Cao
Yeah, you're right. We tried to run Facebook and Instagram ads, and they would flag them as dangerous items.
And so that definitely narrowed our advertising window. That is one of the challenges and so we've obviously just tried to find as many different avenues of advertising as possible that aren't those particular ones.
Chase Clymer
Absolutely.
Lucas, I've asked you a million questions today, but is there anything I didn't ask you about that you think would resonate with our audience?
Lucas Cao
That's an excellent question.
Something that I could provide is a lot of people ask me, ‘Lucas, I have an idea and it requires manufacturing and I want to get that product to market. Like, what do I do?’
Right? This is assuming someone has no idea how anything is made and they don't know who to talk to.
Manufacturing is a huge industry and there are hundreds, thousands, not tens of thousands of different processes that you could outsource.
For us, you know, we had to use five or six different manufacturing companies or vendors to assemble a product, which is honestly not that many, but some other products might require many more.
And so that means you might have to talk to that many companies.
But what I typically recommend to people in that position is that the first and most important thing is to be able to convey that idea, whether it's for yourself or to others.
So I always recommend that people learn some form of computer aided design. So that would be CAD.
Right now, one of the most, if not the most common one is Fusion 360. That would be the one that I would personally recommend. I think the cost is relatively affordable and it's very powerful and it has a lot of support. It's a huge community.
The one that I learned from my local community college was SolidWorks. SolidWorks is an excellent tool and it's a similar environment, still parametric modeling.
So I'd say the first step is just learning how to put it into a computer and then seeing an actual 3D model of it.
And then beyond that, I typically recommend that people learn how to do 3D printing. I think that 3D printing has gotten to a point where it's extremely accessible.
You can go online and buy an affordable printer for only a couple hundred bucks now.
And that allows you to not necessarily test your product, but it allows you to at least work out some of the design elements that perhaps you might not have seen in a virtual environment.
It definitely helps with a lot of the verification processes. I think that 3D printing allows you to iterate and it accelerates your prototyping process.
So yeah, those would be the first two steps.
I wouldn't recommend everyone to just start buying their own machines and CNC machines trying to do it on their own because it's a huge commitment for space, leasing the area and buying the equipment.
Once you're past the 3D printing stage and you're confident that you have a working model and you can ship that, then I would say try talking to manufacturers who have a lot of different processes under their belt.
A true job shop rather than a focused shop that only does one process. You find a shop that does a variety of processes so that you can hopefully find someone that can give you a turnkey solution.
They can do everything under one roof. You only have to work with one partner, one company so that it's really easy to communicate everything effectively versus working with five companies where you now have to assemble those products and you're hoping that all five guys are making the products to the right tolerances so that they fit together, which is more challenging than it appears.
Chase Clymer
Absolutely, Lucas.
I can tell just by that explanation there, the quality of the product that you guys are selling.
If I'm listening and I'm curious about flipping, balisongs, butterfly knives, trainers, where should I go to check it out?
Lucas Cao
Yeah. So I would say, first check out our website. That would be squidindustries.co.
If you're curious to know what flipping looks like or you want to learn on our YouTube channel, we also have tutorials and all sorts of videos from beginner to intermediate to advanced. We have a whole host of videos to learn.
And if you're looking for some interesting and fun content for just watching what flipping is. Then I say check out our Instagram’s at Squid Industries Co.
We repost some of our best flippers on our team and a lot of community-made content. And yeah, that's where you'll find us.
Chase Clymer
Awesome. Lucas, thank you so much for coming on the show today.
Lucas Cao
It was a pleasure to be on the show, Chase. Thanks so much for having me.
Chase Clymer
We can't thank our guests enough for coming on the show and sharing their knowledge and journey with us. We've got a lot to think about and potentially add into our own business. You can find all the links in the show notes.
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Until next time!