How I Started A $6.5K/Month Premium Cigars And Tobacco Ecommerce

$6.5K
revenue/mo
1
Founders
6
Employees
product
Scotty's Cigars
from Albany
started October 1999
$6,500
revenue/mo
1
Founders
6
Employees
2.25M
alexa rank
243
followers
market size
$9.29B
avg revenue (monthly)
$6.5K
starting costs
$44.3K
gross margin
34%
time to build
8 months
average product price
$30
growth channels
SEO
business model
E-Commerce
best tools
Constant Contact, ShippingEasy, WooCommerce
time investment
Side project
pros & cons
24 Pros & Cons
tips
2 Tips
Discover what tools Scott reccommends to grow your business!
platform
shipping
social media
blog
Discover what books Scott reccommends to grow your business!
Start A Cigar Business

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

Hi! I’m Scotty, and I started an online business selling premium cigars, pipe tobacco, pipes, cigar accessories, and “RYO supplies” - in layman’s terms the non-tobacco items used by folks who roll their own cigarettes, like tubes, machines, etc. I created this to supplement and expand my two retail cigar shops.

My business has gone through a few different phases over the years where different products and offerings have generated the bulk of my company’s revenue. When I started the online venture in 1999, the main focus was on pipes and pipe tobacco. Over the years, premium cigars gained a larger share of our revenue, but pipes and tobacco remained at the top. I believe we were the largest direct-to-consumer distributor of pipe tobacco in the USA. While our competitors were measuring their annual bulk tobacco sales in pounds, we were measuring ours in tons.

In 2013 I sold the tobacco-related portion of the online business to one of my competitors. Due to the sale and subsequent non-compete agreement, I re-launched with all new branding and shifted the product selection to focus on strictly RYO supplies.

With my non-compete agreement recently expired and COVID-19 restrictions hurting sales at my brick and mortar cigar lounges, I have reintroduced premium cigars, pipe tobacco, and other tobacco products to my online business. I have re-branded the company again as Scotty’s Cigars, and I am expecting that premium cigars will take over the lion’s share of our sales in the coming years.

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Our customers are a wide variety of people from all over the place. Some of them are serious cigar smokers and hobbyists, who may smoke as many as 10 or 12 cigars in a week. Customers like those are great and can be very beneficial for companies like mine that sell consumable products. However, there are a very small number of people who smoke cigars with that level of frequency.

The majority of premium cigars are smoked by occasional smokers, who don’t smoke cigars on any regular basis. These smokers enjoy a smoke a handful of times per year on special occasions like a birthday, annual golf outing, wedding, or other celebration. Ensuring that those customers come to you when they are ready to buy is essential for the profitability of my business.

The 21 years I’ve spent selling my wares online have seen many changes in technology, and I’ve seen a generation of associated businesses come and go. The evolution required by my sale has added another element of change, but throughout all of it, I’ve known that if I surround myself with the best people and make sure that every day ends with my business being a little more effective and serving our customers better than we did the day before that I will be successful.

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

I got my start in the tobacco business years before starting my online business, beginning with a little kiosk in my local mall. I had such a small amount of start-up cash that I would use (closed) empty cigar boxes to create the appearance that I had more inventory than I was actually able to afford. Once my kiosk generated some profits, I invested in a small standalone building and made for a more comfortable smoking lounge for the customers. Once I had that established, I wanted to keep going but felt restricted by geography.

This was back in 1999 before e-commerce was really popular, but I saw what big companies like Amazon and eBay were doing, along with a small number of other innovators in the premium cigar industry, and I decided to jump in. I didn’t have a lot of knowledge about Google and search engines, but I stumbled into what I later learned was an incredibly good domain name for SEO, and before long I was ranking at the top of the results for all of my keywords. I had almost no competition on pipe tobacco, and since these were also the days when it was still legal to sell roll-your-own cigarette tobacco online, I also did big business with those products.

My competition on cigars was a little stiffer, but I quickly realized the opportunity that was available to me with pipes and pipe tobacco. In addition to my own extensive experience with all types of tobacco, I also surrounded myself with people who are incredibly knowledgeable about this niche industry. One of the most important was a “Master Blender”, Russ, who put his expertise to use crafting delicious customized pipe tobacco blends that gained him a massive and loyal following. Having a well-trained staff that could answer the extremely detailed questions of pipe smokers was essential, and helped to set me apart from my competitors. I also had an extremely talented general manager who helped keep me plugged into the latest in e-commerce and marketing technology to make sure my message was spread as far as the internet could go.

Sales grew steadily over the years, until 2009. This was the year the PACT act went into effect, restricting all sales of RYO cigarette tobacco to in-person only. These products were a major portion of my business, and sales took a significant hit. While my pipe tobacco business was thriving, the small size of the overall market made it very challenging to try to make up for the lost sales.

I realized I needed to open up other channels and I decided to put increased focus on premium cigars to make up for the lost revenue. I tried a variety of different methods throughout 2010, but nothing really worked to give me the foothold in the market I was looking for. In 2011, through a connection, I’d made in the industry combined with a little luck in geography and timing I was presented with the opportunity to hire the marketing director from one of the top 5 online cigar distributors in the country.

I jumped on the opportunity, and he was able to help establish my website as a significant force in the online premium cigar industry. We increased online sales of premium cigars by over 500% within the first year, as well as nearly tripling online sales overall. I had recovered all my lost sales and much more beyond, and with business at an all-time high in 2013 I accepted an offer to purchase the website and all its assets from the largest online player in our industry.

At this point, I was still generating steady profits from my brick and mortar shops, but I never like to be restricted by geography. I also wished to continue to employ as much of my hard-working staff as possible, at the time of the sale I had 20 employees working strictly for the online business, and only 3 positions were offered by the new company after the acquisition. I decided to continue to operate an e-commerce business, and during the sale, I negotiated for the ability to continue operating online as long as I didn’t sell any actual tobacco via the internet. I rebranded and launched the site focusing only on the RYO supplies, and I continued to operate that business throughout the duration of my non-compete agreement.

I was unsure if I wanted to try to re-enter the tobacco arena of the e-commerce world after the non-compete agreement expired. My brick and mortar shops were consistently profitable, and also, I’ve made some real estate investments. The restrictions caused by COVID-19 made the decision to come back much easier. I saw a great opportunity with the large increases in demand for online cigar sales. The technology landscape has changed significantly, and we have a whole new bag of online tricks ready to again take our rightful place as a major online cigar retailer.

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

As a retailer, I don’t design or manufacture any products beyond the occasional house blend cigar, but I consider my website and the service my company provides as a “product”. I also have always been a fly-by-the-seat-of-the-pants type of guy in terms of strategy and trying new things. If my gut tells me an idea is going to be successful I’m ready to give it a shot without getting bogged down with too much research and details. I’m also ready to pivot and cut my losses when things don’t work. I firmly believe that if you don’t fail sometimes, you aren’t trying enough new things!

My first website was very archaic, as all e-commerce sites were back in the ‘90s. Over the years I strived to constantly improve whenever possible. I made changes all the time, based on my own ideas, the innovations of the people working for me, and suggestions and input from customers that let me know what they wanted and how they wanted to buy. Some of them worked, and I kept doing them. Others didn’t deliver the results I hoped for, so we tried something else.

In addition to keeping up with new technology and customer demand, the tobacco industry presents a variety of challenges when it comes to regulations and taxes. Anticipating these changes, responding to them, and finding a way to keep on working and selling within the rules is essential for me to survive. I have a strong desire to follow reasonable regulations, and of course, I only want my tobacco products to end up in the hands of legal adults who can intelligently decide to use a product with potential adverse health effects.

Fortunately for me, we have almost no trouble with this in practice, as premium cigars and pipe tobacco are not very attractive to teenagers in the first place. There just aren’t many 17-year-olds hoping to pick up a nice $14 stogie. By following best practices for age verification (every order is run through a thorough 3rd-party service to verify that the customer is of legal age) combined with the nature of the product, keeping our tobacco out of the hands of minors is not difficult. However, occasionally a regulation with the good intentions to stop youths from obtaining tobacco products that might be more attractive to them can have unintended consequences for my business. I need to be ready to adapt to these issues and ensure that I can continue to operate in both an ethical and legal manner.

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Describe the process of launching the business.

I feel like I have “launched” my online business three separate times! Each time has been pretty drastically different. The first time, it was all totally new. We didn’t know what to expect, and at first, we had to scramble a little bit. Basically, the idea was just to get all the products up, visible, priced correctly, and ready to buy so we could see what happened. It didn’t take long for sales to start rolling in, especially once our site started ranking well on Google. We had to hire a few people to help out, and I and the management would plug the gaps more than occasionally. That never really stopped, even during the peak of our sales in 2013 I would sometimes step in and ship some boxes or weigh out some bulk tobacco to help the team out when we were extra busy.

It takes an awful lot of smokers who buy one box a year to build a business.

I feel I had a significant advantage by launching the online business as a supplement to my retail business. I bootstrapped my retail business with savings, and I have consistently re-invested my profits instead of pocketing them, first moving from the kiosk to a standalone lounge and then using the profits from that to fund a bigger location, a second location, and my online ventures. The stability of my B&M shops has given me the freedom to seek greater profits and an expanded market via the web. The foundation of the financing, as well as product inventory and knowledge, has been essential to my success.

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

I believe the three most important elements of my business are offering a wide selection, outstanding service, and great prices. If you have everything that a customer wants, you take care of them right, and offer a great value, they will keep coming back. Obviously, you have to work hard to acquire customers, but as long as you get the word out, if you do a great job and give them what they’re looking for, they’ll never have a reason to leave you.

Attracting new customers is essential for us since so many customers are infrequent cigar smokers. It takes an awful lot of smokers who buy one box a year to build a business. Also, the age-restricted nature of our product makes many of the traditional methods other businesses use to acquire customers unavailable to us. We cannot utilize paid Facebook or other social media placement, and Google AdWords are off-limits for us as well. The newer placement opportunities on YouTube and other streaming video platforms would be extremely effective for us, but again, are unavailable.

By accepting my own limitations and ensuring that my pride doesn’t get in the way of my success I have been able to benefit greatly from the talents of the hard-working folks who I have employed over the years.

This means we need to put a lot more effort into the organic side of SEO and social media. We also have to rely on word of mouth, which while difficult to achieve, can be one of the most effective drivers of loyal customers in our business. Our new website features a very attractive introductory offer for customers who are invited by a friend.

We have sold non-tobacco items via Amazon in the past, but due to high competition and only being able to offer a very limited selection of our items there it isn’t something we put a lot of focus on. I like to think that the challenges and restrictions we face force us to adapt and become experts in the areas that we can leverage.

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

This is an interesting time for the business. Our new website is off to a great start, but we still have a long way to go before it returns to the highs of the past. I have extreme confidence that our process and methodology will make the new iteration of the business every bit as successful as the one I sold years ago.

There is however some uncertainty surrounding potential future regulations. It is possible that someday, all online sales of tobacco products will be outlawed. We hope that does not come to pass, and while it is of concern, we stay positive in the knowledge that we know we do not facilitate in any fashion minors obtaining tobacco products. We trust our legislators to carefully consider and understand our role and our business model, and therefore we expect that they will do the right thing and not impose unnecessary restrictions on our business.

I have faced numerous challenges during my time in the industry, from massive taxes to unfair and discriminatory pricing practices from our vendors. Some days it seems like simply doing our job and selling our wares is the least of my worries! I have the utmost faith in my extremely talented staff to make the company successful moving forward, and I trust in myself to overcome the ancillary challenges we face constantly.

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

I have learned an enormous amount from taking my sales to the internet. In 1999, when e-commerce was new to everyone, I had no idea what I was doing. Over the years I have learned a lot about e-commerce technology, but possibly the most important takeaway is learning to surround myself with highly talented people and trusting them. I cannot be an expert on everything, so I don’t feel any sense of diminished pride when I accept the fact that there is someone out there more qualified than I am to handle a specific area of my business. By accepting my own limitations and ensuring that my pride doesn’t get in the way of my success I have been able to benefit greatly from the talents of the hard-working folks who I have employed over the years.

I also have learned the value of simply not giving up. When sales online are slow, I continue to act as if they were booming. I still change up features and sales when I get 5 orders a day just like I would if I was shipping 500 orders a day. By always using best practices and never giving up, I know that long-term success will follow even if one or more individual marketing/promotional efforts are unsuccessful.

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What platform/tools do you use for your business?

In the 21 years, I’ve been selling online, I have utilized a wide array of tools. My current website is built on the WordPress platform utilizing WooCommerce for the shopping cart. These are new tools for me that were recommended by my website developer. The key advantages for me are flexibility and autonomy.

While other solutions like BigCommerce or Shopify could offer similar functionality, the fact that they are privately owned means that one stroke of a policymaker’s pen and we could be restricted overnight, even if shipping premium cigars remains perfectly legal. The flexibility of being able to add nearly any functionality we want quickly and easily combined with the autonomy of the open-source platform makes it ideal for us.

We use Shipping Easy to automate our order processing and shipping, and I utilize MyPOS Connect as the inventory management system that manages items and stock for both my retail stores as well as the website. Our email list has always been managed by ConstantContact, although occasionally I consider alternatives.

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

I derive inspiration from any entrepreneur who has achieved success, whether a well-known titan likes Richard Branson or just an associate or friend of mine in the local area who has turned an idea into a successful business.

I especially enjoyed reading Unfu*k Yourself: Get Out of Your Head and into Your Life by Gary John Bishop. It is right in line with my beliefs on maintaining a positive attitude and pushing forward with a quality process you believe in even if the results aren’t immediate. I will watch just about any documentary or “historical fiction” film on a notorious entrepreneur, while they typically have little effect on my actual operation, I am fascinated by the ways others have achieved great success, and always feel re-energized and re-invigorated just by watching something like Jobs or The Founder.

I listen to a few of the cigar industry-related podcasts, with Cigar Craig’s podcast being my favorite. I like to keep up with the latest industry news and trends, and while I don’t find much in the way of advice or tips on running my business, I think it is essential to stay well-informed about the industry as a whole.

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

There is a joke in the cigar industry, and it is about how the best way to make a small fortune in the cigar business is to start with a large fortune. I would start by advising anyone to stay away from the cigar business! It is too small, to niche, and has far too many risks in terms of shifting landscapes and government regulations. With that being said, I attribute some of my success in finding my niche. Premium cigar smokers might only make up 1% of the population, but over the decades I have honed my skills of being able to connect with the people in that niche and have been able to make a business out of it.

I would advise aspiring entrepreneurs to find their niche! Everyone has something they know more about than anyone else. Even if that market or industry isn’t massive or traditionally lucrative, go for it! If you have an edge, people will find you. You may find that the other people competing with you in that niche are not that skilled and your expertise and determination could put you over the top.

If you feel strongly about your idea and have a sound methodology, don’t give up. Don’t let customers being slow to respond get you down. If you think you have a million-dollar idea, act as if your idea already made a million dollars. If you just keep acting successful and doing the things that lead to success, as long as you are right about your idea the success will find you even if one or more of your individual efforts fail.

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Are you looking to hire for certain positions right now?

Right now, given the current state of our sales, we are overstaffed. I have the extra staff in place in anticipation of sales growth into the future, and I expect that within the next two years we’ll be looking to hire again. Since I have carefully selected my top-level staff most of the positions I expect to become available will be entry-level production/order processing jobs. While they are not the best jobs on their own, they can be great starting points for entrepreneurs, especially for people looking to get a start in the cigar business.

My former employees from my retail shore and past iterations of my website have gone on to achieve success in a variety of areas. My former retail shop manager now holds a top-level management position with one of the largest and most prestigious cigar brands in the world, Davidoff. Many former employees of mine have gone on to become sales representatives for prominent cigar manufacturers.

Where can we go to learn more?

If you have any questions or comments, drop a comment below!

-  
Scott Bendett,   Founder of Scotty's Cigars
Pat Walls,  Founder of Starter Story

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