Daymond John: How I Spot Winners

By Graham Winfrey

From the July/August Issue of Inc. Magazine 

It’s been a while since Daymond John lost his shirt on a business deal, even though he started his first company by giving shirts away. Back when the Fubu founder was just getting his fashion line off the ground, John built brand awareness by having rappers wear Fubu clothing in music videos. Now, as a big-fish investor on ABC’s Shark Tank, John uses everything he’s learned from more than two decades of business building to size up other companies as potential investment opportunities. The fashion mogul from Queens explains how he spotted three of his favorite deals.

–As told to Graham Winfrey

On Shark Tank, we don’t invest in companies. We invest in people. And there are two types: those who have digital literacy and those who don’t. And the ones who have it are the people we tend to invest in. If a person doesn’t have that area of literacy, they have to have a superb product.

I spot winners by looking for somebody who went out and tried a business by him- or herself and maybe failed several times, but still has that determination, that love and that passion for the company. It’s very important to me that somebody has failed. When I started Fubu, I kept running out of money because I was bootstrapping it myself. I didn’t have an idea of where I wanted to go with it. So I look for people who are driven to succeed but are open to several paths.

I also look for people who are problem solvers, so they’re not going to call me nine times with a problem. I invest in people when I believe we have the same common goal; that no matter what, if the company doesn’t work out, we’re going to create something bigger and better in another space. It’s a combination of all those things. You just understand that the person is going to do it with or without you.

A lot of times on Shark Tank when I invest in people, I’m probably learning more from them than they’re learning from me. They’re digital natives and I’m a digital immigrant.

I think of myself as an entrepreneur, but I love investing. People allow me to invest in their dreams, and I don’t have to come up with everything myself. They’re doing business in a whole new way and I’m fortunate enough to be partnering with them. None of these three entrepreneurs are going be stopped. So I want to come along for the ride.

Bubba’s Q World Famous Bar-B-Q & Catering

I knew Al “Bubba” Baker was a winner right away. He came on the show with his daughter, and he’s this big, lovable former football player, and one of the first things he says is that football was his career, but barbecue is his passion. That resonated with me, because I always look for passion. Al came up with this process to debone barbecue ribs so you can eat them like you would a steak. I’d never seen anything like it before. He had a patent on the product and the process, and he has a little barbecue restaurant in Avon, Ohio–a family business–where he serves his ribs. It was kind of like the best-kept secret in Ohio.

Now, keep in mind, I have turned down many, many investments in food and perishables because I just don’t know the business. But I saw that this was a guy who had played in the NFL, so he had some level of discipline, and I also saw that he was a family man. I go all in on my investment: $300,000 for 30 percent. I attach an attorney who knows mergers and acquisitions to oversee the company, and I bring in a guy to run the online business. Then I get a sales force to recommend different co-packers [to process the product in bulk]. Over the course of eight months, Al goes to approximately 20 co-packers, and almost all of them come back with inferior products.

All of a sudden, Al and I have a debacle. We’re not supplying to all the people online, because we can’t make the product fast enough. All the opportunity is just passing us by. Then Al and I get into a lot of clashes. He doesn’t want to listen to me, and I don’t know the business well enough, so I start to doubt why he is or isn’t successful. Finally, I decide to stop focusing on the online orders we can’t fulfill, and I just let Al hit the road to find a co-packer worth our time. He hands over the restaurant business to his family members, and he goes out and finds an amazing co-packer in New Jersey called Rastelli Foods Group. Now we’re about to roll everything out; the company’s investing in the proper machinery, and it has found the perfect cut of pig in Ireland.

It shows that when you have a Shark, we can only do so much. We’re there to put funds in and help you, but ultimately it comes down to the entrepreneur to be very determined, not take no for an answer, and be resourceful. And that’s exactly what Al did. Now he’s starting to hit major networks. We’re starting to take orders and discuss licensing deals with huge companies.

Bombas

Bombas was in the last industry that I wanted to invest in: socks. I’ve sold millions of pairs of them, you can’t tell if they’re on people’s feet because they’re wearing shoes, and you can find them for $2 in a bucket.

Bombas’s co-founders, David Heath and Randy Goldberg, came up with a sock that’s seamless in the toe. I thought, “OK, that’s a new angle.” The socks are colorful and have a great design. Then Heath and Goldberg explain that for every pair of socks they sell, they give away a pair to help the homeless, because one of the major issues in homeless shelters is the condition of people’s feet. I thought, “Wow, there’s a social mission here.” Then they tell me the sales numbers: $450,000 in nine months. And Bombas is not in traditional retail. It’s totally online, and Heath and Goldberg have worked out algorithms and ways to go after their customer. They buy a certain number of Facebook ads, and I realize that they’re operating the way the rest of the world is going in business, where you’re one step away from your customer. Heath and Goldberg know exactly who their customer is. They know their customer’s age and gender. They have found a way to unlock that big mystery. These guys are also making full margin on their product because they don’t have to deal with a middleman.

They’re creating a great following and also giving back. And that is what people care about. Sometimes people care more about the mission than about the company itself. I find all of those things to be super valuable. Now I think Bombas will do $4 million this year.

Titin

Patrick Whaley came on the show with this weighted compression gear called Titin. He makes a vest and shorts with these medical gels inside that can freeze or heat up so you can use them for recovery or for warming up. The gels are placed where your muscles are, so they move with the muscle. All the Sharks just basically called Whaley a snake-oil salesman.

He tells this story about how he had other investors who weren’t on the same page as he was and he bought them out, which cost somewhere in the millions. And I’m sitting there thinking, “How is this kid who has no connections and no money buying his company back from venture capitalists?” I’m realizing this kid is magnificent. It wasn’t like somebody just gave him $1 million or $2 million. He just went and sold his ass off and found a way to buy his company back.

Then he explains how the Netherlands’ 2014 Olympic speed skating team used the shorts, and they won more gold medals than they ever had before. Everybody else in the room is concentrating on the claims that he’s making about his product. They’re saying, “Don’t make all these claims. You’re full of crap.”

I invest in the kid, and I find out that every single thing Whaley said that sounded too good to be true is true. The Netherlands team sent him a video of all the gold medals they won and attributed it to the shorts. Every CrossFit athlete I know who wears them loves the products. The Auburn University basketball team works out in Titin, and many professional teams do too.

It goes back to an amazing person who will not take no for an answer. Now we’re doing an average of $400,000 a month in sales and Titin is in Dick’s Sporting Goods.