FUBU apparel CEO and Shark Tank Judge Daymond John got his start as an entrepreneur by mortgaging his mother’s house in Queens for $100,000 and turning it into a clothing factory.
But as he partners with eBay for National Small Business Week, he says he definitely wouldn’t advise new entrepreneurs to go the way he did.
John talked with Ladders about the lessons he’s learned over the course of his 30-plus-year career in business.
Don’t take crazy risks
“I would say don’t mortgage the house for $100K,” he told Ladders with a rueful laugh. “Because I didn’t realize what a stupid move I was making when I did that. It turned out for all the better, but knowing what I know now, I was very close to losing the house and everything I had.”
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You don’t need the five-year lease and the $20,000 website, John cautions. Short-term goals for new businesses should be “building a very small community that understands who you are and selling to them and improving the trust you have.” John recommends initially selling “a very small scope of products, not trying to spread yourself too thin. Once you know your customer really well, then you’ll be able to duplicate that on a much larger scale.”
He knows from his own mistakes not to bite off more than he can chew too soon: “When I first started [with FUBU], like any designer, I wanted to make all colors to match all sneakers,” he told Ladders.
But customers didn’t want every color: “Now knowing what I know, 60% of your sales are always going to be black, no matter what … Now I know that my customer loved an extra large, so I would have not made small, and I know the most they’re going to pay is $29 for a screen-printed shirt, and the most they’ll pay is $39 for an embroidered shirt. I didn’t know all that initially and I had a large, large line … and I had a whole bunch of inventory that I was sitting on I couldn’t get rid of because I decided to over-commit.”
E-commerce means more information and control
John says that the fundamental difference between brick and mortar and e-commerce is how much intel you can get on your customers and how you can scale.
“You hit way more people with e-commerce even if you have an existing retail shop and your analytics often are a little more accurate because a retail shop, when a person comes in, you don’t necessarily know if they’re buying it for themselves, their husband, for their wife, or it’s a special occasion. And unless you have a form where they can enter the data, when they leave, you don’t know where they went. You don’t know how to maybe get them back.”
“When you are servicing on a digital platform such as eBay you can find who your customers are, you know their analytics, their demographics, you can email them, there are ways to over-service them… You can hit people all over the world instead of necessarily in one small community.”
FUBU got into e-commerce between 1999 and 2000. “We saw that it was a way to empower ourselves a little bit more. We did have 27 retail shops but if we were selling purely to a retailer, then if the retailer decided to discount it, we were powerless if the retailer decided to merchandise it next to a competitor or if they decided to just keep it in the back and not even bring it out because, whatever they weren’t paying attention, and again, we didn’t know, we didn’t have any data at all because they’re not going to give us the data on who’s exactly shopping. They didn’t even know the data on who was shopping at Macy’s, JCPenney’s. We wanted to be a little bit more in control of our destiny, so we started to sell online.”
Don’t give your product to your product away to friends
“Well, listen, you give 10 t-shirts away to your friends or family … Grandma’s always gonna come back no matter how disgusting that shirt is and say ‘Oh baby, everybody at my job loves it’ even though grandma and the people at the job hate it. But they don’t want to hurt your feelings.
“But you get somebody who has a lot of different options and who are taking their hard-earned money out of their pockets and handing it to you – there’s proof of concept, that’s why you see on ‘Shark Tank.’ We always say, ‘What are your sales?’ And you don’t have to be selling $1 million, you can be selling something that is $10. But if I found out that you sold 50 of them in two hours because you decided to stand out on the corner and sell them, you have a million dollar deal ahead of you … Because if you don’t know who your customer is, then you’re taking my money and you’re using it as tuition to find out who your customer is so, that’s why you shouldn’t give away anything, you gotta sell it first to see if you have a real viable product.
Tell a story
Small businesses make it easy and attractive for people to buy from them if they create a narrative, John told Ladders.
“How are small businesses telling their story?” he asked. “People can buy from anybody and they want to know why they’re buying into your story.” Many entrepreneurs, he said, have created their product out of fulfilling a need or a void in the market. “So people want to support brands and products like that. One of my top companies on ‘Shark Tank’ even taught me a lesson. They’re a company called Bombas Socks I think they were doing like $800,000 in business when they first started, and now I think they’re gonna do about $100 million annually. And the reason why I feel this so great is, first of all, the product is king, the sock is really amazing, but more importantly, I think, every sock they sell, they give away a pair to the homeless because they know the homeless have a challenge caring for their feet and getting clean socks.”
That kind of give-back is important to consumers today and is an attractive story to support. “I found that today, the consumer, they want to know that every single time they purchase something, they’re giving to a cause or something near and dear to them, or even not near and dear to them – just something they know is going to help others so at the end of the year, they look at their 400 purchases and they say ‘Listen, I’ve donated money towards stopping human trafficking, I’ve donated money towards saving animals, clean water, and homelessness.’
“No matter who you are, you need to tell a story and you need to build your community around that story, and people will support you more whether it’s from a charitable side … or whether you’re making a really amazing product but you’re not selling it at a high cost because you feel that a family needs to be able to afford this product. Retailers have to tell a story and then people will die to support them. I didn’t put three sleeves in a shirt, I just made a t-shirt, but there was a story behind it and that’s why people bought into it.”
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