How This ‘Shark Tank’ Entrepreneur Reaps Rewards From Nontech, Unsexy Startups

Invest in the ugly-duckling brands, counsels Daymond John

As the founder of pioneering hip-hop clothing brand FUBU, a regular on ABC's Shark Tank, and an entrepreneur with a reported personal net worth of $250 million, Daymond John knows a thing or two about starting and growing a brand. And since joining the long-running TV show in 2009 as one of its original "sharks," judges who preside over the pitches of contestant-entrepreneurs and decide whether or not to personally invest in them, John has learned at least one important lesson: Don't dismiss the startup brands that look ridiculous.

"Some [presenters] are obviously nuts," said John, speaking at an Advertising Week session this morning. "But if you'd said back in 2008 that someone would cut two holes in a blanket, call it the Snuggie and make $300 million," he'd have thought you were crazy. "People make more money selling more pieces of crap than you've ever seen," he added.

In fact, the Snuggie never showed up on Shark Tank—it was the Swilt, a similar product, that did—but John's point still suffices. At a time when the term "startup" has become virtually synonymous with tech firms, it's worth remembering that tech ventures not only have the highest failure rates, but the ascendance of the digital economy hardly means that consumers have lost interest in durable goods—even (or perhaps especially) not-so-glamorous ones.

John recalled his investment in Bubba's-Q Boneless Ribs, a company started by former Cleveland Browns defensive lineman Al "Bubba" Baker, who appeared on Shark Tank in 2013. Baker's brand combined his family's barbeque recipe with a way to debone ribs so they could be eaten with a knife and fork—clever, but obviously not the stuff of Silicon Valley.

As an apparel executive, "I'd never wanted to get into consumables," John recalled, but the upstart brand did remedy the mess that invariably goes with chowing on ribs. With the product, "women could eat ribs without messing up their nails and teeth," said John, who decided to sink $300,000 into Baker's company to get a 30 percent stake.

Today, John said, Bubba's-Q sells $27,000 worth of ribs a minute when it's on QVC and is a brand he aims to bring to the $200 million sales mark.

Then there's the sock brand Bombas, whose founders appeared on Shark Tank in 2014 looking for funding for their "high-tech" socks with no toe seams and a socially conscious business model that donated a pair of socks to the needy for each pair sold. The other investors, wanting nothing to do with a startup brand selling a commodity product, bailed. John nearly did, too. "I [already] had a warehouse full of socks," he said. But he agreed to sink $200,000 into the brand in return for a 17.5 percent equity stake.

The brand sold $400,000 worth of socks and booked $2 million in sales by year's end.

After making his investment, John realized it wasn't just the Peruvian Pima cotton that made Bombas attractive, it was its social contract to give socks to homeless people. "Millennials want an experience," he said. "They want to know that their money will be used for a good reason."

John's success with nontech, not-so-sexy startups is in line with the numbers. According to Statistic Brain, while nearly half of retail startups are still in business three years out, only 37 percent of information firms are.

Now in its eighth season, Shark Tank isn't just a popular structured-reality series, it's become a highly desired chance for small-time entrepreneurs to get financial backing. "They shoot 10 days in June and 10 in September," John said. "The producers see 200 people in each block, and only 120 make the final cut. And there are 50,000 people in line waiting."