Shark Tank and FUBU’s Daymond John — How to partner like a shark

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1:29And right now, you can get six months of Rippling free when you sign up at rippling.com slash scale. That's R-I-P-P-L-I-N-G dot com slash scale. Don't get sad. Get Rippling. Terms and conditions apply. I was fortunate enough to grow up in Hollis, Queens, where they believe something's in the water because there's got to be 30 hip-hop artists to come out of that area. And LL Cool J lived in the neighborhood.

2:04That's Damon John. He's the founder of FUBU and one of the original sharks on ABC's Shark Tank. But in 1994, he was a man from Queens trying to find LL Cool J. In the early 90s, Fuba was a scrappy streetwear brand, selling mostly hats and t-shirts. They had a small but loyal following in the hip-hop community. Damon just needed the right high-powered celebrity endorsement. James Todd Smith, better known as LL Cool J, fit the bill. I remember going over to his house.

2:48When he was leaving, he was moving to L.A. because he was going to go shoot a show called In the House. I didn't know him that well. But I waited out there with my partners for about four or five hours.

3:03Damon and his partners didn't have a pitch deck or a lengthy endorsement contract to sign. They had a t-shirt, and they wanted L.L. to put it on. He came outside, and I asked him could he wear the shirt and take a picture, and he said he couldn't because he was going on to a show and he had sponsorship opportunities from Nike and Adidas and all these people. And if he wore my shirt, he's going to have to turn down millions of dollars.

3:30In hindsight, this was a perfectly good reason to say no. FUBU was small and totally unproven. But they were part of the same community, raised just a few blocks apart. So LL Cool J reconsidered. He said that he saw me being a hardworking guy. He felt that he couldn't look at his customers, all the people that support him from the neighborhood, in the face if he didn't take this picture from me. LL took the picture, and Damon sprang into action. I spent every dime I had.

4:09I took out an ad in the Source magazine, the Hip Hop Bible at the time.

4:15everybody saw that ad. That ad would give FUBU the credibility and leverage to secure thousands of orders and make their first big-scale jump. And later, FUBU would give LL Cool J a piece of the company. It was a partnership that was both strategic and authentic. That's why I believe the best partnerships are built on authentic alignment and the more aligned you are, the more creative these partnerships can get.

5:11Well, that's just how you do it. We haven't made it just how you do it. This is Masters of Scale.

5:24I'm Reid Hoffman, co-founder of LinkedIn, partner at Greylock, and your host. And I believe the best partnerships are built on authentic alignment. In fact, the more aligned you are, the more creative these partnerships can get. Take a moment and think about your favorite food pairings, like chocolate and peanut butter, or peanut butter and jelly. And depending on where you grew up and where you live, your favorite food pairing might be different. Just listen to a few of the answers we got when we asked our Masters of Scale team.

6:07Rice and kimchi, chips and salsa, spam and eggs, chocolate and chili, schnitzel and spetzle, chicken and waffles, gin and tonic. There are chemical reasons why all of these combinations work. Or why a briny vinegar will brighten up your fish and chips, yet ruin your cappuccino and brioche. But you don't have to be a flavor scientist to know when something tastes good. I want you to keep that in mind when we start to talk about partnerships. specifically the strategic partnerships that can help your startup reach scale. Instead of gin and tonic, think IKEA and TaskRabbit, or Microsoft and OpenAI, or even Starbucks and Barnes & Noble.

6:51These are companies that recognize in the other something essential they bring to the table. It's an authentic alignment of complementary assets, and the result is much greater than the sum of their individual parts. You'll often hear this expressed as one plus one equals three. It's bad math, but great business. I wanted to talk to Damon John about this because partnerships have been core to his business strategy from the beginning. As the founder and CEO of FUBU, Damon scaled an iconic streetwear brand with an innovative series of partnerships that broke the mold for how fashion brands collaborate.

7:28He parlayed that success into a career as an author, a brand expert, and perhaps most famously as an original cast member of the ABC series Shark Tank, where he continues to mentor and invest in the next generation of entrepreneurs. Damon shared so many insights with us, in fact, that this is going to be part one of a special two-part episode on strategic partnerships. Part one will cover the rise of FUBU and how Damon built it using a series of surprising partnerships. Part two will dig into how he has parlayed that success into a role as an investor and founding cast member on Shark Tank. You might say part one is Damon's journey to becoming a shark, and part two covers how to operate like one.

8:13So stay with us. Damon founded FUBU in 1989 while working as a waiter at the seafood chain Red Lobster. But it wasn't his first business, not by a long shot. It was first grade. Everybody needed those number two pencils, and all the kids always lost the pencils or they got broken. Yep. In the first grade, Damon was looking for business opportunities. It was a scrappy operation, to be sure. I would take the pencils and with a little knife, shave the paint off the pencils, and then I would paint the names of the girls in school on the pencil. His initial strategy was to sell to the boys in class, who he saw roughhousing with the girls they wanted to talk to.

8:56Well, what happened was instead of beating the girls up, they started to beat me up and try to take the pencils from me. So I decided to pivot and I started to sell the pencils to the girls with their own names on it. And then I got to talk to the girls. It was a classic lesson in aligning your interests with your customers as an entrepreneur. But Damon wasn't the only entrepreneur in his family. His mother, Margot, created multiple business opportunities, even while working full time as an administrator. her. In my community, there's something called dollar vans. And what they do is they go up and down the bus route and they pick people up.

9:31Think Uber Pool long before Uber. My mother used to have a really old Eldorado, and that thing could fit four people in the front and five people in the back. She used to have me, you know, sitting cuddled up next to her, and she used to charge people 25 cents or 50 cents to take them from the subway all the way down to their house. Once Damon was old enough to drive, he went into the dollar van business himself. There was a van that I bought, 15 passenger van. It was probably about 20 years old. And I would go up and down the bus routes and do the same exact thing. But I would try to also create a customer out of it, a dedicated customer.

10:05I knew that if I was at the station much later, like 1230, one o 'clock at night, that a lot of the customers wanted to go home, but they didn't live right on the main strip. So I'll charge you$2, but I will go down the strip and then I would take you three blocks in, four blocks in. So I would double my fare and it would probably only add an extra 15 % of time per trip. Damon's interests were aligned with his riders. They knew he'd go the extra mile for them, literally. And those riders had something of value as well. These customers were often people who were professionals. They were attorneys.

10:44They were working in the city. I got to know these people. And later on, they'll pay off as strategic partners where I can ask them for some advice. Building on these early partnerships, Damon might have gone on to great success as a transportation mogul. But his dollar van business hit a couple of major roadblocks. Number one, I didn't have much credit. I didn't really know how credit works, so I couldn't afford to get a new van. And if you have a 20-year-old van, I was paying for a transmission. I was paying for this. It ended up costing me way more than a new van would cost me. Number two is I also didn't have the allowances from the Department of Transportation, kind of like how you have livery plates and various other things.

11:25If you got pulled over in a bus stop picking up somebody, that was a$2 ,500 ticket. So I was only grossing$2 ,500 a week. I was netting probably$200 by time of paper, gas, insurance, fixing a transmission, food. So two tickets put you out of business. By the time I had my sixth ticket, I said, this is probably not worth it. Damon's troubles stemmed from some challenges many entrepreneurs will recognize. Lack of access to capital being one of them. But he also discovered the challenges of going it alone. When you have partners, you can leverage their skills and resources. Imagine if Damon could have partnered with Mechanic.

12:12or if he had other van drivers to split a livery license. But these kinds of relationships are not always easy to cultivate. And more important, they take an alignment of vision and passion. All partners should all be pulling in the same direction. Driving a van wasn't Damon's passion. That was something he found in hip-hop culture. And he happened to live in Hollis, Queens, one of the epicenters of this new art form. Hip-hop was so new and it was something that we really loved. And it was starting to get a little commercial. The bigger companies were starting to profit off of it because the kids wanted to dress a certain way.

12:51Nobody was supplying to the kids themselves. They were supplying their own goods and we were taking it and reinterpreting it on the streets. These high-end brands were slow to embrace teens remixing their styles. Ralph Lauren, Tommy Hilfiger, Timberland. These were high-status labels in Damon's community. but the brands themselves stayed aloof. We would start to hear that they just don't like us, whether they didn't like hip-hop kids or like African-Americans or inner city kids, or you know what? I made a pair of 32 pants to be worn with a 32 waist. Why are you wearing a pair of 36 or 38? But whatever the case was, we felt a little insulted or neglected or actually disrespected.

13:32And I remember saying, who's ever going to just value and support and respect and love the people that buy these clothes who believe in this culture? as much as I do. And that's the day I came up with FUBU, Forest Bias. Damon had a concept, a strategy, an alignment with his intended market. But how he landed on his product involved a bit of serendipity. It started with a rap video. I had liked a hat that I saw on a De La So video. The hat looked like a ski cap. but instead of a ball on the top there was a tie on the top a little string like a shoestring and I couldn't find a hat anywhere Damon went searching for this elusive De La Soul hat all over New York he finally tracked one down in Manhattan

14:32but when he came back to show his mother Margot was not impressed. When I found it uptown Manhattan, I remember coming home and showing my mother the hat and telling her I paid$20 for the hat. And she said, I can't believe you paid that money for it. So she said, take$40 and go to the store and bring my$40 with the fabric. Damon did as his mother asked and came home with a roll of fabric. She then introduced him to the sewing machine. Instead of it being a black or blue or a solid color, I bought her like a striped color because at that moment I wanted to match my sneakers. She showed me how to sew hats and I sewed 80 hats that night.

15:10It was fun because I was sewing them to learn how to sew them. But then I woke up in the morning and realized I had 80 hats that look all like the same exact striped candy cane and I only had one head. You may see where this is going. Damon had some unexpected inventory on his hands and he wanted to repay his mother's$40. 1989, Good Friday, 3 o 'clock in the afternoon, I was standing on a corner and I sold$800 worth of hats in one hour. Damon was a highly adaptive salesman, tuning into each customer's needs and demonstrating the value of his product. What was the value of the customer? It could be, well, it matches your stinkers.

15:48It could be it's going to keep your head warm or people are going to think that the same stuff Dale Aso has. But I was able to pitch enough to sell$800 worth of hats in one hour. And I realized at that time that that was my calling because I really enjoyed it. I not only enjoyed the making of the hats, I enjoyed the value to the customer. And I enjoyed, of course, knowing that I was in charge of my destiny. It was my ability to either sell them or not. It was up to me. Damon had found his calling, his product, his customer, and his authentic mission. Everything was aligned. But at this stage, much like his dollar van business, Damon was more or less on his own.

16:25He did have a silent partner, his mom. And yes, he did give her back that$40. But he was effectively a solopreneur. He soon expanded his offerings from hats to t-shirts. But FUBU was still mostly a side hustle. I would close it down three separate times because I was not thinking as a business. I was thinking, yeah, I can buy a couple of shirts and put FUBU on it and I can go do the expo and sell them. But it was really around 92 that I said I want to make a go at it. For Damon, this would mean finding partners, not just co-founders, but also strategic partners who could help him with targeted needs.

17:05That search led him back to the executives he'd met driving the van. They gave him advice on things like how to incorporate and how to raise startup capital. I opened it up as a DBA doing business ads, and then I needed money. So I had about$3 ,000 I saved up. I put about$5 ,000 on my credit card. And my friend had just came back from fighting Desert Storm. And he said, well, I want to help you. Damon and his friend, J. Alexander Martin, soon added two other childhood pals as co-founders, Keith Perrin and Carlton Brown. And they set out to get their product into the world. We started to sell a couple of shirts at the Expo's, screen printer shirts.

17:46And then we invested in actually getting some real shirts made that we can actually put on music artists instead of the cheap ones that we had. The FUBU founders knew that music artists would be their lever to scale. Think about how fast Damon's hat sold his very first day in business. Those hats were coveted because the style appeared first in a hip-hop video. So if FUBU products started showing up in those videos, they would be coveted too. But Damon and his partners knew they had to be strategic. LL Cool J aside, they couldn't just go around petitioning rappers to wear their logo. They wanted rappers to notice them.

18:26So they thought about the other people in a musician's orbit. We invested in about 50 shirts. They all cost about$50 a piece. We took those 50 shirts and instead of giving them the music artists, we made them 5X and 6X. And we gave them all the big guys. Those big guys were in front of the red ropes at clubs, in front of the music artists because they were bodyguards, or they were just big, joyous people where you could not deny that billboard. In essence, FUBU engaged these big guys as their first brand ambassadors. And they didn't even have to convince them to wear the product. Our reasoning behind that was that if we gave them to all the cool hipsters, the whole thing about being a hipster is you don't wear the same thing twice.

19:09But if we gave them to the guys who only had options like Rochester big and tall, well, now we're giving them something that's higher quality. Those guys would wear it 10 times a month, 20 times a month. They would take care of it because they were wearing it so much. I want you to pay attention to the idea Damon just laid out. FUBU wanted their shirts to last. They wanted their customers to feel great so they would wear the shirts again and again. That's exactly what the big guys wanted, too. We often talk about this as win-win, but that's a phrase that can quickly lose meaning. So let's think of it more as a test, one you could use on basically any strategic partnership.

19:51If the partnership didn't exist, would the parties be doing this anyway? If the answer is yes, on both sides, you have a win-win partnership that works. Listen to how this principle plays out in another crafty marketing tactic who we used early in their scale journey. Damon wanted more of a visual presence for FUBU around the neighborhood, but they barely had enough money to make 50 shirts. They definitely couldn't afford bus stop ads or billboards. So Damon and his co-founders hatched another plan. They went around to local businesses, not just clothing stores, but electronic repair shops, bodegas, any establishment with a metal security gate.

20:32We went to all the stores that pulled down nasty storm gates and said, you have graffiti there or profanity on there. We are a local company. We want to spray paint your gate with our name and keep it beautiful and white. We'll always upkeep this. We'll make sure nobody puts profanity on your gates. And by the way, the kids locally are going to know that you're supporting a local company and we're going to come and point kids towards you. So we spray painted 300 gates from New York to New Jersey, put authorized FUBU dealer. We didn't care what you were selling. I don't care if you were selling furniture or Chinese food.

21:03You were an authorized food dealer. Because those gates would pull down during one rush hour and even rush hour and all those pedestrians passing by, that was about$3 million worth of advertising. This is a brilliant use of strategic partnering and a great reminder how much room there is for creativity in building relationships. You don't always have to go the expected route, and often it's better not to. What's important is that you share a goal, align on brand, and seize on opportunity. And that's just what Damon and his team did to move to their next phase. Remember those big guys? That strategy worked.

21:41After the big guys wore it, well, they were in front of the music artists, and the music artists started to say, well, can I get some? So then the big guys started to tell me where the videos were happening. Now that musicians were asking where they could get FUBU, Damon and his team were happy to oblige. They'd head down to the video shoots, shirts in hand, like volunteer costume designers. I invested in another 10 high quality shirts and I would go down to the videos and I'd put it on the wrapper as a stylist would and I would take it back because once I learned that the stylists generally were not giving the wrappers the clothes because they were getting them from high-end designers, so why can't I do that?

22:19I would take that same shirt and then give it to another wrapper and I did that for about two years. Two years of seeding FUBU into rap and R &B videos using the same 10 shirts. Soon acts from Mariah Carey to Busta Rhymes were wearing their logo. And the more music videos FUBU appeared in, the more omnipresent they seemed, despite the company having almost no inventory. What happened was I created this swell in the market where people thought that FUBU was a huge clothing company. Notice what Damon just told us. By partnering with these musicians, FUBU had created the illusion of a massively scaled brand at a time when it was almost impossible for a customer to get their hands on it.

23:01And that product scarcity would drive demand. It was a feat of marketing sleight of hand. But there was nothing inauthentic about the creative alliance itself. These music artists wanted to appear in FUBU and represent the credo for us, by us. Doing so helped them seem and be more authentic. This tension between authenticity and illusion goes back to something we talked about on our Master to Scale episode with media inventor Trevor McFedries. To build an authentic connection with your customers, you need to do some things that may feel artificial. Here's Trevor on how he got his start as a DJ in LA.

23:44The first character I built probably was myself. It was creating a MySpace page. It was getting on friends' computers and kind of stealing their milling lists and setting out a milling blast to them, probably illegally saying, hey, just got off tour of Europe. I'm looking for some local gigs, only a few slots available. Just faking it until you make it, trying to create this air of importance such that I could hopefully book a$1 ,000 bar mitzvah or something to make it to the next month. I think the thing that I figured out early on was that learning how to differentiate yourself is massively important.

24:14like one of the cereal boxes in the cereal aisle. If you were to approach them, they all look the same, might not pick that up. If I could figure out a way to stand out, that would be great. Just like Trevor, Damon and his co-founders were differentiating themselves in the market. They were an authentic, Black-owned brand that respected their community. They were on their way. But they would soon discover that scaling a brand means scaling up the mechanisms behind that brand, which would demand an entirely new type of partnership all together. This is Mike Nicholas, Capital One business customer and co-founder of Ansett Uncles, a plant-based restaurant and community space in Brooklyn, New York.

24:55And he's telling us how they started a product line. We already had a space in the community. The food was an extension of our lifestyle and our values. So we know we wanted to create something that was an offshoot to that. Our pepper sauce. That's my grandmother's recipe. That's like a liquid gold, right? If someone was to approach us and ask us what do we do, we provide flavor. Growing a product line is no small investment, but Mike and his wife and co-founder Nicole were able to manage with the help of their Capital One business card. Working with Capital One business, we're able to leverage our limits and utilize those points, making sure we can continue the scale at the speed that we needed to go.