The Definitive Guide to Business

Billionaire John Paul DeJoria considers 3 factors before he launches a business

John Paul DeJoria knows when he's got his fingers on a product with serious potential.

Before he co-founded Paul Mitchell hair products and Patron Tequila, he was homeless and collecting cans for money. Today, the 72-year-old serial entrepreneur is worth more than $3 billion.

By any measure, DeJoria has done well for himself. So what's his secret recipe?

John Paul Dejoria
David Orrell | CNBC
John Paul Dejoria

DeJoria tells CNBC he looks for three things when deciding whether a brand has potential.

1. Potential to scale

DeJoria looks for products that have the potential to benefit a massive number of people. For instance, his newest venture, Aubio Life Sciences, makes a lip balm that's designed to help cold sores disappear quickly. About two-thirds of the world's population, which is about 3.8 billion people, have the cold-sore virus, says DeJoria. That's a big market.

2. Potential for repeat customers

DeJoria also looks for products that you don't need to sell over and over again. He seeks out products or services that will become part of a customer's routine.

"You don't want to be in the selling business," DeJoria says. Instead, you want to be in the reorder business, where "your product or service is so good, people want to reorder it or reuse it."

3. Potential for affordable price points

Lastly, DeJoria looks for products that aren't prohibitively expensive.

While Patron Silver is a premium liquor brand, for example, it's also affordable for many people. Likewise, the Aubio lip balm and Paul Mitchell line of hair products are also within reach for most customers, he says. The Aubio lip treatment retails for $29.99 and a bottle of shampoo is around $15.

"Yes, all three are premium products, but they are all priced realistically," says DeJoria.