The Definitive Guide to Business

'Shark Tank' investor Daymond John reveals the best investment he ever made

It's not just moguls like Daymond John who discuss the importance of gratitude. Science says it boosts your chances of success.
Adam Jeffery | CNBC
It's not just moguls like Daymond John who discuss the importance of gratitude. Science says it boosts your chances of success.

Daymond John was broke with a $40 budget when he started growing his clothing line FUBU ("For Us By Us") in 1989.

Since, FUBU has evolved into a $6 billion brand, and John, who is now an investor on ABC's "Shark Tank," has become a multimillionaire.

When asked about the best investment he ever made, it's no surprise that it involved the company that put him on the map.

"I didn't know it was smart at the time," he told CNBC, "but the smartest investment I ever made was only spending $1,000 on FUBU the first time I opened it in 1989."

Ultimately, John did run out of money. In fact, before FUBU took off, he had to close the company three times because he didn't have enough cash. But that $1,000 remained his best investment for a couple of reasons.

"No. 1, it gave me the confidence that I could do it," he explained. "And even though I closed it, I opened it back up because I wanted to, not because I had to."

"Two, when I walked away from the business and then saw people wearing the stuff that I had previously sold them, I realized I had a passion for it. I wanted to open FUBU back up again because I was loving what I was doing and excited about what I was doing."

Finally, and perhaps most importantly, "I got proof of concept with just $1,000," he told CNBC.

One of the main reasons businesses fail is because of overfunding, John said.

Oftentimes, people spend too much money or take out huge loans before seeing if it's actually a good business idea, but it's better to grow gradually, he noted.

John tested his business idea with the money that he already had and made sure to pump the brakes when he was running low, even if that meant temporarily shutting down.

"The most successful entrepreneurs take affordable next steps," John said.

Disclosure: CNBC owns the exclusive off-network cable rights to "Shark Tank."