Money

Here's what Daymond John learned from the worst investment he ever made

Since launching apparel line FUBU with only $40 in 1992 and turning it into a $6 billion brand, entrepreneur Daymond John has invested in a lot of companies. The "Shark Tank" star has scored big with ventures like Three Jerks Jerky and Bubba's Q Boneless Ribs.

He's also taken some big losses, including one that cost him $6 million: an investment in women's fashion label Heatherette in the early 2000s.

It's the worst investment he's ever made, John tells Chris Kornelis of the Wall Street Journal.

Daymond John
By Greg Doherty | Getty Images
Daymond John

The label, which John was trying to help become accessible to a more mainstream audience, went under because neither he nor the co-founders knew the market very well, he says.

His main takeaway, as Kornelis puts it: "Invest in companies that want to scale what they're already doing well, not companies that need to enter a new market if they want to grow."

If John doesn't personally know the market but the entrepreneurs can prove to him that they do, that's good enough: "I may not need to know anything about it, but you do know, and you showed me you've scaled a little bit, you've done some great work. And you have a history? All right, I'm down."

As for winning over the shark, or any other investor, it's all about turning your attention to the person you're pitching, John tells CNBC Make It: "We all have our own problems and dreams. What's in it for the other person?"

"Ask yourself," John continues, "What makes them tick? What are they interested in? What do they want?"

The $6 million mistake with Heatherette was not the first time John made a business decision that backfired and forced him to learn a painful but important lesson. Early in his career, before he made his fortune, he lost $16,000 on a party he threw to which nobody came.

He was throwing it "for the pure fact that I wanted to make money," John said in 2016, speaking at Forefront. But he came to learn that success requires more than just the desire to get rich. "Money is not success," said John. "Money just drives your problems in a Bugatti."

"See, success can be stopping human trafficking, it can be dedicated to your faith, saving carbon imprint on this planet, saving those furry little friends of ours who can't fight for themselves, being a great husband, a great wife, a great mother, maybe you are going to be one of the most underappreciated commodities in this country: a teacher," he continued. "That is success."

Like this story? Like CNBC Make It on Facebook!

Don't miss: Daymond John and 2 other 'Sharks' say this 80-year-old book on wealth changed their lives