Preston Pysh 03:56
He definitely used it to his advantage. I like the fact that he’s so open about it, some people might try to hide that, but he’s very open about it. I think that it’s a very good inspiration for people that might have the same thing.
Anyway, so he’s growing up in Queens, and he talks about how drugs were such a driving force in the community, and how so many people fell victim to becoming a drug dealer in Queens. Just that difficulty in that struggle and he does a great job just kind of telling these stories at the beginning of the book. With all this going on, he wanted to be different and he found an enormous amount of inspiration from his mother.
He only lived with his mother, his father really wasn’t part of his childhood or upbringing. His mother did everything she could to make sure Daymond would succeed. She had him involved in anything and everything that she could possibly have him involved and to keep him away from the drugs on the street. Just to really kind of nurture him and turn him into a great person, which he obviously became. What I also liked about the story is his mother took out a loan against the house. What was it $70,000 or $80,000 or something like that, Stig?
Stig Brodersen 05:13
Yeah, basically to live off basically as an investment in him.
Preston Pysh 05:18
She basically needed the money so she could be around him a lot more, and ensure that he was doing what he needed to do is the way he kind of describes it in the book, which, I mean, that’s just amazing. I think it goes to and he touches on this a little bit, and it really plays on the title of the book, “The Power of Broke.”
I guess his mother looked at their situation, and she said, “What do I have to lose? There’s nothing that’s more important to me than seeing my son grow up and be successful. So I’m going to take out this money. I’m going to be around him more, because I’m going to have money to basically spend and not have to be at work.”
She dedicated her life and not even her savings, but just taking out loans, but to nurture him. Long story short, he starts looking at ways to start creating businesses and to start making money. Daymond then starts hustling and he starts sewing hats. His mother teaches him how to sew. He has an interest in fashion so he starts sewing these hats and starts sewing his Fubu brand onto these hats.
He also tells an awesome story about how when everyone in Queens turns 16 years old, they all want to try to go out and get a decent bar. So Daymond was working and he also worked at Red Lobster during this time, which he talks a little bit about his Red Lobster stories, which is really funny.
Anyway, so he saved enough money for a car and instead of going out and getting something that would impress everybody on the street, what he ended up doing is he ended up going out and getting like a 12-passenger van or something just ridiculous. Everyone was like, What in the world is this van? What is he doing riding around in this van?”
What he was doing was he was basically acting as a shuttle service for people that didn’t want to catch the bus and shuttling them around. So it was more convenient and he came up with his own route, and he was making money off this van. Instead of just spending the money, he kept reinvesting the money.
This is a theme that we see with every billionaire we study is they’re not quick to spend the money and show off. They’re quick to reinvest the money so they can keep compounding and compounding.
Daymond John was no different in what he was doing. Long story short, with the 12-passenger van, he’s doing this and eventually the city finds out and starts fining him, and eventually the fines started exceeding the revenues. He had to look somewhere else and so he was already doing this fashion thing on the side as well.
As his fashion orders started picking up, his 12-passenger van really served him well as he was going to all these different trade shows with the clothes in the back because he had room to put all of his inventory. Long story short, he continues to grow this business, he continues to plow money back into it.
He talks about all these creative ways that he was marketing, and let me just give you a little hint at what he was doing with respect to marketing. He knew that if he got his clothes on rappers, music artists, and if those get on a music video, it could be huge for him.
So, just like Nike did with athletes with Michael Jordan and stuff, Daymond John did the same thing with musical talent, and he started putting his Fubu logos on over these artists. One thing led to another, and it just created this massive brand for him.
I think in the end, they ended up doing global sales over $6 billion, which is just to grow that from the ground up in the timeline that he did this. It is just unbelievable. Anybody who’s in retail, especially creating your own clothing brand, can definitely appreciate how miraculous this is.
That’s his story and I’m really glad that he tells the story at the beginning of the book, because I think everyone kind of has an idea of how he made his money, but to kind of hear it from the ground level, clear up to maturity was really, really neat. I’d say that’s probably the first 50 to 75 pages in the book, and I really enjoyed the story. It was well told and a lot of fun.
Stig Brodersen 09:50
I love these stories, and it’s easy to be looped into this personal story of this is how the best people in the world are doing it and well, perhaps I can do the same. I mean, that is also what you think as a reader or what you can sometimes be attempted to think because how can Daymond John do this. Some people think it’s inspiring and other people might find it discouraging because they don’t feel that they have the skill set.
I really like what John did next after talking about his own story, and that was to tell the stories of so many other people and how they became successful in business. He really had a very diverse selection of people and skill sets that led to that.
One of the stories that I really liked from his book was the story of Chris, and how Chris utilized the power of broke. I think a lot of you probably know Daymond John from Shark Tank, and perhaps you watched a few shows. Shark Tank is basically entrepreneurs who come in and then they pitch the company and their idea. Then they look for funding in return for typically equity.
John talked about how he was often asked if they always made a deal of the asking price of the participants there on the show because it might seem so on the show, but he also says that after they do some due diligence after show, the Sharks are allowed to change the terms, and often they commit less money with the same equity. Also, sometimes because some of the numbers that entrepreneurs give them that they can’t really back it up with all the paperwork, and there might be something there.
This was not the case for Chris. I mean, he was backing up all his facts. He was invested in face value and the story is really that Chris while in school, he saw that more than $100 million annually in scholarship money would go unclaimed, simply because there’s no good match between the college and the student. That’s not because there are not enough students to meet the requirements, but it’s because the process is tedious and it’s not transparent. Preston is nodding. It’s almost like he just had a daughter who just went through that process.
What Chris actually did in high school, he spent almost a year applying for all the grants and scholarships he was eligible for. Since he came from a poor family with a single mother and two younger siblings, and really there was no other route for him. He ran into all kinds of issues like the fees you need just to apply to the school. It’s not the tuition, it’s the fees to apply to the school. That was hard for him.
It could easily be $50 or $100. These fees can be waived by the school counselor, which is a state rule in Alabama, but you can have a state counselor who can *inaudible* on your behalf. You can have some of that waived, but that was also something he needed to struggle with.
He was really in a catch-22 situation where now if he did this one thing, then there was another thing. The state counselor would only waiver it for some schools but not for the ones he really wanted to go to. He ran into even more challenges that the family didn’t have enough money for a computer.
They didn’t have internet. He then went to the local library where he could get 30 minutes, that was all you could get for free. He applied over a year in that golden 30 minutes in the library to all these scholarships and grants and tailor-made as much as he could, based on his templated answers to utilize his internet time that was so valuable to him.
As the results trickled in, he realized that the hard work really paid off and he accumulated $1.3 million in scholarships. I know it sounds like an incredible number and it is. As you can probably imagine, Chris became very popular on campus. A lot of people wanted to talk to him about doing one on one sessions, in terms of how he could help them in the application process.
Then he realized that as great and rewarding as it was, it was also very time consuming to do that for so many students. But in itself, it was a proof of concept of why a new service was needed really to do this for people. He then went to a few guys and asked them to develop an app for him. This is an app where you can type in sex, gender, race, education level, parents’ income and whatnot, and then you’ll get a curated list of all the scholarships that you’re eligible for.
It’s unbelievable hearing this story like Scholly, which is the name of the app. It’s firing on all cylinders here, more than 500,000 downloads, and he’s talking to a state official about bringing it out to all students in the state and it’s unbelievable, really. He did this all while he was a student.
Chris then comes on to Shark Tank, and he asked for $40,000 for a 15% equity stake. Daymond John was so stoked, and Chris wanted to talk about long term vision, and all that good old corporate stuff that they teach you in business school. However, John said, “Yeah, we can always figure that out later,” which was actually something that really upset Chris initially.
Though that was not John’s point about investing because he was not investing in the company. More than anything he was investing in Chris and the proof of concept. Here you have this full-time student who still managed to set up this company and he still did his 500 hours of community service and had a part time job to help off his family. Since the family didn’t have internet, he still found 30 minutes at a local library, went there, applied for all these grants and scholarships, and still got more out of it than anyone on the planet.
I really liked this story, because this is really the story of how you can invest in the power of broke and how it’s the person so much more than the product that needs the proof of concept.
Preston Pysh 16:01
Just so folks know, in the book when he tells this story, the subtitle is “Look under every rock for every last dime.” The Christopher Gray story here is, in my opinion, just mind blowing that you could not just apply, but win enough scholarships to go over a million dollars is just… that is the epitome of hustle.
Chris really wanted to go to college and he wouldn’t let anything stop him from going. So his story shows that. Not only did he achieve what he wanted, but it turned into a business. That’s how so many businesses start: with somebody who is passionate about a certain thing and that leads them to starting a business. I hate to talk about ourselves here, but Stig, look at what we are doing. We were just passionate about talking about investing. We could be paid zero dollars and we would still do this every single night because we love it.
For anybody out there who is like, “Oh I don’t have any money. My parents are not rich,” read Chris’s story, and you might have a different opinion. Stig, we need to have a link to his app on the show notes because people who are in college or parents who are listening to this, and have kids in college right now, might want to check the app. I’m sure Scholly will be a valuable resource for them.
Guys, the thing I like about this book is Daymond tells his story upfront but that is just 15-20% of the book. Everything else is someone else’s story. What he’s doing is he is showing you, “Hey look at this person. They have no money but look at what they created because they’re relentless and they were doing something they were passionate about.”
Stig Brodersen 17:52
It’s just fun. We might not record all of it because it requires a lot of editing whenever we talk, but yeah, we did that before. I mean, before we started the recorder, we were just talking about stocks because it’s just fun. I guess that’s often what you hear, like from these successful entrepreneurs, definitely not a category I would put myself in. Just they created the product that they wanted, or they just could not help not doing it. It was just so much fun.
Preston Pysh 18:21
Lots and lots of editing. Alright, Stig, you had another story you wanted to tell. This was the tie guy or the bow tie guy.
Stig Brodersen 18:30
Yes, the story of Mo. This is a hilarious story in itself. I think we will include a video in the show notes of when he pitched his company to the Sharks. You will see this 11-year-old kid, a snappy dresser. He comes in and he says, “I’m NBT, the next big thing,” and he’s cute. I mean, he’s cute. He’s not obnoxious.
Well, I guess he’s cuter than he is obnoxious. A very, very charming, charming fella. He started this company with his mom, a single mom. She talks about how when he learned how to ride his bike when he was 4 years old and he did that in a tie in a three-piece suit. I mean, what kind of kid would do that?
He was so frustrated because, well, I want to say even as a kid, but he’s still a kid. He couldn’t find any bow tie that he will really like, because we’re not in fashion. That was actually one of the reasons why he started his own company, creating just that.
When Mo came on Shark Tank, he already sold more than $50,000 worth of ties. He was asking for 15% for his $50,000. It was money that was needed for manufacturing because they had orders coming in or they expected orders to come in. He talked about a marginal cost for a bow tie that is 6$ to $10, but we sell them between $45 and $50, which is an extreme mark up in itself. The quality is supposed to be good. I know he’s supposed to say that, but it also seems to me, as a business person, that the reason why they can charge that premium is also because he’s the product, right?
More than anything. He’s authentic. Whenever you buy into the product, you support the kid, and you also support his mom. Then there was this interesting dynamic going on between the Sharks. So Kevin O’Leary, and people who follow the show would know who he is. He wanted not an equity stake, but he wanted $3 in royalty for every bow tie that Mo sold. Then just for that, $50,000. It is a very interesting thing.
The first thing that happens is that Mark Cuban just says, “Horrible deal. That’s the first thing you see. Don’t do it.” Then you can just see this little kid. I mean, he is tempted. He is like $50,000, and that’s a lot. It was quite evident that he didn’t want to give up equity because that doesn’t sound good. Then, here was this guy, who just wanted to give him money or future money that’s not in yet, and he was kind of enticed by that.
Then you have Daymond John who swoops in, and he talks about how he in 1981 was offered $10,000 for 10% of his company, which he was tempted to take, but he declined. He also said that 10 years later, that 10% stake was $400 million dollars.
So John continues and he says that he won’t offer any money because what Mo needs is not money, but he offers to mentor him for free because that is really what he needs. But there is one catch here, if he enters a deal with Kevin O’Leary, Daymond John won’t mentor him at all because that means he’s not listening, and that’s what he needs to be doing right now.
I think there was kind of a spat going on there between O’Leary and John. It’s quite interesting in itself. What’s happening is Mo’s mom says this, “We will take John’s deal, not O’Leary’s deal because Mo is the CEO of his company, but I’m the CEO of Mo.” Mo says, “He will go with the mentor-mentee relationship.”
It’s a very cute and a very cute story. One of the takeaways that John has about this relationship here now is that, yes, he did that to help Mo. He could see a lot of himself and that it was a very similar situation for him, but he also did it for selfish reasons.
Mo could teach John about the newest trends in the fashion industry, and there was also a lot of publicity about it, which I appreciate John saying, because that’s also what you’re thinking when you were doing that deal.
One stat that I really liked he talked about in the book was he said that entrepreneurs should enroll in mentor-mentee programs. They have a comparable return of 106%, compared to people not enrolling in these programs.
I honestly don’t think it’s because of the mentors. I think it’s because people who enroll in those programs, they are ready to listen and ready to learn. They have this mindset that if you think you can grow your business, without growing personally, you will never be successful in the first place.
So, I think it was very smart for John to say to Mo, “Yes, I will mentor you but if you’re not listening now, you won’t listen in the future, and I won’t invest my time in you, if you’re not willing to listen and learn.” It was just a great story. I would recommend everyone to watch that clip.
Preston Pysh 23:59
So much of the time when we talk has to do with some type of monetary investment, you put $1,000 into something and then you expect to get this cash flow out of it. In reality, especially if you’re a business owner, so much of success, in my opinion, is not in monetary terms or some type of financial deal. It’s, a lot of the time, the intangible aspects of things.
This was a great example of why he has become the success that he’s become is because he wanted to help this young boy because I think, naturally he saw a lot of himself in this boy. More importantly, he knew that there was a win-win relationship here. That’s when you’re doing business right, you’re always looking for the win-win in the negotiation.
He knew he could help this kid out a ton and he knew that in the end, the kid was going to help him out a ton because this was going to give him a lot of publicity. It was going to help him in the long run, I mean, if this kid’s doing this at whatever age…What was he 14 or something, Stig? I can’t remember his age.
Stig Brodersen 25:06
Yeah, I think he was 11 when he pitched this. This is probably a few years ago, though.
Preston Pysh 25:10
I mean, he was young, this kid’s really young. Can you imagine where this kid’s going to be when he’s 25? So think of it from Daymond’s standpoint. If he nurtures this kid for 10 years, and he’s a total go getter, and he helps them succeed at epic levels, I mean, that’s going to come back to him in a major way.
I just think it’s so important to understand the intangible aspects of things and this was a great story. It really kind of shows what kind of person he is. I just got so much respect for this guy. I think he’s doing so much good. I really like that story.
For people listening, these are just two stories that he tells in the book. Every story that he tells in the book about somebody else’s “power of broke” moment, are equally good. You are thoroughly going to enjoy reading this book because there’s just really interesting stories that he tells and they all relate back to this theme of the power of broke.
I’m going to start off with one of the major things that I got out of this book that I think is worth just the price of the book itself for people. That’s this idea that when you don’t have a bunch of capital, a bunch of startup capital. Daymond’s arguing that back can be a very good thing for you.
This is the reason why. So often when a new company starts, the first thing they want to do is go out and get investors and raise money because if we had $100,000, we could then run a marketing campaign and really start to sell our product.
What Daymond says in the book is, “Those are not real sales, those are not reality sales. Those are sales like you’re hopped up on a drug or something because once that money runs out, and that money will run out, that marketing money, what’s left is the product itself, and if the product can’t sell itself, without the marketing money feeding it and enticing people to drive eyeballs to it, you’re dead on arrival.”
So by being broke or being in a poor financial position to grow the business, you are forced to be creative. Period. You have to get out and you have to do things like nobody else, you got to learn SEO, you got to learn whatever. You got to start pushing things in different directions that are free.
Here’s a perfect example that he talked about in the book. He was trying to put his ads for Fubu up on billboards. All these billboards in New York City were really expensive to do. He’s driving down the street and he’s looking at all these stores and if you’ve ever been to New York City, when things closed down, they put these like metal gates down in front of the storefront.
Well, Damon gets this idea, “Hey, maybe if I went to these storefronts, I could convince these guys that we will do like a spray painted mural or logo on their gate, I’ll pay them just a really small amount of money and then I’m gonna put my Fubu brand on the gate.”
Everything kind of says this street vibe, exactly what he was going for. For most of the hours of the day, because they’re open from call it nine to five, or whatever it might be, in the evening, and he’s got his ad right there on the gate that’s closed. So that’s an example that he tells in the book of the power of broke. He was forced to be creative.
If he had an outside investor, they gave him $100,000, you think he would have been doing something like that if next to nothing cost? Of course not. For me, this is so important for young people that are starting their business, especially if they come on a windfall.
You’ve got to continue to optimize your business. You need to continue to optimize the product and the service that you’re creating so that your greatest marketing is word of mouth, because that’s what will continue to sell over the long term, and not some short turn burnout.
What I find so fascinating about his advice in this book is it goes completely against everything that they pretty much do on Shark Tank, right? The whole point of Shark Tank is they’re raising money, and then they’re giving away equity. Most of these people that go on Shark Tank, they just need to go and take out a loan from a bank.
They have real sales, go get a bank loan, and keep your equity, but that’s what I found so ironic about what he’s writing here is he’s basically saying, “You don’t need to do this.” In fact, you’ll be better off if you don’t take the money, and you optimize things because you’re broke, and you’re coming up with creative solutions.
Stig Brodersen 29:57
I found this stat and it’s not from the book, but it might as well have been. It says that companies who started during a recession are more successful than if they started during a boom. You might think that that’s counterintuitive, right? I mean, why wouldn’t you be successful when people have more money to spend and you can find the vast stars who can back you?
The reason is really, that it’s not the top line growth through the boom that will make you successful, it’s the expenses that will make or break here. That’s why it’s so important not to have money in many ways whenever you start. it forces you to be creative, it forces you to prioritize your scarce capital that you do have.
I think it also has to do with how you are building the culture within the company from the ground up, is you have this bootstrap mentality. We don’t have any money so now we need to be creative and now we have to prioritize.
I think that the one key takeaway here, more than anything is really to get that proof of concept. You hear all these guys coming on the show, and they’re sitting at home making all these revenue projections. This is the price based on my Excel sheet that I would sell 15% equity in my company for.
All we need is Daymond John’s distribution network, so it can be rolled out in all retail stores across America. Then you might get a $50,000 investment for 10% of whatever they’re trying to sell it for.
That’s just not a way to spend investors’ money. It’s probably even worse than spending your own time and money doing that. The way that John explains this is that if someone comes to him and says, “This is my product, and I want to sell this for $50,” he’ll get laughed off the set.
But if someone comes and says, “Yeah, I will sell for 50 bucks, but it costs $10 to produce and I already sold 10 on the back of a truck close to a mall in less than five minutes.” That’s different because that is your proof of concept.
He says if he talks to entrepreneurs, if they haven’t been going out and gotten feedback, doing sales first, then getting feedback. Tweak the products. Go out again. Try to sell to strangers. Tweak it again, if they haven’t been doing that 10 times, then he will not back them. Why would you do that? You need that proof of concept first before there’s any reason to scale, because otherwise, your business has just been built on a very unstable foundation.
Preston Pysh 32:21
I think there’s a lot of people that get confused on whether they need to move fast, or they’re just moving fast because they want to move fast. So like if you’re building something that’s tech specific, that’s going to be a game changer and you know that there’s five other companies all trying to create the same thing. You’ve got to take the money and you got to build this thing out as fast as you possibly can because if you don’t, you’re not going to get the network effect.
However, if you’re growing something like Mo’s Bow Ties? Is that something that he needs to move fast on? Absolutely not. It’s his own specific brand that has a story to it. Like, that’s not something that needs to move really fast.
So those are the situations where entrepreneurs need to ask themselves, why do I have to move so darn fast? If you can’t really come up with a good reason, you probably need to slow down a bit and try to build good fundamental protocols that optimize your expenses so that they’re as low as possible, and that you build a customer base that’s based on true loyalty to your product or service.
When you do that, what you’re going to find is that you’re building a business with a solid foundation that’s going to last any type of storm, but when you’re moving super fast, man, you’re building your business out of balsa wood. The pain train is going to come and it’s not going to be fun.
Sometimes you do have to move fast. I’m not going to say that you don’t but I would argue I think that for most people, they can move a little slower than what they think, and do things a little bit more methodical. It’s really situational dependent.
Stig Brodersen 34:10
You hear these stories about Mo, he is 11. Scholly was done in high school, and you feel like you’re already behind. If you’re in grad school, perhaps, which you are not. It is very important also, when reading through this book, that one of the key takeaways is to get a job.
You might not think that based on the stories that you just heard now, but most successful entrepreneurs, they didn’t quit school and started their own business or just started their own business right after school, at least not full time. They got a job and made money to pay the bills while they learned about business and life.
You can always start searching for that proof of concept working from home while you have a job while you’re in school. More than 50% of the businesses in the US, they’re from home. You don’t need a fancy office to get started.
More than anything, you need proof of concept to yourself and not to investors. This is a viable product and if you can’t make any sales of your product while you’re still in school and while you have a job, it’s probably not worth doing full time either.
Preston Pysh 35:19
I mean, look at Daymond, he was working at Red Lobster, he was driving a 12 pack van and he was sewing hats together. When he first started, I mean, it’s amazing. It’s absolutely amazing the grind, the hustle, and the persistence for what he pulled off.
He thought creatively. He was doing things that no one had gone out and done from a marketing standpoint, putting these jerseys and things on rappers and painting the storefronts. I mean, it’s just amazing.
The dude made moves, and I think he’s a real inspiration for people, especially people that aren’t going out and getting the funding.
I got a question for you. Stig. Why do you think so many people go out and want to do a funding round or want to do venture capital or want to sell some of the equity of their business so fast? What do you think causes that? Because I have an opinion. I want to hear yours.
Stig Brodersen 36:12
Male ego? It’s fun. It sounds cool, sexy. It’s sexy. Like, why do you want a fancy car? The same reason. It’s not because you want to get from A to B faster, or financially smarter. That’s not why you’re doing it. I’m not saying it’s good or bad for you to do that, but that’s male ego.
Why is it that CEOs always want to do mergers and acquisitions? It’s fun. I mean, you can look up at the table. It’s not a good strategy in terms of growing. It’s just more fun. Sounds cool.
Preston Pysh 36:45
Isn’t it? Something like 40% of all mergers fail. It’s a really high number. It might even be higher than that.
Stig Brodersen 36:52
Yeah, honestly, I don’t think there’s any like… If you look at it like across the board, more or less, no value creation. All those synergies that we think of… different cultures or whatever the reason is why that merger or acquisition won’t work, but it sounds good: “We acquired 300 companies this year.” How amazing is it to say that? Compared to, “Yeah, we had an 8% organic growth.” That’s not fun to say, right?
Preston Pysh 37:28
All right, guys. Well, that’s all we have for Daymond John’s book, “The Power of Broke.” We highly recommend this book. If anything, you’ll just love the stories in it. They’re very entertaining. I think it’ll give you some ideas and it’s not a real long read. How many pages is this? It’s like 250 pages or something like that. So it’s not huge, but a great, great book. I highly recommend it.
For all the different stories we were talking about the apps and things like that, check out our show notes. We’ll have links to all that stuff in the show notes for you.
Stig Brodersen 37:57
Alright, guys, this was all that Preston and I for this week’s episode of The Investor’s Podcast. We will see each other again next week.
Outro 38:00
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