'Shark Tank' Investor Daymond John Explains What He Learned From Losing $6 Million

Scott Roth/Invision for Hennessy/APDaymond John at the 2014 Hennessy Privilege Awards.

Looking back on his career, "Shark Tank" investor Daymond John realized that no amount of money can buy a company success.

When John founded his fashion company FUBU in 1992 out of the Queens home he grew up in, he had nothing. He and his mother mortgaged the house to supply FUBU with $100,000 to meet a growing demand for its clothes.

By 1998, FUBU was the brand of choice for many of America's top rappers, and it brought in $350 million in revenue. But just five years later, John writes in his book "The Brand Within," he and his team had gotten ahead of themselves and ended up with a surplus of out-of-trend clothes in bargain bins. 

John says that, before it faded, FUBU became such a massive success because he started off broke. He needed to make maximum use of every dollar he spent, he told Business Insider at the 2014 Hennessy Privilege Awards in an interview about his upcoming book "The Power of Broke."

One of the hardest and most expensive lessons John learned in his career, he explains, was managing fashion label Heatherette into the ground several years after partnering with its founders Traver Rains and Richie Rich.

John considers Rains and Rich to be "two amazing designers" but lacking as managers. Heatherette specialized in women's clothing, an industry that John was inexperienced in. He figured that if he supplied Rains and Rich with enough resources and funding, they could take care of everything else.

"Six million dollars later, we didn't have a business," John says. The designers indulged in extravagant costume clothing for the runway but failed to develop a hot ready-to-wear retail line.

"We thought we could just throw people at it, throw money at advertising, [but it] didn't move the needle. It was just us lying to ourselves," John explains. "Not that we were lazy. We tried to put in the work. But the money never made the difference."

Now, on ABC's "Shark Tank" and through his company Shark Branding, John invests in entrepreneurs who aren't simply looking for a dose of capital.

"The philosophy of 'The Power of Broke' is, whether you're running a Fortune 100 company or you are just starting out, you have to be creative and determined, and you have to make sure that - instead of other people's money - you use other people's marketing, mind power, manpower, [and] manufacturing," he says. "And if you can't prove your concept when you're broke, you won't be able to prove it with money either."