Reference no: EM133614968

Assignment

Case Study: Daymond John, founder, FUBU

FUBU is an American hip-hop apparel company started in 1992 by Daymond John, a current investor on Shark Tank, along with Keith Perrin, J. Alexander Martin, and Carl Brown. FUBU currently sells T-shirts, rugby shirts, hockey and football jerseys, baseball caps, and accessories, all embroidered with the now-popular FUBU logo.

Daymond John grew up in the heart of a thriving hip-hop culture in an area of Queens, New York, called Hollis. Also out of the Hollis neighborhood came hip-hop legends such as Russell Simmons, LL Cool J, and all three members of Run-DMC. Daymond had a love for hip-hop and the culture that surrounded it, especially the clothes. Daymond explained how the idea for FUBU was sparked. "We started to hear rumors that clothing companies, apparel companies did not want rappers, African Americans, inner-city kids, anybody wearing their clothes. I started to get fed up hearing about all these types of brands and I wanted to create a brand that loved and respected the people that loved and respected hip-hop, and I called it FUBU: For us by us!"

Daymond tested and experimented with his concept from 1989-1992. He printed a few "FUBU" labels and attached them to Champion-branded T-shirts that he bought off the rack from local retailers. He wore the T-shirts himself to see if people noticed. He also tested a hat concept. He noticed that many rappers were wearing a particular kind of hat. It was a type of ski cap with a small piece of shoestring on top. These hats were mostly sold by street vendors for $20. He thought he could do better, so he bought $40 worth of fabric. He stitched 80 hats together, added the FUBU labels, and tried to sell them for $10 on a street corner outside a local mall. He sold out in 3 hours and made $800.

He was the consummate bootstrapper, and the word about FUBU started to spread around town. He started selling more and more hats and soon added T-shirts to his product line. He approached retail booths outside the malls whose street corners he would stand on and asked them to sell his goods on "consignment" for him. "I was trying to figure any and every way out that I can to increase my sales!" He was sourcing his T-shirts from companies that would provide high=quality T-shirts with no brand name. He would then sew or screen print or even embroider his logo on the T-shirt and sell it. While continuously improving the product, he was also testing the market to see what customer preferences were in terms of pricing, colors, and styles.
Daymond was working at Red Lobster in the early days of FUBU, so he would spend early mornings visiting potential printers and embroiderers and make the T-shirts at night. He even closed FUBU three times because he ran out of cash. "I would be walking around the blocks when someone would say, Hey! Aren't you that little kid that sells FUBU? I need some more; I've been looking for you! I had to keep opening the business back up because the business started to call me instead of me calling the business." Fortunately, a friend of Daymond's, J. Alexander, saw FUBU's potential and invested, but he brought more to the table than money.

J. Alexander came up with a very interesting marketing plan. "The big black guys in the neighborhood had little options on what they could have to be very stylish. They had to go to Rochester Big & Tall and get a big white shirt or a black shirt or they had to pay a lot of money to get this stuff custom made for them because nobody was really making them. We just found a place that made 4X, 5X, 6X shirts and we made around 20 of these shirts. We made 20 of those shirts because we knew that these guys are normally bodyguards. Not all of them, but the ones we gave T-shirts were bouncers and something like that. They would not just wear it once-not like some of the stylish kids who don't want to be seen wearing something twice. We knew that these guys would wear it forever." These early adopters were walking billboards for FUBU!

Soon hip-hop artists who visited the clubs noticed FUBU on bouncers and bodyguards and demand started to increase. FUBU T-shirts were also being worn by video music director Ralph McDaniels's bodyguards. Between 1985 and 1998, Ralph was well-known for bringing hip-hop music artists into the spotlight, and Daymond wanted a meeting with Ralph. Since his bodyguards were wearing FUBU, Ralph was familiar with the brand and agreed to the meeting. Daymond recollected, "We were scared to death but he was very sweet and told everybody that FUBU was the next best thing. I really owe Ralph so much as he was one of my mentors and he was also mentor to the community. He really put us out there and after that all the rappers, all of them, were ready to wear our stuff because Ralph gave us the thumbs-up!"

Daymond John brought in business partners to help get the work done. While the partners together had accumulated around $50,000 in credit card debt at the time, they decided to go to the 1995 MAGIC fashion trade show in Las Vegas. They couldn't afford a booth at the time, but Daymond made the best use of his limited resources. He and his partners wore their FUBU-branded apparel and approached like-minded brands, such as Timberland. "I would stand outside their booth and say, 'Hey! How are you doing? I got this new brand, FUBU' and people would say, FUBU? the For Us By Us stuff? Where is your booth? I'll walk over to your booth. I would say, Instead of walking into my booth, you want to hop into a cab and head to the Mirage Hotel. I have my booth in one of the rooms there and we worked it out. We wrote $300,000 in orders and that's when I realized how much capital I actually needed."

To fulfill the Las Vegas orders, Daymond approached banks for a loan but none would work with him. As a result, Daymond's mother gave FUBU a $100,000 loan to cover operating expenses. Daymond set up manufacturing inside the house. He and his partners brought in sewing machines and hired seamstresses, all with the objective of completing the Las Vegas order by hand. Since he was paying all salaries on time, and paying for raw materials in advance, and having stores take credit for 30, 60, or 90 days, Daymond ran out of money within 4 months after having completed only $75,000 of the $300,000 orders promised.

The stores were starting to lose trust in Daymond, and Daymond was worried about losing his mother's house. Daymond's mother knew he needed a strategic investor and placed a classified advertisement in a local newspaper asking people to fund the company. Thirty of the 33 people who answered the ad were loan sharks charging extremely high interest rates, but one legitimate inquiry emerged. It was Norman Weisfeld, the president of Samsung's textiles division. Samsung agreed to finance the operations of the brand but asked Daymond to commit to selling $5 million within the next 3 years. Daymond said yes and the deal with Samsung was done.

With Samsung's backing, FUBU reached $30 million in revenue in 3 months, and the big retailers started to show renewed interest. Daymond recalled the resistance and discrimination of some buyers. "Many of the big retailers wanted to jump in on the highly profitable hip-hop bandwagon. Some of them were scared because they didn't want 'those' type of people in the store or were afraid of shootouts or shoplifting. One large retailer also asked me to take off the picture of myself and my three partners because we apparently looked like a gang." Undeterred, FUBU reached $350 million after 2 years and today has sales in the billions thanks to product line expansion, licensing, and partnering.

Today, Daymond John is semi-retired from FUBU and is now a Shark on Shark Tank. He's invested more than $8M in Shark Tank entrepreneurs.

Task

Question A. Identify and evaluate all of Daymond John's bootstrapping methods.

Question B. If FUBU was being started today, would it be a good candidate for crowdfunding?

Question C. How does discrimination impact entrepreneurs? What evidence of discrimination was presented in the case? How did he handle the discrimination? What would you do?