Shark Tank's Daymond John Reveals the #1 Reason Startups Fail (And It's Not What You Think)

Unless you've been living under a rock, you've seen people clad in FUBU gear. The fashion brand — whose name stands for "For Us, By Us" — has generated more than $6 billion in global sales since its founding in 1992. FUBU's founder, Daymond John, has become a sought-after mentor for business owners around the world. Since 2009, he's been one of the stars of "Shark Tank," offering insights to aspiring entrepreneurs.

John's success is even more inspiring considering he started FUBU in his mother's house in Hollis, Queens. In the process of growing his own business — and investing in countless others — John has seen firsthand what works and, more importantly, what doesn't, when it comes to long-term business sustainability.

The Surprising Truth About Business Failure

In an exclusive interview, John revealed the number one reason new businesses fail. His answer is surprisingly simple: Many entrepreneurs aren't honest with themselves about what they want — or how to get it.

"Not being honest with yourself is really the number one reason for failure," John said. "You've got to understand — what's your why?"

In other words, without a personal north star guiding you, it's easy for your business to falter. Fortunately, John offers wisdom to help you get back on course.

Be Honest With Yourself

Many people are drawn to the more glamorous aspects of being a business owner — showing off a CEO title or dazzling Instagram followers with storefront photos. Others enter entrepreneurship out of obligation, such as taking over a family business.

But impressing others or honoring a legacy won't make marketing, bookkeeping or inventory management any easier. Eventually, fear of failure kicks in — and even if you're struggling, it can feel embarrassing to admit entrepreneurship isn't for you.

"You want to do the business because you want to be famous. You don't want to close the business because you've made it such a big deal," John said. "The numbers don't work, but you're ashamed to show up at church on Sunday because you had to close that store."

Your shame, however, won't change the numbers. John encourages entrepreneurs to be honest about what they truly want — even if that means walking away.

Obsess Over the Customer — Not the Transaction

One of John's earliest business ventures began when he noticed a trend: wool ski hats with their tops tied off using fishing line were popular — and overpriced at $20 each. He and his next-door neighbor started making and selling their own for $10 apiece — and they sold fast. From that moment, a billion-dollar business was born.

That experience taught John the importance of focusing on customer needs. Caring about your audience builds loyalty — the kind that sustains a business during slow seasons. John pointed out that even responding to customer complaints can be a way of showing respect and fostering loyalty. Many entrepreneurs, John said, fail because they treat customers as mere transactions.

"These business owners are not building a culture or community. They're transactional, and usually those things pop after a while," he said. "They can't rebound when the hiccup comes. Maybe they'll open a different business, but they can't rebound in that one."

John added that the most profitable products at major corporations often begin with customer complaints. By listening and responding, you turn critics into loyal ambassadors — people eager to share how you made things right.

"The best investment you can make is answering a customer complaint," he said.

Don't Get Caught Up in Fast Growth

Social media is full of entrepreneurs boasting about instant success. John challenges this mindset, warning that scaling too quickly doesn't always equate to building a business that can last.

"You're doing really good for the next six months or even a year," he said. "Then suddenly something's going to cap out, right? If you're not growing that business itself and competition comes in, you're priced out."

Fast growth can mask deeper issues, like a weak customer base or poor margins. John recommends surrounding yourself with people who are invested in your growth and focusing on sustainable, steady progress. When you understand your "why," you'll have the patience to do things the right way — not just the flashy way.

Show Discipline With the Numbers — Even the Hidden Ones

Tracking every aspect of your finances — especially the less obvious ones — may not be glamorous, but it's essential.

John urges business owners to watch out for phantom costs: ongoing expenses that often fly under the radar. These can include equipment maintenance, hidden subscription fees, payment processing charges or marketing costs.

"If you really go by the numbers, you can make conscious decisions on the things you want to do," he said. "Right now, you can even run the numbers through AI and say, 'What margin am I supposed to be running off of this business?' But you have to be willing to look at it."

Mastering your numbers gives you the power to make informed, strategic decisions — not just hopeful ones.

Set the Right Goals

Ask any business owner about their goals, and most will say they want to make money. But according to John, that's not specific enough. Entrepreneurs who set clear, measurable goals are more likely to understand the steps needed to achieve them.

"Set your goals, then research or do homework on how to accomplish those goals," he said. "But if your why is wrong — if you're doing it because that's what your parents did, or because you're afraid of what people will think — then you're going to set the wrong goals. You'll do the wrong homework for the wrong reasons."

When you're honest about your motivations, your goals become easier to define — and far more attainable.