He knew ‘nothing' about selling alcohol when he launched Patrón—then he sold it for $5.1 billion

Qin Chen | CNBC

This story is part of CNBC Make It's The Moment series, where highly successful people reveal the critical moment that changed the trajectory of their lives and careers, discussing what drove them to make the leap into the unknown.

When John Paul DeJoria first started selling tequila, he knew plenty about business — but "nothing whatsoever" about the liquor industry, he says.

So when he used a hefty amount of his own money — "several million dollars," DeJoria estimates — to co-found Patrón Spirits in 1989, he was following a likely recipe for disaster.

The financial and reputational risks may have been apparent to nearly everyone around him, but that sort of logical thinking didn't matter to DeJoria. He was convinced he had a product superior to anything else on the market, and he knew he could sell it. He only needed to get enough people to try it first.

"It just felt like the thing to do," DeJoria, 79, tells CNBC Make It. "And, I did it."

He'd already pulled off a rags-to-riches rise. In 1980, DeJoria — a former janitor and door-to-door encyclopedia salesman, then living out of his car — teamed up with hairstylist Paul Mitchell to launch hair care manufacturer John Paul Mitchell Systems. What started with a $700 loan grew into a global brand with billion-dollar annual revenues, CNBC reported in 2017.

Nine years later, DeJoria's next business partner, Martin Crowley, returned from a work trip to Mexico with some high-quality tequila: "Smoother than anything we ever tasted before," DeJoria says.

The duo commissioned a Mexican distiller named Francisco Alcaraz to make them a resalable order of 1,000 cases, or 12,000 bottles. Each bottle cost roughly $20 to produce. They set a consumer price of $37.95 — and nobody was interested. Popular brands at the time cost $5 to $15 a bottle, says DeJoria.

When distributors turned them down, they sold smaller quantities to restaurants and bars around Los Angeles, and gave free samples to DeJoria's celebrity friends, like Clint Eastwood.

"My God, they just loved it and just kept on reordering," DeJoria says.

Today, Patrón is one of the top-selling tequila brands in the world, selling roughly 3 million cases each year. In 2018, it was acquired by Bacardi Limited for $5.1 billion. DeJoria held a 70% stake in Patrón at the time. Forbes currently estimates his net worth at roughly $3 billion.

Here, DeJoria discusses how to know when your gut is worth trusting, the value of learning on the fly and the important lessons he learned from rejection.

CNBC Make It: Did you have any sense, initially, that Patron could grow so big? How confident were you that you knew what you were doing?

DeJoria: We didn't know! We said, "Let's just see how we go."

We knew nothing about the business, but we knew it was the best tequila in the world. We just needed to get people to try it, and they would treat themselves by spending a few more dollars on the best.

The worst scenario: For 10 years, everybody I knew who had a birthday, an anniversary, or anything would get a great bottle of the best tequila in the world.

I really did believe: "Anybody that tastes it won't use anything else. It's just a matter of time." So I stuck it out. It took a few years, but it started taking off.

How do you approach a business that you don't know anything about?

First of all, learn the vocabulary of the business. Different businesses have different vocabularies, different words.

Then, look at the distribution model. If your customer is someone who owns a liquor store or bar, how do you get there? Well, you've got to get a distributor to get it there. Once it's in there, whatever your product is, how do you help your customer sell it?

Paul Mitchell was easy. We showed [hair dressers] how to use our product, and [they] showed the customer how to use it on their hair while designing their hair in the chair.

Patrón was the same thing. I would make up standup cards, easels or posters [to put in bars and liquor stores, explaining what made the tequila special].

How do you learn to trust your intuition when the people around you doubt your ability to succeed?

I sold encyclopedias door to door, OK? Collier's Encyclopedias, in my early 20s. You knock on lots of doors. People will not let you in. I learned a whole bunch about rejection.

I also realized [the importance of] the quality of the product. Paul Mitchell had no money, and it took us a few years to even pay our bills on time, but it eventually caught on because of the quality. Patrón was No. 1, the best quality. We just had to show it to more people. And, we did.

So, just don't give up. Just keep on knocking on doors until you get enough people to listen to you. 

What do you wish you'd known when Patrón was brand new? Is there anything you'd change?

Absolutely not. It was Business 101. We learned it as we went. Could we have done better? Probably. But I loved the experience, and I wouldn't do anything different.

I got to go into something we knew nothing about, and it becomes the biggest in the world. When I sold it, we had 82% of the ultra premium market.

Bacardi has grown it ever since, there's no doubt. Yet there's [a lot more] new tequilas out there. So even though [Patrón is] the biggest there is, maybe they represent 55% or 60% of the worldwide market today. There's so many new ones. Everyone wants to be the next Patrón.

This interview has been edited and condensed for clarity.

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