Narcos is a new Netflix series about drug kingpin Pablo Escobar and the Medellín Cartel.
Peter S. Green of The Wall Street Journal describes the Colombian crime organization:
[It’s an] an empire of stunning sweep and unimaginable violence. At its height, it earned as much as $4 billion a year…Pablo Escobar and his partners called their business a cartel, but instead of controlling price and supply, it behaved more like criminal syndicate that pumped an endless supply of cocaine into the market and let the market set the price.
That’s why Green (presumably grudgingly) describes the cartel as a brilliant business no different from any Fortune 500 company.
Indeed, Green quotes Harvard Law School professor and former deputy attorney general Philip Heyman (who brought a number of cases against the drug cartels in the 1990s) as noting, “What the Medellín cartel did is exactly what any global pharmaceutical firm has to do.”
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So what can we learn about running a successful business from a drug kingpin?
Create a Need
Mark Palmer points out that every business starts out by fulfilling a need. Like Steve Jobs, drug dealers offer products their clients
- Didn’t know they needed
- Can’t live without once they discover them
A successful product, service or brand is something consumers find to be addictive.
Whether it’s the product features, the distribution system, the customer experience or some combination of all of the above, innovation builds market share. That seems obvious. But many an innovation doesn’t seem that way at first. The trick is to be first.
For example, The New York Times coverage of “Cocaine Incorporated” points out that one drug dealer’s “greatest contribution to the evolving tradecraft of drug trafficking was one of those innovations that seem so logical in hindsight it’s a wonder nobody thought of it before: an underground tunnel from Mexico to the United States to avoid border patrols.”
Adopt and Improve on the Innovations of Others
Don’t fall into the “not invented here” trap. If something your competitors are doing works, don’t be afraid to adopt it and adapt it to your operations and, most importantly, improve upon it. The first underground drug smuggling tunnel between Mexico and the U.S. was built in the 1980s; it was eventually uncovered and shut down. But, as the Times notes:
Twenty years on, the cartels are still burrowing under the border—more than a hundred have been discovered in the years since…They are often ventilated and air-conditioned, and some feature trolley lines stretching up to a half-mile to accommodate the tonnage in transit.”
Pricing and Versioning Strategies
Kristen Knipp observes that whether you are selling drugs or Starbucks coffee (admittedly also addictive, just legal and considerably less harmful), every sale incorporates the actual costs of the goods sold as well as the cost of making the transaction. But there are different pricing and versioning strategies based on the cost of making the transaction.
Given the high, not to mention risky transaction costs in producing and distributing illegal goods, the best pricing strategy is to sell large volume at the lowest price. Availability plus affordability results in extremely loyal customers. Drug lords only need one version of the product to achieve this.
Starbucks, the inventor of the $4 cup of coffee, in contrast, incurs the same transaction costs (raw materials plus preparation time) regardless of what size you order. This is called versioning. Knit notes:
When you go to Starbucks, which size do you buy? I don’t think I’ve ever purchased or rarely seen anyone else buy the short…Although the transaction costs are the same, by selling more of the larger sizes, Starbucks is able to generate more sales across a wider spectrum and likely gets more high-profit sales than if they just sold one version.
It goes without saying that drug dealing comes with high risks (imprisonment, death), but it also offers high rewards (tons of cash). Start-ups aren’t nearly as risky by comparison (and many aren’t nearly as profitable). What’s the worst that can happen if you fail? Well, yeah, you could go bankrupt, lose your significant other, get a black eye in your industry and maybe a lot of other things that are just as bad.
But it’s not like a bullet to the head. You learn from your mistakes, pick yourself up and move on. If you’re not willing to embrace risk as an entrepreneur, then you should be working for someone else, not running your own business. It comes with the territory.
Marketing is Good, but Making Your Product Good is Better
Priceonomics points out that drug dealers are “experts at identifying their customer base. They realize…that if a product is good enough, it doesn’t need to be heavily marketed.” Put another way, you can’t put a pig in a poke for very long and get away with it. All the marketing in the world isn’t going to save a flawed product. It’s so much easier to sell a product that is so good your target consumers won’t be able to do without it.
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Want to Make Money
The core of any business is to make money. At least it should be. While the idea of starting a business and worrying about making money later isn’t as popular as it once was back in the dot-com heyday, there are still those entrepreneurs who start a company without putting profitability as the chief and overriding goal, according to Sebastian Dillon at NextShark. Angel investor Scott Gerber characterizes this as “the stupidest way to think about business” that isn’t going to attract investment money, let alone result in business longevity.