If you want to win in business, you have to do things better than the competition.
Despite the morally reprehensible behavior of Joaquin Guzman, the fugitive Mexican drug lord whose Sinaloa Cartel controls between 40 and 60 percent of the $18 billion to $39 billion worth of drugs flowing into the U.S., according to the New York Times, there are some valuable lessons for legitimate businesses within his operation.
What does the value chain—a way to map how a business competes that details the activities it performs—have to do with the drug business?
Well, consider cocaine. It starts as a liquid extracted from the coca leaf and ends up as powder sold on city streets. In between, that liquid is refined into powder, stored in bags, shipped to distribution points in the U.S. and retailed on street corners. Meanwhile, the cash generated by those sales needs to find its way into many hands—especially Guzman’s.
And the amount of cash involved escalates as the product gets closer to the street. According to the Times, Sinaloa buys a kilo of cocaine in Colombia for roughly $2,000. In Mexico, that kilo is worth $10,000. Its value leaps to $30,000 once if gets over the border, and when it’s sold into grams for retail distribution, that kilo sells for more than $100,000.
One of the reasons that Sinaloa has such a large market share–-giving the 55-year-old Guzman a net worth of $1 billion, according to Forbes–-is Guzman’s decision to focus primarily on the challenge of getting drugs across the U.S. border and into the hands of distributors, while outsourcing the other activities.
This leads to the four strategy principles that contribute to Guzman’s wealth and survival:
• Outsource all but the most strategic activities. Guzman’s business took off when he turned the tables on the Columbian cartel that originally wanted him to get its product into the U.S.
• Marry into enemies’ families. Like Vito Corleone, Guzman believes it’s important to keep your friends close and your enemies closer. The drug industry does this, in part, by marrying into their enemies’ families.
• Innovate constantly in your core activity. Guzman was extremely creative when it comes to getting drugs from Mexico to the U.S.
• Manage risk compulsively. Needless to say, drug dealing is a risky business and among the most significant dangers are the risk of being killed or captured and the potential to lose inventory or not get paid for it.
A typical legitimate business probably follows three of these four principles: outsource all but the most critical activities, innovate in your core and manage risk.
Perhaps it’s only marrying into enemies’ families that doesn’t generally apply to a legitimate business—unless you consider recruiting away your competitions’ best talent as “intermarriage.”
Editor’s note: The United States and Mexican governments offer rewards of $5 million and $2 million, respectively, for information leading to Guzman’s capture.