3 Business Lessons From the Sinaloa Drug Cartel

8/10/2019 3 Business Lessons From the Sinaloa Drug Cartel

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INNOVATE LIKE A SYNDICATE.

WRITTEN BY Devin Liddell

3 Business LessonsFrom The SinaloaDrug Cartel

Blockbuster is gone. So are Lehman Brothers, Atari, PanAm, Circuit City and countless others each year.Startups fail, too, with 80% going belly up within the first18 months. But heres something to consider incomparison: criminal syndicates dont go out ofbusiness. The Chinese Triads have been around sincethe 17th century. For 25 years, Mexicos Sinaloa Cartelhas outmaneuvered vicious competition at home aswell as the United States' $51 billion--annually--War onDrugs.

Net margins for criminal organizations shame theirlegal counterparts; while airlines earn 1.8% and oil

companies average 8%, cocaine cartels earn a 93% netmargin--for just wholesale. Profit per full-timeemployee ratios are also off the charts. Googles profitper FTE is $270,000 and Apples is $460,000, both ofwhich are impressive. But the Sinaloa Cartels profit perFTE is estimated at $20 million. The global reach ofthese organizations is also expanding. Beyond NorthAmerica, the Sinaloa Cartel is now active in Europe,Asia, and Australia.
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CLOSE X

All of this money and growth ishappening despite the efforts ofgovernments and law enforcementagencies to eradicate them. Imagineif there were federal agents whosesole mission was to put Sears orJ.C. Penney out of business? Imthinking they wouldnt be around.Or, what if Amazon Prime had tooperate in secret? Each year, lots ofbrands die without any help from

the FBI or ATF. And yet criminal syndicates makeimmense profits mostly in competitive commoditiesbusinesses. So how do they do it?

In a word: culture. Criminal syndicates are far superiorat creating successful cultures than the vast majority ofthe Fortune 500. All successful criminal syndicates,across cultures, geographies, and endeavors, areprimarily culture-driven brands. Despite their significantdifferences, these culture-driven brands have three key

attributes in common.

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Drug trafficker Joaquin 'El Chapo' GuzmanSusana Gonzalez/Bloomberg via Getty Images

CRIMINAL SYNDICATESARE FAR SUPERIOR ATCREATING SUCCESSFULCULTURES THAN THEVAST MAJORITY OFFORTUNE 500COMPANIES.


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1. Credo. The Japanese yakuza identify themselves aschivalrous organizations and operate within strictcodes of conduct that express very specificorganizational values. The Sinaloa Cartel, unlike itscompetitors, actively cultivates a populist image andclaims to adamantly oppose kidnapping and the murderof innocent civilians. These beliefs governorganizational behavior--who they are, what they do,and what they wont do. And theses credos are far moreactionable and authentic than the values posters hungin corporate cafeterias. In place of employeehandbooks and other corporate drivel, theseorganizations have distinctive rituals, symbols, andartifacts to express their credos.

2. Improvisation. Corporations can over-index oninnovation. But improvisation is a form of innovation,

and just as important. As streaming technologiesemerged, did Blockbuster improvise and move quicklyto shift the way it did business? Not quickly enough. Andthats reflective of mainstream corporate cultures thattend to think of innovation as a process rather than abehavior.

Criminal syndicates are different; they think ofinnovation as an organizational imperative. A drug

smuggler who finds a new way across a border knowsthat customs agents will eventually discover theinnovation, so he needs to always think of new ways.The Sinaloa Cartel was the first to design and constructa tunnel under the U.S.-Mexico border. The cartel alsomanaged to have family members hired as borderagents, and even used a catapult to counter a high-techfence in Arizona. The yakuza benefit from highlydiversified revenue streams, which theyve

systematically grown from traditional gambling and

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transportation businesses . Where there is a threat or anopportunity, criminal syndicates improvise.

3. Small-but-big. While too manycorporations bury employees withinorganizational charts that are so big

theres specialized software forcreating them, criminal syndicatesstick to small teams. With just anestimated 150 members, the SinaloaCartel produces revenue equivalentto the GDP of Belize (a country with

more than 330,000 people). And while the Yamaguchi-gumi is the largest yakuza organization with more than20,000 active members, those members are spread

across 2,500 different businesses and 500 sub-groups.The teams are small, but they can pull significantresources from the whole.

Just as importantly, the small team structure nurtures anentrepreneurial zeal and an emphasis on doing . With somuch at risk, with everyone empowered, and witheveryone aligned through shared values and a unifyingsense of purpose, criminal syndicates use small teams

Members of the Japanese Yakuza Takahashi-gumi crime syndicatePhoto by Jeremy Sutton-Hibbert/Getty Images

THESE CREDOS AREFAR MORE ACTIONABLEAND AUTHENTIC THANTHE 'VALUES' POSTERSHUNG IN CORPORATECAFETERIAS.
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to accomplish really big things.

There it is, the underworld modelfor success: small-but-big teamsinside belief-driven culturesimprovising continuously. Doesntsound so criminal, does it? Thatsbecause its a familiar formula forsome of the best legal brands in theworld, from Apple and Nike to

Virgin and Zappos. One of the familiar refrains aboutcriminal syndicates is that they are run like a legitimatebusiness. Another is just a sorrowful question: What ifthese talented criminals had only used their talents forgood? Both of these are missing the point. Legitimatebusinesses wish they had the cultural clarity andbusiness results of these underworld organizations. I

don't mean to downplay the harmful, reprehensibleactivities criminal syndicates deal in. But they couldteach legitimate businesses an important organizationalstrategy: work toward small-but-big teams, createbelief-driven cultures, and improvise continuously.Because it works.

WHERE THERE IS ATHREAT OR ANOPPORTUNITY,CRIMINAL SYNDICATESIMPROVISE.

DEVIN LIDDELL

Devin Liddell leads the brand strategy offer for design

consultancy Teague, working collaboratively with cli Continued

August 1, 2014 | 7:30 AM

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46 COMMENTS

DEVIN LIDDELL 2 DAYS AGO

The conclusions of the article show a huge leap in the application
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.more here: http://siriuscoffee.com/2014/08/01/3-business-lessons-from-the-sinaloa-drug-cartel-revisited/


It seems to me that the point of the article is not to glorifycriminal organizations, but to identify some (the legal ones) of thestrongest tools they use to keep their business successful.

I would rather say that at least one of them is quite obvious, butstill very true and hard to put into effect.

Clearly everyone knows that these "businesses" strenght comesalso from the use violence, slavery, addiction...but the 3 points

Devin highlights are totally legitimate and substancial!

Stopping at our first emotional reaction and saying that it isimmoral to refer to criminal businesses in order to learnsomething, seems to me a little superficial.


This article if full of bologne, if the cartels are so rich and theygenerate so much money, why Mexico still a third world country,a country under "development."

ref: http://sitemaker.umich.edu/salas.356/usa_vs._world

Check Mexico's place, not exactly as rich as you mention. Whereis all that wealth stored ? This article is aimed to reduce the imageof Mexico, and to exalt the white power, the "good standing andhonesty" of corporations. An article aimed to oppress.

Z US GL ISK TT 2 DAYS AGO

It is not reflected because cartels don't share those
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.enterpreneur builds his fortune by amassing othercompanies' market shares. Also, they employ a lot ofpeople and NEED other companies to survive (example:transportation, materials, supermarkets, etc.) Theiractivities are deeply connected with others. Cartels operatefor themselves and create their own roads andconnections because there is no other way. They don'tcreate jobs outside their group and their fortunes arehidden or registered in banks from other countries.Another important point is that those who buy most drugsare not Mexicans.

I am Mexican and I don't believe the author is opressinganybody. He's just amazed that some illegal businessesare more successful than legal ones. Drug cartels are fullof crazy, violent people. Drug cartels don't represent thiscountry. Drug cartels, and sadly, our corrupt governmentare not "us".


I find your article at least childish. Firstly I think you underestimatethe role of raw firepower in these organisations. Like Capone said:"You can accomplish far more with a good word and a gun, thanwith just a good word". Secondly you are entirely overlooking thefact that said organisations are dealing black market productswhich for starters means, no taxes, no healthcare insurance foremployees, no benefits etc. Thirdly the base workforce of saidorganisations usually exists in a state of modern slavery thusminimizing costs even more. Combine these three facts and itwill dawn to you why crime actually does pay. It follows that anycomparison between legal businesses and illegal ones is at least

non-sensical. If you really want the mob's advice in legitimatebusinesses go read "The mafia manager" by V.

Comment removed.



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Govt is their biggest supporter. Govt prohibits drugs and createsthe profit margin Cartels could be eliminated with a pencil andpiece of paper. Legalize the manufacture and sale of moodaltering drugs. Enforce strongly against public intoxication.


No orgnization is perfect, and until newer methods are developedand implimented the methods outlined here work. The fact thatthe cartel gained is clout unethically is a moot point.; lookingaround I see questionable ethics applied everywhere I look.; smalltown police targeting low incom families knowing they havedifficulties making court payments resulting in seizure ofproerties, ect. I souldnt have to point out other areas where

positive ethics arent followed. The 'they dont pay taxes' isnegated because in their community the cartel helps the poor.they help policing the area and , given their mission statement ofno innocent or civilian killings, makes that company good for itsenvironment. Once established and smaller groups link up withmore legitimate sources of revenue, you better believe they paytaxes, fines and any other expense promptly and in cash.

CUAUHTEMOC ADASOSI 8 DAYSAGO

The arguement that their product is addictive , while that istrue, knowing that the war on drugs could be won thrulegalization or/and the suppressed (by who else BUT FDA)knowledge that iBOGANE, the psychotropic African root,.

cures addictions siuch as cocaine heroin meth as well asneutralizes chemical tolerence to zero so that, in effect,those meds could actually have a therapeutic effect, alsoeliminating the need for side effect meds, exist. Given thelook at two entities, 9Big govt, small cell in a big company)I know which methods outlined in the article i wouldemploy.


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there are so many strong points in you article, but you missing avery important point that makes the difference between the"legal" brands and the criminal organizations, THEY AVOID ALLTAX PAYMENT" . Paying taxes cost a lot of money, andmeanwhile some known enterprises avoid to pay some taxpercentage by deducing them on "charity" and invest in public

spaces, the most criminal organization avoid all, and keep almostall the profits generated in their activity. they could have anotherlegal business running to "wash the money", but they keep andafford more money than any other brand in the world


Today's media is weird. I'm pretty sure, the author would've beenable to write an article, that doesn't leave so much room forcriticism and would actually have been able to convince even acritical reader of its message.

But I'd claim, that the article was written deliberately "bad", inorder to evoke emotional responses and convince people toeither share or comment it.

That's sad, in my opinion.


Does anyone really believe that an operation run illegally shouldbe considered as a way to outcompete those that are presentlyrun legally? And therefor that all legally run outfits should giveillegality a try? You'd have to do away with laws and lawenforcement of course, but how to do away with vigilantes mightbecome a bigger problem. Not to mention how to do away withyour competitors customers, if not with the competitorsthemselves.



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I enjoy how you write sir! I'm going to save this article! I'vepreviously read about syndicates and found their subculture attimes brutal but quite interesting!


This is SO wrong!!!! How can you possibly exalt these practices?You should come and live in Mexico to experiment how it is to livein such violence and then have media like this promoting to belike them!! SHAME ON YOU!

MARIANA GONZALEZ C 8 DAYSAGO

Mariana, deberas leer mejor. l no est hablando bien delos negocios de estas organizaciones, sino de suestructura "empresarial".


is this a joke? the cartels operate in monopoly like situations andextract the coresponding rents. they have a captive audience,they dont pay taxes, they dont care about laws and regulationsnor quality controls, they dont have to deal with unions, theydont have personell issues, they dont have to pay boni to theiremployes, they dont have to invest in customer service, they dontoffer sale or return, they dont face lawsuits from customers, theygrow on trademark and patent infringements, they dont need topresent financial statements, etc.

excuse me, this article is ridiculous.

JOHN-OLIVER BRECKOFF 8 DAYSAGO


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thanks for your clarity but you missed the big points. also irequest ASMITH2000 to change your name to spare therest of the real Smiths further embarrassment.

I read this because I sensed entertainment. Sadly, youearned an Aw Shit. No redeeming value Devin!

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At least in Mxico, Organized Crime and Government(Politicians/Military/Police) ARE ON THE SAME TEAM.

Maybe that's why it seems so "easy".

Maybe that's why nothing happens.


The fundamental flaw in the argument is itr fails to recognizebasic economics - the high margins and profits aren't "despite theefforts of governments and law enforcement agencies toeradicate them" but BECAUSE of efforts to eradicate the Cartelsand their product.

If the Cartels weren't peddling an addictive (high demand) andcontraband (low availability) product with a high barrier to entry,they would not be as successful or profitable.


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effective way, but that isn't why they're profitable - it's why they'vebeen sustainable (along with the steady product demand).


Great article. I'm surprised by all the negative comments. Howincredibly narrow-minded.

Another organization worth studying is al Qaeda. That's right alQadea. Forget what they stand for and what they do. They areheinous. But look at the organization from a structural point ofview. Similar to cartels - they share crystal clarity of vision whichin turn leads to massive unequivocal alignment. They operate insmall improvisational cells that allows them move quickly anddecisively.

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3 Business Lessons From the Sinaloa Drug Cartel