Unintentional Tech Start-Up Lessons From a Drug Kingpin

The following is a guest post by Gene Caballero Cofounder of GreenPal

Joaquin Guzman Loera, better known as El Chapo, has been all over the news lately – from a dramatic prison break, to a Rolling Stone interview with Sean Penn, and then being recaptured by Mexican Marines. The Sinaloa Cartel that he has run since 2003 enjoys an annual revenue comparable with the earnings of Facebook and Netflix.  After hearing this, you have to ask what lessons could tech entrepreneurs learn from the leader of the most successful global drug trafficking cartel in human history.  

While I don’t want to participate in the glamorization of El Chapo’s story, I do believe there are some interesting parallels between his ascension to total market domination and creating a successful tech company.  Reflecting on my own journey building my startup GreenPal, I observe three principles that Guzman’s success may also share with the path to success in a tech startup.  These are the undeniable business principles of Hustle, Distribution, and Sustainability.

The Virtue of Hustle

At an early age, Guzman provided for his family by selling oranges, soft drinks, and candy at local small markets in his small town in Mexico ultimately earning the opportunity to join his uncle in the drug business. At the age of nine, Guzman began his conquest of the illegal drug industry humbly in the marijuana and poppy fields in the mountains of Sinaloa. His formal education ended in third grade, and as an adult he has reportedly struggled to read and write, however, he did not let that hold him back from conquering the world drug trade. His start didn’t come from education or financial backing, instead, it came from his dedication to the virtue of hustle.

Entrepreneurs must be resolved to work with whatever resources and abilities we possess and let nothing stand in the way of our vision of the future. Guzman could barely read or write yet he was CEO of a multi-billion dollar organization.  Perhaps as startup founders, we may not have the skills yet to fully pursue our vision, but we can improvise, learn, and work with the resources we have like Guzman.

Innovation in Distribution

El Chapo made his profit from the sale of massive amounts of illegal drugs, however his success in the business can be credited in large part to his innovations in distribution more so than the product by itself. His organization created and honed over decades, a formidable logistical network that is as robust and sophisticated, in many ways to that of Amazon or FedEx. He did this by incentivizing and partnering with local gangs to help him distribute his products innovating to build an uncommon level of trust within these shady outfits to carry out his operations.  Even though his product was highly sought after, he successfully innovated a delivery system to the customers consistently and in a scalable fashion.  

In fact, his innovations in distribution have made the cartel so non-displaceable that despite the drug-lord’s recent capture, it is assured that one of his associates will step in his place and operate the smuggling infrastructure that Chapo created almost turn-key.

The most common cause of failure for any startup is not necessarily the product itself, moreover the lack of a scalable and repeatable distribution engine for that product.  Guzman can teach us that starting with innovation in distribution and working our way backwards to the product is a much more logical approach to scalable success.       

Sustainable Unit Economics

El Chapo’s organization holds a remarkable grip on its unit economics that is scarcely seen by even the most sophisticated tech startups of our day. The cartel is rigorous with tracking KPI’s in the value chain from their product line’s production to ultimate wholesale while even employing statisticians to run regression analysis to precisely ascertain how much of their product is to be seized by authorities throughout its smuggling routes.  The “leakage” in turn would be factored into its cost structure which in turn influenced customer acquisition cost calculations.  In a brilliant marketing strategy in the early 1990’s, the cartel sent calculated free samples of methamphetamine bundled in its marijuana shipments in order to corner the nascent but burgeoning meth market.  El Chapo demonstrates that to create defensible competitive advantage no matter what industry an organization must be metrics driven, pay attention to sound unit economics, and create a sustainable business model

While I do not aim to glamorize Guzman as a business mogul, I do believe his incredible assentation to market domination in the drug business can illustrate that founders shouldn’t deny the universal business principles of Hustle, Distribution, and Sustainability.  Guzman reminds startup founders that if we ever aspire to dominate our market we must execute these principles in the same manner of effectiveness as he did.

Image via RollingStone