Co.Design

3 Business Lessons From The Sinaloa Drug Cartel

Innovate like a syndicate.

Blockbuster is gone. So are Lehman Brothers, Atari, Pan Am, Circuit City and countless others each year. Startups fail, too, with 80% going belly up within the first 18 months. But here’s something to consider in comparison: criminal syndicates don’t go out of business. The Chinese Triads have been around since the 17th century. For 25 years, Mexico’s Sinaloa Cartel has outmaneuvered vicious competition at home as well as the United States' $51 billion—annually—"War on Drugs."

Net margins for criminal organizations shame their legal counterparts; while airlines earn 1.8% and oil companies average 8%, cocaine cartels earn a 93% net margin—for just wholesale. Profit per full-time employee ratios are also off the charts. Google’s profit per FTE is $270,000 and Apple’s is $460,000, both of which are impressive. But the Sinaloa Cartel’s profit per FTE is estimated at $20 million. The global reach of these organizations is also expanding. Beyond North America, the Sinaloa Cartel is now active in Europe, Asia, and Australia.

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

All of this money and growth is happening despite the efforts of governments and law enforcement agencies to eradicate them. Imagine if there were federal agents whose sole mission was to put Sears or J.C. Penney out of business? I’m thinking they wouldn’t be around. Or, what if Amazon Prime had to operate in secret? Each year, lots of brands die without any help from the FBI or ATF. And yet criminal syndicates make immense profits mostly in competitive commodities businesses. So how do they do it?

In a word: culture. Criminal syndicates are far superior at creating successful cultures than the vast majority of the Fortune 500. All successful criminal syndicates, across cultures, geographies, and endeavors, are primarily culture-driven brands. Despite their significant differences, these culture-driven brands have three key attributes in common.

1. Credo. The Japanese yakuza identify themselves as "chivalrous organizations" and operate within strict codes of conduct that express very specific organizational values. The Sinaloa Cartel, unlike its competitors, actively cultivates a populist image and claims to adamantly oppose kidnapping and the murder of innocent civilians. These beliefs govern organizational behavior—who they are, what they do, and what they won’t do. And theses credos are far more actionable and authentic than the "values" posters hung in corporate cafeterias. In place of employee handbooks and other corporate drivel, these organizations have distinctive rituals, symbols, and artifacts to express their credos.

2. Improvisation. Corporations can over-index on "innovation." But improvisation is a form of innovation, and just as important. As streaming technologies emerged, did Blockbuster improvise and move quickly to shift the way it did business? Not quickly enough. And that’s reflective of mainstream corporate cultures that tend to think of innovation as a "process" rather than a behavior.

Criminal syndicates are different; they think of innovation as an organizational imperative. A drug smuggler who finds a new way across a border knows that customs agents will eventually discover the innovation, so he needs to always think of new ways. The Sinaloa Cartel was the first to design and construct a tunnel under the U.S.-Mexico border. The cartel also managed to have family members hired as border agents, and even used a catapult to counter a high-tech fence in Arizona. The yakuza benefit from highly diversified revenue streams, which they’ve systematically grown from traditional gambling and prostitution rackets to modern construction and transportation businesses. Where there is a threat or an opportunity, criminal syndicates improvise.

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



3. Small-but-big. While too many corporations bury employees within organizational charts that are so big there’s specialized software for creating them, criminal syndicates stick to small teams. With just an estimated 150 members, the Sinaloa Cartel produces revenue equivalent to the GDP of Belize (a country with more than 330,000 people). And while the Yamaguchi-gumi is the largest yakuza organization with more than 20,000 active members, those members are spread across 2,500 different businesses and 500 sub-groups. The teams are small, but they can pull significant resources from the whole.

Just as importantly, the small team structure nurtures an entrepreneurial zeal and an emphasis on doing. With so much at risk, with everyone empowered, and with everyone aligned through shared values and a unifying sense of purpose, criminal syndicates use small teams to accomplish really big things.

There it is, the underworld model for success: small-but-big teams inside belief-driven cultures improvising continuously. Doesn’t sound so criminal, does it? That’s because it’s a familiar formula for some of the best legal brands in the world, from Apple and Nike to Virgin and Zappos. One of the familiar refrains about criminal syndicates is that they are run "like a legitimate business." Another is just a sorrowful question: What if these talented criminals had only used their talents for good? Both of these are missing the point. Legitimate businesses wish they had the cultural clarity and business results of these underworld organizations. I don't mean to downplay the harmful, reprehensible activities criminal syndicates deal in. But they could teach legitimate businesses an important organizational strategy: work toward small-but-big teams, create belief-driven cultures, and improvise continuously. Because it works.

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46 Comments

  • Jack Rozzo

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

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

    Clearly everyone knows that these "businesses" strenght comes also 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 is immoral to refer to criminal businesses in order to learn something, seems to me a little superficial.

  • Zǝus Glǝiskǝttǝ

    This article if full of bologne, if the cartels are so rich and they generate 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. Where is all that wealth stored ? This article is aimed to reduce the image of Mexico, and to exalt the white power, the "good standing and honesty" of corporations. An article aimed to oppress.

  • erizo_azul

    It is not reflected because cartels don't share those revenues nor pay taxes to government. A normal enterpreneur builds his fortune by amassing other companies' market shares. Also, they employ a lot of people and NEED other companies to survive (example: transportation, materials, supermarkets, etc.) Their activities are deeply connected with others. Cartels operate for themselves and create their own roads and connections because there is no other way. They don't create jobs outside their group and their fortunes are hidden or registered in banks from other countries. Another important point is that those who buy most drugs are not Mexicans.

    I am Mexican and I don't believe the author is opressing anybody. He's just amazed that some illegal businesses are more successful than legal ones. Drug cartels are full of crazy, violent people. Drug cartels don't represent this country. Drug cartels, and sadly, our corrupt government are not "us".

  • petroskainadas

    I find your article at least childish. Firstly I think you underestimate the role of raw firepower in these organisations. Like Capone said: "You can accomplish far more with a good word and a gun, than with just a good word". Secondly you are entirely overlooking the fact that said organisations are dealing black market products which for starters means, no taxes, no healthcare insurance for employees, no benefits etc. Thirdly the base workforce of said organisations usually exists in a state of modern slavery thus minimizing costs even more. Combine these three facts and it will dawn to you why crime actually does pay. It follows that any comparison between legal businesses and illegal ones is at least non-sensical. If you really want the mob's advice in legitimate businesses go read "The mafia manager" by V.

  • Russell Edward Zagrodzky

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

  • Cuauhtemoc Adasosi

    No orgnization is perfect, and until newer methods are developed and implimented the methods outlined here work. The fact that the cartel gained is clout unethically is a moot point.; looking around I see questionable ethics applied everywhere I look.; small town police targeting low incom families knowing they have difficulties making court payments resulting in seizure of proerties, ect. I souldnt have to point out other areas where positive ethics arent followed. The 'they dont pay taxes' is negated because in their community the cartel helps the poor. they help policing the area and , given their mission statement of no innocent or civilian killings, makes that company good for its environment. Once established and smaller groups link up with more legitimate sources of revenue, you better believe they pay taxes, fines and any other expense promptly and in cash.

  • Cuauhtemoc Adasosi

    The arguement that their product is addictive , while that is true, knowing that the war on drugs could be won thru legalization 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 as neutralizes chemical tolerence to zero so that, in effect, those meds could actually have a therapeutic effect, also eliminating the need for side effect meds, exist. Given the look at two entities, 9Big govt, small cell in a big company) I know which methods outlined in the article i would employ.

  • JuanJosé Del Moral Rodriguez

    there are so many strong points in you article, but you missing a very important point that makes the difference between the "legal" brands and the criminal organizations, THEY AVOID ALL TAX PAYMENT" . Paying taxes cost a lot of money, and meanwhile some known enterprises avoid to pay some tax percentage by deducing them on "charity" and invest in public spaces, the most criminal organization avoid all, and keep almost all the profits generated in their activity. they could have another legal business running to "wash the money", but they keep and afford more money than any other brand in the world

  • Hans-Peter Kühn

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

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

    That's sad, in my opinion.

  • Roy Niles

    Does anyone really believe that an operation run illegally should be considered as a way to outcompete those that are presently run legally? And therefor that all legally run outfits should give illegality a try? You'd have to do away with laws and law enforcement of course, but how to do away with vigilantes might become a bigger problem. Not to mention how to do away with your competitors customers, if not with the competitors themselves.

  • asmith2000

    I enjoy how you write sir! I'm going to save this article! I've previously read about syndicates and found their subculture at times 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 live in such violence and then have media like this promoting to be like them!! SHAME ON YOU!

  • Erick Alejandro García

    Mariana, deberías leer mejor. Él no está hablando bien de los negocios de estas organizaciones, sino de su estructura "empresarial".

  • John-Oliver Breckoff

    is this a joke? the cartels operate in monopoly like situations and extract the coresponding rents. they have a captive audience, they dont pay taxes, they dont care about laws and regulations nor quality controls, they dont have to deal with unions, they dont have personell issues, they dont have to pay boni to their employes, they dont have to invest in customer service, they dont offer sale or return, they dont face lawsuits from customers, they grow on trademark and patent infringements, they dont need to present financial statements, etc.

    excuse me, this article is ridiculous.

  • Robert Springer Smith

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

    1. FTE are super low to enhance secrecy.(no mktg, cust svc, seo, docn)
    2. If a FTE f-cks up, he/she dies. very motivating 3 Highly addictive product

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

  • berserrano

    At least in México, 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 recognize basic economics - the high margins and profits aren't "despite the efforts of governments and law enforcement agencies to eradicate them" but BECAUSE of efforts to eradicate the Cartels and their product.

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

    The Cartels have evolved and organized themselves in a very effective way, but that isn't why they're profitable - it's why they've been sustainable (along with the steady product demand).

  • jcouch

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

    Another organization worth studying is al Qaeda. That's right al Qadea. Forget what they stand for and what they do. They are heinous. But look at the organization from a structural point of view. Similar to cartels - they share crystal clarity of vision which in turn leads to massive unequivocal alignment. They operate in small improvisational cells that allows them move quickly and decisively.