Business Advice From Drug Dealers | Investing Featured ...

There are valuable business lessons to be learned from street corner drug dealers. It takes more than a gun or some muscle to make a living with recreational pharmaceuticals -- it is a career that touches upon any of the disciplines taught in an MBA program.

One might consider the shady crack seller or pill pusher as akin to an independent distributor working for a global conglomerate reaping billions of dollars a year. All the fundamentals of running a successful business are part of everyday life for a dealer.

There is securing raw goods and turning them into a consumer-friendly product, commodity speculation, and building a base of buyers and ensuring consumer retention. Customer satisfaction, brand management, and advertising are all necessary to stay ahead of the competition and deter upstarts looking to snatch away market share.

While a Chipotle (CMG) or Wal-Mart (WMT) might have a team of experts to parse maps and demographics before picking a location, drug dealers have a more street-level approach to real estate. They need to consider the character of a neighborhood and choose a base of operations convenient to customers, yet not so close to police stations, churches, or schools that they may draw unwanted attention.

There is also research and development at play. After all, someone had to perfect the art of reducing cocaine into the cheap, easy-to-move and more addictive form of crack. And basement labs everywhere are always looking to perfect their recipe for crystal meth.

In their book Rework (Crown Business, 2010), authors Jason Fried and David Heinemeier Hansson -- co-founders of 37Signals, a Web application company -- cite the value of the age-old drug dealer strategy of offering free product to new customers as a ploy to get them addicted and coming back for more. That first joint on the house is really just a loss leader intended to drive bigger, more reliable sales.

Giving away a little to get a lot is all in a day's work for ice cream parlors, coffee shops, and health clubs.

John Moore runs Brand Autopsy Marketing Practice, a marketing consultancy that has worked with USA Today, Best Buy (BBY), and Little Caesar's, among other companies. He was also an in-house marketing expert for Whole Foods (WFM).

Moore has delved into the business advice that can be gleaned from drug dealers numerous times on Brand Autopsy's blog. Inspiration for his observations comes from Bruce Jacobs' book, Dealing Crack: The Social World of Streetcorner Selling (Northeastern University Press, 1999) and detail-seeking viewings of the movie American Gangster, a look at the shrewd and steady rise of a drug kingpin played by Denzel Washington.

He also cites his own experience as a "drug dealer" of sorts: As a retail marketer with Starbucks (SBUX), it was his job to help sell the public on the addictive substance known as caffeine.

"Business is business," he says. "It doesn't matter if it is legal or illegal, the same principles apply. It all comes down to profit. What can you do to be able to sell your goods and services at a profit?"

The "free sample" approach used by drug dealers is something he saw in action in corporate America.

"Coffee has caffeine and its addictive quality," Moore says. "And once you become accustomed to a flavorful taste profile, you can't go back to the cheaper stuff. If Starbucks was selling pizza they wouldn't have been that successful. They found success in selling a legal drug. You hear of people who have caffeine withdrawal and the only way to solve that is to buy coffee, to drink coffee. The greatest way to increase sales back at Starbucks was the sampling."

"Isn't that the same principle a drug dealer uses? They give you a little taste, they show you what you could have, and you turn from a rational consumer to an irrational consumer who will gladly pay," he say.

Moore points out a lesson presented in American Gangster: The flashiest, loudest drug dealers are not necessarily successful enough to warrant their image.

"A business that just has to spend millions of dollars to promote itself is probably having to cover up for a weak product," he says. "A business that doesn't feel like it has to do the multimillion-dollar advertising campaign can still be a highly successful brand or business with a quiet humbleness. The people who are probably making the most money are the most quiet about it. Case in point: Warren Buffett. He's not the loudest, most flamboyant investor, but he goes down as probably one of the most successful."

There are two types of drug dealers. One gets by with scattered, urgent sales of diluted product -- cocaine cut with baby laxative, marijuana sprinkled with dollar-store oregano. The other cultivates loyal customers who seek out the purity and quality of their wares.

Similarly, Moore thinks that companies often focus more on cheap and generic, as opposed to realizing that people will pay for quality. "You see, despite the down economy, that some of the most successful retailers are the ones who are selling high end," he says.

"Look at beer," Moore says, continuing the analogy. "You've got Budweiser (BUD), Miller Light, and Coors (TAP) and they spend a gargantuan amount of dollarson marketing and advertising, but really the higher-quality beers are the craft beers that typically don't spend their money on the advertising and instead they use those dollars to make a better product. It can be polarizing, because you have to appreciate that taste. But if you do appreciate it, you are paying for it. It's the same thing with drugs. If you appreciate what that drug is going to give you, you are going to pay more for it. If you don't appreciate the difference, then you might as well buy a mass-produced drug of lower quality."

No matter how tough or scary a drug dealer may be, the job requires a focus on customer service. No matter when or where customers want to buy their dope, a smart dealer will accommodate them.

"In a way it is being on call," Moore says. "If you are in that business you need to cater to your customer base. When you are dealing with an irrational customer base, it means you have to do irrational things. That basically means being on call 24 hours a day."

Smart businesses follow a similar philosophy. Starbucks has what it calls the "10 Minute Rule," a policy of opening locations 10 minutes before their posted house of operation and keeping them open 10 minutes after the stated closing time. Anyone jonesing for an Egg McMuffin at 10:31 a.m., may similarly appreciate a decision by Jack in the Box (JACK) to sell all-day breakfast as it competes with McDonald's (MCD).

Source: http://www.minyanville.com/businessmarkets/articles/thestreet-Drug-dealers-drug-deal-drug/10/26/2011/id/37589

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