Innovational Correctness

#014: How Drug Cartels Operate & Innovate Like Silicon Valley Startups /w Rodrigo Nieto-Gomez

Episode Summary

In this episode I caught up with Rodrigo Nieto-Gomez to talk about the criminal entrepreneurial and innovation skills of Mexican drug cartels, how they operate and what we can learn from them. Toward the end of this episode I also explain how cocaine is produced and what makes it so profitable. Then I show you how to setup your own drug empire, what skills and mentality you need to succeed in this industry, how to scale your business and what offshoring options you can use.

Episode Notes

In this episode I caught up with Rodrigo Nieto-Gomez to talk about the criminal entrepreneurial and innovation skills of Mexican drug cartels, how they operate and what we can learn from them.

Toward the end of this episode I also explain how cocaine is produced and what makes it so profitable. Then I show you how to setup your own drug empire, what skills and mentality you need to succeed in this industry, how to scale your business and what offshoring options you can use.

Some of the topics we’re going to cover in this interview are:

 

Show Notes, Transcription, & Resources Mentioned: gammabeyond.com/en/podcast/014

Podcast Website: www.innovationalcorrectness.com

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Episode Transcription

Note: This transcript of the episode was machine-generated and has not been edited for correctness. It’s provided for your convenience when searching. Please excuse any errors.

 

00:00:00 Guest (Rodrigo Nieto-Gomez): if you want to really think of a drug cartel and try to find comparison to other institutions, think less Mario puzzles, the godfather and thing more, a venture capitalist firm, or think of shark tank and maybe a logistic company merged together.

00:00:23 welcome to innovation, no correctness, a podcast, all about innovation and transformation hosted by David Luna, author keynote speaker and founder of gamma digital and beyond David and his guests discuss real world practical advice. On how to best harness the creativity of your employees and go from idea to product, giving you unique perspectives and insights into their success all while separating, hype from reality and replacing bullshit.

00:00:50 Bingo. With common sense, let's jump right into the show.

00:00:56 Host (David C. Luna): Welcome back to another episode of the innovational 00:01:00 correctness podcast. Last this episode is really special because I've been wanting to do this episode for so long and now the time has come. So in this episode, we'll talk about the criminal entrepreneur and innovation skills of the Mexican drug cartels.

00:01:16 How they operate and what we can learn from them. And we'll look at it. How drug cartels are more like Silicon Valley startups, why they're so good and innovation and what today's companies can learn from these illegal drug cartels, how drug cartels were previously using planes, tunnels, catapults, and even drones, and are now resorting to more unorthodox methods such as.

00:01:39 Mans narco, submarines and other techniques to evade authorities. Then we'll also learn how cocaine is produced from its raw material, Ariel, all the way to its end consumer and what makes it so profitable at the end. I'll also explain how to set up your own drug empire, what skills and mentality you need to succeed in this industry.

00:02:00 00:01:59 How to scale your business and what offshoring options you can use. So if you ever wanted to make cocaine and run your own personal drug cartel, stick around. But before we continue just to make this very clear to any listeners, the police, the FBI, the FDA, and all those other three letter agencies around the world.

00:02:20 Neither I or my guests are condoning taking illegal drugs, not even recreational ones or joining a drug cartel and recommend that the listeners of this podcast research its legal status and the penalties attached to it's possession use or supply in your respective country. My guest today is Rodrigo and ghetto Gomez.

00:02:40 Rodrigo is a geo strategist and differential futurist focused on the consequences of the accelerating piece of innovation and security as well as safety and defense policy. So what does all that mumble jumble in plain English mean? he basically studies how the government can adapt in more effective ways.

00:02:58 To counter the 00:03:00 deviant innovation capacities of criminal organizations and how to manage projects, to create, say it tools to better prepare decision maker when confronted by these adversarial innovations. So without further ado, let's go meet Rodrigo.

00:03:20 Rodrigo welcome to the podcast.

00:03:22 Guest (Rodrigo Nieto-Gomez): Thank you so much, David. Thank you for inviting me

00:03:25 Host (David C. Luna): in order to make this episode happen. I initially contacted the us coast guard, but I'm really happy that I found you. Rodrigo has you seem much more qualified as a guest than the us coast guard.

00:03:37 Guest (Rodrigo Nieto-Gomez): Thank you so much. Yeah. In fact, I have worked closely with members of the coast guard.

00:03:42 I am a professor at the Naval post ride school. So a lot of our interactions what's happened with them. So a lot of the things that we'll be discussing, I can tell you it's things that are well into the radar of the United States coast guard. So it'll be fun to talk about it.

00:03:55 Host (David C. Luna): Before we start. Do you want to introduce yourself to the listeners?

00:03:58 Guest (Rodrigo Nieto-Gomez): Sure. I'm Rodrigo 00:04:00 Nieto Gomez. I'm a professor at the Naval post red school in Monterey, California, EDC military institution. It's a military university that teaches masters and some PhDs, mostly for military personnel, but we also do it for civilian members of what we would call the Homeland security enterprise.

00:04:16 So people who have direct relationships. With domestic security of the United States. My background is I'm a lawyer originally. And then I went into a master's and PhD in geopolitics at the French Institute of geopolitics in Paris. And one of my main focus, my main areas of interest is the way in which drug trafficking organization, cartels, mafias innovate to stay ahead of the game.

00:04:43So criminally innovation, this is what I normally.

00:04:45 Host (David C. Luna): Very interesting. So I think I, and I think most of my listeners are wondering how did you even get started in this area? Were you previously employed by ASA, a drug cartel and have now gone rogue and joined the dark side of the government?

00:04:59 Guest (Rodrigo Nieto-Gomez): Sure. 00:05:00 No, not at all.

00:05:01 I'm it's been an interesting path. I started, as I mentioned this, a lawyer and a very early, my focus shifted from dealing with the, what would be at the time NAFTA companies. So companies who would do international trade in the NAFTA sewn. And at that time, this thing that we today called Homeland security, America was becoming more and more important.

00:05:24 And that started to interest me more. And because I am of Mexican origin, clearly a drug cartels became part of what I was looking at and part of my interest border security. As I started doing it more. I discovered the literature on innovation theory. I ended up actually teaching a class on strategy, which has half business strategy and half military strategy.

00:05:44 They said, let's say, and the innovation theory became more and more important to the point that became the center or the core of what I thought because of where I work and what I do. I immediately discovered the value of applying the lens of literature and the 00:06:00 innovation. But to those who don't operate within the limits of regulatory environments and the cartels in the us Mexico border became a fantastic case study to see what happens when innovation goes rogue.

00:06:12 Before

00:06:12 Host (David C. Luna): we get into the nitty gritty details, I'm sure we've all seen the one or the other movie about organized crime portraying drug Lords. Or mafia bosses. So my question would be this, how similar or farfetched are movies such as the godfather or even Sicario from reality. So what do they get, And what are some things that these movies get wrong?

00:06:36 Guest (Rodrigo Nieto-Gomez): It's interesting because you mentioned two very different movies Sicario or the godfather, or more recently than Netflix. Series Narcos, right? Then in many ways, each of them actually portray a different kind of organizations structure for drug cartels.

00:06:51 I would say that all of those, probably the one that has had the most longevity in the imagination of people is certainly the godfather. The Mario puso works, 00:07:00 but in many ways they are the worst ones to try to understand, to try to understand what Drucker tells you. they showcase these.

00:07:06 Centrally planned institution, the drug Lord at the center of you remembered the logo of the movies where sexually these kind of puppeteers hand establishing or hinting that the drug Lord controls every string and nothing could be farther from the truth. A movies like. Sicario put the accent more on the muscle or armed part of the operation, which is probably a better understood part of it.

00:07:32 The dynamic where the cartel will create this private army yeah. That they used to enforce their rights objectives. And then movies like Narcos. Actually very interesting because what is the series like Narcos. Because what they do is they basically have the innovator's journey, right? So they showcased every drug dealer from the beginning to the wet, to the timing, which he, or she captured or killed.

00:07:54 And that arc of the innovation process, he's probably closer to, we 00:08:00 know, as we will see, and we can the construct that one as we talk about.

00:08:04 Host (David C. Luna): Okay. So you mentioned that in a variant. Interesting aspect one that drug cartels aren't centrally planned or organized. How are drug cartels from what we know at least organized?

00:08:14what does like a typical org chart look like? If we can generalize it?

00:08:19 Guest (Rodrigo Nieto-Gomez): It's really interesting because, you're asking a professor, so I'm not good at giving short answers, but. In general, you will encounter what it's a paramilitary institution at the center of the operation, and that is through and that exists.

00:08:32 So you can imagine El Chapo was married. One of the most famous ones recently captured. He sits at the apex of a criminal organization. That criminal organization has multiple subdivisions. Eh, one of them for example, is that one of security, right? And therefore they will have muscle that muscle manifests itself by creating capacity in the shape of military training or parliament.

00:08:55 It's right. Training trucks, vehicles, weapons, et cetera, all the power for an alley, 00:09:00 but that's centralized organizationally sexually, not the core innovation engine. if I draw cartel, draw cartels in many ways, if you want to really understand how they operate, you probably could go and not look at the godfather movies and instead think of shark tank or any venture capitalist or price cartels create a uncanny amount of piddle.

00:09:22they centralize it. And then they use that Steve Bomani for other entrepreneurs that are. Only loosely related to the cartel to start smuggling and narco traffic operations. So if you want to really think of a drug cartel and try to find comparison to other institutions, you might recognize think less Mario puzzles, the godfather and thing more, a venture capitalist firm, and maybe a logistic company built or merged together.

00:09:54 Host (David C. Luna): That's really fascinating. So if you're saying they're more like VCs venture capitalists, can 00:10:00 I then conclude that they are prepared to fail or do they know in advance that from a hundred investments that they make, the majority will fail?

00:10:11 Guest (Rodrigo Nieto-Gomez): They do. And if you think of a cartel operation in it's interesting because in many ways, most choices that they take are de-risking choices.

00:10:21 So in that regard, they're not all like a venture capitalist that will factor a percentage of loss, hypersensitive loss, but at the same time, we'll make sure that any loss is not critical. For the survivability of the fund or the operations. cartel members know that when you're experimenting in certain you're, you will start small and then you'll grow with time.

00:10:44 Same time they diversify their portfolio. They have maniac. Tourists dealing with sometimes the same exact link in the supply chain. And they would have four or five ways of smuggling. And we can get, go more into that, but this is why the same cartel might be the building tunnels and 00:11:00 using drones and corrupting people at the border and sending semi-submersibles.

00:11:04 Through the ocean. All of these are basically hedging the risk and looking at what is working and because in the criminal world, you don't have intellectual property. The moment the occurred identifies a new successful way of dealing drugs. It, all of the other cartels will immediately imitate.

00:11:23 Host (David C. Luna): That kind of really strongly deviates from what the general public thinks cartels are.

00:11:29 So they use a lot of violence, they're bullies, but in reality, from what I'm hearing, it's very professional. They use business tactics for lack of a better word. So I find that really interesting that they are, they're much more professional as one would think.

00:11:42 Guest (Rodrigo Nieto-Gomez): So we have to be very careful to underestimate or adversary.

00:11:46 This is a mistake we've done in the past. I also don't want to glorify them. They are not Steve jobs either, but although I have called before El Chapo was not the Steve jobs of the drug dealing world, but no, I think you're right. So the 00:12:00 cartels are the specifically, the Mexican cartels, a little bit of the Colombians.

00:12:04 They are the result of the most predatory business environment in the history of mankind. With a governmental force that is out there to either kill them or captured them. And after 40 years of sustained pressure by governments, this is what optimization looks like. Cartels are highly optimized smuggling and black market.

00:12:26 Engines of commerce and the buy. Now we have eight is through iteration, multiple years of pressure, fairly optimized organizations for doing that. So yeah, no. Cartels are very sophisticated at this point. The level of specificity, the station that we encounter in some of the areas. That doesn't mean that there are not thugs and that there are no incompetence and there are no violent elements, but even if you think the violence, so think of the wave of violence that we witnessed in Mexico in these last few years, that wave of violence, it's hardly a 00:13:00 random act of violence.

00:13:01 The way we would see it with gangs like ms. 13 in central America. Instead, all of these acts of violence are highly choreographed act of basically narcoterrorism. And the main target of that kind of action is drug cartels. So it's a marketing campaign to try to limit the actions of competitors. So even their acts of violence are highly correlate and the search and look for a specific business objective.

00:13:28 Host (David C. Luna): We've mentioned that they're really good at smuggling and mention a few other terms. So can you briefly also explain what the value and supply chain of cocaine from its production to its end customers look like? Because I think that's really important for the listener to understand since most of my listeners hopefully do not come from this industry,

00:13:50 Guest (Rodrigo Nieto-Gomez): I would hope so too.

00:13:50 Yeah. so cocaine, it's an interesting product. It's an interesting product because it's a. It's a difficult plant to grow. It has specific conditions, although to the 00:14:00 point of them being smart, there's a lot of biotech engineering now behind some of the Coca leaf and drug cartels have been trying to change the plant.

00:14:09 So it would grow in different ecosystems. But right now you would see that most of the cocaine comes from the Andean region, right? So Columbia, Peru, Ecuador. So that part of the territory, and at that point, the Cocker leave would be harvest. And then if you are going to, and there are legitimate ways to cultivate a Coca leaves, but if you're going to be entering the, into the drug business, what you do is at that point, you refine it and you create pure cocaine.

00:14:35 That pure cocaine will then get packaged and shipped through multiple steps. All the way, ideally to the United States or Europe, where it is more valuable. So you have this product that it's created in South American has to travel through central America in this case to get to the Mexican territory.

00:14:53 And then Mexican cartels would smuggle them. The United States where the most expensive geography to 00:15:00 sell cocaine is the CDC in the Northeast. So new thing, New York city, Washington, D C, et cetera. The interesting thing is that every time that piece, that brick, that's how they call them because of how it's packaged that brick moves from one 30 territory to the other.

00:15:14 It costs more, It costs increases, and that's different from other products because it is through that. Your iPhone probably travels. To seven or eight countries before getting into the Apple store where you bought it. But every time that it travels there is a transformation that happens, right?

00:15:32 Manufacturing takes place packaging in the case of cocaine, as it moves through the supply chain. It increases in value just because of the geographic placement of the product. So it's worth $2,000 per kilos. I'm giving you a random number, but that's more or less where it used to hover in Columbia. By the time that it's in Mexico, it might be 4,000 or $5,000.

00:15:54 By the time that you move to the United States to New York city, you're in the 30,000, 00:16:00 $40,000 pair, pure cocaine. And then you'll be cut. You'll be reduced. It will be a delivery unsold. So when you buy for $20,000, a kilo of pure cocaine in New York city, basically what is happening is that you're buying $2,000 of raw material and $18,000 of risk premium.

00:16:21So the reason why cocaine increases in price as it moves around is because you are attaching the cost of the risk associated to that movement, to the value. And that includes all the methodologists to get there. It might be corruption. It might be. Eh, it might smuggling, it might it's social engineering, right?

00:16:39 But in any of these cases, you are having to find a way to defeat a fairly aggressive and violent institutional parameters that governments build to try to stop you from performing your duty. So that supply chain, it's a constant effort of ingenuity and entrepreneurship. To understand how governments try to stop you 00:17:00 from moving that chemical product from territory eight to territory B, and that how to do it in a profitable way without getting captured or killed.

00:17:09 That is the business proposition of any drug cartels.

00:17:12 Host (David C. Luna): Very interesting. I just became aware of an aspect where I would have the following question. Since Coca plants are restricted geographically to a certain area where you can grow them. Is that also the reason why El Chapo switched to meth or meth amphetamines?

00:17:30 Because a, he didn't have to rely on his suppliers in South America and then having to ship it to Mexico where he could then have to process these Coca leaves. But now with methamphetamine, he could produce everything himself. Is that the case or the reason why he switched to methamphetamine besides being more profitable?

00:17:49 Guest (Rodrigo Nieto-Gomez): No, that's completely right. So methamphetamines, heroin, right? So all of these are products that diversify the surface. Area. So this is part of the geopolitical 00:18:00 element of the balance of power among cartels. It's historically Colombian cartels because cocaine became the most profitable product that you could sell, had a, an advantage because they controlled the supply, eh, and then Mexicans their advantage that they had in these cases that they had access the sole access to the most valuable cocaine market on the planet.

00:18:22 So they had these. Or, and they feel do this uncomfortable relationship they're frenemies in that regard. But if you think about it for them, from a business perspective, active, this gives a lot of power to your suppliers. So draw cartels are frequently looking for diversifying their product lines for things that they control and the beautiful thing beautiful.

00:18:41 But beautiful for them of methamphetamines is that methamphetamines are a industrial product. So you, at that point are a manufacturing company, whereas cocaine is more of an agricultural product. Then you depend on soil and terrain. So you're completely right. Certain drugs provide certain 00:19:00 advantages to drug cartels, those advantage B the day they can.

00:19:05 Break the historical dependence you see they had in Columbus. Now, the problem of that is that it also opens the door to other operations. So Chinese mafias, for example, are now entering the U S market. We need by bypassing Mexico completely and sending shipments concealed in containers from products coming from China.

00:19:24 For example. And the again, because this is a industrial product, they don't need the historical relationships that they used to have with Mexican cartel. So there is a new entrant and more and more of the drug smuggling that happens towards the United States is not happening anymore. North, South, or South North it's happening East, West and West East.

00:19:45 Host (David C. Luna): So they essentially vertically integrated if you will, into other drugs. So they're able to control their whole production.

00:19:53 Guest (Rodrigo Nieto-Gomez): So that they'll try. It's interesting because it is there is an element of vertical integration, but then there is a lot of 00:20:00 sourcing or even subcontracting, right? So they, they way to be and still is to a certain degree, is that if you are a kid in the Hawaiiana, Mexico, and you're ambitious and you want to do something.

00:20:12 With your life, because you are tired of the opportunities that are offered in a slow growing economy, like historically has been Mexico. You're actually not the poorest among the poor. This is a misconception. Most broker tells don't come from the poorest people in Mexico. They actually will come from this fragile middle class, some education high school, maybe a few years of college, some ambition, and a friend who knows a friend who knows a friend who connects you.

00:20:38 And one day outside of your apartment, that duffel bag, it used to be a marijuana because it was the, a drug that you could create, that you could move. It's now moving to other products because the legitimate market in California has changed that. But do you would have a duffel bag full of marijuana?

00:20:55 And the, a note that would say, I'll see you in five days in 00:21:00 this address. and you better be there or whether in prison, you are a creative individual. Maybe you buy a piece truck or a SUV, and you're a good woman. there, or, somebody, so you make some modifications and you hide that Brock somewhere, and then you drive and you're nervous, but you.

00:21:17 Get your act together and you successfully cross the border. You deliver the drugs, get a decent amount of money. And then you repeat the process three or more times. Do you have an MVP at that point, minimum viable product? You do it five, six, seven times, eight times. You actually can hire somebody to do it for you so you don't drive anymore.

00:21:36 So you have that now move the risks. To somebody else you're so successful that you do it seven, eight, nine times a day. Maybe you have multiple pickups now going back and forth. You moved from marijuana to actually cocaine or methamphetamines or something more successful a year later, two years, three years later.

00:21:53 Somebody makes a stupid mistake. He gets captured and the M the whole operation crumbles. you go to 00:22:00 prison, the da, or the Mexican armed forces will say, Hey, look, we really gave a blow to the people. Was that really the case? Probably not. You were a startup, you were a subcontractor now you can not move drugs.

00:22:15 And I guess that's a good thing, but in general, what happened here? What's a contractor, an investment I had real cartel failed, right? Eh, there were many others that were successful. So that's where we have the operation in the room. One hand. Yes. They control the whole chain distribution. But on the other hand, they do it in a very decentralized way by allowing entrepreneurs to assume the risk that the drug cartel sexually done assume for themselves.

00:22:39 Host (David C. Luna): So basically they're going into other industries and essentially diversifying. And so my question here would be, at least from my research, I've noticed that drug cartels have shifted their efforts from smuggling drugs to trafficking people, for example, as more and more States, especially in the U S.

00:22:59 Have 00:23:00 legalized marijuana, for instance, driving and people has now become much more lucrative. And according to a Newsweek article, human trafficking is $150 billion a year industry in Mexico, which is the third largest illegal enterprise in that country followed by smuggling drugs and guns. Have you seen these trends as well?

00:23:20 Yeah.

00:23:21 Guest (Rodrigo Nieto-Gomez): Yeah. so if you think so drug cartels. Are not drug cartels sexually about name. And I use it because it's the one that everybody uses, but this, these are basically criminal organizations and their job is to provide the supply to black Mark. If tomorrow you would ban apples, they would start selling apples in the blank.

00:23:42 So they have a series of core activities that they perform. So for example, the road cartels are really good at creating muscle. What I mean by that is they build these private armies where they can enforce the rules. And we've seen recently an emergence of much more well-prepared drug 00:24:00 cartel battalions.

00:24:01 At this point, we're not talking anymore about little mafia, like the ones you find in Europe, we're talking about 15, 20. Are more vehicles with a grenade, lounge chairs. at this point they are almost like an insurgency, but they don't want to take control of the government. They just want to protect their business operations.

00:24:17 So when you have that one, you have a way of concealing people, right? Because that's what you do. You have security houses. So you have the assets, you have the knowhow of how to smuggle things or people, The difference is when you have people, you have to keep them alive, right? So you are concerned with the wellbeing.

00:24:33 So now you have to deal with things like breathing and food and stuff like that. yeah, they have branching to, in a human smuggling, they, some of them branch into kidnapping in Mexico of wealthy individuals. Mexico is a very inequality. Mexico is very high, so you have a lot of. Rich people. And therefore a kidnapping was for a while.

00:24:52 I think that they don't love it because it creates a lot of pressure by people trying to capture them. Because when 00:25:00you hit that hard, the political elite or the business elite of a country consequences happen. And therefore in general, that's a business line that some of the most, the smartest cartel leaders try to avoid, but.

00:25:12 Cartels will explore where it, where there is a regulatory failure because of an interdiction and a market desire. And wherever those two intersect market desire or regulation, you'll have a cartel operation, a drug trafficking organization, That a criminal enterprise created and human smuggling, eh, has been one of those places where recently in the last 10 years or so 15 years.

00:25:38 They have branched out and now run most of the illegal crossings from the U S from the Mexico to the U S in the us Mexico border happened with some kind of support of a professional. And that professional has at least a loose relationship with cartels. If not a clear director.

00:25:59 Host (David C. Luna): I 00:26:00 think that's an important point to make.

00:26:01 And it also explains why drugs are so highly profitable because essentially the government created the problem by making a substance is drugs illegal and thus making these substances like cocaine, for instance, highly profitable, listen, churn the tracks talent, or let's call them criminal entrepreneurs that didn't try to out innovate their adversity.

00:26:24 Yeah. Which is mainly the government and its competitor. Yep. And one last thing I would like to also mention is this reminds me of a documentary where they interviewed dope dealers. And they asked him one question, which I found fascinating is, do you want the government to legalize drugs? So to regulate your business so you can sell your marijuana legally.

00:26:44 And they were like, Hell. No, that would destroy our profits in our whole industry. Yep. What's your view on that?

00:26:49 Guest (Rodrigo Nieto-Gomez): Yeah, no, I, so you're completely In the sense that the government interdiction, it's a key partner in the business model of drug trafficking organization, eh, their 00:27:00 business wouldn't exist without it, then they certainly don't have the profit margins that it has without it.

00:27:05 I mentioned that when you buy drugs for that high amount of money, And what you're buying is basically the know how to avoid the interdiction. Eh, we've seen this one, for example, with this wall in between Mexico and the United States, is this the building of what we call tactical infrastructure in the border is not new.

00:27:22 It started during the Nixon years, but it really accelerated during the Clinton years and the Bush years. And then again are now during the Trump administration, the wall. It's an interesting thing, because I don't want to say that wolves don't work. That's a that's nonsense. but the way we are building it right now, a waltz war.

00:27:41 If you build a high wall and you staff it with a lot of people and you create lethal force and you put anti-personnel mines and maybe some crocodiles, and I don't know what else, but then at that point you might start cutting the flow. But what we've done right now, it's a middle of the wave. So the us Mexico border has an 00:28:00 Alabama presence.

00:28:01 So the border patrol is the biggest federal law enforcement agency in the country. We build tactical infrastructure. These are fences, cameras, sensors, et cetera. But what that wall does is that it makes it hard enough. So you, any beginner wouldn't be able to smuggle drugs. So it requires specialists, especially not knowledge, but not that hard, then it cannot be done.

00:28:22 And therefore it creates. Both the market, but also the need for a specialist. The need for knowhow and startups are built around a need that needs to be fulfilled. So if you know how to fulfill it, you will be successful. And this is where you're completely, Not only they oppose the legalization of marijuana, they oppose the malignancy of marijuana for medical reasons, for recreational reasons.

00:28:45 And now when other States are trying to pass these regulation, you saw now the medical dispensaries in America. Lobbying against recreational marijuana. So that chaining, which whenever I have a kind of monopoly in access to a market. 00:29:00 The last thing I want is a deregulatory effort that would break that monopoly.

00:29:04 And that's what right now drug cartels have for everything, bud Murray one. So my, this is a long winding answer, but what I want to say regarding legalization, I would say that, One has to be very careful because most of them rugs that we have right now on the market are drugs that were built and optimized not to be healthy or even fun.

00:29:23 They are, drugs are easy to produce. Cut, easy to smuggle, Fentanyl being a good example right now, fentanyl is borderline rat poison, but drug cartels like it because. It's such a powerful drug that even a small amount packs are real kicks with real easy to smuggle. I would like to see innovation unleashed in recreational pharmacology.

00:29:45 That would be my answer. So what would happen if big pharma, pharmacological companies buy your Pfizer Johnson and Johnson now Moderna. Would be unleashed and allowed to produce recreational pharmacology, so recreational drugs, and 00:30:00they would have to go to the same kind of FDA approval processing unit States and the equivalent in the European union.

00:30:07 They had to demonstrate, for example, a threshold of safety that would have to be higher than let's say alcohol and tobacco, which are drugs that we already allow because they've been grandfathered into UNC. Into our system. What would a legitimate research and development effort to develop a recreational drugs?

00:30:25 Look like the dystopian element of these. We'll say that we would end up being creating Soma from the brave new world, the, a drug that would make people less engaged in their community. But the flip of the coin would be that we might actually be creating better alternatives. And I think that's a good compromise with the idea of creating a market.

00:30:44 That it's legitimate, but at the same time, not legalizing the kind of rat poison that right now, it's on the streets of America and Europe.

00:30:52 Host (David C. Luna): I think there, I think the discussion needs to go on at least a public discussion about all kinds of drugs. Can we take 00:31:00 alcohol, for instance, actually scientifically proven that it's a cell poison.

00:31:04 Yep. And, there's, I'm pretty sure it wouldn't take too much to make alcohol where it gives you the buzz, but you're not really drunk and you can able to drive a car. So you have the same fun, but it's safe at the same time. And I'm seeing this trend there's more and more alcohol free gin alternatives and things like that.

00:31:24 So there some innovation happening there. And the other aspect is which I try to have a little fun sometimes before I start a talk. Which is I asked the people why not legalize all drugs? Why stop it Marianna? I'm just like, Oh, put it. But it's a gateway drug. And I'm like, okay, who here? If everything was legalized, heroin, crack cocaine, everything would be legalized.

00:31:45 Who here would take that. And no hands go up. I'm like, okay, then why aren't we legalizing it? Isn't it your body? no, it's always for the other people, I'm protecting the other people and I ask, okay, why is alcohol legalized? And I'm like, probably because politicians drink alcohol, but 00:32:00 I think the overarching discussion needs to continue is which one are we going to legalize and why are we stopping at marijuana?

00:32:07 Guest (Rodrigo Nieto-Gomez): Yup. And you're completely right. So alcohol is legal because we grandfathered it in their system. the Phoenicians already. It would ferment fruits in order to produce alcohol. One of the oldest drugs that we've been allowing, and it became a cultural drug, but you're completely right. If I show you on paper, they let's say LSD, which is a relatively safe drug actually, and alcohol.

00:32:28 And I told you without telling you which is which one would you legalize? You would have to be insane to say alcoholics. LSD is a safer drug. If you want it to allow one of the two now research, for example, in SQL tropics and Alison eugenics stopped in the 1970s because of a Puritan stick attack that we got or whatever.

00:32:45 So these are a good example in which what would happen if you would allow, as you were saying, I'm not saying like you, that we should legalize all. Current drugs, but I would say let's allow for companies to explore, how can they produce safer drugs, that the 00:33:00 one we are already consuming. And as you said, a research exists already.

00:33:04 It's in place for alcohol alternatives. That can be linked. We fight. So you can make cocktails with them. They give you, as you mentioned, the same bus and then, and you go and you leave the party. You take another appeal. 15 minutes later, the drug leaves your system. You're perfectly be safe to drive thousands, hundreds of things.

00:33:21 Thousands of lives would be saved if we allowed for recreational research, the drug environment, but we haven't. And the dichotomy of discussing it as either legalized or banned them, leaves innovation out of the conversation. And I think that's a mistake.

00:33:38 Host (David C. Luna): Yeah. And I don't think we have to look for it. We can just take a few examples or in Sweden in the 1960s, I believe they legalized.

00:33:46 Pornography. And then crime went down or the alcohol prohibition in the U S where crime rates went up. And that's how Al Capone came to power is having the alcohol prohibition in place. And once they 00:34:00 legalized it again, crime went down and a funny or ironic thing is they didn't get them based on alcohol, but tax evasion.

00:34:06 So whenever you criminalize a substance or whatever, a crime tends to go up, that's just what history has shown us.

00:34:15Guest (Rodrigo Nieto-Gomez): your rights. so interdictions will not ban a behavior. The behavior will continue. It will make it illegal, but criminals will adapt. We are in a world in which today we accept research and development for recreational purposes in almost any field from computation to engineering, do fun stuff with any piece of technology, but in pharmacology, a very strict stance against anything but drugs that cure diseases.

00:34:43 Has made it very difficult to create safer alternatives to the one that was ready on the,

00:34:50 Host (David C. Luna): yeah, maybe a last comment on that, in regards to hemp. So we used to use ham for a lot of things. So not only for clothing, but also paper, and if you 00:35:00 compare it to cotton, which is really good. Poor material.

00:35:02 Many people don't realize that, but cotton takes up smell very easily. It is absorbent that's about the only advantages has hemp is much more durable. It's much more breathable. So there's so many aspects to hemp that are far superior than cotton because cotton uses a lot of water. And when you look at where cotton is basically planted, Mostly in country that don't have a lot of water.

00:35:27 And the other aspect is that we've lost a lot of innovation potential because of the machines that could produce hemp fabric are a hundred years old in the machines that we have today, highly advanced for cotton, but they won't work for him. So we've noticed a lot of innovation potential because an industry, I believe it was DuPont or somebody.

00:35:45 That basically wanted hemp outlawed.

00:35:49 Guest (Rodrigo Nieto-Gomez): Yep. So the marijuana prohibition, the fun thing is that some of the core lobby that got it banned in the United States, it was actually part of the pulp or cellulose 00:36:00 industry. And they spend, what would be current dollars, millions of dollars getting it banned.

00:36:06 They did things like, for example, changing the spelling of the word marijuana. Yeah. So it would spell with a J in English marijuana to make it sound like in Mexico. so there's also racial component in the way that took place. And until today there is no scientific evidence that would place that drug in schedule one, which is the worst kind.

00:36:27 Just to give you an example, cocaine sexually scheduled to, So the American regulations say that marijuana is the worst kind of drugs. And the reality is that's not the case. So politics, and I am a political scientist, so politics are part of this, eh, and what we probably need to move towards.

00:36:45 It's a more evidence based policy in which risk and reward get placed in the same balance, the same way we do it. For red meat, tobacco, alcohol, or seatbelts and vehicles. when we identified that 00:37:00 cars are dangerous, we don't go on band, the cars, we just go and look for technologies that make cars more safe.

00:37:08 We're seeing right now in the curse of this pandemic, we are going through. 13, I think medical trials right now around the globe to identify a safe, eh, vaccine. And we are doing it in ways that we've never done before to accelerate the research process. And we will come up with something that will balance risk and rewards.

00:37:27 Now that can be done for other things, not only for vaccinations. And in this case, can you imagine the amount of capital that would be available to perform, recreational drugs research and as a byproduct of that, or. Knowledge on pharmacology in general would advance too. So we are missing an opportunity to advance in general biotech engineering by sustaining these interdiction that is based, not on evidence, but on a more Puritan aesthetic approach 00:38:00 to.

00:38:00 What it's pure or not, and how humans should relate to a products like pharmacology.

00:38:06 Host (David C. Luna): Totally agree. So if we go back to our initial question, which was, cartels have been using, planes, tunnels, catapults, drones, I believe in, you mentioned man semi-submersible and even breast implants. And much more to basically smuggle drugs across the border.

00:38:25 So my question would be why are drug cartels so innovative? You mentioned some of the, the reasons, but maybe you can elaborate on that a little bit more.

00:38:34 Guest (Rodrigo Nieto-Gomez): Yeah. So part of this has to do with. The fact that they have made a commitment and that commitment is that they will operate in a space that has very little regulatory friction, because they are already criminals.

00:38:47 They don't care about the law by definition. So all of the limits that the speed bumps that exist in the legitimate world, if you're opening a startup and that startup is going to be doing X, Y, and C, part of 00:39:00 your challenge is going to be to deal with the lawyers and identify what regulations. Need to be followed a, getting a chief compliance officer, et cetera.

00:39:10none of those are present in the drug business. The other parties that their institutional incentives are perfectly aligned with the product and the objectives of the operation. if you don't succeed, you literally will be killed or imprisoned and therefore. Staying ahead of the game remains really important.

00:39:31 And for them, it's not a question. If their supply chains will be obsolete. It's a question of when, because they know that they have a highly professional adversary police officers and military forces fighting against them. So when you know that whatever you are producing will be outdated by an adversarial force.

00:39:51 You are less subject to the innovator's dilemma, right? you are actually. Always looking how to outdate and render your 00:40:00 own systems obsolete. So the moment that a drug cartel is digging a tunnel, it is already thinking about what will happen when the tunnel gets found and what alternatives they have available.

00:40:10 And this is why the hits are fun. So in many ways they have successfully adapted. What we want more companies to do, which is to understand that short term profits cannot come at the cost of long pane term resiliency of the organization, cartels are willing to forgo millions of dollars today in order to keep the organization resilient to the future.

00:40:35Host (David C. Luna): this is such an important point and I see this in companies, they have a successful product. And what they actually should be doing when the product is actually growing really fast is then they need to start developing a new product and not waiting for the cash cow for the S curve to flatten.

00:40:51 And that's so hard for most companies because they see, Hey, we're having a lot of success. Why do you want to put valuable resources? Into a product 00:41:00 that's super risky, a new product, and we have this super product that's going well, let's me. Why should we do that? And that's so hard for companies to really do exactly what the cartels are doing.

00:41:11 So what are some concrete things that we can learn from the cartels when it comes to innovation, but also being very agile and adaptive. That's your business model to these rapidly changing environments. Do you have some real life examples where innovations from a drug cartel were applied to say other industries or companies?

00:41:32 Guest (Rodrigo Nieto-Gomez): Sure. and I think you explained it perfectly. I would give the example of the automobile industry right now in Germany and how little and how late they started moving when the electric car, when the electric car. A movement started to take over. and I look, I don't know, at the end, if Tesla would occur, I will achieve the level of growth that we think it will at one point.

00:41:53 But certainly the fact that both BMW Mercedes Audi, it took them so long to enter the game when they 00:42:00 are the incumbents. It is not new. It is not surprising. It is the innovator's dilemma, but nevertheless, it is a common thing. I do have it samples of direct behavior from drug cartels.

00:42:09 Applied it to legitimate business environments. I don't want to say that's where they got inspired, but we do get to see the same kind of logic. And one of my favorite example, actually, it's a weird one. It comes from the way some of our current platforms operate. So if you think about the app store or Google play store, what they do is that they build more or less the same model of centralized platform or decentralized innovation and risk.

00:42:37 Around their developer. So if you want to put an app on the app store for Apple, Apple will take 30% of whatever you do. So if you succeed good for you, but they take a cut. If you fail, the failure is on you and you are the one who made all the investment and all the effort and all the research. And you are the one who goes bankrupt.

00:42:56 This is a mold that comes directly from 00:43:00 clandestine or criminal organizations either by. Charging a fee to operate in their territory. In this case, the wall garden is a territory or by funding in some cases developers a, but they take the risk the way we said it. so that model is it's clearly a mafia based model.

00:43:18 And the a, I am surprised that it took this long for governments on the planet to start to calling them and re recently in the U S Congress. I don't know if you saw it. Four big CEOs of four tech companies when they're in for the first time, Tim cook specifically from Apple was called on this particular issue.

00:43:37 So this is the kind of behaviors that we were used to seeing criminal already, but it is a very successful one. So I don't blame Apple for doing it. It is, it makes sense. You bring a lot of innovation. A lot of people are no legitimate legitimately doing it very well. Thanks to the fact that Apple made the very heavy capital investment to build their platform.

00:43:56 But that's a good example. Now the extreme of this is actually not 00:44:00 on the app store. It's CDM. CDA is as many of your listeners know the, one of the alternative app stores that exist. If you jailbreak your phone, if you break from the chain Apple. And the interesting thing about CDA is that you get to see a lot of apps there that haven't been approved by the app store of Apple, but some of them become so successful that then Apple integrates them into iOS.

00:44:26So paradoxically that semi criminal or semi illegal operation that is J breaking, it's sexually legal, according to now a U S law at least, but, jail breaking phone, and then doing things that Apple doesn't want you to do that in itself becomes a signals indicator for Apple to decide what people want later.

00:44:47 And this is something that we see time and time again, with legitimate companies using actually. He legitimate markets in order to inform their business decisions. I 00:45:00 remember reading that in Estonia, HBO, plus what's not available and it game of Thrones, it's a heavily downloaded, loaded torrented show.

00:45:10So instead of fighting it. HBO ended up doing was opening a ton of memorabilia shops where you could go and buy toys from the game of Thrones. And of course, whenever HBO finally launched their international operation, they made sure that it's Tonia would be one of the core markets they would use.

00:45:27 So these. weird relation between legal and illegal. It's one that we see all the time. And we do have many examples of companies in the legitimate or semi legitimate world actually taking from behaviors from drug cartels, like a couple of Apple.

00:45:42 Host (David C. Luna): Yeah. I think Citi is actually a perfect example.

00:45:44 I personally have my phone jailbroken yep. And I've done that since. My first iPhone actually, and have seen the whole discussion in the community. That to a lot of people, they're like, ah, it's not worth it anymore because Apple is integrating a lot of those features. And I just 00:46:00 found it fascinating that, apples being inspired by this semi legal, at least it's illegal in Germany.

00:46:07 So you can do whatever you want with your device since you've bought it.

00:46:10 Guest (Rodrigo Nieto-Gomez): Yeah. And if you think about it. So for example, many companies, both in Germany and America are looking to become the first ones to deliver products via drone. For example, sent using drones to deliver your Amazon purchase or your pizza that you bought a dominance.

00:46:26 They won't be the first company to do it. Then the Wiener cartel, it's been delivering drugs via throne. Now, for years, in fact, since 2007, we have it defied the use of drones in the us Mexico border, either for surveillance. Or for delivery of small quantities of drugs. if you think about it, cocaine is a perfect drug to the liver via throne.

00:46:47 It's small, but still highly valuable. So the lessons that they have taught should be captured and understood for anybody, for DHL or FedEx or anybody trying to 00:47:00 deliver products, not because they are going to be delivering. Criminal payloads, but because they have years of experience without the friction of the regulation, right?

00:47:11 So this is where criminal innovation, these valuable, it's not so much in the value proposition itself, is that it answers the question. What would this market look like if it were not limited by regulation?

00:47:22 Host (David C. Luna): So you're saying that Amazon wasn't the first company to deliver its products with drones.

00:47:28 Guest (Rodrigo Nieto-Gomez): Yes, that's correct.

00:47:29 So at this point, if you consider what a criminal cartels companies, they were the first ones they've been doing it now for many years.

00:47:37 Host (David C. Luna): So do you think Jeff basles has copied that from the cartels?

00:47:41 Guest (Rodrigo Nieto-Gomez): I let me put it this way. I haven't spoken with their team, but if I were working for Amazons.

00:47:46 Drone delivery teams. I would certainly be paying attention to the experiences to what's known they're already court cases. How were they found? Where did the drones had accidents? What kind of payloads they were using do people because 00:48:00 all this is in the court cases, do people identify the noise? So noise levels are going to be a big deal. Once you start delivering, how did cartels deal with that? All of these questions that right now are only experimentally nature in the laboratories of legitimate companies have a ready real life deployments. In the case of drug trafficking organization.

00:48:20So there are a fantastic social experiment on technology diffusion that you couldn't perform yourself right now because it would be illegal to do So they can, because they don't care about the law. And therefore that's the biggest value, the highest value that we have. Is that they get there before in ways that we couldn't because they do it outside of the law.

00:48:40 Host (David C. Luna): Absolutely. So if we dig deeper on some of these innovations, so during public Escobar's ruling, he used planes, and then more and more of these planes got discovered and captured. Then he has cartel, resorted to dropping the product from the planes. And then I believe also he pioneered building tunnels to ship his 00:49:00 product.

00:49:00 And then I think the cartels moved too fast, bolts that brought with it. A lot of issues of 50% of these boats sank and then came these Narkle subs. I believe it was first discovered in like 1993. And so these drug cartels have been using these. I call them submarines, but they're actually like sub semi-submersibles that's correct.

00:49:21 Yeah. That use carbon fiber to ship their drugs to the destinations. Can you also explain what these narco subs really look like?

00:49:29 Guest (Rodrigo Nieto-Gomez): Do you have multiple ones? So the one that you thinking about this. What we call a semi-submersible. These are little boats, basically that have a very low flotation line.

00:49:39 So from the distance you would not see them. They float almost at the level of sea level. They only have a few elements of the whole outside of the water. The problem with them is that when from the air they're released to spot. So you see them as a asset, as a boat, they're fairly evident.

00:49:56and the coast guard and the Navy's of the country, different countries 00:50:00 have now a fairly robust mechanisms built in place to identify. No, the most ambitious of their maritime operations are fully submersibles either by being petard. Two other boats. So you would see a fishing boat and it looks perfectly normal, but under the water, it would be dragging a semi-submersible fool with a kind of cocaine or two tons of cocaine.

00:50:23 And you actually, we actually have identified the use fully submersibles made out of Kevlar. So there will be difficult to detect. And we found a few of them in ship yards in South America. We have never found one in open sea, which means either that they didn't use them or that they've been very successful using.

00:50:41 But this is one of the problems that we have with counter-narcotics operation is that you do only know where cartels are failing. You don't know what they're succeeding. eh, amongst the many different chains in the supply chain, the chain management elements that they have. Certainly the maritime one is one of the most, the dystopian out of 00:51:00 a mathematics movie, but you'll encounter these level of ingenuity almost at every level in the supply chain.

00:51:05 Host (David C. Luna): Yeah. I've also seen that they have in these semi-submersibles that they have a lever inside. As soon as they're being boarded, they can flood their vessel when the authorities or the us coast guard is trying to board essentially, thinking it. So if they're in front of a judge, they can say, I didn't have any drugs.

00:51:23 Guest (Rodrigo Nieto-Gomez): And that goes to the understanding of the system, the us changed its laws. So it criminalized this simple possession of a semi-submersible precisely to adapt you described, right? It used to be that they would get rid of the drugs and therefore there would be nothing to prosecute them. I'm against win.

00:51:40now just the mere fact of. of being on international waters in an unregistered semi-submersible would be considered a illegal in itself. but you're right. it's part of what they used to do, eh, to avoid persecute, persecution

00:51:53 Host (David C. Luna): a hundred. I didn't know that what was the cost of one of these NorCal subs?

00:51:57 We all know that, drugs are highly profitable, but 00:52:00 we all think of, these big submarines U-boats things like that. That it's really expensive. What does something like that?

00:52:06 Guest (Rodrigo Nieto-Gomez): Yeah, it's hard to determine, right? Because we're dealing with very difficult ways of coming up with, but we often put value or the cost of manufacturing of one of these semi-submersibles in around a million bucks, a million dollars, and they might transport 80 90.

00:52:24 A hundred million dollars of drug of drugs in one of them. so they normally do a single successful run, retrieve them. So they'll sink them once they've reached the coast of Mexico or even the United States and a single submarine it's worth in merchandise, a hundred, 150 times it's cost. So you can see that the relationship between investment and reward is really high.

00:52:47 Host (David C. Luna): Yeah, it reminds me of the investing. They call it asymmetric risk. Yep. So you would find it say some type of investment or investment vehicle where you can lose five, six, or maybe even 10 times. And 00:53:00 that's the point where you break even. So I find that fascinating that it's just cheaper for them to sync it or say, Oh, you know what?

00:53:06 They caught like 10 of them makes no difference. We've shipped like 500 million of product across the border. So that's fair enough.

00:53:13 Guest (Rodrigo Nieto-Gomez): So we know, and this is publicly available data, so I'm not disclosing anything. We know that the United States government has a big amount of confirmed the tech, the illegal entries into maritime space controlled by them that they cannot respond.

00:53:32 Two, because of lack of assets, right? We were talking about 40 to 60% confirmed illegal crossings is that the U S just doesn't have enough vessels in the water to one chase them. Those are the confirmed detected ones right now, add all the ones we know nothing about that. We just don't know. We don't know what the number is.

00:53:51 It might be twice as much. It may be half as much. It might be three times as much. We don't know it. So you're talking that at least from those that we know 50% 00:54:00 of them. We will not respond to them of those that we detect. Eh, and I just told you that a single submersible is a million bucks, but it transports a hundred.

00:54:09 So I can basically send 99 of them lose 50 of them and still have a very healthy profit margin coming out of my operation. And this is the world we're living in. When you see the kind of profit margins that draw cartel operations.

00:54:25 Host (David C. Luna): Yeah. You'd be stupid not to do it. just from the.

00:54:27 Metrics.

00:54:28 Guest (Rodrigo Nieto-Gomez): Yeah, that's exactly the single you were mentioning tunnels. We just found that one of the more sophisticated ones between the us and Mexico border, a single tunnel, my cost to produce, to build two, $3 million, a million dollars around that number. And it might take you a few months to a few weeks, depending of how efficient and how the band, et cetera, the first day that you finished building it, you might cross half a billion dollars in.

00:54:53 Methamphetamine or cocaine or whatever. So if that tunnel would be found that day 00:55:00 after the first shipment is successful, it already paid itself a hundred X. Now chances are, is that actually that total is going to be continuing operations for months or even years. But even if that total success rate would be 12 hours after completion, that in itself would make it one of the vest investments, just for a pure, a capital investment point that you could make anywhere on the planet.

00:55:25 Host (David C. Luna): You can say that it is a cat and mouse game, but they're just more mice.

00:55:28 Guest (Rodrigo Nieto-Gomez): Yeah. And Mesa are more creative in many ways. This is the other part of the equation, right? So governmentally innovation is slow. It's limited by regulation is remit limited by our liberal society. we're seeing this debate right now in America.

00:55:41How far are you willing to let your police forces to go in order to punish a certain crime? there's a cost in the freedom, eh, in a society. So countries like the United States have made a trade. Often they have decided that in general, they decide. They prefer, for example, a guilty man on the street that an innocent man in prison, 00:56:00 that doesn't mean that there are no innocent men in prison, but in general, the system is built.

00:56:04 So it's hard to put somebody in prison. Chinese society, for example, has done the opposite that in many ways they are more comfortable knowing that everybody goes to prison even a few minutes. those trade offs cost innovation in government, right? and part of that consequence is that where you have nimble, flexible mice, as you're saying, and you have lots of them and very diverse and well-funded, you have a few fat cats that are strong, that are capable, that are well train, but there are a few, and they're very visible.

00:56:34 And when they're moving, they're noisy.

00:56:36 Host (David C. Luna): So you also mentioned another very innovative transport method that the cartel is using, which they nicknamed the Neptune project, where they would have a holdout torpedo in which they would Isely transport drugs. And this then is told by a ship and the torpedo floats about 30 meters under the water.

00:56:55 And they also have a relay system where one boat could release the 00:57:00 torpedo drag cable. And it would be picked up by another boat in the vicinity. And it would also have the ability to flow to them top signal it's encrypted location to the cartel and the torpedo, which has looked like simple driftwood or a simple wood log swimming in the ocean.

00:57:17 And what I found particularly fascinating is the fact that all these communication devices that are built. Into the torpedo can be bought off the shelf. And I believe their success rate was something around 90%.

00:57:29 Guest (Rodrigo Nieto-Gomez): That's correct.

00:57:30 Host (David C. Luna): And Polly's, there's designed there have been fairly old now and not think what we have now.

00:57:36 So what are some of the trends or some of the devices we're seeing now? Can you elaborate on that?

00:57:41 Guest (Rodrigo Nieto-Gomez): Yeah. So I mentioned these one, right? So in the innovation literature, sure. We often talk about success bias, right? so your listeners may be familiar with that. Is that whenever we come up with generalizable lessons from successful business strategies, we do it from companies that are still.

00:57:59 Around 00:58:00 TWA is not putting out quarterly reports anymore, in that case, not anymore a successful company and therefore we don't. But so when we build our case studies for business schools, for example, we do it and we generalize successes, but we don't know if that makes failed companies that also tried the same thing.

00:58:17 And failed and they're not around anymore. In drug trafficking literature, we actually have the opposite. We have failure bias for me to be able to talk to you about a current mechanism of smuggling that it's successful. It means we already know about it. It means that we might have already capture one or two of them, and therefore we are ready.

00:58:36 It know more about it. So the most ThemeForest they often say when they teach these two to law enforcement agents, for example, the most interesting drug trafficking organization, operations, the ones I cannot talk about here, because I don't know nothing about them and nobody does right. Then we have lots of them.

00:58:53 We know, for example, that. Drug trafficking organizations were using semi-submersibles for more than eight years 00:59:00before the first one was captured. So that's that the delay into the, almost a decade of delay between them launching a successful new technology. As finally detecting it successfully and interdicting one.

00:59:14 So we know that they've been very interested in automation systems. Eh, so be that drones. What other mechanisms to some of these tongues that I described now have a little, I don't want to call them drones, but leading automated carts, like the ones you would see in minds. so you don't have to have a human being going back and forth the tunnel, and therefore there's nobody to arrest.

00:59:35 Eh, we know that they've been exploring submersibles. That would be without a crew. If you do that, you actually simplify a lot the building of the submersible, because then all the life support systems don't have to be there. And the idea being that suddenly one day you would send three or four of these automated drones full of cocaine.

00:59:54 And maybe two of them make it and who cares, right? There's nobody there to be arrested and there's no risk. there is no human 01:00:00 capital risk. We, I already mentioned the drunks, right? With increasing payload for some of the unmanned vehicles, they be using some of them. they've been adapting a lot of the ones that are used by the movie industry that use very heavy camera.

01:00:14 So therefore they can carry a bigger payloads. Eh, they tend to have either hybrid engines or gasoline engines. That be in electric and therefore can go farther. And two Oh two an example coming back to the whole CDN. And so right now in America, all drones have to legally fly only by line of sight.

01:00:32 That means that you have to be able to see the drone as you're flying. if you're that drug cartel, you don't care about that. So all of the drones that have been captured from rural cartels have been the equivalent of jailbroken and they're running software that allows them to fly. Without line of sight, which means you can program it from whoever, wherever in the Mexican territory.

01:00:52 And they can land pretty far into the U us territory and the there's nobody to capture one side or the 01:01:00 other. so it's really fascinating. Eh, we've seen the sophistication of tunnels so more and more of them. And if you think about it, the interesting thing about innovation in. Drug smuggling specifically at the us Mexico border is on where there is a wall.

01:01:13 You have a very clear series of vectors. You can either go above it, under it, around it or through it, right? That's it, there's no other way of doing it. And all cats, all the catalogs of criminal operations are based on one of those behaviors. And frankly, they are constantly innovating in all of them. And we see innovation in going around it.

01:01:33 And that will be the maritime route. Yeah above it, that will be drones and other ways of smuggling on top of the fence under it, that will be tongues. And then through it, which is actually one of the most way of doing it is by smuggling in the middle of legitimate trade that occurs every day between the United States and Mexico, or associating it to human smuggling in between points of view.

01:01:56 So all of that is a catalog of behaviors that 01:02:00 these venture capitalists. Firms of criminal behaviors fund and in all of them, see the new trends successfully being implemented, right? Drones, submersibles, tunnels, or new ways of smuggling, through points of entry by concealing it in legitimate products

01:02:16 Host (David C. Luna): and that amazing.

01:02:17 They do a lot of product innovation as well. So recently, or the last few years smoking has become unsexy. So a lot of people do vaping. And I guess we're seeing a lot of the screwed cannabis oil that is used for vaping. So they seem to be adapting to market demands as well. They seem to be in touch, which is in demand.

01:02:38 Guest (Rodrigo Nieto-Gomez): And interestingly enough, in that regard, for example, one thing that is very funny that we're seeing reverse modeling. So because the marihuana market has grown in Mexico and now California or Colorado marijuana is considered to be of higher quality than the Mexican one. You actually see now organic marihuana smuggled from the United States to 01:03:00 Mexico, illegally it to supply that market.

01:03:03 So not only they're innovating in the different kinds of delivery mechanisms like vaping, as you were saying, but they're also creating markets. And if now Mexicans won the California stuff, they'll supply it to them.

01:03:14 Host (David C. Luna): That's quite ironic. It is. I've also seen that the cartels, I also have a PR department, if you will.

01:03:21 Ah, they've been using the coronavirus to distribute food to people labeled with El chapel in order to gain support. So essentially what we're seeing is. the, their PR department at work

01:03:33 Guest (Rodrigo Nieto-Gomez): that's completely. So historically they've always had a way of relating to local populations, how effective they are.

01:03:42it's, it can be discussed, but they certainly are in this case, not only this. Tributing distributing a food or supplies. They actually have been building medical infrastructure to take care of people, especially in those areas in the rural parts 01:04:00 of Mexico, where the Mexican governor and has failed to provide effective care.

01:04:03 Now, I don't have any data on the quality of care that was provided. But it is highly paradoxical that this company that sell these pharma lodge, pharma, pharmacological products that are very hazardous to the health of men, millions of people are actually now in the business of providing healthcare to some of these populations.

01:04:21 But there is, as you mentioned, it is a part of a very well crafted effort to win, to use a term that was. Popular a few years ago, the hearts and minds of local population.

01:04:33 Host (David C. Luna): This is, I think also an argument that I tell people, especially in say Europe, where they have socialized medicine and I'm saying, if you do it correctly, private institutions or private companies provide better service in most cases than governments can.

01:04:47 Now there's a few exceptions, but you could, you see here for an instance that Mexico doesn't provide the medical services that country needs and here a private organization, even though it's. It's criminal provide better 01:05:00 services. So you can have a society where you have private medical companies that provide better services.

01:05:06 So just because the government does not do it doesn't mean we won't have this service. And a lot of people point to the U S now that's not a fair comparison because it's not really a free market. You had Obama and I don't want to get political, but, he provided a lot of money to the pharmaceutical industry.

01:05:22 So you don't really have. This competition that you really need to have, right. Maybe better service than if you socialize it. So I find that fascinating.

01:05:30 Guest (Rodrigo Nieto-Gomez): I, yeah, this is a longer conversation to have, and we probably could have it another time, but you're right. so in many ways, a lot of six.

01:05:38 Discussions regarding government versus private sector, are they remind me of how probably alchemists used to discuss about alchemy before chemistry became a thing. So most of our ideas on how to manage an economy come from the 19th century from a timing, we still have very little understanding, eh, very small they're standing of innovation theory.

01:05:58 Or off 01:06:00 coordination and human behavior. So both Karl Marx and Adam Smith, for example, they publish their work way before big data and our understanding of social behavior. So you're completely right in this case. What you're trying to do is to come up with what is the best kind of the best way of coordinating humans.

01:06:16 So we can build them system that it's fair, but also innovative. And in the case of drug cartels, what you have is. Fairly deregulated space. So it's almost libertarian paradise in which if they want to be yeah. The hospital. they'll build the hospital. Is that hospital up to code? No. Do they follow medical protocol and FDA approved?

01:06:38 No, probably not. And it may work or it might not. Now, would you subject your son or your wife to something like that? probably not, but if you have no choice and that's what it's available. It does become a successful deployment of an asset that wouldn't have been there had regulation had to be followed.

01:06:58 So the part of securities that you 01:07:00 enter, one of these pick your poison kind of equations, and they agree with you that what cartels in this case demonstrate is that regulation does take a toll. In their innovation capacity. Now that might be a good thing. And we might want to slow down in innovation in the name of safety, for example, and Europe has made more of a point of that by following what we call the precautionary principle as part of EU regulation.

01:07:27 But there is a cost and drug cartels become a great poster child case to look at what would regulation is doing. And maybe we can get there. The best of both worlds, but learning what works with them. But at the same time, preserving what it's effective in our regulatory environment.

01:07:46 Host (David C. Luna): I always try to sum up this discussions I have with friends and family is all you have to decide as one single question.

01:07:53 That's what role should government in your life? Should it be the nanny state take care of you from cradle to grave? Or do you want 01:08:00 say the maximum amount of freedom, but you have a lot of responsibility. you have a dictatorship, you have socialism communism. That's very neutral. It's not bad or good.

01:08:10 And you just have to decide in what's what trade offs are you willing to make? As you say, and personally, I want the maximum amount of freedom. I'll make a few trade offs, but I think that can be summed up by making or answering that question for oneself. Ah, they're behind in a lot of things. ease of doing business place 26, the internet, a lot of experts here complain that it's so bad.

01:08:33 We have a lot of social structure that will protect us from great, medical bills. But at what cost I always ask the people, look at what you're paying in taxes. Germany's fewer. If you're single, you pay the second highest taxes in the world after Belgium. So they tend to forget, what am I paying? What is the trade off I am getting for the service that is being provided.

01:08:56Guest (Rodrigo Nieto-Gomez): and I think that's the ultimate question, right? So ultimately what you're 01:09:00 discussing and what we've been discussing here is how do people coordinate in this case? For example, an interdiction against drugs doesn't mean that people will not consume drugs. It means that you will be creating a black market for drugs.

01:09:12 Now that might be the right thing because it's easier to manage. And because you are okay with the consequences of that, but you're trading one social organizational system, which would be a legitimate. Market versus another social organization system, like a black market or illegal trade, as long as people on their STEM carefully, the trade that they are entering into.

01:09:35 I think it's fair. My fear is that in many environments, people just don't understand necessarily, or haven't taken the time to see. Why are you losing at the same time that you're getting something then? And that's not an informed voters should be somebody who says, okay, I understand perfectly well, what I'm losing out of this and I'm still okay with, and then it's okay

01:09:57 Host (David C. Luna): to sum up this discussion.

01:09:58 What are your top 01:10:00 three most valuable skills companies can or. Should learn from drug cartels and how to innovate. Now, I know you mentioned some of them, but maybe you can give us your top three.

01:10:10Guest (Rodrigo Nieto-Gomez): we mentioned two of them already. I would say that the first one is of course, to clearly make sure that organizational incentives and the personal incentives are well aligned.

01:10:22 This is something that we see a pro in criminal organizations. Very clearly it, if you don't work hard for the company, you'll end up. The priest on our death. That's a really strong, powerful individual incentive. So any company, especially big companies, reward behaviors within the organization, that actually are the true mental to the organization.

01:10:43 I'm thinking about office politics or kissing my behind, They're very aggressive anti-innovation practices where my best course of action is actually not to do anything. Because if I try to do something and things go, don't go, I'll be punished. So for, by all means, if your 01:11:00 organization is punishing, those who try something new in a really bad way, you are hurting yourself.

01:11:07 Cartels don't do that. They actually work really hard to innovate all the time. The second part, which kind of piggybacks into these one is that drug trafficking organizations. Paradoxically, we don't think of cartels as risk averse. We don't think of drug dealers as risk averse, but that's what they are in their mind there thinking about how can I continue this operation by minimizing risk?

01:11:29 So it's almost like saying, okay, I'm going to jump out of a plane, but I'm going to make sure that I have a parachute. So what are the ways in which you, your company is systematically? Thinking about decreasing longterm risk, even if that means to take a profit loss or a less of a profit at the short term.

01:11:47 Now this is not new. We talk about organizational resiliency. It's just a cartels practice better than almost anybody. So certain companies I'm thinking of Amazon, right? That historically had 01:12:00 a very low profit margin to keep the company growing. If you think about how can I make sure that this business unit is successful?

01:12:09 Not now, not tomorrow, but 50 or a hundred years into the future. Your decision makers can process looks very differently that if you're thinking about the next quarterly report, Or how can I get a quick exit out of the startup? So the GTOs drug trafficking organizations tend to think in very long term horizons in that regard, but at the same time, they innovate very rapidly in the short term.

01:12:34 So these pairing between low, long term survivability of the central structure, but quick change in the business models. And as you were saying, the pioneering of new. Products and methods. I think it's a great formula in any case that the cartel didn't invent, but they apply very successfully and other companies could learn to do in a better way.

01:12:56 Host (David C. Luna): You mentioned three excellent points. And I think one of which can't be 01:13:00 overstated or can't be mentioned enough, which is. The incentive structure have to be aligned, or the employees of a certain company have to have skin in the game. So compensation drives behavior as the old saying goes, but if a company wants more innovation wants the employees to be more innovative.

01:13:18 But continues to compensate them based on their silos on their departments. Then why should I, as an employee, if I have a conflict in priorities, focus on this new innovation stuff here on the side, if I'm not getting paid or compensated for it, or if companies want cross-functional, but they continue to pay the employees based on their silo.

01:13:40you aren't going to get cross functional teams on the surface, maybe. But real cross-functional teamwork. You ain't going to get it that way

01:13:48 Guest (Rodrigo Nieto-Gomez): and to be really fair. And this is where things get hard and the way cartels do it is by having what we call a red team. So it's not only you inside of your organization.

01:13:57 You're systematically being attacked from the outside 01:14:00 red teaming. It's a great way of, Doing this. I recommended very frequently to companies that are starting to get too comfortable in their position and finding ways in which external actors can put pressure on you. Normally it's better when those external actors are either consultants or teams that you build within your own organization.

01:14:18 So you control them and they don't destroy you. But yeah, so cartels are. Permanently subject to these external pressure. And therefore, even if a manager doesn't want to change, if the cops knock at your door or you hear that your colleague Callie was shot and killed two days ago, that changes that day.

01:14:37 Host (David C. Luna): Yeah. And I believe Amazon even has a principal where. The services that they provide inside the company. At some point they'll externalize these services to have in a sense signals directly from the market and these services have to be profitable. So that again, in turn forces, these new services that have been externalized to innovate.

01:15:00 01:14:59 Guest (Rodrigo Nieto-Gomez): Yeah, you build competition, right? In this case, it doesn't have to be lethal one, but certainly making sure that there is a mechanism. So those who want to do something new can point that a competitive environment instead of a vertical one and say, Hey, if we don't do this, Somebody else might do it instead of us.

01:15:18

01:15:18Host (David C. Luna): some of the last questions I want to ask you, and I've been wondering the whole time, have you had death threats from the drug cartels or are you worried that they might come after you for essentially spilling the beans on their trade secrets?

01:15:31 Guest (Rodrigo Nieto-Gomez): No, never. I work at a very high level. I do have family in Mexico, so I'm careful about that.

01:15:36 I don't. so that danger happens mostly to journalists who are really literally identifying their networks locally, or of course, law enforcement agents. So I'm, thankfully I wait enough from that environment. that has, that hasn't happened.

01:15:52 Host (David C. Luna): Have they tried to recruit you as a head of innovation or something like that?

01:15:56 No.

01:15:56Guest (Rodrigo Nieto-Gomez): not at all. There are. When you growing 01:16:00 Mexico, it becomes weird to identify who's doing what, where some Mexicans grow more cynical about. Money that cannot be explained. So for example, as a lawyer, this is years ago, I will be very careful to never enter a business operation with somebody whose lifestyle didn't match.

01:16:20 What I knew was the profitability of the legitimate industry. So I probably made a reputation early on of somebody who would stay out of it. But. Yeah, it is true that in places where there is a lot of drug money on Mexico being one of those at one point, for some people who want to start a venture, it becomes really hard, actually not to touch cartel money, which is yet another problem we didn't talk about, but this pollution of legitimate businesses.

01:16:46 It's a real problem, because then when you want to subtract the legitimate in the industry or the legitimate economy from the drug economy, they're so intertwined. That becomes really hard.

01:16:57 Host (David C. Luna): Yeah. That's a good rule of thumb. So is there 01:17:00 something I didn't touch on or forgot to ask you that I should have mentioned?

01:17:04 Guest (Rodrigo Nieto-Gomez): I think it was fantastic. It was a really nice conversation, David. I would say that. One of the challenges we have. And you mentioned project Neptune, the submarine that would go on completely under the water it project. Neptune is one of the few cases where we actually have a criminal. Intrepreneur giving a testimony of what happened inside of a drug cartel operation.

01:17:25 Most of the time. We learn only by directions, but we rarely have somebody talking about it. Then in that case, doctor from Mexico medical doctor from Mexico, went into the witness protection program. And for reasons I still don't understand, but I'm very thankful of, he was allowed to give a bunch of interviews.

01:17:42 There's a very nice vise, a YouTube video. I wrote an article about it and he talks about. About the process to create these needs technology. And the funny thing is that the, when he's talking about, you could forget that you're watching a drug trafficking innovator, and instead that 01:18:00 you're watching an episode of shark tank, right?

01:18:02 Because they, the language that he uses, the terms that he used as the concept, they, the story arc exactly the same one, anybody who had a great idea and wanted to bring it to market. The only difference is that these great idea was about how to smuggle drugs into the United States.

01:18:18 Host (David C. Luna): Fascinating.

01:18:18 If there are some listeners out there that are like, I want more of these insights from Rodrigo and the drug cartels, what's the best way for them to get in touch with you. How do you want them to contact you?

01:18:30 Guest (Rodrigo Nieto-Gomez): I asked him to have the name from the podcast. They can just Google my name. I'm really easy to find a Google scholar would have some, most of my publications, not all of them, but most of them.

01:18:40 And they'll find me on LinkedIn. They'll find me. They have a website www dot Rodrigo, Nieto Gomez. But I'm really Googleable. so at any point, just look at me and for me in any search engine and I'm always happy to engage in the conversation.

01:18:55 Host (David C. Luna): Okay, perfect. I'll be sure to post all those links in the show notes as well.

01:18:58 If anyone's interested, 01:19:00 it was an awesome interview. I could have gone on for hours, but I want to be respectful of your time. So thanks again for coming on the podcast and enlightening our listeners about the innovation potential that drug cartels have.

01:19:11 Guest (Rodrigo Nieto-Gomez): Thank you so much. I really, it was a blast. So hopefully we can repeat it today.

01:19:15 Host (David C. Luna): Wow. What a fascinating and interesting interview. If you want a part two, at some point, let me know, by dropping me an email, filling out the feedback form, and we might do a part two where we explore some of the other topics. We didn't have time to cover. So this is the part where I reflect upon the interview.

01:19:33 And where at some of my own thoughts, I'll also explain as a promise at the beginning, the stages that cocaine goes through in detail, how it's produced and what it really takes to build your own drug empire and to become a truly great drug Lord. Do you understand why cocaine is so profitable? We first need to understand how it's produced.

01:19:55 Cocaine's main ingredient is of course the Coca plant. It's a great cash 01:20:00 crop for tea, but also medicinal purposes. But in this form, it will be pretty useless to us as a drug cartel because it just doesn't yet provide us with a profitable drug. The cocaine content is just too low. What we need in order to produce one kilogram of cocaine so we can sell it to our end.

01:20:17 Customers are lots of dried Coca leaves. And when I say lots, a shit ton, which roughly translates to about 350 kilograms. This costs us around $385 in raw materials. Then we have to dry our leaves, which reduces our weight to something like 300 kilograms, but now comes the real fun part, extracting all that delicious cocaine out of our life.

01:20:43 And we achieved this by finally chopping up our dry leaves them with some healthy chemicals like cement, fertilizer, gasoline, and then we filter out the remaining plant manner. And do our best to remove all those chemicals. But to be honest, it's 01:21:00 not that important. Next we boil the remainder down at a low temperature and are left with around one kilogram, slightly moist paste, also known as cocaine base.

01:21:11 And if it's a white colored paste, you've done a really good job. All we got to do now for the last step is to mix our cocaine base with some kind of solvent, such as acetone with hydrochloric acid filtered, dry it. And then, yeah, we're left with one kilogram of beautiful cocaine powder. Now we can finally cash in on our hard work by selling our high quality product for about $800 in South America.

01:21:36 But wait, it doesn't stop there. By the time we export our lovely product out of say Columbia to our drug traffickers, distributors it's worth around $2,200. Then it's time for our distributors to work their magic by loading it on a plane, sneaking it across the border, smuggling it through tunnels or use one of those narco subs that Rodrigo mentioned in the interview, 01:22:00 glee our distributors, do whatever it takes to get.

01:22:03 Yeah. Our product imported into our markets like the us or Europe. Once our product has reached its destination. The value of our kilogram jumps to about $14,000, not bad day, but just because of we've got our product into the designated target market doesn't mean we're done yet because we still need to get our awesome product into the hands of our loyal customers.

01:22:24 Keep in mind at each stage, our handlers will usually cut the cocaine with other substances to make the product go further, which is also known as stretching the product. We then move on to the next stage in our supply chain, which are our mid tier dealers who generally Jack up the price too, around $19,500.

01:22:44 Finally, our mid tier dealers then distributors to their street level dealers who then sell it to our happy customers. By stretching our product and starting out with a meager $385 of dried boring Coca leaves from our headquarters in 01:23:00 South America, we've turned our product into 122,000. The dollars of pure unadulterated cocaine.

01:23:08 And if you're still confused, how we turn these simple leaves into such a highly profitable product. let me explain the magical economics, which we'll call Narcan omics of our little drug cartel. So our drug cartel is a lot like Walmart. Which is a little bit of a monopoly, but with subtle differences in, yes.

01:23:27 Sure. Walmart does have plenty of competitors, but censor the biggest and controls so much of the customer base. They're able to dictate how much they're willing to pay suppliers for their product, because they're essentially the biggest buyer. Or in other words, instead of Walmart being a monopoly, it's a monopsony.

01:23:45 Whereas the monopoly is when there's a single seller in the market. Only when one company say selling a product, extra example, a monopsony is when there's just a single buyer in a given market to where instead of the customer getting 01:24:00squeezed, it's the suppliers. So let's see if the juice really is worth the squeeze So cartel has the exact same advantage as Walmart. Most cartels don't grow their own drugs. We purchase our drugs from ordinary poor farmers that are just trying to make a living. Are cartel, then packages all nice and pretty and handles all the distribution to our end customers, just like Walmart. And since our drug cartel controls a piece of their territory, which could be a city, a region, or even an entire country, the farmers can't really well.

01:24:34 Shop around to see which drug cartel will pay them the best price for their Coca leaves. Our cartel owns them territory, and we are the only buyer. This means that if the farmers have a bad harvest bad year, the local government that may be funded by the U S war on drugs, say cracks down and destroys half of their farm or anything else that makes their costs go up for the farmers.

01:24:56 It doesn't really make a difference to us as a drug cartel. Since 01:25:00 we control the price, we're also able to keep their costs down. Even when the farmer's costs go up and the farmers will always have to suck it up and take what we offer them. Cool. Huh? So as you already know, most retailers sell their products with a 10 to a hundred percent markup from the wholesale price, our drug business, however, is a little bit more.

01:25:21 Lucrative to say the least instead of the lateral tend to a hundred percent markup. We Mark up our lovely product from $385 for a raw Coca leaves to around $122,000 street price for one kilogram of pure cocaine, which is a decent 30000% markup. Now, I know what you're saying, but David, that's not all profit because all that smuggling of tons of legal drugs with all that murdering bribing and safeguarding for all of our merchandise that we typically have to do that does get pretty pricey.

01:25:56 But even after all those necessary expensive, it's still profitable 01:26:00 as hell. And remember the government, even though there are enemies and can be a Royal pain in the ass. Sometimes they've created this beautiful market for us by classifying cocaine as an illegal substance and automatically making the product highly profitable so we can sell it in the black market.

01:26:18 Thank you, uncle Sam greatly appreciated. Now I can also hear these naysayers out there saying that drugs are addictive to which I want to respond by saying ever since we humans started selling products, each other we've devised better and better ways to make our products more addictive because Hey, the more addictive a product is, the more it sells itself.

01:26:39 We just need to look at how good social media platforms have gotten at this. But with our drugs, we don't have to worry about all that nonsense because drugs are as addictive as it gets. So obviously starting a drug cartel is the only logical choice moving forward. I'm sure you're aware of that. And I don't have to tell you that.

01:26:59 So 01:27:00 what would the process exactly look like if you wanted to get started and set up your own drug court? All right. In some ways the drug trade is as the ultimate form of entrepreneurship and don't let anyone else tell you different. The only real drawback of our drug industry is that it's illegal instead of traditional markets where any schmuck can set up shop our drug trade is more of a network market where a big part of your success will depend on the connections that you have.

01:27:29 Here are some of the skills that you'll need in order to succeed. For one, you need to be a people person. The first question you have to ask yourself is how good are you at making new friends? How good are you at earning the trust of say criminal strangers. Remember there's no rule of law here. You just can't take it.

01:27:47 Someone to court or call called police. If you've been wronged. So it comes down to how good are you at managing relationships resolving conflict, or are you able to manage people in such a way where conflicts can be 01:28:00 avoided? And if someone does purposely cross you or stab you the back, how willing are you to use violence?

01:28:06 And even though violence is generally bad for business, it should only be used as a last resort. As it attracts attention, you don't really want. The more ambitious you are when you need to meet the higher, your chances are that you'll succeed in this industry. Second skill you need to have, you need to be a creative mind with all that money involved.

01:28:26 Drug cartels have tried nearly every idea under the sun. So what innovations can you bring to the table? Tell the wit the authorities to make more money. The most successful drug Lord didn't rise to power from just doing what other drug Lord did. No. He not only came up with the idea to combine all the major cartels in Mexico into one Federation, but he actually was able to pull it off and get them to cooperate with each other.

01:28:53 With El chapel, it was the same story when everyone else was smuggling and bringing in drugs across the border. It 01:29:00was him that came up with the innovative idea to use tunnels, to transport his drugs under the border. This in turn made him the man most powerful drug Lord in the world. if you're able to strike a balance between the most innovative entrepreneur, while at the same time being the most honey cutthroat mob boss, then it's time to step up your game, which brings me to number three, you need to be able to recruit talent as in any other business and organization, people are its most valuable asset and of the drug business.

01:29:31 It's even more If you want to build a drug empire, then you're going to need employees, but not just any employees that are loyal and talented, they need the right criminal background and shouldn't be stupid. Want to find suppliers or farmers you'll need to find and make business connections with the right people.

01:29:49 Once someone to oversee your operations, you need to have and find the right person. And you need to recruit these people in secrecy without job postings, while making sure they're not an 01:30:00 undercover cop or an informant or someone that's going to stab you in the back later on. Like I mentioned earlier, once you find these people, you need to be a master in managing and dealing people problems without resorting to violence.

01:30:13at least not right away and combine this with the high profit margin of the business. You'll quickly realize that human resources is one of your biggest bottlenecks. Any HR person will tell you the same. And while the best drug cartels are usually the ones who are best at managing its people.

01:30:31 There are a few ways to tackle it. There's a problem. So how do we go about solving this challenge? A great place to recruit potential. Employees are prisons. Now that might sound very counterintuitive, but prisons are similar to colleges without the high tuition fees. Essentially, it's a bunch of people with nothing better to do.

01:30:51 And all of them have criminal backgrounds, which is perfect for us. And all of them don't have any jobs lined up after their release. 01:31:00 In case you're in a more police prone country, like the U S or the UK. Another great option is to use independent contractors. You can hire a bunch of freelancers and have each of them do small, simple jobs that are really hard to screw up similar to cogs in the machine.

01:31:16 If you will, one freelancer could be a career. One would pick up the product, then distributed to dealers. One would collect the money and so on. So you get the idea. And since you've compartmentalized your business and everyone is on a need to know basis, you expose yourself to less risk. And we also call this risk mitigation in our industry.

01:31:37 In fact, many British cartel ran with just two people that had the exact same system that was running and bringing in around a healthy 60 million British pounds per year. Very lean. If you ask me. If you have all these skills and talents, and you're able to strike the perfect balance between entrepreneur, man manager and a violent, not be fucked with you find the right 01:32:00 suppliers, employees and your business is doing really good.

01:32:03then it's time to scale, baby. All right. So how do we scale our business? the way we scale is much like any other legitimate business, El Chapo, for example, was notoriously always ahead of the authorities and available capture a big part of his success was that locals loved him, or at least they thought that they'd be worse off without him.

01:32:25 So locals always helped him escape the police. What was the secret you asked? He created good PR. Chapo and other drug Lords are very good at PR or public correlations. For example, they would leave thousand dollars tips, build churches, give out gifts to kids, build housing in poor neighborhoods and even provide cheap loans to business.

01:32:45 So if you're a drug empire that is getting really big and attracting a lot of unwanted attention, it might be worth investing in good PR. In our globalized economy, companies always have the choice to shop around for which country will save them the most 01:33:00 money. And our drug hotel is no different countries.

01:33:02 Like what Amala or Honduras have much lower average income per capita. This in turn means then that we can pay lower salaries to our workers. And the more corrupt politicians are the easier it will be to bribe them so they can turn a blind eye. And once your organization gets to a certain scale, offshoring might be a viable option.

01:33:23 You should actually consider another way to scale your business is diversification drugs go out of style like LSD did in the past or laws change that cannabis becomes legal in some areas, making our cocaine product unprofitable pretty quickly. So relying on just one drug or product to sell is very risky.

01:33:43 You already have experience and the track record with one drug. So it's not too hard to diversify into other drugs. A great example. this would be heroin coming back into fish. And the reason for this is that patients we're getting addicted to Oxycontin, but once they couldn't afford it, they fell 01:34:00 back onto something cheaper like heroin.

01:34:02 And this, by the way is called vertical diversification. And another great way to diversify your product portfolio is to horizontally diversified into other crimes, such as racketeering gun running human trafficking of which the last one is very pretty and provides a huge addressable market for years to come.

01:34:22 If you already have the infrastructure, it's basically just a matter of repurposing it to fit other operations. And if you've gotten this far, then it's time to sit back, relax and enjoy all that tax free drug money. But remember the drug Lords most important rule, never, ever get high off your own product.

01:34:44 But all drugs are assigned. If you think you have the entrepreneurial skills and ambition to become the next drug Lord, I want to do something legal. You already have all the business and social skills needed to succeed in a legitimate business. the only downside with a legitimate business though, is that there's also a 01:35:00 guy at the top called the IRS, but he goes by other nicknames as well.

01:35:04 In other countries, he can be a real bully and the pain in the ass and use this force with his. Enforcement agents if need be and still, yeah. Half of your profits and cause it whatever that means and promises some form of protection. But in reality, it's just a fancy name for theft at gunpoint. I hope you enjoy this episode.

01:35:26 And if you don't hear back from me in the next three to four weeks, please send help.