Why sell drugs when you can sell rugs?

I need to tell you about Cheo (pronounced Chay-o).

He’s originally from Venezuela, but now lives–variously–in Taos, the Puget Sound area, Los Angeles, and who knows where else. He’s done well for himself in real estate and before that did well with an import business. A vertically-integrated import business, I might add. More on that soon.

My wife and I met Cheo because he owns the condo building we’re renting while we’re working on building a house here in Taos. He’s an interesting dude with lots of interesting stories. For context, he’s in his early 60’s, so he’s got lots of life experience and has seen the economy go through a number of ups and downs.

He likes to say things that rhyme, and so he has funny sayings like: “Move to Taos, build a house, lose a spouse”. Well, that’s funny if you’re not actually worried about losing your spouse while building a house. Having been through the house-building thing once already with my spouse, I’m not worried it’s going to break us up. But apparently it does break up enough other folks that Cheo has put in the effort to formalize a rhyming aphorism expressing the pattern.

His other funny rhyming aphorism is: “Why sell drugs when you can sell rugs?”

Cheo tells me he got into the import business when some random dude from his hometown in Venezuela offered to sell him a bunch of crystals and semi-precious stones, Cheo borrowed $10k from his mom to buy them, and then Cheo sold them for way way more money here in the US. A vertically integrated import business was born!

An important aside:

You’ve heard of the Bible Belt. You’ve heard of the Ring of Fire. Now, I’ve attempted to advance the state of the art of ring/belt thinking by mapping out the New Age Belt in the western United States:

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Some of y’all will see this as the Weird and Wacky Spirituality Belt. For others, it’ll be the Spiritual-But-Not-Religious Belt. For yet others, it will be the Woo-Woo Belt. It runs roughly from Seattle to Taos, and it makes a 90 degree turn in Los Angeles, and it passes through Sedona, AZ on its way to the Santa Fe/Taos eastern terminus. The Weird Spirituality Belt stops here in Taos1 due to an incredibly strong, corn-powered cultural force field that’s been erected at the western Kansas border.

Cheo’s import business operated almost exclusively within the New Age Belt. This is important. It’s a sort of audience specialization. There’s simply going to be more demand for a Guan Yin statue in Los Angeles than in Salt Lake City.

His buyers were high-income, high-wealth people living or vacationing inside the Weird Spirituality Belt. Cheo wasn’t selling his imported crystals, semiprecious stones, rugs, statues, and other imported artwork at flea markets inside the Weird Spirituality Belt. He wasn’t handing his products off to a dealer either.

Instead, he was setting up the equivalent of invitation-only “Tupperware parties” where he himself offered for sale the items he himself imported. This is why his import business was vertically-integrated. He–like we see Netflix and Amazon doing today–owned a longer piece of the value chain than a typical importer would. A typical importer would focus on sourcing and importing, but leave the distribution, marketing, and selling to a dealer in the destination country, or a combination of distributer and dealer. A vertically integrated importer like Cheo handles everything from sourcing and importing to the distribution, marketing, and selling. Cheo needed to pay fewer middlemen and took a bigger slice of the profit, at the cost of more risk and effort on his side.

Consulting Takeaway: If we think of specialization in pseudo-economic terms, specialization is a way to increase two efficiencies in your business: 1) marketing efficiency and 2) your ability to efficiently cultivate valuable expertise. These efficiencies drive the increased profitability of a specialized business.

A pure consulting model can, however, suffer an inefficiency, and that shows up along the interface between planning and execution.

Cheo’s vertically integrated model deals with this inefficiency because the information transfer from point of sale (where you’d be able to collect useful information about customer preferences) to the sourcing/import part of the value chain is seamless and zero-friction because it’s the same dude collecting the customer preference information and acting on it. There’s no friction of the people handling the sale attempting to educate the importer about customer preference, hoarding this information for their own benefit, etc.

Cheo’s import business worked so well that he jokingly compares it to selling drugs. “Why sell drugs when you can sell rugs?”

Several things strike me about his business model.

Head start

He made use of a natural advantage, which we could think of as an access advantage. He had relationships and contacts in a place on the supply side of the market, allowing him to more easily source product.

As an emigre to the US, he’s more comfortable with travel and navigating cultural differences than many Americans would be. This allowed him to vertically integrate, rather than leave the distribution, marketing, and sales to someone else who is comfortable operating in the demand side of the market.

Timing

The other thing that really strikes me about Cheo’s business is that he worked with the timing of market demand rather than ignoring or working against the natural timing of demand.

Cheo didn’t have to educate his customers about the value of imported crystals, semiprecious stones, artwork, and rugs. They already valued these things. All Cheo had to do was find them, present himself as a differentiated option for meeting their needs, and follow through. It really, really helps that there’s a heavy concentration of people who already value this stuff within the Weird Spirituality Belt. He didn’t need to visit every city in the US, he just needed to concentrate on a few cities on the western US.

Cheo no longer imports and sells this stuff. Why?

Times change. The fever for the kind of products he was importing and selling subsided. The random guy in Venezuela who sold Cheo $10k worth of crystals and stuff showed up at the right time, and Cheo took a risk (borrowing money from his mom) at the right time, and he built on his advantages at the right time.

Software developers who invested heavily in Objective C skills around 2008 to the mid-2010’s did so at a great time to capture some of the excess demand for that skill.

But again, times change. Without licensing or other barriers to entry, the excess demand gets satisfied, and the market resolves to a new equilibrium and clears at a lower price.

Segmentation, and relationships

Finally, we have the evergreen elements of Cheo’s success. He understands segmentation, and he really gets relationships.

His segmentation of the market might have been intuitive and experimental, but it was definitely effective.

I’m reminded of this interview: consultingpipelinepodcast.com/115 In it, Gene Monterastelli talks about his market segment: successful business owners who feel like they might be getting in their own way. He also talks about how he finds this market segment. Since Gene lives in the New York area (access advantage), he becomes a supporting member at several of the larger New York museums, which gives him access to opening night events, which are also attended by… successful business owners who feel like they might be getting in their own way. 🙂 I recall Gene saying that he walks away from every single one of these events with at least one good lead for his services.

If Cheo didn’t understand segmentation, he’d be missing out on that first efficiency (marketing efficiency) that specialization delivers. But he does, and he’s used this understanding very well.

Finally, Cheo really gets relationships. He:

  • Goes first. He trusts before the relationship would seem to justify that level of trust.

  • Is generous. He is constantly offering to help2.

  • Is “promiscuous”. He looks past cultural and tribal boundaries as he’s building relationships.

It’s difficult to ignore or reject someone who shows up with the above approach to relationships. You just kind of naturally let a person like this in.

That’s why our condo neighbor is Moon Zappa. We haven’t met her yet because she’s here part time, but she rents here because Cheo’s relationship-building abilities are just excellent. Cheo has name dropped a half dozen or more celebrities that he has some kind of relationship with, coming mostly from his import business or his relationship-building ability.

Summary

So there you have it, lots of consulting business lessons from this funny, unusual dude from Venezuela:

1) Understand your natural advantages, and be creative in leveraging them.

2) Be sensitive to timing, and swim with the current–rather than against it–where possible.

3) Understand the segment of the market that already values what you’re doing, and figure out how to efficiently get access to them.

4) Finally, you can try to avoid it, but it’s better to embrace it: unfortunately, you’re in a relationship business.

-P

Notes:

  1. OK, The New Age Belt might continue on to Austin, TX. I haven’t visited Austin, and the more subtle Weird Spirituality Radiation I might be able to measure at a distance is masked by the much stronger Attractive City for Coastal Climate/Culture Refugees radiation that Austin is emitting.

  2. His followthrough on this is a different subject. 🙂 His generosity also leads to overcommitment. It’s fair to criticize this because this effects his reputation, but some folks can overlook the followthrough issues because of Cheo’s warm generosity.

  3. Generosity is good, unfettered generosity can be problematic.

Two online experiential learning workshops this October: