Build a 100m business the Capone way
If entertainment phenomenons like The Sopranos, Scarface, and even the popularity of the podcast Crimetown have taught us anything, it’s that Americans are obsessed with organized crime. On the surface, you might think that makes us a seedy group, but if you take a deeper look, mob boss stories like Capone and others you find they offer a lot more than just beatdowns. These narratives are full of great business strategy, rags-to-riches fairy tales, and power plays we all wish we could pull in our own offices.
Investigating the truths behind these stories uncovers many professional practices that we can all learn from, without getting our names on the FBI’s Most Wanted list. The Business of Crime brings you the intersection between the good, the bad, and the profitable, mob boss style.
When it comes to organized crime syndicates, “Al Capone” is about as well-known and quintessentially American as apple pie. His image- the big Italian American guy in old-school suits giving the cameras a know-it-all smile/grimace- is iconic. Capone was more than just a thug; he had a sharp business mind.
Capone built a 100 million Annual Recurring Revenue(ARR) business in just 2 years. That’s impressive, and we’ll admit, illegal, but it’s still a story worth telling, and learning from. We’re going to take a look at why Capone was able to build a massively successful business, and teach you the key strategies so you can do the same.
Scarface is born (Get a great mentor?)
While his fame and legacy grew in Chicago, Capone’s story began in New York. After a nasty brawl in Coney Island resulted in a slash across his face, earning him the nickname Scarface, he decided to move to Chicago. He joined his mentor Johnny Torrio and acted as his right hand man in the gang that would later be known as the “Outfit”. The Outfit dabbled in all of the usual exploits like gambling and illegal sex work, but after Prohibition hit, bootlegging booze became their bread and butter.
In January 1925, Torrio was shot outside of his house multiple times by The Outfit’s rival The North Side Gang. Torrio was hospitalized and managed to recover. However, he chose to leave everything in the hands of Capone, and to return to Italy with his life. With Capone’s taking over, the business surged and the gang was more successful than ever. Capone’s strategies turned a mediocre bootlegging gig into a wildly successful, powerful business. Here are a few of the key principles that you can use.
Product Market Fit(PMF)
If you want to build a 100m ARR business, you must have product market fit. PMF is very similar to supply and demand. There are two fundamental questions that need to be answered in order to determine if a product has PMF. First, ask: is there a need for your product? Then, what is someone willing to pay for your product? For Capone the answers to both of those questions were yes and a-lot. Some estimates cite that the price of whiskey increased by 3x during prohibition.
The questions is there a need for your product and what is someone willing to pay for your product will help you create an Ideal Customer Profile(ICP). This is the type of person most likely to buy your product. For Capone it might have looked like
- Industry: Food and Drink
- Sub industry: Speakeasy
- Revenue: over 1m
- Location: Chicago
- Job title: Owner
- In a district where we have already paid off the officials
“I am like any other man. All I do is supply a demand.”
When Capone took over, Prohibition was in full swing, banning the sale of alcohol in the US. The problem was, no one actually wanted to ban alcohol; including lawmakers and those in high office. America had a taste for liquor and wasn’t going to let it go at least behind the scenes.
With the new law, demand for alcohol was huge, and there was artificially low competition, since no one wanted to get caught red-handed. As you can see below demand and had actually increased significantly since Prohibition was signed into law.
This was a golden opportunity for someone who didn’t mind bending the rules. Enter the Speakeasy.
A Speakeasy also known as a “blind pig” or “blind tiger”, was an illegal bar. These Speakeasies acted as a channel for distributors of illegal liquor. Much of the supply chain for bootlegged liquor was already built because bootlegging had been going on for quite awhile before prohibition to avoid the heavy tax on legal drink. This allowed bootleggers to sell their alcohol at a cheaper price.
Capone took advantage of the existing infrastructure to speed up the time to market with his goods. He hired drivers and salespeople for himself and was able to manufacture and distribute his liquor to Speakeasies faster than his opponents. Essentially, he built out his business to be more effective and more efficient through exclusive partnership agreements. Capone’s supply chain is rumored to have reached as far north as Canada. When questioned about this Capone said,
“I don’t know what street Canada is on”.
Gotta appreciate the guy’s humor. Capone was an opportunist, and saw how to exploit situations in his favor. He was a master at supply and demand.
If you want to build a 100m ARR business, you must understand the opportunity in order to dominate your market. Once you’ve created your ICP and validated your PMF, it’s time to understand the business opportunity. Here are a few of the questions you need to answer:
- How many companies are in my total addressable market(TAM)?
- What is my Captured TAM(CTAM)? How many companies am I doing business with that fall into my TAM?
- What is the delta between what TAM is still out there and my CTAM?
Capone captured his market by thinking locally and expanding outward. He started in Chicago suburb known as Cicero. After establishing himself there, he was able to build his network and strength through getting his guy elected as Mayor. This allowed him to work unhindered and capture market much quicker than his rivals.
If this isn’t an endorsement of aggressive networking, we don’t know what is (we encourage you to keep your own networking friendlier, and less… corrupt. Still, it’s good to know who can help you out when you need it). Cicero might have been a small start, but with his power in the neighborhoods, he grew his business fast.
Within 2 years, Capone had a monopoly on all 10,000 Speakeasies in the Chicago area. He had essentially created an environment that only his gang would succeed in through business connections and bribes. Capone had defined his target market, and created a system of acquisition. He realized the importance of business relationships and how to use them to get ahead.
Steps to 100m the Capone Way
- Find a need
- Create an Ideal Customer Profile
- Validate what someone will pay for your solution
- Determine the size of the business opportunity(TAM)
- Determine how much you have captured(CTAM)
- Re-purpose existing infrastructure(don’t reinvent the wheel)
- Create an environment where you can grow unhindered
- Out deliver your competition to dominate your market
The Business of Crime was created by a bunch of crime-obsessed startup junkies. We don’t condone the bad guys, but we do think we can learn something from them. What criminal mastermind’s strategies would you like to hear about next?
Read more about Capone and his exploits