Saturday, August 18, 2007

Business Lessons from the Fake Dry Cleaners

Business Lessons from the Fake Dry Cleaners

"They'd call us gypsies, tramps, and thieves
But every night all the men would come around
And lay their money down"


I learned about outsourcing in the 1970's, during my teenage years.

I worked at a dry cleaning business that had no dry cleaning equipment. It had two clothing racks, a counter and a cash register and nothing else. There was no drive-thru window and no parking lot.

The business was located in the roughest section of Newport, Kentucky, which was one of the most economically depressed cities in America.

My father said that "gypsies, tramps and thieves" was an accurate description of the neighborhood.

The shop's location did not cater to an upscale clientele. Living conditions were bad and the crime rate was high.

I witnessed armed robberies, streetwalkers, numerous fist fights, and a car jacking. I watched a woman run over her soon-to-be ex-husband with a car.

A house of prostitution operated a few doors away. I never wanted sex bad enough to do business with the women who worked there. One offered me her services in return for a carton of cigarettes. Even though cigarettes were only four dollars a carton, it would have been a bad deal.

Their pimp did not fit the pimp stereotype. He was a pot-bellied, retired steel worker who drove a 15-year-old station wagon which looked like it had been salvaged from a demolition derby. He used an old clothes hanger as his car radio antenna.

He had a second job faking illnesses and going to a host of doctors for pain medicine. He sold the pills to his patrons until an unhappy customer decided to kill him.

There was a diverse mixture of cultures and personalities in that neighborhood. None of them seem concerned about owning neatly pressed, dry-cleaned clothes. They bore no resemblance to the people who lived in the suburb that I lived in.

There was one factor that made the dry cleaners a smart business decision. In its back room there was a gambling operation and an ongoing card game.

The back room had far more traffic than the dry cleaners ever did.

I was the "manager" of the dry cleaning section. Since I was the only employee, there was not a lot to manage. However, the experience at the dry cleaners was a better lesson in business than studying for an MBA.

I learned business techniques that were far ahead of their time:

1. Outsourcing. The dry cleaning business was the ultimate outsourcing operation. It seemed that two out of three people a week would wander in actually wanting their clothes dry cleaned. I would take their clothes to a real dry cleaner and have them cleaned.

We did the marketing and someone else did the work. It is a model that many businesses now follow.

2. Locating in a business-friendly location. In Joe Nocera's book, A Piece of the Action, he wrote about credit card companies locating in South Dakota because that state looked favorably upon the credit card business at a time when other states heavily regulated it.

Many companies look for a "business-friendly" climate with a lax regulatory environment and economic incentives.

Although gambling was against the law, Newport was a favorable business environment for the dry cleaning and gambling operation.

With far more serious crime taking place, enforcing gaming laws was not a high priority for the law enforcement community. The dry cleaners provided a legitimate business cover.

Policemen would occasionally visit the dry cleaners and on one occasion they went flying out of the building, guns blazing, when an armed robbery was attempted across the street. It was like watching a real life version of Kojak, even though I "witnessed" it hiding under the store's counter.

3. Keeping operating expenses low. The dry cleaning business did not have equipment and was located in a low rent district. I was the only employee and was paid minimum wage. Low operating expenses made the overall business a success.

Everyone involved in the dry cleaners are now dead. Their lifestyles as "gypsies, tramps and thieves" cut into any chance they had to live to an old age.

They were good business men. None were well educated but every night when the men would come around, they had plenty of money to lay down.

Story Behind the Song

Gypsies, Tramps, and Thieves

This song seemed to stay in my mind every day when I drove into Newport.

The Poll

The following are the results from last week's poll:

Which Democrat would you like to see as the nominee for President?

John Edwards - 53.8%
Hillary Clinton - 23.1%
Another Candidate - 15.4%
Barack Obama - 7.7%

Which Republican would you like to see as the nominee for President?

Another Candidate - 60.0%
Rudy Giuliani - 20.0%
John McCain - 13.3%
Mitt Romney - 6.7%

This week there are two poll questions:

1. Should tournament poker games be legal or illegal?

2. Should prostitution be legal or illegal?

To vote in this week's poll follow the link below. The poll will be on the left hand side of the web page.

Weekly Poll

Note from Don

The following link is an article which follows up on my recent column about David Edwards.


Don McNay is the author of the upcoming book: Son of a Son of a Gambler: Winners, Losers and What to Do When You Win the Lottery. His column is syndicated to over 200 publications. You can write to him at or read other things he has written at

Don't Do Anything Stupid

McNay on Money

Don't Do Anything Stupid

The stock and credit markets have been going crazy. I worked during the 1987 crash and every major panic in the past 25 years. What I learned is to stay calm.
If you were smart enough to sell all your real estate last year and all of your stocks on July 19th, you are a genius; sit tight and pat yourself on the back.
If you did not, do not do the stupid thing and panic.

I own a couple of pieces of real estate that I would love to sell. I am going to sit tight with them until the market bounces back or someone offers the correct price. There is no reason to panic and sell into a bad market.

I had about 400 clients when the 1987 market crash occurred. Four sold the next day even though I urged them not to; they got hurt. The other 396 did very well over the long haul.

As my dad would say, the key is to be zigging when the others are zagging.

I blame a lot of what is going on with the market on the stupidity of Federal Reserve Chair Ben Bernanke. I would like to say I was wrong about Ben, but I was not.

Here is what I wrote earlier:

Big Shot Bernanke

Nice Guys Make Lousy Senators