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Business Lessons From a Bookmaking Front

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

-Cher

I learned about outsourcing and other business techniques 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; 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.

They were not the high-quality or high-priced type.

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 shoot him.

There were other events in this area that ended in tragedy. One of the neighborhood children with real potential decided to play "chicken" with a train; he lost. I had hoped he would break out of the poverty cycle and go on to greatness. Instead he died at age 16.

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 bookmaking 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. Since we charged a markup for the service, prices were outrageously high and we had few repeat customers.

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 were heavily regulating it.

Picking a "business-friendly" climate is a key to business success. That is what large companies shop for: lax regulatory environments and other economic incentives.

Although gambling and bookmaking 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 gambling laws was not a high priority for the neighborhood's 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 our 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. Long hours, low wages. I worked in the dry cleaners 72 hours a week during the summer and over 40 a week during the school year. I had no benefits, pension, or paid vacations, and they "forgot" to pay me overtime.

Many businesses use this "long hours, low wages, no benefits model" today.

4. 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 I was paid minimum wage. Although the front part of the business was marginally profitable, low operating expenses made the overall business a success.

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

One thing you can say about them is that they were good businessmen. None of them were well-educated, but every night when the men would come around, they had plenty of money to lay down.

Don McNay, CLU, ChFC, MSFS, CSSC is the author of two bestselling books, Son of a Son of a Gamber: Winners, Losers and What to Do When You Win the Lottery and Wealth Without Wall Street

McNay, who lives in Richmond, Ky., is an award-winning financial columnist and Huffington Post contributor. You can learn more about him at www.donmcnay.com.

He is the Chairman of the Board for the McNay Settlement Group (www.mcnay.com) which provides structured settlement consulting for injury victims, lottery winners, and the families of special needs children.

McNay founded Kentucky Guardianship Administrators LLC, which assists attorneys in as conservators and setting up guardianships. It is nationally recognized as an administrator of Qualified Settlement (468b) funds.