Diamonds, De Beers, and the Death of Artificial Scarcity | A CFO Explains Diamonds

Summary

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Episode Summary: Diamonds, De Beers, and the Death of Artificial Scarcity | A CFO Explains Diamonds

Podcast: Run the Numbers
Host: CJ Gustafson
Guest/Producer: Ben Hillman
Date: May 4, 2026

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Episode Overview

In this episode, CJ Gustafson explores the fascinating business history and economic mechanics of the diamond industry, spotlighting De Beers’ century-long monopoly, the rise (and threat) of lab-grown diamonds, and timeless lessons for modern business and tech founders. Framed with a witty, irreverent tone and enriched with historical anecdotes, the episode dives into themes of artificial scarcity, capital structure, strategic control of value chains, marketing-driven demand creation, and how changing technology disrupts once-untouchable markets.

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Key Discussion Points & Insights

1. Diamonds: From Spiritual Symbols to Economic Goods

[00:00–03:03]

• CJ opens with a personal reflection on Blood Diamond and its lasting impact on how he views diamonds’ troubling origins.
• Early history: Diamonds were discovered in riverbeds in 4th-century India, functioning first as religious symbols, later as portable wealth for the elite.
• The market changed over centuries, with Europeans introducing primitive cutting, trade, and the concept of diamonds as stores of value.

Notable Quote:

"They weren't everyday wear. They were more religious symbols than an economic good or a way to flex on other people."
— CJ ([03:03])

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2. The Industrialization and Consolidation of Diamond Mining

[03:03–04:51]

• Supply shocks: 1700s Brazil and 1800s South Africa brought massive new deposits, increasing availability but also volatility.
• Cecil Rhodes & De Beers: Rhodes recognized the industry’s main problem was economic (maintaining prices via controlled supply), not just technological (mining efficiency).
• He pioneered early "venture-backed" mining, fueled by Rothschild capital, using rollups and consolidation to centralize production and distribution—comparable to today's PE tactics.

Notable Quote:

"He who could wait the longest to sell could control the market. So he raised capital from London using a mix of debt and equity."
— CJ ([05:46])

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3. The Central Selling Organization: Engineering Artificial Scarcity

[07:43–11:38]

• Creation of the CSO: De Beers’ Central Selling Organization channeled virtually all diamonds—both its own and third-party—into a single inventory pool.
• The “Site System”: An exclusive, invite-only, fixed-price process for buyers, with strict take-it-or-leave-it terms—backed by threats of market retribution for dissent. This removed price volatility and buying arbitrage.
• Stockpiles created artificial scarcity, with De Beers able to wait out competitors and enforce discipline, much as big tech companies can today.

Notable Quotes:

"It's kind of like forcing every SaaS vendor to route bookings through one centrally run deal desk."
— CJ ([09:24])

"If you were brave enough to sell around them, they would temporarily flood your local market, undercut you, and then retighten supply once you died off."
— CJ ([11:38])

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4. Demand Creation Through Legendary Marketing

[13:00–14:47]

• Pre-1938: Diamonds were optional in marriage traditions.
• Enter N.W. Ayer and Edward Bernays: The PR firm, using identity-based marketing (Hollywood product placement, celebrity tie-ins, emotional messaging), made engagement rings a "psychological necessity".
• 1947’s campaign A Diamond is Forever suppressed secondary markets and dictated what buyers should spend, essentially inventing the three-month salary rule.

Notable Quotes:

"Internal documents...cite the goal of strengthening the tradition of the engagement ring and making diamonds a psychological necessity."
— CJ ([13:35])

"It was brilliant because it implied no resale, no secondary market and no pricing comparisons."
— CJ ([14:25])

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5. Lab-Grown Diamonds & The Collapse of the Monopoly

[15:09–16:50]

• Technological disruption: Lab-grown diamonds, initially for industrial use, have exploded in the consumer market since 2010. Now, they’re up to 50% of global engagement ring sales, selling for as little as 25% of the mined diamond price.
• De Beers’ decline: The company’s financials collapsed in tandem—massive asset write-downs, multi-billion-dollar losses, and a 60–70% dive in valuation since 2011.

Memorable Moment:

"Fifteen years later, lab grown diamonds now account for 20% of total diamond purchases in the US and 50% of engagement ring purchases worldwide."
— CJ ([15:44])

"De Beers is bleeding. In early 2025, De Beers disclosed a $2.9 billion impairment...the company now has an enterprise value of around $4 billion, which has fallen dramatically from around $13 billion in 2011."
— CJ ([16:21])

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6. Lessons from the Diamond Industry for Modern Businesses

[21:08–26:16]
CJ and Ben break down enduring business lessons extracted from the diamond saga:

• Rollups are Powered by Capital, Not Creativity

  • Consolidation works if you have patient capital that can outlast cash-strapped competitors.
  • Quote: “Rollups are powered by capital, not creativity or style points. Love them or hate them, roll ups are a tale as old as time.” — CJ ([21:08])

• Distribution is More Lucrative Than Production

  • De Beers’ real power was controlling distribution—CSO held 85% of the downstream market and the bulk of industry margins.
  • Quote: “The CSO was worth more than the mines ever were.” — Ben ([22:02])
  • Quote: "Much like Amazon, you want to own the last mile." — CJ ([22:04])

• Scarcity Backed by Capital Isn’t Permanent

  • Scarcity based on coordination and capital can unravel rapidly with tech disruption (cf. lab-grown diamonds, AI chips).
  • Quote: “The most dangerous assumption is mistaking capital enforced scarcity for permanent scarcity.” — CJ ([22:46])

• Price Opacity Is a Temporary Moat

  • The diamond moat relied on unclear prices and discouraged resale; digital tools and AI make this moat fragile.
  • Quote: “Opacity is a temporary moat. Build a real one before it disappears.” — Ben ([23:34])

• Demand Engineering Through Culture

  • When a product becomes a cultural requirement, price signals status as much as utility.
  • Quote: “If you can make your product a cultural expectation rather than a purchase decision, pricing becomes a secondary consideration.” — CJ ([23:40])

• The Real Product: Risk Smoothing, Not the Commodity

  • By acting as a market maker, De Beers offered stability and predictable outcomes, which buyers valued over the diamond itself.
  • Quote: “De Beers functioned like a market maker and insurer...absorbing volatility through stockpiles and controlled releases.” — CJ ([24:27])
  • In tech: Predictable billing, capacity guarantees, risk minimization win markets.

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[21:08-26:40] — Section Timestamps for Key Lessons

• Rollups & Capital: [21:08]
• Distribution vs. Production: [21:37]
• Scarcity & Tech Disruption: [22:04–22:51]
• Price Opacity: [22:51–23:40]
• Demand Engineering: [23:40–24:16]
• Risk Smoothing as the Product: [24:25–25:20]
• Modern Parallels to SaaS: [25:20–26:16]

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Notable Quotes & Memorable Moments

• "Kind of feels like the equivalent of trying to get an invite to the annual Allen & Co. Sun Valley Conference or, I don't know, trying to purchase real estate in Aspen." — Ben ([10:52])
• "There are a quadrillion tons of diamonds below the earth's surface. Capital and coordination kept the lid on for a century. When lab diamonds made that visible, the whole thing unraveled in about a decade." — CJ ([22:35])
• "No cultural norm is strong enough to survive a 75% price discount." — CJ ([26:13])
• "Danny Archer died on that hillside so you could buy a lab diamond, so you better honor his sacrifice." — Ben ([26:16])

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Closing Reflection

CJ wraps with reflections on how the De Beers story arc mirrors Blood Diamond: individuals and untouchable companies forced to reckon with unforgiving reality once technological and cultural norms shift. The diamond industry illustrates how market moats, artificial scarcity, and cultural engineering offer temporary—but not permanent—advantage.

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This episode is a must-listen for anyone interested in market strategy, pricing power, and the intersection of culture, technology, and business models.

Transcript

[CJ]

Back in high school, my favorite movie was Blood diamond and for those who haven't seen it, Leonardo DiCaprio is a smuggler in modern day Sierra Leone. The country is in a constant state of war between political factions who take turns selling off the country's natural resources to European industrialists. Leo is tasked with finding and extraditing a rare blood red diamond out of the country. It's held by a miner, Solomon Vandy, who's on the run against gangs of corporate and political players who are exposed to be one in the same money fueled warlords. The movie traces how diamonds come to arrive on a woman's finger and the chain of lives that are ruined in the process. After watching you immediately walk away with a pit in your stomach, you realize the diamond industry is a product of slavery, war and oppression. The movie was entertaining, but also rocked me to my core as a teenager who wanted to have a diamond pierce ear like his favorite rock stars.

[Ben Hillman]

Are you more Justin Timberlake or Tom DeLonge?

[CJ]

Please don't judge me. Still to this day, the movie made both the romantic pastime of proposing to someone as well as the MTV rich flexing feel completely hollow. A lot has changed in the diamond industry since this movie came out and for the better with the rise of lab grown diamonds. If you haven't gotten down on one knee lately, lab diamonds are just what the name implies. They're made by man in a controlled environment using science. Yes, science. Scientists start with pure carbon, usually from methane gas or graphite, and use heat pressure or plasma to free individual carbon atoms. Those atoms attach to a small diamond seed and grow layer by layer into a real diamond, the same way that crystals form in nature, just much faster in under control conditions. But I'm not a scientist, nor do I play one on tv. I'm a business model nerd. And the story of the diamond industry is one that makes a CFO and business fan drool. Monopolies, unit economics, pricing, defensive marketing and venture dollars all wrapped into one. That's why it makes for the perfect topic to explore. This is a CFO explains the diamond industry is this thing on Yesterday's price is not today's price.

[Narrator/Archive Clips]

Every famous diamond in the world is represented in case they are worth many millions of dollars and trails of blood, romance and adventure follow the history of each gem.

[CJ]

Diamonds have been around well since forever.

[Narrator/Archive Clips]

Diamonds are forever. Forever, forever.

[CJ]

But what they symbolize and how they exchange hands has changed throughout the centuries. The earliest known diamonds date back to 4th century India. While today we know diamonds as Products of mines. They were originally found in riverbeds. People would luck upon them while fishing or washing their clothes in the local tributary. Supply was naturally capped by manual extraction and lack of technology. There was no global market or pricing system, which also meant there were no intermediaries to profit.

[Ben Hillman]

This is good because as we know from our previous episodes, you can't cut out the middleman.

[CJ]

Back then, diamonds were prized as symbols of power and divinity. They weren't everyday wear. They were unpolished, somewhat shiny I guess, and definitely craggly rocks. They were more religious symbols than an economic good or a way to flex on other people. It wasn't until the medieval period where diamonds began to take the form of portable wealth. European merchants developed some primitive cutting techniques which made them look a lot better. And as history shown, leave it to Europeans with boats to figure out some trade routes to capitalize on the opportunity.

[Ben Hillman]

Yeah, I feel like Europeans with boats are responsible for at least like 60% of world history. And not always in a good way.

[CJ]

In this era, diamonds first became a store of value for the elite, most of which were shipped over from India. They could be easily hidden and transported and function like pre modern bearer assets. So we've gone from spiritual symbols to financial instruments reserved for the really rich people. And then the first big supply shock came in the 1700s in Brazil. Massive diamond deposits were found in the earth, giving way to the mining industry, which Portugal nationalized almost immediately. India's century long riverbed monopoly collapsed as the market shifted from ultra rare to still kind of rare, but also available if you had the money and knew the right people. As a result, it was the first time that oversupply risk appeared. Then in the mid-1800s, South Africa stumbled upon their own diamond deposits and took manual extraction from mines to the next level. The Brazilian and Portuguese industries were still rudimentary in terms of mining techniques. And the supply chain was incredibly fragmented. And this is where the beer shows up.

[Ben Hillman]

I'm gonna guess that this isn't the fun kind of beer that makes the mountains blue when it's cold.

[CJ]

I'm more of a miller like guy myself. Founded by Cecil Rhodes, a British born imperialist, the company verticalized the supply chain and consolidated claims throughout South Africa, eliminating competitors in the process.

[Narrator/Archive Clips]

This headgear tops the Weselton mine shaft, which bores 1600ft deep into the diamond rich earth.

[CJ]

Rhodes core insight was actually more financial than industrial. While everyone was obsessed with finding better ways to get diamonds out of the ground faster, he realized they were dealing with an economic problem if they were successful in digging, assuming better mining. The key to the diamond industry was no longer finding more diamonds but selling them without causing the price to cave in on itself. The reality was Unit economics got worse the more you succeeded in pulling these things out of the earth. Kind of a catch 22 while the racist opportunist he was. I had to call that out before giving this guy too much credit because he had pretty deplorable views. Hinged on white supremacy. Rhodes realized that unless production was centralized, price discipline would be impossible. You'd have a sprint to the bottom.

[Ben Hillman]

I'm sure every founder who's had a competitor undercut their pricing on AWS knows exactly what this feels like.

[CJ]

Very true Ben. And Rhodes in many ways was the first venture backed miner. Most miners were self funded at the time, living hand to mouth and selling as soon as they found something. They were very cash flow dependent. Rhodes saw that he who could wait the longest to sell could control the market. So he raised capital from London using a mix of debt and equity. Debt? Equity came from none other than the Rothschild dynasty.

[Ben Hillman]

Shouldn't they call them the Rothschildren much

[CJ]

like Silicon Valley bank of our times? The Rothschild was not a retail bank. It did not lend like a commercial lender. They were a form of flexible institutional capital with long term time horizons. Between 1880 and 1888 Rhodes used this capital to go on a buying spree. Consolidating claims and performing a PE like rollup of family owned claims. It was the definition of inorganic growth. What he observed were the inefficiencies of thousands of individual claims paired with the price volatility which was causing diamonds to trade at times like a bad commodity. He set out to separate ownership and distribution and then to take a meaningful stake in each. Hey, thanks for listening. We'll be right back after a word from our sponsors. So here's a pattern I keep running into when I talk to finance leaders at fast growing companies. You've outgrown the spreadsheets. You've probably outgrown your billing tools built in Revreck. But you're not quite at the point where you can throw a 20 person team at the problem either. That's exactly the danger zone. Right? Rev owns. Right? Rev is revenue recognition done right. It handles the messy stuff like high volume subscriptions and usage based contracts and mid contract upgrades. The things that break your ERP and the billing platform Boltons. Here's the thing though. Your sales team isn't slowing down for you. They're closing ramp deals, usage commitments and mid quarter upgrades and the longer you wait to fix the engine the further behind you fall. So stop scrambling at month end and stitching together allocations across 3, 4, 5 spreadsheets to just have the numbers ready. Well that's it. That, that's the whole pitch. CFO's telling me it's like a glow up for the revenue books. That sounds like where you are right now. Rite Rev is worth the look. Head to right rev.com cj that's rytev.com cj check them out. I got news for you. The ERP category is finally getting disrupted and if you haven't heard of Rillit yet, please pay attention. It's the AI native ERP built specifically to replace netsuite and it's already won over hundreds of finance teams. Their mission is to make these zero day close a reality. And they're actually doing it. We're talking teams closing the books at 1:35pm on the first day of the month. Companies like Windsurf, Merkor and hundreds of others run their entire finance stack on reallo, Revenue recognition, Close Management, Multi Entity, Native, Stripe and Salesforce integrations. Woo. Everything a scaling company needs. They've got 5.050 wow five zero stars on G2, they're backed by A16Z and Sequoia. Heard of them and CPA LED implementations that get you live in 45 days. That is simply unheard of. ERP space if your books aren't running as fast as your business, check out RIT. Book a demo at r.comcj that is R I L L E T.comcj that's me. Scaling a tech company is thrilling. It's also really really messy. Just ask anyone who's done it or anyone who's tried. Better yet, ask ey. They've seen startups at their best and in their most fragile moments. EY knows you don't start a company to burn cycles on regulatory hoops, discounted cash flows, or the fine print of sec form S1. Although you probably do know I love myself a good s1 if you've listened to or read my stuff long enough. You can't ignore these things. That's how risk compounds kind of like negative interest. What you can do is work with EY from day one. They'll help you get it right early and often so you can stay in builder mode and keep the trains running on time. EY shape the future with confidence. Learn more at ey.com techstartups that is ey.com techstartups the creation here was the Central Selling Organization or CSO, an arm of De Beers. Arguably more important than the mining group itself. The CSO was not some invisible cartel. It was a highly methodical operating system for diamonds. It covered all diamonds that came from De Beers mines as well as third party producers, funneling them to a centralized warehouse. This avoided any diamonds being sold at the mine and forced them into a centralized inventory pool. The producers gave up pricing control over market timing and pricing in the process. It's kind of like forcing every SaaS vendor to route bookings through one centrally run deal desk. And from there, diamonds are sorted into thousands of categories based on size, shape, color, clarity and quality. This eliminated one off bargaining and standardized pricing inputs. And it destroyed any buying arbitrage to cherry pick diamonds. Now here's where it gets next level. It's called the site system. These were invite only auctions held a max of 10 times per year where 100 to 150 siteholders were approved for the right to buy. That's right. You had to get approved for the right to give them your money.

[Ben Hillman]

Kind of feels like the equivalent of trying to get an invite to the annual Allen Co. Sun Valley Conference or I don't know, trying to purchase real estate in Aspen.

[CJ]

Each buyer was shown a sealed box of diamonds. The box composition, which they couldn't see, was predetermined. And guess what? The pricing was fixed and there was zero negotiation. Take it or leave it. And if you didn't accept the box, you lost access to future auctions. So what did the CSO do with all the other diamonds? They stockpiled them. Sometimes multiple years worth of global demand. And it worked. Because unlike crops, diamonds do not degrade, are not all that big to store. They're the perfect commodity to keep hidden away in a vault somewhere below the surface.

[Ben Hillman]

How the hell did they pull all this off? I mean, how did they get buy in? How did their economic interest trump all the others?

[CJ]

Well, because remember De Beers was backed by big capital. They took advantage of the fact that most producers needed short term cash. They couldn't house the inventory themselves and they couldn't survive multi year downturns. The Beers had that London money and could sit on inventory indefinitely. And if you were brave enough to sell around them, they would temporarily flood your local market, undercut you, and then retighten supply once you died off.

[Ben Hillman]

Sounds kind of like Walmart destroying the general store in small towns.

[CJ]

I'm going out of business. Why? Mr. Farkle, I can't compete with Walmart's low prices. Carmen, stop it. By mid 20th century, 80% to 90% of global rough diamonds flowed through the CSO. Now, it's important to point out there's actually way more diamonds in the world than gold. In fact, scientists estimate that a quadrillion tons of diamonds exist deep below the earth's surface. And crotonic roots.

[Ben Hillman]

I didn't even know you could have a quadrillion of something.

[CJ]

And I didn't know what a crotonic root was until today. Total inaccessible gold reserves deep in the earth estimated at a much lower 400,000 tons. Now, not all that is extractable, given it's too far below the earth's surface. But if we were to come up with an estimate in terms of how much we could get our hands on, the ratio of diamonds to gold would be a stunning 180 to 1.

[Ben Hillman]

Okay, so why do people still want diamonds so much if they're so common?

[CJ]

This is where the spin comes in. In 1938, De Beers hired marketing firm NWAER to solve the demand problem that arose post the Great Depression. At that time, engagement rings were not culturally mandatory. Ayer employed famed sultan of spin, Edward Bernays, whose influence permeated throughout the firm. He's famous for the Torches of Freedom campaign, which encouraged women to rip cigarettes. He also made Ivory soap a household need. And he increased bacon sales via the breakfast table. Name a better marketer. I'll wait.

[Ben Hillman]

Someone passed the hines. We got a real life Don Draper on our hands.

[CJ]

Many say that Mad Men was actually based on Edward Bernays. While Bernays didn't directly work on the De Beers account, the firm applied the same frameworks to diamonds, which encouraged selling to an identity and playing into social expectations rather than just trying to sell a product. Internal documents from the PR firm at the time cite the goal of strengthening the tradition of the engagement ring and making diamonds a psychological necessity. This took the form of women pressuring their men to buy them a diamond ring.

[Narrator/Archive Clips]

That diamond is symbolic of a pledge that will be made this year by nearly a million and a half couples.

[CJ]

To do that, they leaned heavily into Hollywood movies, placing large rings on fingers of the era's most famous actresses at the time. And they used celebrities to normalize the buying behavior in flashy newspaper ads. Then in 1947, came the famed campaign A Diamond Is Forever. It was brilliant because it implied no resale, no secondary market and no pricing comparisons. And went so far as to tell men that they should spend 3x their monthly paycheck Almost.

[Ben Hillman]

Sheesh. How much was rent back then? Like two bucks a month.

[CJ]

Before the campaign, diamonds were optional, with varying sizes and undefined spending bans. Afterwards, they were expected and anchored to a specific pricing mechanism. They successfully engineered demand. And to tie this back to the cso, supply was already controlled. Prices were already set. Together, they formed a closed economic loop. This model reigned supreme for more than 75 years.

[Ben Hillman]

All right, so diamonds started in India. They had a stopover in Africa. There were some logistics shenanigans, and then movie stars started popularizing them in more recent history. So where's the next frontier?

[CJ]

Well, we've come full circle as India has become one of the largest producers of lab grown diamonds. Lab grown diamonds were first created in 1954 for industrial use because they're extremely strong and can cut through stuff. I guess they're used in industrial cutting, grinding and drilling tools as well as semiconductor manufacturing, laser technology, and specialized medical equipment. But they only became a real threat to the jewelry market after tech advances in the 2010s made large, high quality stones cheaper and more scalable. Fifteen years later, lab grown diamonds now account for 20% of total diamond purchases in the US and 50% of engagement ring purchases worldwide. You can get a lab grown diamond for as low as 25% of an Earth grown one. To put that into perspective, someone who has 25,000 to spend now has the purchasing power of a $100,000 diamond for their partner. That's a massive jump.

[Ben Hillman]

Yeah, let's forget bitcoin. Invest in lab diamonds people.

[CJ]

In a half hearted attempt to stay relevant. Industry analysts report that mined diamonds since 2022 have dropped in price by 34%, which is a steep fall. Yet still multiples off the price of a lab grown diamond. The math still isn't mathing when you are buying an engagement ring. For context, natural diamonds often sold at 6 to 8x their mind gate value once they reach retail, driven less by manufacturing costs which only account for two price multiple turns and more by controlled supply and price opacity. As a result, De Beers is bleeding. In early 2025, De Beers disclosed a $2.9 billion impairment. That means a write off on the value of the diamond business. This was the second major write down in consecutive years following a $1.6 billion impairment charge in 2024. The company reported an operating loss of $3.1 billion in 2024 going into the red after clinging to an operating profit of just $283 million in 2023. So to cut to the Chase. The company now has an enterprise value of around $4 billion, which has fallen dramatically from around $13 billion in 2011 when 40% of the firm was purchased. This represents a 60 to 70% decline in valuation since the peak, or since when Lab Grown diamond showed up. Hey, thanks for listening. We'll be right back after a word from our sponsors. One more thing about Spendhound Teams using Spendhound reduce software spend by up to 30%. Here's how that actually happens. First you get the data Real pricing benchmarks from over 1,000 companies across 10,000 SaaS and AI vendors. When a renewal comes up, you know what fair pricing is and what you should be pushing for. But knowing the number and getting the number are two different things. Spendhound also includes on demand procurement specialists who help with negotiation, strategy, contract review and renewal emails. You stop overpaying for the tools you need, you cut redundant tools before they renew, and you negotiate from a position of strength now that you have both the market data and expert support behind you. Spendhound is built by the team behind Yipit Data. It's rated number one on G2 in SaaS spend management and did we mention it's free forever for SMB? When we say free, we actually mean it. You can like keep all the savings. Plus it's only $10,000 per year for enterprise with $150,000 in savings guaranteed. There's a reason we're growing more than 100% year over year. Do you want to stop overspending on SaaS and go to spendhound.com cj0risk guaranteed savings. That's spendhound.com cj Most finance teams aren't underperforming, they're actually under equipped. The problem isn't the people, it's what they're being asked to do. Because there are two kinds of finance work. The kind that moves the business forward and the kind that just keeps it from falling flat on its face. 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So your finance team stops spending on maintenance and starts spending on momentum. 35,000 companies like OpenAI, Coinbase, Anthropic and Doordash already run on Brex because high density talent deserves some high leverage systems. It's time to get Brex AF can't believe they let me say that. Learn [e-mail] metrics that is brex.com metrics I've seen a lot of FP and A tools and a laugh is one of the few that gave me that aha moment. Within minutes I remember watching their founder shout out to Albert, connect my netsuite data and build me a full P and L live in minutes. Elephant is now trusted by hundreds of leading companies. I've had the CFOs from Turo, Eight, Sleep, Zapier and more on the pod and every one of them is a huge advocate. I also just published my second annual CFO Tech Stack Report and Aleph has been on the podium both years including a number one finish in the 50 to $100 million segment. 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[Ben Hillman]

sent you all right Mr. Numbers man, what can we learn from the history of diamonds? What do people have to take away from this?

[CJ]

First, rollups are powered by capital, not creativity or style points. Love them or hate them, roll ups are a tale as old as time. Private equity firms are rolling up everything from H Vac providers to dental offices today, just like De Beers did in the late 1800s using long duration capital from the Roth children. Having patient institutional capital allowed roads to buy distressed operators survive downturns and consolidate when others are forced sellers.

[Ben Hillman]

Capital structure determines who gets to play offense when markets fragment.

[CJ]

Right you are. Second, not all parts of the Value chain are created equal. The bears didn't win by controlling mining alone. It won by controlling distribution. While it consolidated roughly 50% of mining and production, it controlled closer to 85% of distribution through ownership and contractual leverage via the CSO. And roughly 75% of the industry's markup lived downstream, not at the point of extraction.

[Ben Hillman]

The CSO was worth more than the mines ever were.

[CJ]

Much like Amazon, you want to own the last mile. Owning production without controlling distribution fails to optimize for margin. Third, scarcity backed by capital looks permanent, until it isn't. Diamonds felt scarce not because they were impossible to produce, but because capital and coordination enforced scarcity for decades. It raises a fair question about modern markets like AI chips, where scarcity today is driven by who controls manufacturing capacity and distribution rather than by anything fundamentally impossible to make. There are a quadrillion tons of diamonds below the earth's surface. Capital and coordination kept the lid on for a century. When lab diamonds made that visible, the whole thing unraveled in about a decade. The most dangerous assumption is mistaking capital enforced scarcity for permanent scarcity.

[Ben Hillman]

There's no such thing as a permanent

[CJ]

champ in diamonds and in boxing. Fourth, price opacity is a moat. Until technology forces transparency, the beer's economics relied on the fact that diamonds had no transparent market price. There was no ticker, no spot market consumers, no easy comparables. The CSO could administer prices because buyers couldn't easily benchmark what fair value was and resale was culturally discouraged. Remember, a diamond is forever. If your pricing power depends on customers not being able to compare, you assume that, well, marketplaces, AI agents, usage based benchmarks and procurement platforms will eventually make you comparable. And when pricing becomes transparent, brand premium becomes the only defense.

[Ben Hillman]

So in other words, opacity is a temporary moat. Build a real one before it disappears.

[CJ]

Fifth, in 1938, diamonds were optional. By 1950, they were mandatory. NW Air placed rocks on the fingers of Hollywood's biggest actresses, seeded newspaper ads of celebrities, and then told men that three months salary was the appropriate spend. Before the campaign, ring size varied and budgets were undefined. Afterwards, there was only one acceptable answer. That's what we call demand engineering. And it held for 70 years. The narrative moat was just as important as the supply moat. If you can make your product a cultural expectation rather than a purchase decision, pricing becomes a secondary consideration and sometimes

[Ben Hillman]

a coveted feature, meaning people will actually pay more because everyone else is paying that much. I mean, the price becomes part of the signal.

[CJ]

That's wild. It's crazy. The price becomes part of the product itself. It's what you're buying. 6 the real product was never the diamond, it was risk smoothing. The CSO didn't just sell diamonds, it sold stability. Producers got predictable monetization, so fewer price crashes. Siteholders got predictable supply, which meant fewer shortages and the whole system avoided panic cycles, which is good for everyone. De Beers function like a market maker and insurer, absorbing volatility through stockpiles and controlled releases. In retrospect, the companies with durable pricing power often aren't the ones with the best product. They're the ones that reduce volatility for customers, make costs predictable, and turn uncertainty into something they manage better than anyone else.

[Ben Hillman]

This is basically the whole game in software right now. I mean, the product is almost secondary. It's really all about who removes the most friction and unpredictability from their customer's life. They're going to be the ones that win.

[CJ]

This is why financial primitives win in tech and software. I'm talking about predictable billing, guaranteed capacity, service level agreements, embedded financing, long term contracts, and usage smoothing and commitment floors. If you can make your customer's world more predictable, you can charge more and churn less, even in competitive markets. So I started this journey with Blood diamond because the ending stuck with me. Leo dies on a hillside with nothing, but he knows he did the right thing. Solomon, the fisherman who was enslaved and forced to dig, walks away with his family, a ton of money and a seat at the table where the industry was finally forced to reckon with what it had built. The whole De Beer story follows a similar arc, except for the doing the right thing piece. The company is fading after multiple centuries of capital coordination and a cute tagline that told men how much to spend. Eventually they couldn't hold the secondary market down anymore. No cultural norm is strong enough to survive a 75% price discount discount.

[Ben Hillman]

Exactly. Danny Archer died on that hillside so you could buy a lab diamond, so you better honor his sacrifice.

[CJ]

Diamonds are oldest time and so are many of the lessons. Even if you aren't getting down on one knee to make the sale of a lifetime. Run the Numbers is a mostly media production, yelling and intro by Fat Joe. Artwork by Meg delesandro Show is executive produced by Ben Hillman. Nothing said on this podcast is intended to be business or investment advice. It's the sole opinion of me, a guy who feeds his dog way too much ice cream and has a history of net operating losses. Lol. If you like this podcast, hit subscribe and give us five stars. It will take, like, two seconds. And our algorithm overlords love it. Drink water, call your mom, and have a great day. Peace.