Pirates Generally had a Plan- So, a Pirate Walked into a Bar… (be prepared) – Part 2

Last time we talked about something I bet you never thought would relate to your business: PIRATES! Let’s see what else we can learn from pirates—both olden day and modern day ones.

 

In summary to last time, pirates usually had all the necessary ingredients to run a successful business.

 

● They had a well-honed business model that had legs.

 

● They had the technical skills necessary to win over their customers.

 

● They had great marketing: brand promise, supporting logo, market research.

 

● They had efficient administration: staff benefits; including allocation of the profits based on shares, a clear command and control structure, suitable financial management, and revenue conversion.

 

● They had great operations capabilities that got them where they needed to be—along with all the resources necessary to co-create value with their customers.

 

● They had a healthy environment to work in and polluted it as little as possible – the odd plank walker, the odd badly damaged hulk.

 

● They even had a social life!

 

Can your Business Say as much?

 

What about modern day pirates from Somalia? Their business model has been successful too. And it’s not about a few guys in a little boat taking on a big ship. An official study shows the piracy business begins, like any other business, with venture capital. Around $250,000 will get a pirate group set up—and this money is provided by business people, usually outside Somalia. The pirate needs boats, weapons, phones, catering for pirates and hostages, and good intelligence to know which ships are worth boarding. It’s still about the ransom value of the crew, which varies according to country of origin.

 

Once the ship is seized, the negotiations begin. The ship owner hires a professional negotiator and so does the pirate. A BBC example had the pirates’ negotiator (an English speaking lawyer who was educated in the US) starting with a $7 million figure that eventually came down to somewhere between $1 million and $2 million. So there’s an example of getting more than a decent return on investment for the first pirating venture. For the crews, the general rate of pay is around 17 times what they could earn in the average day job—never mind finding a job with less risk than getting by in war-torn Somalia.

 

In 2010, average ransom payments were $5.4 million, according to the One Earth Future Foundation. The disbursements in a typical piracy operation are as follows:

 

– the original investor gets 30% off the top

 

– expenses including payroll take 50%

 

– local elders take 5% to 10% (anchoring rights)

 

– bribes to other officials amounts to 10%

Counter-measures have included combined navy patrols, on-board private security, and even an air strike on the main pirate dens (nobody was killed). These have been successful in severely restricting the rate of ships taken around Somalia. In 2011, according to EU Navfor Somalia, there were 151 verified attacks on sizable ships around Somalia, with 29 vessels being successfully pirated. In 2012, the number of attacks shrunk to 31, with only four ships hijacked.

 

Like any successful business model, this one has been copied and is now used on the west coast of Africa on vulnerable oil tankers. ICC International Maritime Bureau’s global figures for the first quarter of 2013 showed 76 pirate attacks and 4 hijackings. You can see a swarm of related market niches being exploited too. Niches such as venture capitalists, food caterers, arms suppliers, private security firms, and consultants performing best management practices for both sides.

 

The pirates’ business model is vulnerable to a more powerful business model (navies with reach), but this counter-measure is only effective so long as a navy is in place. The business model will continue to be used because financial barriers to entry are very low (especially compared to the naval competition). In addition, the return is high and the risk to main players is minimal.

 

Graeme Stevens
CEO and Co-Founder
neXtep easy
www.nextepeasy.com

 

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