Thursday, August 26, 2010

Somali Pirate Business Model

The United Nations has released this report about the Somali pirate business model.

Here's a quick summary (see annex 4.3 in the link for the good part):

A basic piracy operation requires a minimum eight to twelve militia prepared to stay at sea for extended periods of time, in the hopes of hijacking a passing vessel. Each team requires a minimum of two attack skiffs, weapons, equipment, provisions, fuel and preferably a supply boat. The costs of the operation are usually borne by investors, some of whom may also be pirates.

To be eligible for employment as a pirate, a volunteer should already possess a firearm for use in the operation. For this ‘contribution’, he receives a ‘class A’ share of any profit. Pirates who provide a skiff or a heavier firearm, like an RPG or a general purpose machine gun, may be entitled to an additional A-share. The first pirate to board a vessel may also be entitled to an extra A-share.

At least 12 other volunteers are recruited as militiamen to provide protection on land of a ship is hijacked, In addition, each member of the pirate team may bring a partner or relative to be part of this land-based force. Militiamen must possess their own weapon, and receive a ‘class B’ share — usually a fixed amount equivalent to approximately US$15,000.

If a ship is successfully hijacked and brought to anchor, the pirates and the militiamen require food, drink, qaad, fresh clothes, cell phones, air time, etc. The captured crew must also be cared for. In most cases, these services are provided by one or more suppliers, who advance the costs in anticipation of reimbursement, with a significant margin of profit, when ransom is eventually paid.

When ransom is received, fixed costs are the first to be paid out. These are typically:

• Reimbursement of supplier(s)

• Financier(s) and/or investor(s): 30% of the ransom

• Local elders: 5 to 10 %of the ransom (anchoring rights)

• Class B shares (approx. $15,000 each): militiamen, interpreters etc.

The remaining sum — the profit — is divided between class-A shareholders.

Tuesday, August 17, 2010

Book Review: Brewing Up A Business

Beer entrepreneur Sam Calagione shares his story of creating one of the most successful microbreweries out there - Dogfish.

Yeah, there's lot of fun anecdotes about getting Dogfish off the ground - he's a free spirit to say the least.

But the real value here is a case study of watching a small business grow from incubation to being an established success story. In fact, the book is organized more about business principles than beer per se.

You're going to learn a lot about managing growth, product diversification, bouncing back from mistakes (not all of his competitors do so), identity as a brand, listening to customers, and a lot more.

Another cool thing about this book is that it addresses a basic reality in our economy: forget about taking on the big boys and find that long tail of the niche market.