Pirates of Silicon Valley
Recently we visited the office of an old friend at a young Silicon Valley start-up. It didn’t take long to spot the first pirate flag—the skull and bones banner that has come to symbolize the renegade attitude of the Valley’s tech disruptors.
It started with Steve Jobs’s maxim, delivered at the Macintosh team’s 1982 retreat in Monterrey, CA: “It’s better to be a pirate than to join the Navy.”
This rebel spirit has since trickled through the rest of Silicon Valley, a hub of innovation that has produced some of the world’s most powerful disruptors. Mark Zuckerberg has his own rebellious maxim: Move fast and break things. “If you never break anything,” he wrote to potential investors, “you’re probably not moving fast enough.” Silicon Valley runs on rebellion, and its risks pay off with phenomenal innovation. Today’s real pirates, off the coast of Somalia, use the same recipe.
Contemporary piracy is more sophisticated and complex than the broad strokes with which the mass media paint it. Most pirates are indeed unrepentant criminals who threaten global markets, but they are also bright innovators. Buccaneers too must develop organizational structures, streamline logistics, and manage human resources.
In 2009, the Somali coastal village of Harardheere established the world’s first “pirate stock exchange”. Locals can buy shares in pirate gangs planning hijacking missions. While credible statistics are scarce, several sources say the market lists roughly 70 “companies”.
While the risks of undertaking a mission are great, the rewards can be plentiful. Each raid requires an up-front cost of about USD 30,000, and only one in three wins. But the reward for a successful mission can be in the millions, and the plunder is growing. According to Paul Kearney, a lieutenant colonel in the British Royal Marines, the typical payoff today is 100 times what it was in 2005, and the number of attacks has skyrocketed.
Like starting a company, a piracy mission begins with a search for venture capital. “Pirate capitalists” court investors, who usually offer USD 250,000 or more in seed money, J. Peter Pham of James Madison University tells NPR. The capital is then spent on recruitment (pirates, negotiatiors, even caterers), and materials (weapons, speedboats).
Finally, the product (hijacking) heads to market. After testing on some “early adopters”, the service grows in scale and complexity powered forwarded by injections of capital from early success and external financiers who now have a taste for the market. With cash, the pirate network, grows considerably, becoming well-resourced and acquiring sophisticated arms. One indicator of this complexity is that pirates now have to contract local militias to defend themselves from rivals and external threats. An interesting approach to protecting market share.
The pirate product cycle is not unlike what we see in Silicon Valley. But in Africa’s “Hijack Horn”, the operating environment is extreme; despite political progress, foreign businesses are still too shy to invest in Mogadishu. What lies behind the calculated risks of such desperados who set up shop here?
Ready to Pivot
Somalia was not always a hotbed of piracy. Puntland, today the country’s pillaging epicenter, was once a fishing port. In 1991, the Somali government collapsed, leaving its territorial waters unenforced. Foreign fleets trawled Somalia’s waters, stealing its fishing stock and dumping illegal waste, which destroyed the local economy. At the same time, the Chinese began prolifically exporting to Europe via the Suez Canal. Puntland’s out-of-work fishermen suddenly had billions of dollars floating past them.
So the fishermen pivoted to piracy. “Boya”, perhaps the most infamous of pirates, told author Jay Bahadur about a small band of 10 bandits who began attacking foreign fleets, then seizing, and ultimately grew into a large, well-run criminal organisation.
While Instagram isn’t exactly hijacking cargo, their story is similar. Shortly after founder Kevin Systrom and his team launched Burbn – a location-based check-in app in which you could also attach photos – they found few users checking in. But, they actively shared photos. So the would-be Instagram team reacted in true pirate style with what entrepreneur Eric Ries calls a “zoom-in pivot”, making one feature the entire product. Today’s Instagram, a simpler photo-sharing app, sold to Facebook for USD 1 billion.
Under the Radar
Key to the radical success of pirates are their stealth and surprise approach. David James of Henley Business School noted in the Economist that pirates avoid “symmetrical conflict”. Rather than challenging their targets head on, pirates surprise and attack their enemies at their weakest points, giving them little time to react.
Consider the start-up Zopa, a peer-to-peer lender. Battling a traditional bank head on for market share might be overwhelming—and ultimately unsuccessful—for a small start-up. Instead, Zopa picked a localized fight (inflexible lending policies) and attacked unexpectedly before traditional banks could react. Start-ups focusing on “collaborative consumption” also depend on this strategy: car-lending firms Street Car and Zipcar have honed in on sharing, rather than selling or renting, taking a bite out of the hourly rental market before the major companies could wise up.
Innovation has long come from misfits. Despite their appearance of anarchy, historian Thomas Gallant found that pirates were once responsible for opening up international trading markets. In his study of brigandage, he argued that illegal networks of armed predators facilitated the spread of capitalism. “Bandits helped make states, and states helped make bandits.”
While we do not condone ruthless acts of piracy, we recognize the lessons behind its model of flexibility and stealth. To those who innovate on the fringe, we say, “Aye!”