The Self - Sufficient Business Model

Today’s post will be brief. In fact, provided that interactions with “My Liberal Professor” are as eventful as expected later today, I may post again.

For the time being, I am undertaking a burgeoning tradition. Before going to the gym in the morning, I recess momentarily to the library where I can check the daily news, get a cup of coffee (actually, I prefer Espresso and water, an “Americano”), and mess around on the internet until exhausting my supply of liquid energy. Today is particularly interesting because I am awaiting for the U.S. stock markets to open in approximately fifteen minutes because I have two small buys scheduled.

THE YOUNG INVESTOR

First, I am picking up a couple of shares of Parker Drilling. This is a company involved in the oil business. They perform drilling operations internally but also rent out oil-production equipment. This, like my other pending buy, is a long-term investment. My prediction is that compromise will likely come between environmentalists and economic realists, and while vast oil drilling in America will likely never come to fruition, some additional production level may be exercised. If this bodes true, then Parker Drilling stands ready to be knee-deep in that action. More optimistically, I hope that the hypothesis above proves correct and that this, in turn, causes the company to become very enticing for larger market oil-production companies. Certainly a buyout or, at the very least, reinvigorated invested capital in this well-run company would be a positive occurrence for my small investment.

My second purchase is motivated more by wishful thinking than savvy investing. I am purchasing a few shares of Smith and Wesson, the handgun manufacturer that is currently available on the cheap. It is currently under five dollars a share, but in the past year had been above twenty. News out of Washington, D.C. helps this company. The city will have to give into gun ownership so says the recent Supreme Court judgment on the matter. However, the city is pushing to limit (or prohibit) the sale of semi-automatics. This would mean that the only viable handgun available in the city, more or less, would be the revolver. And Smith and Wesson is the juggernaut of the revolver industry. Should this predicted path come to pass in D.C., perhaps precedent will be set for other areas dead set on limiting the second amendment. If this precedent becomes habit, Smith and Wesson should stand to gain the most.

THE SELF-SUFFICIENT BUSINESS MODEL

And, since I am in an economic sort of mind this morning, I would like to mention something else I have been pondering lately. I ask: Is there any better business model than that of the national collegiate fraternity? To maintain full disclosure, I admit that I am a former member of Sigma Phi Epsilon here on the University of South Florida campus. But, just recently, I became aware that the national fraternity system is nothing more than a business with a large majority of involved individuals developing income for a very small minority of executives. For these executives, the fraternity represents nearly the perfect, automatically sustained business system.

Think about it. At the national level, the fraternity has nearly no overhead. I can almost guarantee that the largest financial burden is tied into insurance, which – for collegiate fraternities – is admittedly high. However, most of those fees are passed to the students whom, with a portion of their dues, in fact pay insurance premiums. Office space and salaries for staff and executives are probably the other expenses at national level, but given the gigantic amount of capital being produced, these expenses are but drops, not in the bucket, but in the ocean of money being generated by fraternity chapters across American campuses.

The entire operation is self-sustaining. The fraternity sells itself. Its employees are the students that join the organization to become brothers. These brothers recruit new employees. In turn, the employees receive nothing. Each employee works diligently to better the product – i.e. the attractiveness of the organization – only to be asked to purchase anything that the national levels of the fraternity has to offer. For example, despite each brother paying a substantial amount in per-semester dues, a sizable portion of which travels to national’s coffers, should a brother want to attend a nationally organized event, he is required to register and pay.

The brothers are essentially uncompensated employees. And, even more fiscally efficient: these “employees” choose to further recompense their hierarchal leaders by paying for whatever meager products the national offices do offer.

Now, I must admit that I enjoyed my time in Sigma Phi Epsilon and I believe that the friendships that grew from my association with the fraternity were priceless. I am not downplaying the usefulness of the fraternity system, I am just expressing something I just recently became aware: Collegiate fraternities truly are businesses. And they are profitable businesses that only work to make the wealthy, much wealthier.

Consider this: there are over 260 Sigma Phi Epsilon chapters in America. Let us assume that each chapter maintains roughly 25 brothers, each paying $600 in dues per semester. The math works out to nearly four million dollars being generated each semester. Much of that capital snakes its way to the fraternity’s national offices’ bank account. And this happens semester after semester. And then, on top of that, the fraternity is selling large amount of merchandise to its uncompensated “employees” for exuberant prices. And, all the while, no tangible product is being produced to drive up overhead costs. The only possible product is the fraternity itself; which, in net terms, is a zero-expense production.

The more I think about it, the more I wish I had remained in my fraternity and attempted to move up that hierarchal ladder. This is a cash cow that I would love to ride!