In Part 1 of this blog series, I looked at how Oakland A’s general manager Billy Beane and his quant team analyzed a bazillion baseball stats and figured out that everyone had been wrong for years about almost everything. Because of the team’s smaller revenues, Oakland was forced to hire players who were undervalued by the market. Using their own statistical system for finding value among available players ultimately proved to be highly successful.
When making a comparison between baseball and business, it is tempting to try to apply this type of analytical, money-saving system to business. But the application of baseball moneyball to business is easier imagined than accomplished. Take a look.
Keep an eye out for fundamental improvements
So, are there any universal truths to be applied here? There is one: when a new fundamental capability shows up in the marketplace that lets you save money now while enhancing your ability to change the rules before your fiercest competitor does, you must embrace it immediately. Wait and see is very smart when it comes to marginal advantages; but being the last factory to adopt electricity to make your machines go round and round is a very bad move.
Electricity is fundamental and shows up at your doorstep in the form of someone making ridiculous claims, like:
- “You don’t have to feed it anything!”
- “This little ‘motor’ I’m holding is as strong as 10 horses!”
- “Not only does electricity spin shafts, it lets your workers see better!”
- “You can make it show up anywhere. You just run some of these wires!”
If it doesn’t sound too good to be true, it’s not fundamental. This is, by the way, an absolute rule, not a superstitious pattern-match. Fundamental improvements don’t show up often, but when they do, they come dressed in “too good to be true” claims. Don’t trust the kind that say, “We will improve your performance by up to 30%” or whatever — a guarantee that you won’t get more than 30% is pretty much a hedge, and fundamental improvements don’t need to hedge.
Time to get real
So, the real moneyball of business is this:
- Run cheap with what you’ve got.
- If a fundamental improvement shows up:
- Embrace it immediately to save even more money, freeing resources to…
- Attack and dominate a market segment with the deadly combination of extra money and focused application of the fundamental improvement. Pick the segment carefully for achievability. (Remember that you will be practicing using the fundamental improvement as part of your go-to-market strategy, so don’t overreach!) Make sure you dominate. And then repeat — while your competitors scramble to make sense of your last move.
Why am I writing about whether business “moneyball” maps to baseball moneyball? The main reason is this: while venture capital may as well be invested in possibilities, real businesses should not be bet on them. Real businesses, with real employees and real investors having their real financial well-being tied up in the success of the business, must — in the fiduciary sense of the word — be run in ways that have a shot at working. And, given there is no baseline data from which to play business moneyball safely, much less to a business’s advantage, it should be shunned by serious business people. There are two kinds of animals that must not be invited over for dinner: the ones that want to eat you (these being your competitors, of course), and the ones that will slip poison into the chocolate mousse. Business moneyball is the latter: a viper dressed up as a fortune-telling teddy bear.
And what might constitute a real fundamental improvement, something that acts like electricity for manufacturing businesses? That’s hard to say, but easy to measure. Outrageous claims of impossible, too-good-to-be-true performance tell you to take a closer look — against all your well-honed, skeptical, “I’ve seen it all,” very reasonable instincts.
That closer look itself should be of the “show me — in production — for realsies” kind.
Which brings me to my inevitable point.
Here’s an outrageous claim: “Your sales reps can easily talk to 30+ targeted prospects every day — comfortably and happily.”
Here’s the closer look: a free offer to apply “sales electricity” — to your business, with your reps, your targets, your message — in full production mode, for one very exciting day. It’s possible that the outrageous claim turns out to be false, or that your sales factory just isn’t ready for electricity and its pesky 10x speed-up.
But it’s also possible that you choose to be the first in your competitive set to embrace this fundamental improvement, to make the shift into “Life at 1,000 Dials a Day.” And if that possibility turns out to be reality, business moneyball, played for realsies, says that the prudent course is to go first. For real.
Link to Part 1 of this blog.