Moneyball: relevant to startups?
I once worked for a CEO who forced everyone in the company to read the book _Moneyball_. I just couldn't see the relevance to the business because Moneyball is not actually about winning, if by winning you mean the World Series. It's about losing in an innovatively cheap way. And in fact the 2002 Oakland Athletics ended up losing to a team with an even lower salary cap (Twins); who were themselves defeated by the eventual World Series winning Angels, who ranked 15th out of 30 clubs in salary that year. So my takeaway from the book was that there was basically no correlation between expenditure and outcome regardless of the amount of number-crunching versus intuition applied to team creation, and even if there had been I couldn't see what stats applied to engineers at startups that were analogous to the exhaustive stats kept on professional baseball players over the years.
But maybe I'm looking at this all wrong. Do you guys think Moneyball is the greatest business book of all time or what?
Oh... I also learned later that the CEO in question did not know what the term "regression" meant. :)
Those who do not know what "regression" means are doomed to regress.
I think the central theme of Moneyball is slightly different:
To gain advantage in an unfair playing field, optimize on something others tend to undervalue.
In the 2002 Oakland A's case, they optimized on finding undervalued players who were good at getting on base -- not just through hits but through walks, errors, or being hit by pitches.
This strategy did not produce a World Series winning team because (1) baseball is a complex ecosystem that is ever-adapting to change; and (2) in any given baseball series, the stats matter less than who has the hot arm and who has the hot bat.
In 2004, the Red Sox applied similar techniques with a greater bankroll, and did end up taking the World Series after nearly getting knocked out by the Yankees in the American League Championship Game.
But the lesson for business remains this for me:
Hire employees who are undervalued in the market, and invest in them, to produce a great team.
It isn't about spending the least money. It's about putting together a winning team.
I really enjoyed reading it. I don't think it's the greatest business book by any means but it is an excellent argument in favor of analytics. :)
My two big takeaways from it were:
-What most people think "works" is often only indirectly correlated with what "really works."
-There are ways to dramatically improve that don't involve spending more than the other guy.
Those two takeaways are good, but they do not guarantee success.
The Oakland A's still haven't won a championship with these techniques. The Boston Red Sox did once but they have not been champions since, either.
I enjoyed reading the book too, but my original point still stands: in the bigger scheme of things OUTSIDE THE SCOPE OF THE BOOK -- e.g. who actually won the ALCS and World Series that year -- there was ZERO CORRELATION between spending and outcome. Go ahead and plot the salary versus outcome of every team in the league that year and I think you'll see no trend line. This means spending more isn't more efficacious than spending less AND spending less is not more efficacious than spending more (sorry lean startup people!).
Also, as far as I can tell, there was LITTLE CORRELATION between analytics and outcome! Billy Beane's team did much better than they had in past years, but "improvement" isn't "winning".
If the A's do win it all in 2012, it will not validate Billy Beane's basic premise, right?
I haven't read the book yet but I've heard it discussed a lot so I think I get the gist.
I'm not convinced about its merits either, not least because, as you point out, it didn't even "work" in its original implementation. More importantly, though, I don't get the logic. If you presume that there are certain qualities undervalued by the market, then it makes sense to capitalize on them. But how do you know they are undervalued? In the A's case, was it ever effectively demonstrated that recruiting players who could simply get on base at higher rates were undervalued as far as their chances to win the World Series? In its application to startups (for which McClure seems to be the main proponent), what qualities are seemingly undervalued and how do we know they are? Simply because other VCs aren't valuing them? Or because there's good data out there somewhere that provides evidence they lead to valuable exits?
As you suggest, the better takeaway from Moneyball might be that prediction and planning by crunching past performance figures may be a flawed approach regardless of what attributes are valued.
Having said that, markets always adjust to new information.
There is no way to consistently create a winning team, because other teams adjust their play to beat that team.
This is why sports dynasties are rare. It's not just injuries and aging that hurts teams -- it's that other teams study their play books to look for a way to neutralize their advantages.
There is no way to consistently create a successful startup, either. If there were, we'd all employ those techniques! :)
That's a good rule of thumb but not always true.
1) Humans have a number of hard-wired cognitive biases and poor memories.
2) We also do things out of ego, to prove a point, to be the exception, etc.
3) Sometimes we do the fun or interesting thing over the "best route to success" thing.
4) We're simply not that rational, logical and consistent. And sometimes we're just not that well-informed or patient enough to get the right info.
If it were true that we all do what works, no one would drop out of high school and there'd be no unplanned pregnancies or drunk driving. These are all dumb things and all easily preventable but, if anything, they're occurring with more frequency than ever.
Sometimes it's very easy to find out the right way to do something but deceptively hard to follow through with those rules.
Case in point, baseball was very biased toward scouts and other holistic, "gut-instinct" evaluations. Why did it take so long for someone to apply decent statistical reasoning to a game so focused on stats?
Because that "decent statistical reasoning" doesn't actually correlate with better team performance! :)
The marketplace adapts to any attempts to game it. Moneyball doesn't work because if it did, everyone would o it, which would make it not work. :)
I am a big-time baseball fan and specifically, an A's fan. I grew up in the East Bay and felt deep pain each time the A's lost in the playoffs from 1988 til recently. When the A's beat the Giants in '89, it was a bittersweet victory, since I cheer for all bay area teams.
I don't know if Moneyball is a great business book. Personally I like GOOD TO GREAT, LOVEMARKS, CROSSING THE CHASM, and FOUR STEPS TO THE EPIPHANY. But I have some thoughts about winning.
I've been part of winning and losing baseball teams; both as a player and a coach. It's quite simple, but difficult to predict. Wining teams have good coaches and players who want to win. They play to win. They don't give up. They know what they're good at and they work hard to fill the gaps. The coaches can identify the weak areas and they know how to address them during practice. When they get to the championship game, they don't get cocky. They respect their competition and are determined to play their best game regardless of the outcome. They trust their teammates. They are both shocked and excited when they win.
Frank, that was an excellent description of winning teams.
The line from Moneyball is that only one team gets to win the last game of the season.
So the question I have is: Don't second-best teams also exhibit those qualities?
I believe in most championship games, both teams have good coaches and players who want to win. Both teams play to win, and try not to get cocky. Both teams are determined to play their best, and trust their teammates.
I've seen a lot of championship games that could have gone either way, where the difference between winning and losing was a single ad decision or single piece of bad luck.
Are both winning teams even though only one can be champion?
I found a very relevant quote from Adam Gopnik today, referencing recent criticism of Mark Sanchez: "what separates good organizations from bad organizations in all sports is the willingness to live with the talent they have, and not wish it was talent they didn’t have." Now THAT is a thought that could be very relevant to startups, esp these days when it is so hard to hire great programmers! Maybe the message I missed is that every team has to be a team you can afford and live with... whether they win or just lose within your budget.
Adam, first of all, I'm not sure I'd go so far as to say "second-best teams" are the teams that lose the championship game. Often, the better team on paper loses along the way. Look at the Giants last year. Look at the Dodgers in 1988. Now, please excuse me while I get some tissue...
Ok, I'm back. This very spring I helped coach my 8 year-old's team to a 1st place victory in baseball. Our team was average all season. We won about 60% of our games. The difference came during playoffs. The 2 best teams went in very cocky. They kids on those teams would brag during class about how badly they were going to beat us in the playoffs. Our kids were disheartened, but our coaches reminded them that they have come a long way and we would be very happy to get 2nd place. 2nd place was our stretch goal :-) We got crushed by one team in the second-to-last game of the season and came back 3 days later to flip the table on that same team for the championship.
I have been on the other side of the table too, both in sports and business. Cockiness runs rampant in our field. It's often difficult to distinguish between cockiness and confidence. While confidence is supremely important in sports and in business, eventually everything comes down to how the game is played. One pitch, one ground ball at a time. One user feedback, one screen at a time.
As I move from player to manager, I am starting to appreciate the importance of team dynamics and teaching basic fundamental skills to build talent. If I had to write the formula for winning product teams, I'd start with something like:
S=((T x D) / C2)
S=Success Likelihood
T=Talent
D=Desire to Win
C2=Cockiness Squared
Hahaha!
I would also add that a good manager, who cares about his people and knows the game well, can greatly influence the quantity for T, D and C.
I can't find it right now but there was a convo here a while back that showed research that having females on a work team made it more successful. Perhaps it has something to do with your C2! :)
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