What Start-Ups and Professional Sports have in Common

January 10, 2012

I watched the movie Moneyball over the weekend. The movie was about the Oakland A’s baseball team. It was a story about the business of sports. There is much that venture-backed start-ups and professional sports have in common.

Draft Picks and Venture Funding

Draft picks work a lot like funding a hot start-up. In the movie, the N.Y. Yankees and Boston Red Sox had a budget four times larger than the Oakland A’s, as such they could buy what they wanted. Likewise, the more prestigious venture capital firms attract the best start-ups, the smaller or new VC firms can’t get into the best deals. I remember Michael Dell moving his investment firm out of Silicon Valley because he couldn’t get into the great deals.  Who are the VCs play a big role in who is willing to join the company – the better known the VCs, the better talent that can be attracted because the more compensation can be paid. Big names and backgrounds of key players in a company create the image that VCs need to take companies public or sell them to acquirers.  I’ve seen stats on how many IPOs are venture-backed, but I’ve never seen stats on how many of those IPOs are around 5 years later.  I suspect not many. VCs have perfected the art of dressing the pig and placing a ‘for sale’ sign up.

Trading Players and Portfolio Companies

The trading of players in mid-season was fascinating. As the season was unfolding, the Oakland A’s were trading away viable and good players just so they could get crucial players from other teams. When a start-up is venture-backed, it simply becomes a portfolio company.  VCs shut down or close portfolio companies, not because they aren’t viable businesses, but because they need to divert funding and attention to the more promising ones in their portfolios. The fate of any one start-up is connected to the other unrelated start-ups in the portfolio, even though they have different products and address different industries. Many entrepreneurs begin start-ups so they can control their own destiny. What many don’t realize is that when your start-up is in a portfolio company, this is just a myth.

Scouting and Deal Flow

The baseball scouts searched for new, upcoming youngsters for their teams, but even with a great athletic track record, the scouts can’t predict whether any one young recruit with be a major league superstar in the future. Every ventured-backed start-up is considered to have the potential to be a corporate superstar. Yet in the past ten years, they’ve funded twice as many start-ups as the number of companies listed on the US public exchanges and few of their funded start-ups have made it to the level of an Amazon, eBay or Google.

Opportunities Don’t Always Come From Where Expected

Most VCs agree that success isn’t within the control of a start-up: the start-up controls one-third of the factors for success, the competitors control another one-third, and chance accounts for the rest.

In the movie, Oakland A’s are in deep trouble. They didn’t have the season they wanted, their star players were leaving the team for better ones, and they didn’t have the funds to buy top talent to replace them. To make matters worse, most of the team’s back office workforce was entrenched in the business-as-usual attitude and wanted to rebuild the team in the traditional way. However, the GM knew he needed to do something different, to take a path no one had ever used before. It was the only way to succeed with the lack of team talent and budget. Doesn’t this sound just like a start-up company?  During a meeting, the GM meets a youngster that told him to look at team building with a completely different perspective – this was the unpredictable, chance happening that turned the tide.

Another clear lesson for self-funded or bootstrapped start-ups; you can’t play the game the same way as the venture-backed start-ups with big funding or large Fortune 500 companies do. Too often, high tech start-ups are founded by geeks that want to figure out how to create a start-up from behind their computer screen. It doesn’t work. Founders need to get out and meet people so they can have that chance meeting or spark of inspiration.

Youth Matters

In the movie, there is much descent from those with decades of experience. If you are going to do something new and different, the reality is that it is easier with younger employees who are willing to embrace the new approach. Seasoned or older employees have experience in older approaches and are often resistant to take a new path – some will support it and some won’t. The unfortunate truth with a limited budget and constrained resources, those unwilling to accept the new approach can’t be allowed to stay around the new organization. This is the reason start-ups are filled with young professionals and maybe just a few seasoned ones. It’s also why VCs don’t often fund seed or early stage start-ups unless the founders are less than 40 years old.  This comes out in the movie, where the GM had to fire an older employee and had to manipulate others so they had no choice but to comply with the new approach.

The Moment True Success Comes to a Start-Up

There is a statement, which appeared years ago in Harvard Business Review that has stuck in my mind, “True management vision can only be found through true desperation.” At the beginning of the movie when the team loses it star players, what do you think the GM’s first solution to the problem was? He went to the owners and asked for a bigger budget. When he got rejected, he had to become creative. He had to think outside the box. He had to risk doing something different. I encounter this with startups. They try to take the big company path until they have no other choice, and that’s when they start to succeed.

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