Come September I become consumed with baseball and the playoff hunt. Don’t get me wrong, I’d go to a ballpark anywhere, anytime, to watch any team (yes, that’s an invitation) and I have played fantasy baseball in the same Yahoo! league for over a decade but September is where everything is on the line — setting up October to be the most special month in all of sports (sorry March).
Heading to the Oakland-dot-Coliseum a couple of weeks ago to see David Ortiz and the Red Sox in one of his final games, I started thinking about the correlations between startups and baseball — there is much the startup world could learn from the sport who has a longer history than venture capital — not just so I could write off my trips to the ballpark this summer. With baseball’s decline in the years since the Internet bubble I started wondering, are startups in line to become America’s pastime?
Much of the country has become obsessed with stats — valuations, market cap and funding rounds — and incubators, accelerators and pitch competitions have sprung up by the thousands as a sort of startup farm league. My mailbox fills up on the weekend with newsletters that list the week’s venture deals like a scorecard.
The similarities become understandable as our definition of success and work life have changed over the last thirty years,
- Far more people want to play than the few who get to make a living at it.
- With only ~150 unicorn startups (companies over $1B) out there, it is a pretty exclusive league.
- Where else can you find so many twenty-something millionaires?
- A data obsessive culture compiling all kinds of granular data in the hopes that it gives their team an edge.
- Successful startups recognize it is a long season to become champion, not like those flashy App Store guys who are more like NFL teams — as many eyeballs as you can get for a short season.
One area in which startup culture could use a little deepening is the concept of success. In baseball the expectation of every team is to win the pennant and a championship (for startups, IPO and M&A), yet only one can and a relative few make it back on a regular basis. Up until recently, the playoffs only included 8 teams (now 10) and while the rest of the teams may be disappointed, they don’t pack it up, or pivot to a new sport, they head back to the clubhouse and begin work immediately on the next run — assessing, adjusting and acquiring what they think they need to win.
Not only do teams have to regularly contend with disappointment and forge ahead, elite batters only hit the ball a third of the time and pitchers strive for a 20 win season out of 30 or more games played. Think about that the next time you delay a product release over rounded corners or even worse, delay getting customers because “it isn’t ready.” At the heart of the sport is a recognition that perfection is an illusion (the 24 perfect games in 140 years not withstanding) and a team is comprised of individuals with unique strengths that when working together can accomplish greatness.
Two great truths of baseball and business: it’s a long season and you only need to show up prepared for each game and make smart choices based on what is happening on the field to have a shot at the big prize.
Digging a little deeper into the culture of baseball clubs, defined by ownership and management, there are a couple of styles that parallel the startup world: unicorns (probably never their choice of words) and lifestyle teams.
Unicorn teams are well funded with broad fan bases and diversified revenue streams. These teams — Yankees, Giants, Red Sox and Cubs are not dissimilar to startups like Amazon, Gooogle, Apple and Uber. To keep it close to Silicon Valley , we’ll look at the San Francisco Giants, who generate the third most revenue with the fourth largest payroll.
Unicorns are well funded and use their dollars to put together the highest quality team and while you can’t buy championships, the Giants have won 3 in 6 years (the Yankees are the most winning team in the history of baseball). Unicorns use their money to acquire the best players and are brand driven. Far less likely to get pieced out to the highest bidder in the offseason, unicorns protect their assets and turn them into national superstars, perpetuating the mythos of being a member of their tribe. No matter where unicorns play around the country, their fans show up.
Unicorns also increase their valuations by diversifying their revenue streams — the Giants are valued at about a 6x multiple versus the league average of about 5x, largely because of their investments off the field. In addition to hosting numerous high profile events year round at AT&T Park, the Giants have numerous residential and commercial projects in the area around the park.
“Lifestyle” may be a derogatory term to many in the startup world that believe they are on their way to becoming, or investing in a Unicorn, but as we discussed there are few of the mythical creatures out there. Lifestyle teams optimize for doing more with less, keep overhead low, appeal to a more local market with a value oriented cost model and sell he experience and entertainment value.
The Oakland A’s, just across the bay from the Giants, operate with half the revenue and about half the payroll to play the same 162 games. Their differentiator often splits the loyalty of their fans across distinct cultural lines. This same dynamic exists in cities like Los Angeles, Chicago and New York. The spirit and methodology of the lifestyle team may have been captured best by the book (and later, film) Moneyball. When faced with a painfully low budget and big expectations, A’s manager Billy Beane began to fill his roster based on player analytics — getting the most value-to-production needed to progress the game to put together wins. Rather than counting on big plays and lights-out pitching, he optimized the team statistically to manufacture hits and runs with the minimal amount of mistakes, “small ball”. Building a team based on data was unaheard of at the time though has become an integral part of Major League scouting for many teams, largely based on Beane’s success against teams with 3 times the budget.
Lifestyle teams have a larger base of fans to pull from at home, but a higher churn (making for great season ticket, or volume commitment, deals). They capitalize on local pride — singing praises of unsung heroes and young talent while having one or two stars to keep people excited and the team headed in the right direction. The product of lifestyle teams is selling on value and focused on the fun of going to the ball park, family oriented features and other, in-the-park activities.
The lifestyle approach gets a bad rap and while it doesn’t produce as many championships, the A’s have won their division, making it to the playoffs 6 times in the last 15 years and as a wild card two more times during that period.
What I’m really getting at: whether a team is in the pennant race every year or in a century long drought, they are in the Game (big G) every day. Each outing is an opportunity to write their own story regardless of revenue, budget and how many jerseys they sell.
Don’t try and tell the Blue Jays they don’t count — with the lowest revenue in the league and one of the smallest payrolls — they roared into the wild card spot and shocked the Orioles in the 11th inning last night with a 448 foot long ball by Encarnacion, to move on to the Division Championship.
If you are looking for a startup that embodies the hustle and consistent commitment to their customers and employees, while eschewing the allure of big funding and IPOs — look no farther than Basecamp.com and its fearless and outspoken leaders, Jason Fried and DHH.