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The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

May - 2007 - issue > People Manager

Hi-Fives of Employee Engagement

C Mahalingam (Mali)
Tuesday, May 1, 2007
C Mahalingam (Mali)
If you pitch a venture capitalist for money, be prepared to hear sports analogies. “When are you going to put the puck on the ice” (when are you going to launch). “You need to move the ball downfield” (self explanatory). So, when I saw boxes and boxes of Michael Lewis’ book Moneyball stacked up in Accel Partners’ offices, I figured it was merely an attempt to brush up on new baseball analogies for their next crop of startups.

However, when I read the book, I was fascinated. On the surface, Lewis’ book is a baseball book. But, the more I read, the more I was convinced that there was a great startup lesson contained in its pages. And that’s when I understood why Accel was distributing the book.

As I mentioned, the book on its surface, is about baseball. Specifically, it asks the question of how the Oakland As, with the second lowest payroll in baseball can consistently make the playoffs against competition that is far better funded. (Poor entity competing against a rich entity? Sounds like a startup problem to me.)

To set the stage, Lewis explains just how great a discrepency exists between the highest and lowest payrolls in baseball by contrasting baseball with other sports. In football, the ratio of highest to lowest payroll is 3 to 2. This means that the highest paid team pays out 1.5 times what the lowest paid team does. In basketball, that ratio is 1.75 to 1. In baseball, it’s 4 to 1. 4 to 1!? I couldn’t believe it. Talk about an inherent disadvantage.
So, how could such a financially poor team like the As fare so well? The answer, it turns out is by exploiting a baseball market inefficiency. According to Moneyball, most baseball scouts, the guys who pick talent, look for the same things; things that “feel” right. How fast a player can run? How powerfully can they hit? How fast can they throw? How well can they field? How much do they have the “look” of a baseball player? It’s an old game, with lots of traditions and common wisdom. Everyone just “knows” that these things matter.

With all the scouts looking for the same thing, those players who exhibit the commonly looked-for traits are (of course) highly priced. No poor team could afford them, including the As. But, what if everyone was looking for, and pricing highly, the wrong characteristics? As it turns out, in baseball, the scouts were doing just that. They were highly overvaluing players based on a set of “common knowledge” that had very little correlation with winning. Turns out, if you do the math and run the stats, how well you run the bases, how fast you throw and how hard you hit have very little impact on winning baseball games. In fact, the math (apparently) shows that fielding doesn’t matter in the slightest.

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