By: Michael Lewis

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Imagine this scenario. Year after year you are competing in a marketplace with competitors who are able to attract the best in the business because of their insanely high payroll. It would be like starting a technology company when your biggest competitor had Steve Jobs from Apple (bless his soul), Jeff Bezos from Amazon, and Mark Benioff from Salesforce decided to join forces with the sole purpose of crushing you. Not a pretty situation.

Now imagine, that somehow you’ve found the secret to beating the dream team year in and year out. You’ve somehow found the magic formula that shows you exactly how to win more often than your competition. Sounds like an impossible fairytale, right?

This was the exact position that Billy Beane – the general manager of the Oakland A’s found himself in roughly a decade ago. This is the story of Moneyball, and the 8 lessons you can learn from one of the greatest baseball stories of all time.

Oakland, 2001

Billy Beane was supposed to be a big league all-star. He had all the right tools – in fact, he had all of the tools. He was big, strong, and could hit for power and average. These were the types of players that big league scouts drool over year after year. But there was something missing in Billy’s makeup that the scouts couldn’t see – because they weren’t looking closely enough. Billy didn’t have the mindset for the game.

After bouncing around the major leagues for a decade, never once coming close to living up to his potential, he decided he wanted to trade in his cleats for a clipboard, and make his living in the front office. He started out as an advance scout for the Oakland A’s (the team he was playing for when he requested the change), but eventually caught the eye of the current general manager Sandy Alderson who took him under his wing to become his assistant.

In 1995 the A’s current owner died and ownership changed hands. These new owners slashed the payroll significantly and forced Alderson to find ways to win with much less money. So, he turned to something called sabermetrics in order to find an edge on his opponents. Sabermetrics was the brainchild of Bill James – a guy who had no background in baseball but nevertheless had a passion for writing and researching the game. Bill James wasn’t interested in understanding the game of baseball the way sports announcers and journalists understood it – he wanted to understand baseball like a science.

And understand it like a science he did, breaking down the statistics so that he could show exactly which elements of a baseball player and team that led to their success.

Surprisingly, to James, most people scoffed at his ideas, and nobody was willing to build their baseball team around them. That was until Billy Beane was made the general manager of the Oakland A’s. After a great season in 2001, he lost his 3 most important players to richer teams – Jason Giambi, Johnny Damon and Jason Isringhausen.

So, Beane brought in Paul Depodesta, a Harvard graduate who had never played professional baseball, into his inner fold and made him his assistant general manager. Depodesta and Beane single handedly became the first two people willing to place their reputations and careers on the line by managing a big league baseball team completely based on Bill James’ theories.

The next season, when most people thought the Oakland A’s were finished, they won an improbable 20 games in a row, and went on to finish the season with 103 wins – the same amount of wins that the New York Yankees finished with.

The Oakland A’s payroll was $41 million. The New York Yankees patrol was $133 million. Here are the 8 lessons we can learn from Billy Beane and the 2002 Oakland A’s, the only general manager and team willing to put it all on the line for a new way of doing things.

Lesson #1: Don’t generalise wildly from your own experience

The first big change in the 2002 season was the entry draft. Up until this point, most major league scouts had experience playing baseball, and most of them would generalise wildly from their own experience, thinking that their own experience was typical.

Similarly, don’t assume that your experience in business is the “typical” experience and start making large generalisations based on your own view of the world. Take an empirical approach to whatever you do, and make sure that you don’t get in your own way.

Lesson #2: Don’t be over influenced by the most recent performance

Most people are influenced greatly by the last thing they saw. So, if a major league scout went out and saw a game where a player hit 2 enormous home runs and had 3 stolen bases, they would probably jump up the rankings charts very quickly. This is easy to do in business as well. If you start executing on a strategy and you get a few quick wins, don’t think that the hard work is done. Anybody can flip heads on a coin a few times straight.

Similarly, don’t feel like the world is coming to an end just because the last thing you did failed – whether it was a cold call, email campaign, or an argument with your spouse. Brush yourself off and get ready for the next one.

Lesson #3: You are in the risk minimisation business

The Oakland A’s didn’t have a lot of cash to burn on prospects that other big leagues teams did. So, they would have to figure out the secrets that lead to big league success based upon what they saw from the players in high school and college. Most teams prized the players from high school because they wanted to get them before other teams had a chance to. So there was a perception that if you slipped through undrafted into your college years, you weren’t as good as a high school recruit.

Billy Beane took on the strategy of risk minimisation through the draft. He simply couldn’t afford to waste a pick, so they didn’t draft high school players. He did this because they knew something that most teams either didn’t understand, or care about: college players are much more likely to make it to the big leagues than their high school counterparts.

It was only through the understanding that they had to minimise risk in their business that they were able to find the draft strategy that did just that.

So, what things can you understand better in your business by figuring out how to minimise your risk?

Lesson #4: You need to know what skills can be acquired, and what can’t

When the scouts were sitting around the table deciding who to draft, they put a lot of stock into players that could hit for power. At the same time, they believed that they could teach a hitter to hit for a higher average by making a few tweaks to his swing.

For instance, when they were discussing Mark Teahen – a third baseman from California – the scouts didn’t like him. He was a big guy (6’2”, 210 lbs) and was very patient at the plate. But he didn’t hit for a lot of power, and the scouts just couldn’t imagine taking a third baseman who didn’t hit home runs. However, they empirical evidence was the opposite of what the scouts had in their minds. You could absolutely teach a hitter how to hit for power, but you can’t teach them to have patience at the plate – you either have it or you don’t. The best example of a great hitter who developed power later in their career was Jason Giambi, the guy who just left town to wear Yankee pinstripes. The same guy who was the American League MVP in 2000.

Teahan was drafted in the second round by the A’s that year, and is still in the majors with the Toronto Blue Jays today. Similarly, when you are drafting players for your squad, you should understand what skills can be acquired, and which skills they need to have before they arrive. With all of the change going on in the business world right now, I would suggest to you that somebody with a natural curiosity for learning new things is something that you’ll need to succeed. It happens to be something that is very difficult to teach, so be on the lookout for it.

Lesson #5: Don’t judge the book by the cover

Jeremy Brown was another player that the scouts for the A’s just couldn’t wrap their heads around. Why? He was fat. Or as the scouts would say, he was a “bad body catcher”. Despite the fact that he was the only player in the history of the SEC to have 300 hits and 200 walks, each of the scouts have about 1,000 players listed above Jeremy Brown’s name.

What Billy Beane knew, thanks to Paul Depodesta, was that the ability to control the strike zone was the single most important indicator of future success. And the number of walks a player took was the best indicator of whether or not a player knew how to control the strike zone. Almost every other quality in a baseball player was overpriced. Jeremy Brown got drafted in the first round of the draft that year by the Oakland A’s.

Lesson #6: Negotiate win-win (but tough) deals

Jeremy Brown didn’t expect to get drafted before the 10th round of the draft that year. In fact, nobody else had even shown a passing interest in him as a major league player. If he got drafted at all, it would have been to fill a spot deep in the minor league system. This meant that he wasn’t expecting to get a lot of money by signing with a team, either.

The A’s knew this, and also knew that nobody else was going to touch Jeremy Brown in that draft. So they went to Brown before the draft and pre-negotiated his agreement. Basically, the A’s said they would draft him in the first round of the draft if he would agree to a salary well below what other first round picks would receive. Agree he did, and the A’s had their man at a significant discount to what they would have had to pay other players: players who were being overvalued by other teams because of their good looks and strong arms. The A’s would repeat this feat numerous times in that draft, and at future drafts.

This brings to mind Warren Buffet and Charlie Munger finding undervalued businesses and snatching them up because they had figured out the fundamentals better than anybody else. So what value you can you sniff out in your business and strike deals for significant discounts?

Lesson #7: Judge people by what they have done, not by what they might do

There’s a tendency for people in the baseball business to look at a player’s raw talent and project what they might do when they start their professional careers. When the Oakland scouts were talking about a prized prospect who they believed would become a great major league hitter, all Beane kept asking was “if he’s such a great hitter, why can’t he hit?”

Similarly, when you are bringing new people into your team, resist the urge to make your decisions based on what you project a person will do once they join your team. Instead, use their past performance as the best indication of their potential performance. Yes, it’s true, you might miss a few diamonds in the rough. However, overall, you’ll build a much stronger team and have greater results by basing all of your judgments on the only performance that truly matters – the performances that have actually happened.

Lesson #8: Manage around your weaknesses

Scott Hattiesburg was a student of the game. He knew which parts of the strike zone he could get on base from, and exactly which parts of the strike zone would lead him to get out. However, when he was playing with the Boston RedSox earlier in his career, he would get berated constantly for taking strikes that the team thought he should be swinging at. For instance, the hitting coach for the team would constantly point out that Hattiesburg had a .270 average, but that he hit .500 when he swung at the first pitch. What the coaches couldn’t understand was that he only swung at first pitches that were too good not to swing at.

So, each time he went to the plate, Hattiesburg knew exactly where his weaknesses were, and he managed around them. He didn’t spend all of his time trying to change his swing so he could hit the pitches he had trouble with. He simply realised that by not swinging more often, he would get on base more often. Similarly, you should understand where your weaknesses are, and manage around them. Most other people might tell you to work on your weaknesses. However, you should have a deep understanding of what they are, and then design your business and life to manage around them.

Conclusion

Unless you are the head of a multi-billion dollar enterprise, it’s likely that your situation resembles the Oakland A’s more than the New York Yankees. Take the lessons learned from one of the most incredible stories the sports world has ever seen, and make them work for you and your business today.