Moneyball—It’s Not Just About Baseball
Are we trying to sell jeans here or are we trying to win baseball games?—Billy Beane, Oakland A’s General Manager
Baseball scouts used to judge players on looks.
Moneyball, as a method, revolutionized the evaluation of baseball talent. It correlates, connects and coagulates all performance metrics (aka stats) to determine offensive or defensive production per player. In short, it made picking players more science and less art. There is a science to offensive productivity based on the “on base percentage,” and there is a a science to defensive productivity.
It turns out that VCs pick entrepreneurs using a highly parallel method.
VCs are big fan boys of Moneyball. I learned of the Michael Lewis book via Roelof Botha at Sequoia Capital. He was on a VC panel I was hosting at the Monte Jade American Association meeting in 2007. (It’s a mountain in Taiwan.)
This is how VCs use Moneyball against entrepreneurs:
1. The Hardship Interview
I studied engineering. Investment banks would set up interviews on engineering campuses. Some firms haze and cause you direct stress during an interview. It’s the hardship interview and the technique is old school.
Now, VCs test you via the mediocre intro. I wrote about it in a previous post, “How to Charm A VC Into Mentoring You“. It is a test to see if you execute, take crap, and follow up. Giving you a dog bullocks intro is the VC’s version of a hardship interview.
2. Kill You With Kindness
Baseball GMs have all sorts of ways to character compass a player. Character compassing is reading the person’s current talent and projected vector. Vectors give extra dimension to reading a person because they have direction and momentum.
VCs like to ‘open field interrogate’ an entrepreneur. It’s the opposite of a stressful, closed-room, interrogation that is infinite. Open field interrogation is kind. Relaxed. Finite.
Similarly, baseball GMs will treat a player they’re on the fence about with extreme kindness to evaluate them. The kindness itself is a test.
You see, VCs have a fraction of the domain expertise that your average Stanford CS Major intern has. They know this. But they are expert pattern recognizers.
How you handle the VIP treatment from the VC or the GM is going to impact how they evaluate you in the “kill ’em with kindness” maneuver. When you experience a private car picking you up, act like it’s your first limo ride. When you experience your first ride on a private charter flight, act like its the first time and BE THANKFUL. Pass the test and do not act entitled because you are getting a gift you have not yet earned.
3. Lead Generate
VCs are like baseball GMs in that they have scouts.
These bird-dogs get them deal flow. A bird dog is a hunting term where your Shih-Tzu Baxter points his paw or his snout at a talented CS major pre-preneur. Or your retriever points at employee #5 from Mint and says, “Go hunt that deal.” Deal flow is the parade of talent that wants to partner with you and these leads are brought to the VC via a referral.
4. Farm System and Training Table
There are organic methods to generate your own leads to augment your deal flow. Farm system and training table are terms from baseball, football, and many sports. But VCs use both methods to source entrepreneur deal flow.
Running a farm system in the venture world consists of hosting a hackathon, or buying or starting a conference like AppNation, ReverseVCPitch, Summit at Stanford, TechCrunch Disrupt, or Stanford Startup Academy. DISCLOSURE: I crash these and financially benefit from attending with 12-20 CS majors as my +1s.
“Training Table” is like a VC hosted dinner. Smash Summit dinner at Clift Hotel by 500 Startups’ Dave McClure (also a Moneyball fan) is an example. Smash is all about social media marketing best practices. Facebook and Google used to do them but stopped. Twilio, Evernote, Yodlee still do. FoundersFund, August Capital, NorthBridge, Morgenthaler, and Y Combinator still do.
5. Pitchers and Catchers Report in February
Pitchers and catchers have the easiest path to the pros. Or so it seems—but these two positions have to work the hardest.
In baseball, it seems like there’s a lot of standing around. Well, VCs are notoriously tan, healthy looking, relaxed, and levitate towards a boondoggle. If you’re an agent and you wanna romance a pitcher or a catcher to sign, you’ll have to crash their 6:00 am workout in Scottsdale Arizona.
As an entrepreneur, it means showing up early and staying late. It means getting ROI for the last day of a conference and trying to close deals after other booths are starting to pack up. Remember, after pitchers pitch on game day, they run 2-3 miles for recovery day.