As a Milwaukee-native, I’ve been searching for reasons to write about the World Series ever since the Brewers clinching victory last week.
Fortunately (for me at least), there are probably dozens of lessons we can draw from this year’s World Series champions (and runners up, the Tampa Bay Rays).
Here are 2 lessons to help you run a better (more profitable) business:
(1) Build a Better Team
The Brewers and Rays ranked 19th and 27th in payroll this year (out of 30 teams).
Meaning they produced more wins and output per dollar of payroll than big spenders like the Dodgers or Yankees. (The Dodgers spent $338m on payroll last year vs. the Brewers at $146m.)
Don’t confuse this as being cheap/stingy or avoiding paying up for high quality talent.
Here’s how to do it:
First, emphasize quality over quantity when it comes to building your team. Steve Jobs once said in an interview:1
…(the) range between what an average person could accomplish and what the best person could accomplish was 50 or 100 to 1. Given that, you're well advised to go after the cream of the cream. That's what we've done. You can then build a team that pursues the A+ players. A small team of A+ players can run circles around a giant team of B and C players.
In the case of the Brewers & Rays, they found A+ players at the skills and roles which catered to their strategy.
So whatever your business model or strategy, hire only A+ players to make it work.
Example: If you run a business with tons of SKUs and inventory management is a critical function, then hire the best inventory managers possible. If your business depends on customer satisfaction, then hire the best customer service team possible.
Next, set a strict salary cap.
The MLB is fascinating because it doesn’t have a salary cap, so you get widely varying budgets…
Milwaukee and Tampa Bay operate under very real financial constraints as small market teams. They can’t just outspend competitors, so they’re forced to think hard about where every payroll dollar goes (i.e. financial discipline).
Your business should operate the same way.
One way is to use what’s called a salary cap:2
If your sales are “X” and you want profit of “Y,” then your expenses must equal “X minus Y.” Payroll is usually one of the largest expense lines in any business; set your number from the top down, then build your team within that budget.
One final reminder here: your objective is NOT necessarily minimizing payroll, it’s maximizing the output of every dollar spent on payroll. Be ruthless about high quality output.
(2) Exploit Inefficiencies
A few weeks ago, the Tampa Bay Rays were highlighted in a WSJ article titled: “Moneyball Killed the Bunt. The Nerdiest Team in Baseball is Bringing it Back.”
The article outlined ways the Rays were departing from Moneyball traditions.
…they’ve put themselves in this position not by pioneering a groundbreaking strategy, but by flagrantly violating the most ironclad rule of the Moneyball era: never bunt.
A friend of mine summarized the core concept well:
Moneyball was never about maximizing on base percentage or any other metric, it was about buying runs at a discount. It was value investing.
Most teams were over-emphasizing traditional stats like home runs, on base percentage, extra base hits, etc.; which created a void for productive-but-unsexy aspects of the game like contact, bunts, and other “small ball” statistics.
So the Brewers and Rays looked at the data and said, let’s avoid what everyone is chasing (both teams ranked near the bottom of the league in home runs) and instead found undervalued strategies & players in bunting, contact rate, etc. (they did rank #1 and #2 in hits).
Every market or industry has its “sacred cows.“
You’ll notice these crowded industry norms with questions like: “that’s just how it works in my industry,” or “we’ve always done it that way.” Instead of focusing on those, find little quirks or niches that other people are avoiding or undervaluing.
Here’s maybe the key phrase from that WSJ article:
But Michael Lewis’s 2003 book isn’t about what not to do. Rather, it shows how small-market clubs with enough creativity and ingenuity can win with limited resources by finding value in places others aren’t looking.
One of my favorite examples of applying this concept in business is Illinois-based Cooper’s Hawk.
They operate as a casual-dining restaurant concept, one of the most traditional (and competitive) business models around. Attached to it is a subscription-based wine club model. In fact, they run the largest wine club in the world with more than 800k members.
So they’ve taken a competitive and plain vanilla business model, and found a way to build a sticky/loyal customer base with recurring revenue. It may not make them more profitable (they still have to run the wine club), but it’s creating a more durable business.
Homework
Find your salary cap and rethink your roster.
Look at last year’s P&L
Then determine your desired profit level
Subtract target profit from total sales = target expenses
Then subtract non-payroll costs from target expenses = your salary cap
Take that number and compare it to what you actually spent on payroll. What would it take to run your business within that budget?
Greg Crabtree articulated this concept in his book, Simple Numbers.