There are lessons to be learned about entrepreneurship in unlikely places, including on the baseball field. Or at least in books about how to put together a winning baseball team, like Michael Lewis’ Moneyball.
The lesson is simple, your KPIs matter. The What if? asked in Moneyball was “What is the goal of a baseball team, and how can a team best achieve that goal?” The agreed upon goal is to win the World Series, but whereas the traditional back office, managers, owners, and fans thought the how was a team full of stars, Billy Bean at the Oakland A’s thought otherwise.
The path to the playoffs is wins. The path to wins is runs. The primary way to score runs is to have players on base. Ergo, hire players that increase the odds of getting on base (offense) while also hiring players that minimize the odds of your opponents getting on base (defense). And do that with under-appreciated players so that those wins cost as little as possible. Bill Bean’s Oakland A’s had by far the lowest budget in Major League Baseball.
Whether you read the book or watch the movie, spoiler alert, that core idea works. Mostly. At least it works until the competition starts copying the strategy, but it works so well that it is not only the norm now in baseball, it is how sports teams in every major league sport generally choose players. Except for the fact that stars sell merchandise, merchandise drives profits, and major league teams have a second goal of earning profits.
Back to entrepreneurship, the lesson to follow is that your KPIs matter too. What is a KPI? The acronym stands for Key Performance Indicator, but that is little more than management jargon that doesn’t actually answer the question. KPIs are simply numeric measures for how well a company is performing. Numeric as in measurable with a numeric value. Measurable on at least a month basis, albeit weekly is better and daily is even better.
The best practice is for the management team to have 3-5 corporate KPIs that get tracked, reviewed, and discussed at each Monday management meeting. Plus, monthly KPIs that are reviewed and discussed at the start of each new month. With those values rolled up into quarterly KPIs, compared to prior quarters and last year’s same quarter. And those values rolled up into annual values, that are compared with prior years.
Which KPIs are measured? That varies from company to company. The most popular corporate KPIs are “top line” gross revenues and “bottom line” net income. Other popular KPIs are total unit sales, net margin, and gross margin. For your company maybe you need to watch accounts receivable or inventories. For highly leveraged companies an important KPI is debt to equity ratio. For venture-backed tech startups, two common related KPIs are “burn rate” and “runway,” which are the amount of cash that is lost each month and the number of months before the company runs out of money.
What every entrepreneur should learn from Moneyball is that the KPIs you are tracking are probably not the set that will provide the easiest path to success.
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