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How you can beat your competition with Moneyball

An investing and operational strategy that takes advantage of a lack of understanding of what drives performance on a macro level. A must read for entrepreneurs who go head to head with legacy juggernauts.
How you can beat your competition with Moneyball

Origins

The Oakland Athletics versus the New York Yankees. 40 million dollars versus 140 million dollars. David versus Goliath. What was a miraculous position to be in, turned out to be what every David dreads - one step forward, two steps back. Or so it seemed...

They lost the series, and could only watch as their three best players (apparently) were poached by the dominant franchises. Detailed in Hollywood production Moneyball, Billy Beane, GM of the A's, played by Brad Pitt, adopted a framework that would allow his team to overcome great odds and break the all time win streak record in baseball.

A statistical framework which cut through biases around age, height, build, injuries and general 'fluff', the 'Moneyball' strategy was used as the driving force behind the historic successes of both the Boston Red Sox, and Liverpool Football Club.

Liverpool, which I have cleverly pivoted to because I have no insight into baseball, were taken over in 2010 by the Red Sox owners FSG. From the brink of financial ruin to the summit of world football, a nuanced translation of this framework had proved to be successful yet again.

Perhaps its crowning moment was the hiring of Jurgen Klopp, who at Liverpool would eventually be awarded the honour of the world's best coach. But prior to his hiring, his previous successes in Germany had been dubbed 'unsustainable' as his high intensity approach was deemed to be the reason for the collapse in success at his former club, Borussia Dortmund.

However, Liverpool saw this differently. What the statistical department had uncovered, without watching a single game of Klopp's German outfit, was that Borussia Dortmund in the season that proved to be the German's downfall, was that they were one of the most unlucky sides in the world. As such, the Liverpool hierarchy saw an opportunity of sustainable success that no other club was able to identify, evidenced by the fact that Klopp is Liverpool's longest serving manager since Bob Paisely, the most successful manager in the history of Liverpool, and arguably the world.

Many in baseball, and football, who believe in the 'natural eye' as it were, initially dismissed this line of analysis, and it still receives some resistance to this day. Naturally, they are offended that someone with a masters in physics, can bring greater insight to the game than former players and managers. But what Klopp saw, was that a man who had never watched a game of football, came to the same conclusion that he did about the role that luck played in the end of his tenure in Germany.

A conclusion almost no one else produced, and as such embraced his statisticians.

Ultimately, this has been implemented on a much wider scope. Klopp was happy to be overruled on the signing of Mo Salah over his personal choice of Julian Brandt. Mo has proved himself to be the most consistent Premier League attacker since his signing, and has been Liverpool's top goal scorer in each season since signing. A signing that was initially treated with derision across the English game as his previous spell in the country was a failure, branding him with the 'not good enough for the Premier League' title which Liverpool saw through. It's these false quips that Liverpool have made such a success from.

Signing players from relegated clubs, spending big on players who struggled to get in the team for their previous sides, players coming back from injury, players in momentary bad form... Liverpool have been able to see through it all, signing players others wouldn't touch.  They have identified the true performance indicators where others haven't, and overcame oligarchs and oil empires in re-establishing itself as an elite club yet again.

Opportunities

All of this is just a very long winded way of saying that markets for players, and building teams, not unlike a regular company, have huge discrepancies between price and true value. While it seems unfair, what it really is, is a chance to pounce.

If we move into more tangible realms, how can the Moneyball ethos be exploited? Labour? Technology? Investing? Yes. If there is a competitive market, there is an opportunity.

Labour is the big one. People want to hire smart individuals, capable of thinking for themselves and operating in a shrewd, dedicated fashion. A big investment bank, law firm or tech conglomerate will exclude people in their selection process purely based on what university they went to. That is so stupid it's actually funny. That's not even counting the people perfectly capable who haven't even graduated from university. Here you have market rates for employees that might be as low as a fifth of their objective value (if there is such a thing). So if you're having trouble finding people to hire, don't look in the same place as the big institutions. Conversely, if you're looking for a job, don't compete for the approval of people who don't understand your value. Know what it is, find a way to prove it, and the opportunities will flow.

In the investing realm, this has been explored a fair bit, but it has a different name - value investing. Although the champions of this can sometimes fail to find the transformational opportunities by limiting their scope. Some look at earnings, competitive advantage, and management, which are all good. But the best opportunities are the ones that seek to shift the global architecture. Crypto and Web3 are the biggest opportunities today. The asymmetry between risk and reward is truly remarkable, and most people turn their noses up at it because the don't actually understand it. Sound familiar?

First Principles

Find true drivers in value and performance for whatever field you're interested in

  • Look for ways that your competitors assume false equivalencies and pounce on the pool of opportunities they neglect
  • The game will change, people will become wiser. Once they've equalled the playing field in one area, look for mistakes and look at the problem from a first principles perspective - the copycats won't do this. Also look for completely different verticals to explore

Why Moneyball Pioneer is teaming up with Liverpool

How a Physicist transformed the approach of a Football Manager

How Moneyball has been applied to Business Building

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