Moneyball, Creative Destruction & Business Evolution
BY THOMAS M. KIM, CTP, TMA GLOBAL PRESIDENTI
enjoy baseball and am a fan of the best-selling book and hit movie Moneyball. To me, business is the ultimate “moneyball” and turnaround professionals employ moneyball tactics in their work.
Although TMA was founded only 25 years ago, our “industry” has been around much longer. Troubled businesses have been around for as long as business itself, and as business has evolved, so has the work of those advisors who provide turnaround guidance.
As our industry continues its evolution, it is unproductive to remain stuck on traditional turnarounds as the only alternative for remedying business distress. I define this to be a case in which a lender declares default and conditions forbearance on the retention of an acceptable advisor, and the advisor engages in a months-long process with outcome uncertainty. Lately, we’ve seen a preponderance of economic stakeholders who prefer a less time-consuming sale process, which they perceive as a lower-cost alternative with a greater certainty in outcome. If we were to simply weigh the classic turnaround against the sale process, it seems clear which would prevail in the eyes of the economic stakeholders. The math is simply too persuasive.
But the situation is not as clear-cut as one might believe. Just as with baseball and the concepts underlying Moneyball and Billy Beane’s adoption of sabermetrics to turn the Oakland A’s into a winning team despite its low payroll, I am confident that we may not know fully the keys to unlocking profit from underperforming companies.
Our industry is full of people like Beane, general manager and minority owner of the A’s. If you believe the story, Beane differs from many who worked in baseball in that he followed the concepts of baseball writer and statistician Bill James, who has been credited with creating the discipline behind what he termed sabermetrics in the 1970s. Beane used James’ concepts as the foundation to build winning teams for the A’s, despite serious payroll limitations.
Our industry is full of people like Beane, general manager and minority owner of the A’s.
We know that Beane began using on-base percentage (OBP) as a key decision-making metric in building his teams and that the A’s have been very successful since then. According to Bleacher Report’s 2012 Moneyball power rankings, the A’s had the lowest cost per win last year, at $589,069, compared with the Boston Red Sox, who ranked highest with a cost per win of a little more than $2.5 million, more than four times that of the A’s. What we don’t know is what other factors played into, or perhaps were critical to, the A’s success. This is a weakness in statistics and the current trend toward reliance on “big data.” In business, the knowledge and skill of TMA members provide the X factors that turn around companies and save jobs. Our members creatively deconstruct situations to reconstruct winning ones by using objective, data-driven analysis and guiding businesses through economic difficulty.
Our members routinely do more with less than most business executives are ever asked to do. TMA members seek out assignments with businesses that are in serious financial or operational distress. They engage during a crisis when there is a high degree of acrimony, distrust, and conflict, not only between the company and its creditors, but often within the company as well. They do this because it is rewarding and necessary. The work of middle market TMA members is not heralded widely, but it is extraordinarily important and meaningful in restoring profitability and saving jobs in the middle market, where most are employed.
TMA’s leadership is united in our mission to spread the message of how our members restore value to businesses throughout the world. TMA provides the forum within which this discussion occurs, and our members are the agents through which this dialogue occurs. We look forward to continuing the dialogue at The Senate in Chicago May 14-15 and at The Annual in Washington, D.C., October 3-5.