Moneyball Lesson 1: Building in the Aggregate
I often joke that I learned all that I know about the business of funding from the movie Moneyball. To set the record straight, that is only partially true. One very important lesson I did learn from the adaptation of Micheal Lewis’s fascinating book Moneyball: The Art of Winning an Unfair Game (2003) is the benefit of imagining each funding project as an opportunity to create value in the aggregate.
For those unfamiliar with the film, it follows failed baseball prospect turned Oakland A’s general manager Billy Beane as he and assistant GM Paul DePodesta challenge baseball traditionalists by reimagining the game of baseball through the lens of statistical analysis (also known as sabermetrics). The most immediate challenge that Beane faces as the movie opens is how to replace the on-field production of three key offensive players that have left the team in search of huge contracts elsewhere, one of whom was heavy- hitting first baseman Jason Giambi. As Beane tries to explain to his scouts, trying to replace these three players is a fool’s game – quite simply, it can’t be done. “Now, what we might be able to do,” Beane explains, “is re-create him]. Re-create him in the aggregate.” That is, replacing his offensive production (home runs, hits, walks) through two or three players rather than a single replacement.
Think of it this way: It will cost $300k to replace the ice plant in your local curling arena. There are various ways to approach this challenge:
1. Apply for a single grant for all or part of the $300K, or
2. Apply for two grants of $100k and two grants of $50k, which builds $300k in the aggregate.
Assuming, for the moment, that the odds of winning any grant are 50/50 how does each scenario unfold?
In scenario 1, you come away from the funding process with either $300k and a new ice plant or nothing, leaving you with a few options: (i) cancel the curling season until you find another $300k grant and start the process again, (ii) fund the ice plant replacement or temporary repair from reserves, or (iii) take out a loan for $300k and replace the ice plant.
In scenario 2, in the worst case you come away with one of the two $100k grants and one of the two $50k grants for a total of $150k. Your options under this scenario: (i) cancel the curling season until you find the grants to make up the $150k and start the process again, (ii) fund $150k of ice plant replacement from reserves, (iii) fund a temporary repair from the $150k you now have in your account, or (iv) take out a loan for $150k and replace the ice plant.
This is all a bit oversimplified, I know, but you get the point. By approaching a funding challenge in the same way that Billy Beane approached replacing star players, you realize several benefits:
1. You turn the odds of winning in your favour, even slightly. In scenario 1, the outcome is straightforward: win or lose. In scenario 2, there are far more outcomes available: win 1 and lose 3, win 2 and lose 2, win 3 and lose 1, lose all 4.
2. A partial win is still a win. If cancelling an entire curling season is not a viable option, even a partial win ($50k, $100k, or $150k) allows you to fund temporary repairs (in whole or in part) or reduce the debt you will have to incur to replace the ice plant in time to save the season.
3. Relationship multiply. In scenario 1, you are nurturing a relationship with a single funder, while in scenario 2 you are building four unique relationships, each of which might pay additional dividends in the long-term. Many funders prefer doing business with organizations that have shown proven themselves over time as having the capacity to complete projects on time, on budget, and with complete and clear back-end reporting. Getting a first chance to showcase your capabilities to a new funding partner is an invaluable secondary benefit of building in the aggregate.
4. Risk is mitigated. I often work with organizations that have one or two primary funders (a municipal government, for example). As I explain, relying wholly on single funders makes an organization vulnerable to political whims, budget cuts, and so many other potentially devastating cuts. Put simply, the more diversified a funding revenue platform is, the safer the organization is. Building in the aggregate automatically diversifies that platform.
As fans of the movie know, this Moneyball approach comes undone during the playoffs. Fortunately, the funding world does not include a playoff format – it’s just one long season that makes building in the aggregate a sound guiding principle for any funding plan.