Innovation

NFL coaches always have preferred, it seems, to steal a successful tactic from a colleague rather than come up with a new one on their own.
- Washington Post article about the new fad of calling timeouts before field goals

I did not do a company to make money. I made shoes and it became a company.
- French shoe designer Christian Louboutin

There is in fact very little innovation in sport, unlike business. Sport is built on executing within a well-defined context; the predictability and lack of innovation is part of what makes it so comforting to fans. Chicken soup, golden retrievers, and a sports game have this in common; you pretty much know what to expect – and that’s a good thing. If a pitcher appeared on the diamond and threw a football towards the batter, who swung at it with a hockey stick prior to getting on his bike and racing towards first base, this would not be regarded as innovation but as insanity. Contrast this with other fields like fashion, where change for change’s sake is not only welcome, but very much expected. If last season’s looks are exactly like this season’s looks, there will be no buzz, no excitement, no reason to shop. In business, change is about survival; constant change and innovation is, in general, necessary to keep up with competition and change in consumer tastes, in government policy, in response to technological development, and for many other reasons. Change is not an end in itself, but is expected.

There are many ways in which big business is different from entrepreneurship. For one thing, it is much harder to create something from nothing than to grow an existing business. (Which is why, in the scoring section, we award much higher scores to someone who starts a business from scratch, rather than taking over an existing business.) Founders of new businesses tend not to be risk averse; they don’t need the security, financial and/or psychological, of being part of a big, well-known organization. What entrepreneurs really fear is missing an opportunity as a result of not having taken a chance. In a new business, the very nature of the business is figured out as the business develops. Big businesses tend to focus on different issues, like market share, public relations, government policy, and litigation risk. Established businesses are governed by systems and policies; small businesses by ad-hoc decision making.

One of the most important differences, for our purposes, is that small business, like amateur sport, often tends to be pursued as a passion. As a business grows, it tends to lose the passion and become less focused on the product, and more focused on financial results. The New York Yankees, with 26 World Series championships and 39 American League Pennants are the most successful franchise in North American professional sports history. They are also an example of a passion that has grown into a big business that is, at this point, really more about business than sport. Secondly, the very nature of the kind of person who succeeds is different; small business tends to be about innovation and passion for the product: Gary Kildall, who you probably haven’t heard of, was one of the greatest computer science innovators of all time, with a great passion for computing and software. Bill Gates became the wealthiest man in America not through innovation, but through aggregating the work of others, and, in many cases, ruthless business practices. To a large extent, Gates’ great fortune came at the expense of Kildall and other men like him. Kildall is a man who loved his work; Gates is a man who just loves winning.

The most famous Yankee baseball player is the legendary Babe Ruth, known for his home run hitting and also for his reckless lifestyle, hard drinking and hard partying. When one thinks of the New York Yankees under owner George Steinbrenner, one thinks of a man who was passionate about winning – a hothead who lost his temper anytime the Yankees lost their grip on the top rungs of baseball, but a man in many ways, reckless and passionate, like Ruth. He’s a man who wanted to win for the sake of winning, seemingly at any cost, paying whatever it took to get players that could help him win. For Steinbrenner, born in 1930, as for many older sports owners, the game was about a passion for victory: the Yankees have won 6 World Series and 10 Pennants under his ownership.

As sports grew and became more like a business, things changed. In 2002 the Yankees started a cable TV network to televise their games, called YES, the most profitable and popular regional sports network in the US. By 2007 YES had become a $3 billion dollar business. The Yankees started planning a new ballpark, set to open in 2009, at a staggering cost of over $1 billion. With all this money at stake, decision making passed from passionate, but aging, Steinbrenner to younger, more business oriented professional managers, in this case general manager Brian Cashman and team president Randy Levine. As Will Leitch wrote in New York magazine, “Of course the Yankees want to win: Postseason games bring in revenue and boost the brand. But they’re not trying to win to satiate a barking tyrant; they’re trying to win because winning increases profit. This makes the Yankees no different from nearly any other sports franchise in the world……The Yankees haven’t won a world series since 2000, which is supposed to be a failure, but the teams value has more than doubled since then, and it’s still climbing.”

This is true all over sports: in the big professional leagues, it’s all about marketing, TV revenues, and other things which have little to do with the game itself, or with winning. In 2006 the most highly valued franchise in all of sports was the Washington Redskins football team; with Forbes calculating a value of $1.4 billion for the team. The team was purchased in 1999 by Daniel Snyder for $750 million, and the continuing climb of the value of the franchise had nothing at all to do with the continued mediocrity of the team’s performance on the field. The Redskins have the NFL’s largest stadium and sell out every game, despite the fact that the team has not played in a Super Bowl since 1992, and have had little on the field success in the Snyder era, losing about as many games as they win, and never making an impact in the post-season. Many of the seats cost over $400 per game. The tickets prices do not include parking, which in 2007 was $35 per vehicle. It is not surprising to learn that before purchasing the Redskins, Snyder made his fortune by creating and then selling a marketing company, focusing on direct marketing, database marketing, proprietary product sampling, sponsored information display in prime locations, call centers, and field sales. As a marketing maven, Snyder’s biggest success was selling the naming rights to the stadium to Fed Ex for $207 million; it is now known as FedEx Field. No one seems to care that overnight delivery has nothing at all to do with the game of football.

NASCAR (National Association for Stock Car Auto Racing) is America’s second most popular spectator sport, trailing only the NFL, and has been wildly successful with marketing efforts in recent years. In 2007 its average attendance at races was a mind blowing 130,000, and it also enjoys high, although recently declining, TV ratings. Stock car racing is a sport with blue collar roots in the American South, which began as a means for bootleggers to evade the police as they moved barrels of illegally produced liquor from points of production to points of sale during Prohibition. Many of the drivers modified their cars for speed and handling, and to increase cargo capacity. So many of the drivers enjoyed the race to evade the cops that by the 1940s stock car racing had evolved into a sport, with a base in North Carolina.

In recent years, NASCAR managers have focused on widening the demographic, in large part to appeal to advertisers, who covet certain high spending demographics, particularly younger, affluent men. In search of wider and more attractive demographics, major changes have been made, including redesigning the race cars to homogenize them, a change that drivers have sharply criticized. In an article entitled “While NASCAR takes stock, racing’s popularity wanes” Washington Post writer Liz Clarke says “The redesigned car was intended to make the racing safer, save money for car owners and jazz up the competition by making it easier to pass. Yet drivers mocked its aesthetics, groused about its handling and said it made it harder, rather than easier, to pass.” NASCAR is even starting races later to appeal to the West Coast audience. (WP. 11.4.07) NASCAR has also tried to tone down the antics of its often volatile drivers, presumably to make the sport more attractive to affluent and educated spectators, but possibly offending the “red-neck rebels” who form a fanatically loyal base for the sport. Racing fans also tend to be very brand loyal, and as a result they are hugely sought after by major consumer products companies. NASCAR’s biggest advertiser used to be the cigarette company RJ Reynolds; now it is companies like Anheuser-Busch, Coca-Cola, UPS and McDonald’s.

For NASCAR executives, the most important thing is not TV ratings, per se, but saturating the fan in every possible way. In February of 2007, NASCAR signed a new deal with ESPN, to a large extent because the sports TV network had found so many ways of reaching the consumer, and thus selling him or her advertising. In addition to multiple TV channels, these “platforms” include web sites, radio, talk shows, and a magazine. ESPN executive Rich Feinberg said “The name of the game in the year 2007 and beyond is pushing content out to people as many different ways and places as you can. There’s no one better at that than ESPN.” That may well be true, but note that stock car racing has just become another product, or “content” in the minds of those promoting the sport...

Redskins football players, Yankee baseball players, and NASCAR drivers may have a passion for their sport, but passion has absolutely nothing to do with the value of sports franchises, which keep rising, win or lose, thanks to crafty marketing efforts. The passion to win for glory, has now become the passion to win in the marketplace. But as sports become more businesslike, there is the chance for business people to chase glory, rather than dollars, and make business more like sport. Below we profile two key people in the business of computing. Bill Gates and his company Microsoft are much like a modern sports business, oriented towards the bottom line. Gary Kildall was a man for whom his business was his passion, much like the Redskins, Yankees, or stock car drivers of days gone by.

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Quotes

The real lesson of Jaws was that if you market a film well and make sure that it's on thousands of screens, you can be reasonably assured of a big opening. The marketing blitz and the wide release work on the opening weekend because they're a form of what economists call signaling. A movie that hasn't opened yet is a classic example of an 'experience good'. You can't tell if it's worth seeing without seeing it, you you look for early signals, which Hollywood is happy to provide: a clever trailer, a big ad budget, a wide release. You're supposed to think that a studio wouldn't spend so much or put a film on so many screens unless it was confident that it could recoup it's investment, and therefore the movie must be worth your ten bucks. Signalling though, works only as long as the experience good has not been experienced. Once people start talking and reviewers get griping, the ads don't much matter. That's why studios spend almost their entire marketing budgets before a movie opens.

—Movie marketing

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