Sun, December 03, 2023

Are You a Buyer or a Seller?

This is an important week for teams in Major League Baseball (MLB). On August 1 at 6:00 pm, MLB will reach its “trade deadline.” The trade deadline is the last time this baseball season that teams can make trades for players from other teams. Therefore, during the next week, teams have the final opportunity to acquire talent (“buyers”) to improve their team for this season as they chase a championship or attempt to trade short-term valuable assets (“sellers”) for assets they believe will help them have success in future seasons, if they don’t feel they have a chance to make the playoffs this season.

For some teams, it is easy to determine if they are going to be a buyer or a seller. For teams who are almost certain to make the playoffs (e.g., Atlanta Braves, Los Angeles Dodgers), they are clearly buyers, looking for those additions that can help win the World Series. The teams with poor records so far and extremely unlikely to make the playoffs (e.g., Oakland Athletics, Washington Nationals), are clearly sellers, looking to trade any good players they have who are in the last year of their contracts for young prospects who will hopefully enhance their teams in the future. However, most teams are in the middle (e.g., Cleveland Guardians, Arizona Diamondbacks), who must decide if their chances for making the playoffs are worth trading young prospects (future talent) for a player who will only help them in the short term.  Therefore, they must decide what they value more, short-term success or long-term potential.

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At this point, you are probably saying to yourself: “I now know more than I care to about MLB’s trade deadline, but what does this mean for my business?” I think there are a couple of good lessons that you and your business can learn from baseball teams at the trade deadline and then apply some of what we learn to our business decision-making.

The first lesson we can learn from baseball’s trade deadline is that it is absolutely critical to perform an honest self-evaluation prior to making important decisions. Before a team can decide whether it should be a buyer or a seller at the trade deadline, it must fully understand its current capabilities and weaknesses, and how that compares to its competitors. While this is important to all teams or businesses, it is particularly important to the teams who are “in the middle,” who make up a majority of the competitors.

Honest self-evaluation

Baseball teams and businesses often have a hard time doing an honest self-evaluation. Many tend to overrate themselves, while a few others may underrate themselves. Either way, the team or business does itself a disservice as its decision-making is based on this assessment, and your decisions will be flawed if your assessment is biased or incorrect. In order to make a good or “correct” decision, the inputs going into that decision (e.g., self-evaluation; competitor evaluation) must be accurate. Be sure to do a critical evaluation of your business, potentially with the help of unbiased sources, such as customers or consultants. So, lesson one of the trade deadline is that honest self-evaluation leads to better decisions.

Now, once you have done your honest self-evaluation, you have a better idea of where your team or business stands relative to the competition. For the really good or really bad teams/businesses, decision-making tends to be easier. For a really good team/business, they tend to have some outstanding strengths and only limited weaknesses. Therefore, they can choose to bolster either or both of those without sacrificing their long-term competitiveness. For the really bad team/business, most actions and investments will improve the business, so it can take a long-term view without hurting its current performance. However, most businesses are in the middle and the second key lesson from the trade deadline is the tradeoff a business needs to make on its short-term vs. long-term success.

Long-term success

At the trade deadline, MLB teams will often have to sacrifice some of their longer-term assets (minor league prospects) to acquire the players they need to hopefully compete successfully now. Therefore, as they determine whether they want to make a trade at the deadline, they have to determine what is more important to them now: short-term wins or longer-term success.

Typically, my advice to a team or a business would be to attempt to balance the short-term and long-term as best you can. However, in some cases, that can lead to mediocrity in both time frames. Each team and business must decide on its own whether success in the near-term or longer term is more important or whether they should achieve a balance. Most often, going for short-term success is the least optimal decision, but not always. If you are trying to build your business or improve cash flow, sometimes going short-term is best. Only you, as the business owner or leader can decide that. However, make that decision knowing that there typically is a tradeoff that must be made, if you choose short-term over long-term or vice-versa.

While you may not be happy with what your favorite baseball team does at the trade deadline, hopefully, it has now provided you with a couple of key lessons. First, do an honest self-assessment before you make key decisions about your business, and second, be sure to understand the tradeoff and implications your decisions have on your short- and long-term success!

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