Professional sports franchises spend thousands of dollars on scouting, background checks, and running draft prospects through a series of mental and physical tests before they decide to invest millions of dollars. General Managers look at everything before risking their pick on an expensive draft pick. This is even truer when it comes to making a first round selection.
Take the story of Kwame Brown. Back in 2001, the Washington Wizards had the honor of drafting #1 in the NBA Draft. With their pick they decided to choose Brown, becoming the first team to ever select a high-school prospect with the first overall pick. While still playing in the league, Brown’s career just never lived up to the hype. When drafted, Brown was 6-11, an imposing 250 pounds, and a gifted athlete. He was strong, had quick feet and a ton of potential. But after Washington selected him #1, many scouts said they questioned whether his small hands would hinder his play. They noticed in pre-draft workouts that Brown was having trouble catching passes and he missed quite a few dunks.
Small hands? Yep, out of all of the upside of this young man, it’s his small hands that wound up being the primary liability of this particular investment. With professional sports, like early stage ventures, you have to look at the entire investment (right down to the little details) before moving forward with a big decision. Sure, some mental and physical attributes can be suppressed or enhanced later on, but when that attribute is fixed, like hand size; you’re stuck with it. Ironically, whose decision was it to draft Brown? Michael Jordan. Yep, MJ was just given the title of President of Basketball of Operations and Brown was his first ever draft pick. So it just goes to show you, you can be the greatest basketball player of all-time and still be a mediocre evaluator of talent…
The National Football League (NFL) has developed a unique system for their 32 franchises to evaluate and score college seniors who may potentially become NFL players. “The Combine”, as it’s known, is a standardized system of physical and mental tests which, along with full medical examinations, gives teams a huge amount of objective and standardized data which they can use to weed out and ultimately select which players could be a potential fit for their locker rooms.
“I think it’s the total picture you get from the combine. The combine is another means of helping teams make good decisions, and the escalating cost of signing first-round draft picks makes the decision-making process all the more crucial. Teams spent a total of $160 million on signing bonuses for last year’s first-round picks. They want to make sure they know what they’re doing.” – Tony Dungy, Head Coach, Indianapolis Colts
It also happens to be that Dungy’s former star quarterback Peyton Manning was part of one of the most well known draft debates of all time. Back in the 1998 NFL Draft it was all about who do you take #1, the safe choice with “pro-ready” skills (Manning from the University of Tennessee) or the wild card with all the upside (Ryan Leaf from Washington State). Most analysts agreed that Manning was the more mature player and should be the consensus top choice. Turn’s out they were right and then some. Manning just earned his third NFL MVP award to go along with his Super Bowl ring and Ryan Leaf, who played only 25 games in his career, has become known as one of “the biggest bust in the history of professional sports.”
Of course, each professional team has different wants and requirements, but the implementation of a standardized setting has allowed personnel directors the opportunity to systematically evaluate the upcoming draft class. Because the tests are standardized, the players are able to focus their efforts on performing well in specific areas. Obviously, there is no substitute for on-field performance, but for players coming from less-than-storied programs their performance at the combine can drastically improve their stock in the draft. The transparency of the system is what allows players to improve and provides them with instant feedback at to how they have done compared to other players.
What does this mean for the venture market? Well, consider the fact that in sports standardized tests like the 40-yard dash can be applied to all players. Coaches and scouts have a common benchmark upon which they can look at players from all over the country in a standardized way. What this system can offer is a way for scouts to filter out the over-hyped big school superstar, as well as discover that small school player with remarkable physical ability; an effective standardized measurement of a complex set of attributes. Who said football players aren’t smarter than Venture Capitalists?
Key takeaway; Don’t draft entrepreneurs with small hands? Nope. Before investing your time and money in a new innovative venture, conduct your own up close evaluation and make sure that venture’s strengths significantly outweigh its weaknesses. Wash, rinse, and repeat.
Excerpt taken from Breaking Through The Broken: The Transparent Guide To Overcoming The Inefficiencies In Early Stage Venture Capital.
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