Treasure Your Startup’s Underdog Advantage

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A version of this article previously appeared in Forbes.

Underdogs have a romantic appeal. Western societies relish fables which celebrate the victories of those who were expected to lose. Sophisticated entrepreneurs harness the power of their venture's underdog status, driving their teams to be unabashedly passionate risk takers who refuse to acknowledge failure as an option.

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Do not run from your underdog status. Some entrepreneurs believe that they must disguise themselves as a big company to enhance their credibility. These misguided folks mistakenly assume that prospective customers will be less likely to buy from them if they know the relative youth of their startup. Yet, the opposite is often true, as startups often attract early adopter customers who are less concerned about a supplier’s size.

Two instructive examples of underdogs who were more innovative and open to risk than their larger competitors are the baseball Negro Baseball Leagues and the American Basketball Association.

The Negro Leagues vs. White Baseball

Before the integration of baseball in 1946, African American baseball teams had to be more entertaining than their white counterparts. This was reflected in several innovations, which eventually invigorated the overall game of baseball.

Free Agency - Long before major leaguers, black baseball players followed the money. For instance, Satchel Paige routinely played for the top bidder, making him the highest paid baseball player, white or black, in 1942. The ability to move between Negro League teams and maximize his compensation prompted Satchel to quip, “The majors couldn’t pay me enough to play.”

This shift in baseball's business model, in which a greater percentage of the revenue flowed to the players, preceded major league baseball free agency by over three decades.

Night Baseball - African American teams routinely rented stadiums used by white-only teams. This required them to take advantage of dates and times when the white teams were not using their fields, such as at night. The first professional night baseball game was played in 1930 between the Kansas City Monarchs and the House of David. It wasn't until 1935 that the first white major league game was played under artificial lighting.

Hit, Run, Score - Rather than copy the major league's homerun centric style of play, many Negro League teams focused on base hits and stolen bases. This resulted in a faster-paced, more engaging game that attracted both black and white audiences. This hit-and-run approach was eventually copied by some white teams, most notably the St. Louis Cardinals' Gas House Gang.

Entertainment - The Negro League's primary innovation impacted all professional sports; the recognition and celebration of the reality that their "product" wasn’t baseball, it was entertainment. This realization freed the black players from the pretensions of their establishment competitors. Teams dressed as clowns, held footraces with spectators before games and warmed up playing shadow ball (pantomiming throws and catches without a ball).

The ABA vs. The NBA

The American Basketball Association was an underdog from its start. Most of the teams played in secondary and tertiary cities. Throughout its tenure, the ABA struggled to attract fans away from its dominant rivals, college basketball and the National Basketball Association.

In order to survive, much like the Negro Leagues, ABA owners introduced a number of innovations, many of which were initially viewed as bush-league stunts, but later became some of the most exciting aspects of professional basketball.

Halftime Entertainment - Instead of hosting a local high school band at halftime, like their NBA brethren, ABA teams unleashed a variety of outlandish entertainment on their fans. Some of the more ridiculous included bear wrestling and performances by Playboy Bunnies.

The NBA adopted a slightly less eccentric approach to halftime entertainment, while considerably upping the entertainment value from their pre ABA approach.

Three Point Shot – The ABA recognized that a 30-foot shot should be more highly rewarded than a simple layup. Thus, they introduced the three point line in1967, which encouraged long jump shots which opened up the game, as players had to challenge shooters from a range that previously went unguarded.

Slam Dunk Contest – According to Carl Scheer, General Manager, Denver Nuggets, "It was Julius (Irving) really giving us the idea that we're the league of the dunkers. So we said, 'Well, if that's the case, let's have a contest.' It really was as simple as that. We were in serious trouble. We knew that it was our last year and we had to make a big impression."

Slam dunk contests have become the highlight of the NBA's All Star weekend and dunking has become one of the most exciting aspects of the modern game.

Alley-oop – The alley-oop play involves one player passing the ball near the basket, enabling a teammate to dunk it. Although not invented by ABA players, they took it off the inner-city playground and refined it into one of basketball’s most exhilarating moments.

From Under To Over Dog

Just as successful startups are often acquired by bigger, slower and somewhat dumber companies, both the Negro Leagues and the ABA were absorbed by their former competitors. In the case of the Negro Leagues, the merger was indirect, as the top black players were recruited by Major League teams. In both instances, the more established counterpart was invigorated by the underdogs’ successful innovations.

The ABA basketball league was undeniably an underdog to its established competitor, the NBA. However, it was its inherent disadvantages which drove the league to work harder, take risks and ultimately change the game of modern basketball.

In a similar way, startups are well served to embrace their underdog status and turn it into a competitive advantage.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet about that killer burrito I just ate.

Image Source: Wikipedia

John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara's Faculty where he teaches several entrepreneurial courses.

Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.

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