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What March Madness can teach us about business

Daniel Roberts
Senior Writer

If you’re filling out your NCAA men’s basketball bracket on an Apple computer, you may not realize the connection between the two. But the psychology behind why we love storied rivalries and why we root for plucky underdogs, two hallmarks of the tournament each year, also applies to corporate America.

“In sports, athletes perform better when there’s a rival, they’ll run faster when there’s someone next to them… the same is true in finance, same true is politics,” says Jon Wertheim, executive editor of Sports Illustrated and the co-author of a new book, "This is Your Brain on Sports," that dissects this and other quirky lessons. “Steve Jobs always wanted to make sure his employees had a targeted opponent in mind, and that was smart.”

Why it’s critical to have a rival

Duke vs. UNC. Kentucky vs. Louisville. Michigan and Michigan State. The March Madness tourney is all about great rivalries.

In tennis, Serena Williams was better thanks to Maria Sharapova, Wertheim argues in the book. The two of them have won the most Women's Tennis Association major titles among all players, are constantly compared, and have even reportedly dated the same person. And even though Williams has won many more times than Sharapova, “she plays better tennis against Sharapova… than she does against anyone else,” Wertheim writes. So it is, too, with great companies.

In 2010, not long before he died, Steve Jobs declared “holy war with Google,” over mobile technology, in an internal email to Apple (AAPL) executives. Wertheim uses it in the book as an example of the motivational power of having a rival. It’s so powerful, in fact, that Jobs appeared to make a priority of establishing a clear rival. Whether it was Google, IBM or Microsoft, it didn’t matter, as long as there was a target at which to aim. The same is true of many dueling pairs of iconic American brands: Coca-Cola vs. Pepsi, Ford vs. GM, Visa vs. MasterCard, and McDonald’s vs. Burger King. Rivalries have an impact on the way a brand is perceived, but they can also change things internally. They can compel us “to work harder,” Wertheim writes, and can, “bring out the best in a workforce.”

Why we want underdogs to win

Another highlight of March Madness: the underdog upset. While it may be a fan favorite when a No. 1 seed gets toppled early on, Wertheim points out, “When we do our actual brackets and put our money where our mouth is, we over-bet the favorites. Same in finance, right, we say we love startups and upstarts, but we end up going with the blue chips.”

Indeed, the underdog narrative has helped many companies grow—until they grow big enough that they can’t reasonably be called underdogs. Under Armour (UA), which Kevin Plank founded when he was still an undergraduate football player at the University of Maryland, benefitted from a scrappy, underdog brand image. It was the upstart that wanted to take on Nike (NKE). The 20-year-old company has since shed its underdog status: It has a $17 billion market cap and recently surpassed Adidas (ADDYY) for No. 2 in the U.S. sports apparel market.

Even computing giant HP still reminds consumers it began in a garage. Apple, too, enjoyed that narrative for years, though in 2014 cofounder Steve Wozniack corrected the public record and said it was in a bedroom, not a garage. Airbnb began as an idea in a coffee shop. Malcolm Gladwell wrote about the phenomenon in his book "David and Goliath."

In this year’s tournament, “the little guys” are teams like Austin Peay State University (a 16-seed), Weber State University (15), and Middle Tennessee State University (15). But will a love of underdogs be enough to make you pick them?

Why we go nuts for the T-shirt cannon

Another quirky business lesson Wertheim pulls from sports is the appeal of the T-shirt cannon. If you’ve ever been to a sports event in an indoor stadium, you’ve seen this machine. It isn’t always a cannon -- it can be a slingshot, or catapult, or sometimes the pump-up crew just tosses them by hand. Regardless of how the shirts are thrown, they’re usually cheap, branded with the name of a sponsor, might be the wrong size for you—and yet, people go to great physical lengths to catch one. Why?

“One is scarcity,” Wertheim says. “There are only 8 or 10 or 12 of these going out, if it’s scarce, it’s got to be valuable. And also, they are, of course, free.” The appeal of something free cannot be underestimated: whether it’s a crappy shirt you don’t even want once you get home, or a sample at a grocery store, or a free tote bag that comes with a new credit card.

The appeal of free stuff even has an effect on people rich enough not to worry about prices; it transcends wealth. In her 1992 memoir, the former tennis star Tracy Austin wrote about being asked to play at a tournament in Japan and not wanting to go, no matter how much they kept offering her as a fee—then, when they offered to fly her family out for free, she consented.

The T-shirt cannon “is a great promotion,” Wertheim says. “It leads to fans elbowing out grandma for a shirt that doesn’t even fit them.”

The Ikea effect

Finally, the most fun lesson Wertheim tells in the book involves the New York Mets… and the Swedish furniture brand Ikea.

“Ikea had stumped business analysts for a long time,” he says. “It was maddening putting this furniture together. You had to do all the work, you were sure they had short-changed you a dowel… and yet, people love this company. And what a group of business school students realized is the cost of that effort, you had struggled so much to build that desk… in the end, when you have the challenge and struggle, it distorts your value of things.”

The term is “effort justification,” but you could call it the “misery advantage.” Fans of a beleaguered team, one that goes for decades without winning, are that much more thrilled when the team finally does see success. For example, the New York Mets made it to the World Series one time between 1986 and 2014. When the Mets made it there in 2015, “it was like building that Ikea desk. You’ve struggled, your effort has been justified, and your value of that experience is different than if you’d bought the desk in a store or rooted for the Yankees.”

[Yahoo Tourney Pick’em: Fill out your bracket for a shot at $50K]

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Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology.

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