M is for Metrics. I think I am going to get that tattooed on my forehead. Or at least I am going to get it embroidered on a nice golf shirt that I can wear to due diligence.
As a growth stage investor, I spend my days looking at businesses that most likely have grown up into real operations, with real products, processes, and customers. And operations are systems, and systems can be observed and measured. METRICS. If entrepreneurship is the intersection of ideas and execution, then metrics are the traffic light. So I am really surprised at the relatively large number of entrepreneurs and managers that pitch us with only a surface view of the metrics that will tell them when to slow down or when to rev the engine.
I am not saying that these folks aren't good entrepreneurs, or even good managers, but very often they are leaving at least a little of the inherent value in their businesses on the table, because they are not as in tune as they can be.
It's no coincidence that, when you look at the last three investments Updata Partners closed, you'll see three crack management teams that know the inner workings of their businesses like the backs of their hands. Every question we launched about the businesses--whether about historical or projected performance or plans--met with quick, informed answers backed up by measurement/data. I know it might have seemed like we were playing a twisted game with them..."What's your MRR? How many customers did you sign in January? If three customers leave and I add four more then defer their revenue, how much Gross Profit will you have in April 2008? Dance! Dance!"...but we need to know that entrepreneurs know which levers to pull to steer the ship, and how sensitive the ship will be to each lever. Believeme this command of the vessel inspires quite a bit of confidence in the people who are thinking about writing the check; the transparency and visibility that results makes it a lot easier for us VCs to give the advisory help that comes along with investment.
Show me the numbers and show me that you can track all the steps on the path to success, and we'll help you do the things that get you on your way. Then show me that you'll know when things start to head off the tracks, and we can more effectively manage risk together.
This came to mind today because I spent an hour on the phone with a CEO and CFO who are driving their ship like a couple of really seasoned sailors, and it made the time both interesting and productive. Hats off to you, Gentlemen, if you read this...
