Brad Feld

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Financial Metrics – The DOC Report

Aug 10, 2004

Shortly after I sold my first company, I got a call from Len Fassler – my new boss (the co-chairman of the company) – who asked, “Can you start sending me your DOC (pronounced “dock”) report?” I had grown to like Len during the deal process – he seemed to understand me, my general flakiness about whether or not I wanted to sell my company at the time, and was patient with my overall business naivete. However, at that moment, all I could think of was the cliche “the honeymoon must be over” since I had absolutely no idea what he was talking about.

After I meekly asked Len what he meant, he explained that he was looking for a “Daily Operating Control” report – basically a daily report that summarized the key financial metrics driving our business. Aha – I thought – this is easy. We were a consulting company and our major revenue driver was the number of hours each of our consultants billed per day times their rate per hour (which often varied based on the project they were working for at the time.) Almost everything else in our business was a highly predictable cost on a monthly basis. We relied on a home grown time accounting system that we fondly referred to as FT-BIL. We had built a discipline of entering our time daily so I literally had current month to date revenue numbers within 24 hours. I cranked out a number of FT-BIL reports, including daily billings by consultant and by client and sent it on as an example of what we had.

It turned out that Len didn’t actually want this granular a level of data from me on a daily basis (we were a small part of the overall company), but was more concerned that I had this data, was using it, and understood that it was an important tool to help manage our business performance. This was an instructive early lesson to me about the value of key financial metrics and how they are timeless in managing a business. It still amazes me that companies I’m involved in that have professional services as part of their business – including some of the law firms that work with me and my companies – can’t seem to get a system in place to collect this data on a near-real time basis.

Several years ago, some of y’all may remember an event called “the bursting of the Internet bubble.” Immediately preceeding this event, companies (and investors) focused on growth at any cost. This growth took various forms ranging from the one key financial metric that everyone cared about at the time (revenue) to non-financial metrics such as eyeballs, click-throughs, and affiliates. Shortly after the bubble burst, people started focusing on net income, cash flow, cash on hand, and other financial metrics. Not surprisingly, these were things that most rational business owners had paid attention to since – oh – the beginning of time.

As we were riding down the back side of the bubble bursting, we put a discipline in place at Mobius Venture Capital to track a set of financial metrics on a monthly basis for each of our portfolio companies. Monthly data we collect (and consolidated so everyone in the firm sees it on a weekly basis) includes revenue, cost of goods, operating expense, EBITDA, headcount, cash burn, cash on hand, debt, projected insolvency date, additional cash required to breakeven, and projected first quarter of profitabiity. In addition, each partner began writing a weekly status report with brief updates (typically one to two paragraphs) on each of his companies that was distributed along with this financial data.

In hindsight this seems like an obvious thing to do; however, in my experience, very few venture firms focus on this level of data firm wide on a consistent basis to understand the health of their companies, especially as their portfolio’s grow and they find themselves with a large number of companies. It’s our version of a DOC report (ok – maybe we should call it our WOC report – for “weekly operating control”, but that makes me hungry) and it’s been invaluable to us as we collectively watch and manage our portfolio. It’s clearly not a substitute for regular, deep portfolio reviews, but it creates a consistent baseline knowledge of our companies across the firm.

I’ve tried to instill an equivalent discipline in my portfolio companies. I’ve been successful in some cases, but not in all. I definitely see a correlation between rigorous collection and management of core financial performance data and business success, so I encourage every entrepreneur (and manager) to step back and consider if they are seeing their version of a DOC report.