The Temptation of Data

There is nothing investors like more than data. We love it. It gives us something to grab onto. It gives us something to compare. It gives us the sense that we are bringing a scientific approach to an otherwise amorphous evaluation process. We look at data when assessing investments. And we look at data to benchmark the progress of those companies in which we've invested. We love data.

But there's a danger. In this era of big data, we are collecting more and more information about the operations of our companies; every click, every process, every iteration, ever jump page -- conversion, virality, performance, uptime. If we aren't careful, board meetings will become one long statistical report.

Worse yet, there is a temptation to ask for ever more data. I can't tell you how many times I've been at a board meeting and heard something like "It's great to know the cost per click, but can you also report the conversion numbers by channel?" or "It's great to know daily active users, but can you also report repeat visits by cohort?" Every piece of data reported seems to trigger the desire in investors for yet another piece of data.

As tempting as it may be to ask for that perfect nugget of information from your portfolio CEOs, I think investors are making a mistake when they dictate what is reported by a company. Few things are more frustrating to an executive and, I would argue, few things are a bigger waste of time. I have a basic philosophy about reporting -- if it isn't something a company collects to measure its own business, I don't want to hear about it at a board meeting.

That isn't to say that investors should have no say in what is measured and reported. We absolutely should suggest the things we believe are important. But, in the end, the company should be run by its CEO, not its board. If the CEO doesn't believe a piece of data is worth gathering or reporting, it would be foolish for an investor to insist to the contrary.

There is no question that the proliferation of data has had a massively positive impact on company building. Data is a fantastic tool for management and investors alike. But it is a slippery slope. One could easily fill every waking moment between board meetings gathering information for the next board meeting. Data is only as valuable as the insights it illuminates and finding those insights requires careful curation. As tempting as it may be for investors to manage reporting with a heavy hand, data should be the domain of a company and its management, not its investors. As the saying goes, "if you love something, set it free" -- when it comes to the data with which we investors are so smitten, these are valuable words to live by.

Comments

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[Jonathan Trent]

I've been just as frustrated in board meetings. I have to agree that people are asking questions about the wrong things sometimes.

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