Evaluate Business Health

Shoutout to Dr Alan Barnard for a great post asking for input on "the one metric" we would use to determine the health of a business. Here, my response:

Requirements:

• It can be a ratio
• It has to be objective
• It cannot be subjective
• Calculate it from company's financials -OR-
• Calculate from other Performance Reports

Explain Your Context:

• I am a Consultant & TOC Jonah
• I have consulted with more than 100 businesses
• They all were < $100,000,000 Annual Revenue
• My Focus is Strategy and Marketing (Think 4Ps)
• Industries include Retail, Distribution, Manufacturing, Software Development, and Hospitality
• 10,000+ Hours of Experience in each: Sales, Marketing, and Finance

Charlie Brown is so excited that he found the "one tool" to solve all his problems. Which is much easier outside the constraints of the real world.

My experience includes a couple of turn-arounds and three LBOs (leveraged buyouts). And not just a Jonah in Dr. Eli Goldratt's Theory of Constraints (TOC), I am also a "Jonah's Jonah" which is not unlike a Black Belt in 6sigma or a Sensei in LEAN: One who can train and certify others in the methodology.

First, I do not believe that it is possible to know a business from publicly available data. Not really. Not even with privately held businesses from the data they might make available. Not even the data from which auditors normally use.

However, there is a process that allows one to know the true "state" of a business at any moment in time. Not only the existing state but insight into how long that state has existed in the organization.

You might know it as a Root Cause Analysis but Goldratt tagged it the Current Reality Tree (CRT). Within 90 minutes with the C-level players (and/or business unit heads, depending on the organization) you can know the good, bad, and ugly truths.

One of the best guides is a Goldratt book, Critical Chain. Chapters 11 and 12 tell the TOC story. But the whole book is a great read.

So, do I qualify for Alan's prizes? No. But if you are betting real money on evaluating a business, even Gordon Gekko knew you couldn't do it without getting inside the business.

P.S. Need help with your small privately held business? Ask!