Nine ways of knowing whether your business is fit and healthy

I guess you could call this the Holy Grail in my profession: the ability to know what makes a business fit and healthy.

The truth is there are so many variables, some of which are subjective or hard to measure and not to mention the mercurial ‘human element’, that it is sometimes difficult to ascertain what’s right (or wrong) with a business or what makes it healthy/unhealthy. 

Let’s not forget that sometimes it’s not so much what what’s wrong with a business but what it is missing. I mean a profitable business does not necessarily mean a healthy business. Alternatively, you could have a bunch of mediocre managers running a business not fulfilling its true potential. My point is that it’s a complicated business (excuse the pun). 

The truth is that there simply isn’t one metric or yardstick by which you can assess the general health of a business. I mean it isn’t like there is some definitive guide or list to help people out there assess the general health of a business. Sure we have financial statements but how accurately do they reflect the reality of the business and if financial statements are useful they only tell us one side of the story.   

With this in mind, I am going to be bold and recommend a sort of definitive list of measures / attributes which in my opinion constitute a fit and healthy business.

So here it goes:

• The quality of management;
• Financial soundness;
• Quality of goods and services;
• Ability to attract, retain and develop top talent;
• Value as a long-term investment;
• Innovation;
• Quality of marketing;
• Corporate responsibility;
• Use of corporate assets.

Quality of Management: By this I mean, top management needs to be able to motivate its employees, manage the company's scarce resources and make quality decisions in a timely manner. You can have a great product and all the cash in the world but if you employ the wrong people you are doomed to underachievement or (worse) failure.

Financial soundness: I want to see a cash flow, balance sheet and income statement that makes sense depending on the company's strategy and its phase in its life-cycle. A company in its growth phase has different financial priorities to a company defending its market share or which is in decline.

Quality of goods & services: If the service sucks the business is doomed for failure. Similarly, if the product is of poor quality the customers will bad mouth your brand and (eventually) sales and profits will suffer. Excellent customer service and quality products are a must and anything less will harm your business health and reveals a lot about your business.

Talent: If you can’t attract and retain the best people you will never have a healthy business. People bring the business idea to life and inject life into your brand. Your people are the business. You need to run your business in such a way that your best people want to stay and the most promising talent out there wants to join you. The ultimate in competitive advantage, which is difficult for your competition to copy, is the people you have. Invest in people since they really do determine how healthy your business is.

Value: We are all in the business of value creation. A business ultimately exists to offer something of value to customers who in return are willing to part with their hard earned money because they consider your value proposition valuable. Forget this and you can close your doors.

Innovation: If you don’t constantly innovate and adapt you will become extinct very quickly. The competition out there is fierce, relentless and constantly moving. As I always tell my clients, ‘success’ is a moving target and you can never hold on to it for long enough. The only way to be a market leader is by constantly innovating. Some might even say: the only way to survive in business is to keep innovating. 

Marketing: If you can’t communicate to your customers and build a meaningful relationship with them, you can’t reap the benefits of your excellent products and/or services. Steve Jobs was on to something when it came to marketing and it is no coincidence that he re-built Apple into one of the most successful and revered companies in the world.

Corporate responsibility: Today, if all you care about is profits, or even worse maximising profits, you won’t survive. Society expects businesses, especially those that have a big impact to do their best to give back to their society, environment and the economy. Profit-maximising fat cats have no chance of survival in today’s world. The way forward is to create a sustainable business, which leaves a positive impact whilst at the same time converting hard work into profits which are for the benefit of all stakeholders. Ignore this fact at your peril. 

Corporate assets: There is no point sitting on a pile of cash, having a strong brand name or owning a unique string of well located retail outlets, etc, if you don’t leverage the strengths found on your balance sheet. Shareholders, employees and investors expect companies to maximise their assets so as to generate further good. My point being that its no point generating strong profits if the assets you have allow you to do more. You must do more. Period. 

Naturally, the list is a tall order and it isn’t easy to score well in all nine but at least you have a guide to assess how fit and healthy your business is now.

A tip: start with hiring the best people first. Normally, great people care about the other eight attributes I just mentioned. It comes as second nature to them.