business-health-diagnostic

## Purpose Diagnose overall SaaS business health by analyzing growth, retention, unit economics, and capital efficiency metrics together. Use this to identify problems early, prioritize actions by urgency, and deliver a comprehensive health scorecard for board meetings, quarterly reviews, or fundraising preparation. This is not a single-metric check—it's a holistic diagnostic that connects revenue, retention, economics, and efficiency to reveal systemic issues and opportunities. ## Key Concepts ### The Business Health Framework A SaaS business is healthy when four dimensions work together: 1. **Growth & Retention** — Are you growing and keeping customers? - Revenue growth rate - NRR (Net Revenue Retention) - Churn rate - Quick Ratio 2. **Unit Economics** — Is the business model profitable at the customer level? - CAC (Customer Acquisition Cost) - LTV (Lifetime Value) - LTV:CAC ratio - Payback period - Gross margin 3. **Capital Efficiency** — Are you using cash efficiently? - Burn rate - Runway - Rule of 40 - Magic Number 4. **Strategic Position** — Are you positioned for sustainable success? - Market positioning (below, at, above market pricing) - Competitive moat (network effects, data, brand) - Revenue concentration risk - Operating leverage ### Stage-Specific Benchmarks **Early Stage (Pre-$10M ARR):** - Focus: Product-market fit, unit economics - Growth: >50% YoY - LTV:CAC: >3:1 - Gross Margin: >70% - Runway: >12 months - Acceptable: Negative margins, high burn (if unit economics work) **Growth Stage ($10M-$50M ARR):** - Focus: Scaling efficiently - Growth: >40% YoY - NRR: >100% - Rule of 40: >40 - Magic Number: >0.75 - Acceptable: Moderate burn if growth is strong **Scale Stage ($50M+ ARR):** - Focus: Profitability, efficiency - Growth: >25% YoY - NRR: >110% - Rule of 40: >40 - Profit Margin: >10% - Required: Positive or near-positive cash flow ### Red Flag Categories **Critical (Fix immediately):** - Runway <6 months - LTV:CAC <1.5:1 - Churn accelerating cohort-over-cohort - NRR <90% - Magic Number <0.3 **High Priority (Fix within quarter):** - Rule of 40 <25 - Payback >24 months - Quick Ratio <2 - Gross margin <60% - Revenue concentration >50% in top 10 customers **Medium Priority (Address within 6 months):** - NRR 90-100% (flat, not growing) - Magic Number 0.3-0.5 - Operating leverage negative - Churn rate stable but high (>5% monthly) ### Anti-Patterns (What This Is NOT) - **Not a single metric:** "Revenue is growing 50%, we're great!" (ignoring burn, churn, unit economics) - **Not stage-agnostic:** Early-stage burn is acceptable; scale-stage burn is a problem - **Not static:** Health is directional—are metrics improving or degrading? - **Not just numbers:** Context matters (competitive pressure, market changes, team capacity) ### When to Use This Framework **Use this when:** - Preparing for board meetings or investor updates - Quarterly business reviews (QBR) - Fundr