Asher's Blog

One question I was asked recently was which numbers or signals I pay the most attention to when I am trying to understand whether a business is actually healthy. It is a very important question because businesses can look successful from the outside while something dangerous is happening underneath. The company may be announcing new customers, opening offices, hiring senior people and reporting impressive revenue, while its cash is disappearing, its customers are not returning, or every additional sale is creating another loss.

If I had to begin with one number, I would begin with cash flow, but the larger answer for me is unit economics. I want to understand what it costs to acquire a customer, serve that customer, employ each member of the team, build and deliver each product, and complete each sale. I want to know not merely how much the business sold, but what the business had to spend, risk and commit in order to make that sale happen.

Revenue tells me that economic activity has taken place, but it does not by itself tell me whether value has been captured. A company can sell a product for ₦10,000 that costs ₦12,000 to deliver, celebrate the growth in sales, and become poorer with every transaction. Once the founder understands this, the conversation about growth changes completely, because the objective is no longer to make the largest number move. The objective is to build a system in which valuable activity produces increasingly valuable outcomes for the customer and the company.

Cash flow is the first reality check

Accounting profit is important, but a business pays salaries, suppliers, taxes and lenders with cash. This is why a company can report a profit and still become unable to meet its obligations. If customers take ninety days to pay while suppliers must be paid immediately, the company may finance several months of operations before receiving the cash attached to its revenue. If inventory grows faster than sales, cash can become trapped on shelves. If a business recognises annual contract revenue before collecting it, the income statement may look better than the bank account feels.

When I study a company, therefore, I want to know how much cash is entering, how much is leaving, when each movement occurs, and whether normal operations are beginning to finance themselves. I want to see operating cash flow separately from money raised from investors or borrowed from lenders, because a new investment can temporarily hide the fact that customers are not yet supporting the business.

The most basic questions are practical. How much unrestricted cash does the company have today? What is its average monthly net burn? How many months of runway remain if revenue stays flat, falls by 20 per cent or grows more slowly than planned? Which obligations cannot be postponed? How much of the cash belongs economically to customers rather than the company? How concentrated are the company’s receipts in one customer or one transaction?

For an African company, I would add currency exposure because cash reported in naira may be supporting obligations priced in dollars. A software company may receive local-currency revenue while paying AWS, security tools and other infrastructure expenses in foreign currency. If the naira depreciates materially, the product can become more expensive to deliver even though the company has not changed anything operationally. A healthy business knows this exposure before it becomes an emergency and either adjusts pricing, reduces the mismatch or builds an appropriate reserve.

Cash flow should not, however, be interpreted mechanically. A growing company may deliberately consume cash while building technology, entering a promising market or acquiring customers whose future value exceeds the cost of winning them. The important question is whether the spending is buying a measurable asset or advantage. If cash is going out, what is becoming stronger in return: the product, customer base, distribution, intellectual property, brand, regulatory position or recurring revenue? If the founder cannot identify what is being built, the cash may simply be financing motion.

Unit economics show whether growth helps or hurts

Unit economics means reducing the business to one economically meaningful unit and asking whether that unit works. The correct unit depends on the business. For a retailer it may be one item, order or store; for a logistics company, one delivery or route; for a payroll company, one employer, employee or payroll run; for a lending business, one loan or borrower cohort. The purpose is to expose the economics beneath the total figures.

I want to know the full direct cost of producing and serving that unit. For a technology product, this can include cloud infrastructure, transaction fees, identity verification, customer support attributable to usage, implementation work and third-party licences. For a physical product, it may include the purchase or manufacturing cost, packaging, warehousing, delivery, returns, spoilage and payment fees. If salespeople earn commissions or discounts are required to close the transaction, those costs belong in the analysis too.

The result tells us the contribution margin: after the direct costs required to produce and serve the sale, how much remains to pay for the company’s people, product development, administration and future? Gross margin is a useful starting point, but founders should resist the temptation to classify a cost as “overhead” simply because doing so makes the gross margin look attractive. If a customer cannot successfully use the product without repeated manual intervention from an operations team, that labour is part of the present cost of delivery, even if the founder hopes eventually to automate it.

This is where growth can become revealing. If the contribution margin improves as volume increases, the company may be developing genuine operating leverage. If costs rise at the same rate as revenue, it may still be a good business, but its scale characteristics are different from what the founder assumes. If each additional unit increases the loss, growth accelerates the company’s journey towards a cash crisis.

The question is not merely, “What did it cost us to build this product?” It is, “What does it now cost us to sell and reliably deliver one more unit of it, and what do we earn from that unit over its useful relationship with the customer?”

Customer acquisition cost must be connected to customer value

The cost of acquiring a customer is one of the figures I pay close attention to, but it becomes meaningful only when it is compared with the value and quality of the customer acquired. A company can calculate a deceptively low acquisition cost by counting every person who created an account, even though only a small number will ever pay. It can also ignore salaries, commissions, events and implementation work, leaving only advertising expenditure in the calculation.

A more honest calculation divides the fully loaded sales and marketing cost for a period by the number of new paying customers produced by that expenditure. Depending on the business, it may be useful to calculate this by customer segment, sales channel and salesperson. Enterprise customers acquired through a long sales cycle should not be mixed casually with small businesses that sign up online, because the economics, contract sizes and service requirements are different.

Customer acquisition cost then has to be compared with customer lifetime value. How much gross profit—not merely revenue—is the average customer likely to generate before leaving? How quickly does the business recover the money spent to acquire the customer? A theoretically attractive lifetime value is not very comforting if the company must wait four years to recover its acquisition cost while it has only nine months of cash remaining.

For that reason, I often find payback period more tangible than a large lifetime-value estimate. If it costs ₦500,000 to acquire an enterprise customer and the account contributes ₦100,000 in gross profit each month, the simple payback period is five months. If collections are delayed, implementation costs are higher than expected or the customer is likely to leave before the fifth month, the real economics are weaker than the headline calculation suggests.

Founders should also separate customers acquired through durable channels from those obtained through temporary subsidies. If a business spends ₦20,000 to give a customer a ₦15,000 reward for buying a ₦5,000 product, it may generate registrations and publicity without proving demand. The strongest acquisition signal is that customers understand the value, are willing to pay a sustainable price, remain after the incentive ends and bring other customers with them.

Retention reveals whether the product deserves to grow

Acquisition tells me that the company made a promise compelling enough for someone to try the product; retention tells me whether the company kept that promise. This is why I pay close attention to repeat usage, renewals and customer churn. A business that continually replaces departing customers can report growth for a while, but its sales team is pouring water into a leaking bucket.

Retention should be studied in cohorts rather than only as one blended average. Customers who joined in January should be followed over time and compared with those who joined in February, March and subsequent months. If newer cohorts remain longer, use the product more deeply or generate more gross profit, the company may be learning. If every cohort deteriorates in the same way, increasing marketing expenditure will not repair the underlying problem.

For recurring-revenue businesses, I want to see logo retention, which shows how many customers remain, and revenue retention, which shows what happened to the money those customers generate. A company can lose several small customers but still grow revenue from its existing base if the remaining customers expand significantly. Conversely, a company may retain the logos while discounts, downgrades and reduced usage quietly weaken the accounts.

The strongest products often produce qualitative evidence alongside the numbers. Customers complain urgently when something is unavailable, volunteer feedback, invite colleagues, request integrations and build internal processes around the product. These signals should not replace retention data, but they help explain it. A customer who says they love a product yet does not use, renew or pay for it is expressing appreciation, not necessarily demand.

Revenue quality matters more than the headline

Two companies can report the same revenue while having completely different levels of health. One may earn recurring revenue from hundreds of customers across several sectors, collect most invoices in advance and achieve a strong contribution margin. The other may depend on one customer, recognise project revenue that may never repeat, wait months for payment and spend almost the entire contract value delivering the work.

I therefore want to understand the composition of revenue. How much is recurring, repeatable or contracted? How much arose from one-off work? How much has actually been collected? How much depends on a discount that cannot be sustained? What percentage comes from the five largest customers? Is one customer powerful enough that losing it would threaten the company?

Concentration is not automatically bad in an early enterprise business because a few large customers may provide the first meaningful traction. The danger is failing to recognise the dependency. A healthy founder knows which account could materially harm the business, strengthens the relationship while it is valuable, and deliberately builds other sources of revenue before concentration becomes a crisis.

Growth rate also needs context. I want to know when the company started, what its track record has been and whether growth is becoming healthier. A business growing from ₦1 million to ₦3 million has tripled, but the absolute base remains small. A larger company growing by 20 per cent may have added much more revenue and cash. The relevant questions are how consistent the growth is, what produced it, what it cost, and whether the company can repeat it.

Revenue per employee exposes organisational efficiency

Another number I pay attention to is revenue, or preferably gross profit, per employee. People are often the largest expense in a knowledge business, and this metric helps a founder see whether the organisation is becoming more productive as it grows. It can also reveal when hiring has moved too far ahead of the company’s commercial reality.

The number should not be used to reduce people to accounting entries or to compare companies with completely different models. A young product company investing heavily in engineering will naturally look different from a mature consulting company. The more useful comparison is against the company’s own history, plan and relevant peers. Is output per person improving? Are new hires removing constraints or simply increasing management complexity? Does every important role have an outcome that can be observed?

I also want to understand the cost per employee beyond salary, including benefits, taxes, equipment, software, workspace, management time and recruitment. A less expensive employee who requires constant supervision, produces errors or slows stronger colleagues can be much more costly than an excellent person with a higher salary. Health is therefore not created by minimising payroll; it is created by building a team whose contribution grows faster than its total cost.

This is one reason I prefer capable people who can take responsibility for outcomes. If everything returns to the founder, the company may appear lean while carrying a serious hidden constraint. The founder’s time becomes the bottleneck, decisions slow down, and growth creates exhaustion rather than leverage.

Working capital shows whether the operating model is sustainable

Many founders focus on the income statement and overlook the movement between invoices, inventory and cash. Working capital is particularly important for businesses that sell physical goods, provide credit, process funds or serve large organisations with slow payment cycles.

I want to know how long customers take to pay, how long inventory remains before being sold, and how quickly suppliers must be settled. If the cash conversion cycle becomes longer as the company grows, the business may require increasing amounts of capital simply to maintain the same pattern. A large new contract can then become a burden if the company must fund staff, inventory or delivery for months before receiving payment.

Receivables also need to be assessed for quality. An invoice is not cash merely because it appears on a financial statement. How old is it? Has the customer acknowledged it? Is there a dispute? What proportion of invoices historically becomes bad debt? A healthy business is honest about what it is likely to collect and acts early when customers begin to delay.

For financial businesses, the analysis must go further. Liquidity, settlement timing, defaults, fraud losses, asset-liability matching and the separation of customer funds from company funds can matter more than growth in transaction volume. If a company earns a small fee while carrying a large financial risk, transaction value can create the impression of scale without commensurate economic value.

The balance sheet shows the risks revenue cannot explain

Cash flow and unit economics receive much of the founder’s attention, but I also want to look at the balance sheet. What does the company own, what does it owe, when do the obligations become due, and which assets can actually be converted into cash? A business may have valuable equipment or receivables on paper while lacking the liquidity required for next month’s payroll.

Debt deserves particular attention because it introduces a fixed claim on an uncertain future. I want to understand the interest rate, repayment schedule, currency, collateral, covenants and exact source of repayment. Debt can be useful when it finances a predictable cash-generating activity, but it can become destructive when it is used to cover an unresolved operating loss.

Contingent liabilities also matter. Tax exposures, unresolved legal disputes, customer guarantees, regulatory breaches and unfunded commitments may not appear in the most flattering version of a management report, but they can determine whether the company survives. Business health is partly the absence of hidden obligations that can suddenly consume years of progress.

The trend is more informative than one month’s number

I rarely want to judge a business from a single month because seasonality, one large sale, a delayed invoice or an unusual expense can distort the picture. I want to see the pattern over time. Is cash burn narrowing? Is gross margin improving? Are newer customers staying longer? Is acquisition becoming more efficient? Is the company collecting faster? Is revenue becoming less concentrated? Are customer-support incidents declining as usage grows?

This is where management quality becomes visible. A healthy business does not necessarily have perfect metrics today, especially when it is young, but it knows which numbers are weak, understands why they are weak and can show that deliberate actions are changing them. An unhealthy business often has a new explanation every month while the same underlying pattern deteriorates.

The founder should build a small daily or weekly dashboard containing the numbers that can change decisions. A dashboard containing fifty metrics can create the feeling of control while hiding the few signals that matter. I would rather see cash balance and runway, collected revenue, gross or contribution margin, sales pipeline and conversion, retention, receivables, service reliability and one or two model-specific risk measures than a beautiful report nobody uses.

Each metric should have an owner, an expected range and an action attached to it. If conversion falls below a certain level, what investigation begins? If cash collections are late, who contacts the customer? If infrastructure cost per transaction increases, which team examines it? Measurement becomes useful only when it improves decisions.

Numbers need operational truth

Metrics can be manipulated unintentionally when definitions are unclear. One team may count a signed contract as revenue, another may count an invoice, and finance may count only the amount earned under accounting rules. Marketing may report leads while sales cares only about qualified opportunities. If people use the same words for different things, leadership can spend hours debating a reality that has not been consistently defined.

The company should therefore create a common language. What exactly is an active customer? When is revenue recognised? What counts as churn? Which costs are included in acquisition? What is a successful transaction? How is an employee allocated when they serve several products? These definitions should remain stable enough for trends to be meaningful, and any change should be explained rather than quietly rewriting history.

Numbers must also be reconciled with what customers and employees are experiencing. A dashboard may report high uptime while customers repeatedly encounter failure during the one process that matters most. Reported customer satisfaction may look excellent because dissatisfied customers stopped responding. Revenue per employee may improve because an exhausted team is postponing work that will later become a serious problem. This is why a founder still has to talk to customers, observe operations and create an environment in which employees can report uncomfortable facts.

A healthy business creates better choices

Ultimately, I think business health can be understood by asking whether the company is creating or losing options. Healthy cash flow gives the company time. Strong unit economics allow it to grow without multiplying losses. Retention produces a dependable base. Efficient acquisition gives it permission to invest more. A capable team reduces dependence on the founder. A strong balance sheet allows the company to negotiate capital without desperation.

No single number can carry this entire diagnosis. High revenue with poor margins is incomplete. Profit without cash collection is fragile. Growth without retention is expensive replacement. Cash in the bank that came only from investors is runway, not yet proof of a business. Even positive cash flow can be misleading if it comes from delaying suppliers, neglecting the product or consuming customer funds.

The numbers have to agree with one another and with the operational story. Revenue should eventually become gross profit, gross profit should contribute to operating cash, customers should remain because the product delivers value, and the team should become more productive as the system improves. When these relationships strengthen over time, the business is becoming healthier even if it is not yet perfect.

That is what I pay attention to. I begin with cash, go deeply into the economics of each unit, examine the quality and history of traction, and then look for the risks that a headline number might hide. The purpose is not to find a business without problems, because such a business does not exist. The purpose is to know whether its present activity is building a stronger future or quietly financing its decline.

A practical founder’s health dashboard

Although every model requires its own measures, I would begin with the following:

1. Cash balance, operating cash flow and runway: how much usable cash exists, what normal operations consume or generate, and how long the company can continue under realistic scenarios.
2. Revenue growth and quality: how revenue is changing, how much has been collected, how repeatable it is and how concentrated it is among customers.
3. Gross and contribution margin: what remains after the real direct costs of producing, selling and serving each unit.
4. Customer acquisition cost and payback: what a new paying customer costs by channel and segment, and how long gross profit takes to recover that expenditure.
5. Retention and expansion: whether customers stay, renew, use more, refer others and increase what they pay over time.
6. Revenue or gross profit per employee: whether the organisation is becoming more productive rather than merely larger.
7. Cash conversion and receivables: how quickly sales become cash and whether growth is creating a working-capital problem.
8. Model-specific risk: defaults for a lender, fulfilment and returns for commerce, uptime and infrastructure cost for software, settlement and fraud exposure for payments, or inventory turns for a physical business.

The final discipline is to review these numbers together. A metric becomes dangerous when it is celebrated in isolation, but it becomes powerful when it helps the founder understand the system. A healthy business is not the one with the loudest growth announcement; it is the one that knows how it creates value, knows what that value costs, converts enough of it into cash, and becomes more resilient as it grows.

Further reading

• Karen Berman and Joe Knight, Financial Intelligence for Entrepreneurs, on understanding the assumptions and operational stories inside financial statements.
• John Mullins, The Customer-Funded Business, on using customer cash and business-model design to reduce dependence on external capital.
• Eliyahu M. Goldratt, The Goal, on identifying the constraint that governs the performance of an entire operating system.

• • Eric Ries, The Lean Startup, on validated learning and the difference between actionable measures and vanity metrics.