business-health-diagnostic

What this skill does

## 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)
- Fundraising preparation (know your numbers)
- Annual planning (identify improvement areas)
- You suspect problems but can't pinpoint them
- New PM/exec joining and needs health assessment

**Don't use this when:**
- You're pre-revenue (focus on product-market fit first)
- You're in pure research mode (not enough data)
- You need tactical guidance (use specific skills: feature, channel, pricing)

---

### Facilitation Source of Truth

Use [`workshop-facilitation`](../workshop-facilitation/SKILL.md) as the default interaction protocol for this skill.

It defines:
- session heads-up + entry mode (Guided, Context dump, Best guess)
- one-question turns with plain-language prompts
- progress labels (for example, Context Qx/8 and Scoring Qx/5)
- interruption handling and pause/resume behavior
- numbered recommendations at decision points
- quick-select numbered response options for regular questions (include `Other (specify)` when useful)

This file defines the domain-specific assessment content. If there is a conflict, follow this file's domain logic.

## Application

This interactive skill asks **up to 4 adaptive questions**, then delivers a comprehensive diagnostic with prioritized recommendations.

---

### Step 0: Gather Context

**Agent asks:**

"Let's diagnose your business health. I'll need metrics across four dimensions: growth, retention, unit economics, and capital efficiency.

**Company context:**
- Stage: (Pre-$10M ARR, $10M-$50M ARR, $50M+ ARR)
- Business model: (PLG, sales-led, hybrid)
- Target market: (SMB, mid-market, enterprise, mixed)

**Why this matters:** Benchmarks vary by stage. Early-stage optimizes for growth; scale-stage optimizes for efficiency.

Please provide the following metrics. Use 'unknown' if you don't have a metric."

---

### Step 1: Growth & Retention Metrics

**Agent asks:**

"**Growth & Retention:**

1. **Revenue:**
   - Current MRR or ARR: $___
   - Revenue growth rate: ___% (MoM or YoY)

2. **Retention:**
   - Monthly churn rate: ___%
   - NRR (Net Revenue Retention): ___%
   - Quick Ratio: ___ (or I can calculate it)

3. **Expansion:**
   - Expansion revenue as % of total MRR: ___%

4. **Cohort trends:**
   - Are recent cohorts retaining better or worse than older cohorts?
     1. Better (improving)
     2. Same (stable)
     3. Worse (degrading)
     4. Unknown"

**Based on answers, agent evaluates:**
- ✅ **Healthy growth:** Growth >40% YoY (growth stage) or >25% (scale stage)
- ✅ **Healthy retention:** NRR >100%, churn <5% monthly, Quick Ratio >2
- 🚨 **Growth problems:** Growth <20% YoY
- 🚨 **Retention problems:** NRR <100%, churn >5%, cohort degradation

---

### Step 2: Unit Economics Metrics

**Agent asks:**

"**Unit Economics:**

1. **Acquisition:**
   - CAC (Customer Acquisition Cost): $___
   - Blended or by channel? (If by channel, what's your best channel CAC?)

2. **Value:**
   - LTV (Lifetime Value): $___
   - LTV:CAC ratio: ___ (or I can calculate it)
   - Payback period: ___ months (or I can calculate it)

3. **Margins:**
   - Gross margin: ___%
   - Contribution margin (if known): ___%

4. **Trends:**
   - Is CAC increasing, stable, or decreasing over time?
     1. Decreasing (improving efficiency)
     2. Stable
     3. Increasing (diminishing returns)
     4. Unknown"

**Based on answers, agent evaluates:**
- ✅ **Healthy economics:** LTV:CAC >3:1, payback <12 months, gross margin >70%
- ⚠️ **Marginal economics:** LTV:CAC 2-3:1, payback 12-18 months
- 🚨 **Poor economics:** LTV:CAC <2:1, payback >24 months, gross margin <60%

---

### Step 3: Capital Efficiency Metrics

**Agent asks:**

"**Capital Efficiency:**

1. **Cash:**
   - Cash balance: $___
   - Monthly net burn rate: $___
   - Runway: ___ months (or I can calculate it)

2. **Efficiency ratios:**
   - Rule of 40: ___ (Growth % + Profit Margin %) (or I can calculate it)
   - Magic Number: ___ (S&M efficiency) (or I can calculate it)

3. **Operating expenses:**
   - S&M as % of revenue: ___%
   - R&D as % of revenue: ___%
   - Is OpEx growing faster than revenue?
     1. No (positive operating leverage)
     2. Yes (negative operating leverage)
     3. Unknown

4. **Profitability:**
   - Profit margin: ___%
   - Path to profitability: (already profitable, 6-12 months, 12-24 months, >24 months, unknown)"

**Based on answers, agent evaluates:**
- ✅ **Healthy efficiency:** Rule of 40 >40, magic number >0.75, runway >12 months
- ⚠️ **Acceptable efficiency:** Rule of 40 25-40, magic number 0.5-0.75, runway 6-12 months
- 🚨 **Poor efficiency:** Rule of 40 <25, magic number <0.5, runway <6 months

---

### Step 4: Deliver Comprehensive Diagnostic

**Agent synthesizes all metrics and delivers:**

1. **Overall Health Score** — Healthy / Moderate / Concerning / Critical
2. **Dimension Scores** — Growth, Retention, Economics, Efficiency
3. **Red Flags** — Critical, High Priority, Medium Priority
4. **Prioritized Recommendations** — Top 3-5 actions with expected impact
5. **Stage-Appropriate Benchmarks** — How yo