A business health check can provide an early warning to entrepreneurs and owners of small businesses that things are not as right as they appear in the business.
I have just reviewed Carol O'Connor's book "Business Health Check" and while it has some good points, I believe that the concept has been under-developed.
I remain convinced that the business health check process is a great way for looking at business problems and identifying the underlying causes. In fact I believe that every entrepreneur should health check their business every year if performance is not up to standard and every two years if the business is progressing well.
A business health check can identify current business problems which are adversely affecting performance and also act as an early warning system about future business problems.
Is A Business Health Check Seen As A Cynical Way To Sell Business Consultancy?
I have a business health check, in fact I would go further than that, I have a great business health check and I'll explain the underlying logic later.
It is my preferred diagnostic tool when I first get involved with a business and certainly with a business of ten or more employees. It provides structure to the review process and my business health check is linked to a semi-automatic report generator.
But unfortunately I meet some resistance from prospective clients and it hasn't been the effective lead generator I expected.
I now believe that a business health check offered by a business coach or consultant is viewed suspiciously by an entrepreneur as a cynical way to sell consultancy services rather than a problem identifier.
I can understand that.
Holding your hand up and admitting that X, Y and Z are problems is admitting that you do need to do something.
But whatever a free business health check says about your business problems, it doesn't mean that you have to do something about it or that you have to buy from the business coach or consultant providing the health check.
Just as you take a medical health check and you may be advised to take more exercise, eat more fruit, lose weight, stop smoking and cut back on the booze, it doesn't mean that you will follow the advice.
On my last health check I was told that I needed to lose about a stone in weight but I didn't do much about it. Now I need to lose about two stone! Ignore a problem and it tends to get worse.
You are an entrepreneur because you are a natural decision maker and want to be in control. I recommend that you see the business health check as an input into how you run your business. It will confirm some of the things that you already knew but it may tell you about other issues that you hadn't appreciated but which are easily cured.
Do you agree? Do you reject offers of a business health check from a business coach or consultant because you don't want to be "sold"?
What To Look For In A Business Health Check?
If you are to take advantage of a "no obligation" business health check from your local friendly business coach, then you need to make sure that it is worth your time and effort to complete it.
It is often said that the majority of small business owners and entrepreneurs are focused on tactical business decisions rather than the strategic business issues so I would encourage you to look for a business health check that combines a strategic approach of looking at your industry or market and your competitors together with the tactical and practical issues that you do or don't do.
My Business Health Check
At the moment my business health check is only available to clients and prospective clients for one-to-one coaching which restricts it to businesses in the UK (and it is at my discretion). I will explain how I believe a business health check should be put together.
The business health check should be intellectually sound and comprehensive rather than a random set of questions.
My business health check is based on work of two American academics, Moulton and Thomas who were studying business failure and identified four pathways to decline but then didn't really advance the idea. I believe this was a missed opportunity which I seized upon as soon as I read their academic paper.
There have been many studies into the causes of business decline and failure but much of it has identified individual factors where there is considerable confusion about cause and effect. It's like saying that someone died because their heart stopped beating when the cause was the bullet in the brain.
Moulton and Thomas hit on the ingenious idea that some business problems and causes of decline are external to the business and some internal. Nothing too complex there but they started looking at the way their sample companies reacted to the external environment.
Basically they identified whether the market which the businesses they were studying was growing or contracting and that the sales of the businesses are growing or contracting as well.
This gave mutually exclusive four categories which are easy to understand:
- Market contracting, business contracting - this is the classic situation where a business is struggling because its market has been lost, probably because of the advantages of new technologies and substitute products. Think of the music industry and the move from long player vinyl to cassettes to Cd's to mp3 recordings.
- Market contracting, business expanding - the market is in disarray but one business is growing sales but not profits because it has been sucked into a mutually destructive competitive war, usually on price while trying to maintain or increase sales volumes. It is winning the battle but losing the war because of the big losses incurred and the devaluing of the product to a commodity to be purchased on price alone.
- Market growing, business contracting - despite the easy competitive conditions which growth markets often provide, the business has lost its competitive advantage. Prospective customers find it easy to find a reason not to buy from the business and buy from a competitor instead.
- Marketing growing, business growing - this should be the route to profit but poor management policies and habits are causing the business to miss out on opportunities available.
Moulton and Thomas discovered that the largest category they were studying was the last - the companies who were growing in a growing market but were effectively spurning the profit they could be making.
My business health check is based on this typology with the four pathways to business success or failure:
- Market attractiveness - growing or declining
- Market competitiveness - growing or declining
- Competitive advantage - increasing or decreasing
- Management control - effective or ineffective
While the Moulton and Thomas categorisation is mutually exclusive, the underlying causes of business decline are not and a firm may suffer from one, two, three or all four problems.
In 2003 I did a study into the causes of financial distress with the help of 58 firms of accountants in the UK. Each accountant was asked to select one of their clients with ten or more employees who they considered to be in a distressed condition and completed a questionnaire:
- 69% were suffering because their market was in decline
- 55% had seen prices depressed as competitors competed primarily on price
- 53% had seen their competitive advantage erode
- 62% had weak management controls
In only one case were the business problems considered to be caused by something outside of these categories and often two or more of the issues were seen as major problems for the poor performance.
This validated the use of the four pathways approach and my business health check was then developed to pick up on the factors which were likely to contribute to these factors.
Since then the business health check has been used and developed and the semi-automatic reporting function added providing standard advice if particular questions were flagged as issues but leaving the overall review and main points to be brought together through a review of the information and my judgement.
The two external factors, the market growth and competitive nature of the industry fall back on the strategic management concepts of Michael Porter's Five forces model, the product life cycle and various other strategic models.
The assessment of competitive advantage is very much based on the potential sources of cost advantage (or disadvantage) and the ability to offer differentiated customer value which is meaningful to particular groups of customers.
The assessment of the management style, planning and control is much more focused on the internal actions which happen every day, week or month and include whether the business knows how it is performing on a regular basis, whether it has a business plan, whether goals are cascaded down the business in a meaningful way and a host of other issues.
The health check is offered to potential UK clients (between ten and 100 employees) on a no obligation basis. If you would like a copy please email me at firstname.lastname@example.org with a few details about your company - name, website, number of employees, type of business, location and I will send you the business health check. If suitable I will send it to you.
For companies who meet certain criteria, I will also offer the free business health check diagnostic report. Even if you don't qualify, you will find that working through the business health check and answering the questions honestly will make you think about your business in a different way and that can lead you to taking action to correct a potential business problem before it becomes serious.
Business Development Questionnaire
While I am not offering everybody my business health check, I can offer a 33 page Business Development Questionnaire PDF to allow you to assess your business.
Sorry but this report is no longer available.
In the report there are sections on:
- What should the business do for you?
- Management issues
- Team members
- Organisation structure
- Team member review
- Team member job evaluation
- Your organisation's commitment to customers
- Products and services
- Customer segmentation
- Competitive analysis
- Financial systems
- Environmental trends, opportunities and threats.
This is ideal if you want to be your own business coach or consultant but I must warn you, at 33 pages it is not for the faint hearted and it will ask questions that you don't know the answers to.
You can get this free Business Development Questionnaire by entering your name and email address below. This will then send you an email asking you to confirm that it really was you who wanted the information.
Your email details are kept confidential. I hate spam as much as you do. Every email you receive from me includes an option to unsubscribe if you ever believe that I am not giving you value for your attention.
If you wish to know more about the original Moulton and Thomas academic work rather than my interpretation and use of their four pathways, the details are:
Moulton, W. N.; Thomas, H. (1996) Business failure pathways: Environmental stress and organisational response, Journal of Management, 22 (4) 571-595