Strategy Meets Finance The 3 Phases Every Failing Business Goes Through (And How to Escape) | Ep 222
Mar 24, 2026
A breakdown of the three phases businesses slide through before failure. How to use ROIC to tell if a strategy is actually working. The ways pricing, volume, costs, and hiring squeeze margins. Practical levers to unlock cash tied up in receivables, inventory, payables, and CapEx. Why tracking free cash flow and cash conversion can reveal trouble early.
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ROIC Reveals If Your Strategy Actually Works
- Return on invested capital (ROIC) is the single best metric to evaluate strategy effectiveness.
- Compute ROIC as net operating profit after tax divided by invested capital (working capital + net PP&E + operating assets) to see true strategy performance.
Use 20% ROIC As A Practical Strategy Target
- If your ROIC is below 20%, your strategy likely isn't working and you're leaving significant returns on the table.
- Use 10% (S&P historical average) as a floor and aim for ~20% to justify the effort of running the business versus passive investing.
Client Thought They Were Differentiated But ROIC Said 6%
- Steve describes a client who believed in a strong differentiation strategy but actually had a 6% ROIC.
- The numbers exposed the mismatch between perceived strategy and financial reality, proving the strategy wasn't delivering.