Reading the Business
Numbers don’t speak for themselves. The same figures can tell completely different stories depending on what you compare, how you aggregate, and what you’re trying to decide. A 20% margin might be excellent or terrible. A 10% growth rate might signal momentum or decline. Context is everything.
This section builds fluency — not accounting mechanics, but the ability to see through numbers to the underlying reality. The goal is to know what questions to ask, what comparisons matter, and when a number is telling you something versus when it’s noise.
Where to start
Ratios — Dividing one number by another is the simplest analytical move. It’s also one of the most powerful. What you choose to divide by shapes what you see.
Unit Economics — Does adding customers create value or consume it? The foundation of whether a business model works.
Building the foundation
How to think about numbers before diving into specific metrics.
Scale — Before asking if a number is exactly right, ask if it’s roughly right. Most business errors are 10x, not 10%.
Confidence — A number without a confidence level is a guess dressed as a fact. How sure are you?
Variance — Not all variation requires action. Knowing when to react and when to wait.
Small Samples — At n=20, the qualitative signal is more reliable than the quantitative noise. When to trust stories over statistics.
Order of Magnitude — Most business debates happen at the wrong level of precision. Getting the zoom level right.
From numbers to insight
How data becomes information — and when it doesn’t.
From Data to Information — Data doesn’t become information until it passes through a decision process. Otherwise it’s just noise with structure.
Accounting for Widgets — Why inherited accounting numbers mislead. Throughput thinking over cost allocation.
Effort to Impact — Every metric sits somewhere on a chain: effort → output → outcome → impact. Most reporting stops too early.
Unknown and Unknowable — The most important figures are often unknown or unknowable. Learning to reason under uncertainty.
The metrics that matter
The specific numbers that reveal how a business actually works.
Unit Economics — Does adding customers create value or consume it? The foundation.
Recurring Revenue — How hard you have to run just to stand still. The baseline that determines everything.
Gross vs Net Retention — Churn versus expansion from existing customers. The difference between a leaky bucket and a growing one.
FCF Conversion — Do profits become cash? Earnings are accounting. Cash is real.
Asset Turnover — Where the real leverage hides. How hard your assets are working.
EBITDA in Software — What the headline numbers hide. Why software EBITDA needs adjustment.
Limits to Growth — Every recurring revenue business has a ceiling. Where is it?
Suggested reading order
If you’re working through this section systematically:
- Ratios — the foundational move
- Scale — getting the zoom level right
- From Data to Information — what makes numbers useful
- Unit Economics — the core business model question
- Recurring Revenue → Gross vs Net Retention — the subscription dynamics
- FCF Conversion — where the money goes
Then explore the deeper posts based on what’s relevant to your context.
Reference
Metrics Glossary — The complete reference, organised by use case.
Connects to
Making Decisions — Numbers are raw material for judgement. Reading the business feeds into building the learning systems that improve decisions over time.
Buying and Fixing — Due diligence is applied business reading. The metrics here form the backbone of acquisition assessment.