Research from McKinsey analyzing 615 companies over 15 years revealed something counterintuitive: the businesses that consistently delivered superior returns shared behavioral patterns that had nothing to do with their industry, size, or market conditions.
Even more striking? A Harvard Business School study of over 1,000 acquisitions found that 67% of failures traced back to factors that never appeared in the financial models. The companies that failed had strong financials right up until they didn’t.
This points to a fundamental gap in how we evaluate business quality. We’re looking at the wrong things entirely.
Why traditional analysis systematically misses quality
Walk into any investment committee, and you’ll hear the same metrics: revenue growth, EBITDA margins, market share, competitive positioning. All important, but research shows they’re lagging indicators of business quality, not predictive ones.
The problem is what behavioral economists call “measurement bias.” We obsess over what’s easy to quantify while ignoring the psychological and organizational dynamics that actually drive long-term performance.
Financial metrics tell you what happened, but they don’t tell you why it