The Growth Quality Score: Why Some Businesses Survive and Others Don’t

Party City: When the organization becomes larger than its economic advantage

Party City is perhaps the most revealing of the three businesses because its historical competitive position seemed so substantial. It had a nationally recognized retail brand, hundreds of stores, manufacturing and wholesale capabilities, access to a broad assortment of party-related merchandise and relationships with retailers beyond its own physical network.

In June 2012, Thomas H. Lee Partners announced a transaction involving Party City valued at approximately $2.7 billion. The acquisition was completed in July 2012 through a structure in which Thomas H. Lee-affiliated funds held approximately 70%, Advent International held approximately 24%, and management and other investors held the remainder.

The business included Party City stores, franchise relationships and wholesale manufacturing and distribution operations. Its 2015 IPO prospectus described vertical integration as a competitive advantage because the company could design, manufacture, source, distribute and retail products across several channels. Management argued that this structure gave the company cost advantages, product differentiation and substantial distribution reach.

There was a reasonable commercial argument behind the model, but it also introduced significant complexity. Retail stores required occupancy costs, inventory, staffing, merchandising and local operating resources. Manufacturing and wholesale distribution required production facilities, raw materials, inventory, transportation and customer relationships with other retailers. The entire system depended on demand for products with significant seasonal exposure.

Party City went public in April 2015 at $17 per share, selling 21.875 million shares and raising approximately $371.9 million in gross proceeds. The company intended to use the proceeds primarily to repay debt, including senior payment-in-kind toggle notes. Once again, the public listing provided an opportunity to improve the capital structure, but it didn’t change the fundamental requirements of the operating business.

Scale was becoming less protective

Party City’s competitive environment was not particularly forgiving. Consumers could purchase decorations, costumes, tableware, balloons and related merchandise from mass merchants, dollar stores, e-commerce marketplaces and seasonal specialty retailers. A company like Walmart could offer party supplies as one category among many, while Party City needed the economics of the category to support a much larger portion of its organization.

That distinction matters when pricing and demand come under pressure. A mass merchant may use party merchandise to support broader household shopping and customer frequency. Party City’s specialized network had to generate sufficient contribution from the category itself.

There was also a substantial dependency on balloons and helium. Balloons provided a differentiated service because filling helium balloons created a reason for customers to visit a physical location, something conventional e-commerce couldn’t easily replicate. But helium availability was affected by supply constraints beyond the company’s control, exposing the retailer to a disruption in one of its more important services.

The warning signs were visible before COVID-19. Party City’s revenue declined from approximately $2.43 billion in 2018 to $2.35 billion in 2019, while Party City brand comparable sales fell 3.0%. The company cited helium shortages, weak Halloween performance, store closures and other operating factors. It also sold its Canadian retail stores in 2019 and pursued a store optimization program.

Those actions indicate that management was responding to identifiable issues. But the question is whether the response was sufficient, and whether the company could change its operating economics quickly enough while maintaining its financial commitments.

The pandemic subsequently created an enormous shock to social gatherings, celebrations and retail activity. Party City’s revenue fell to approximately $1.85 billion in 2020, before recovering to $2.17 billion in 2021. The rebound initially provided some encouraging indicators, including a substantial recovery in comparable sales against depressed pandemic comparisons.

But the business was still materially smaller than it had been in 2018, and its financial structure remained demanding.

What the 2022 numbers revealed

The 2022 results provide an unusually clear example of why revenue alone is an inadequate measure of business health.

Party City metric	2021	2022	Change
Revenue	$2.171B	$2.170B	Essentially flat
Gross profit	$768.1M	$732.8M	−$35.3M
Gross margin	35.4%	33.8%	−1.6 percentage points
SG&A	$671.2M	$707.2M	+$36.1M
Adjusted EBITDA	$186.0M	$127.7M	−31.4%
Operating cash flow	+$51.9M	−$151.9M	−$203.9M
Capital expenditures	$79.2M	$97.5M	+$18.3M
Inventory	$443.3M	$633.4M	+42.9%
Total debt	$1.437B	$1.703B	+18.5%

Figures use the comparative presentation in Party City’s Form 10-K for fiscal 2022, filed in March 2024 after its first bankruptcy. The company had reported different historical non-GAAP adjusted EBITDA figures in earlier communications, so comparisons should use consistent filing definitions.

These figures tell a far more concerning story than flat revenue. Gross profit declined by approximately $35 million, while SG&A increased by another $36 million. Together, those changes reduced the spread between gross profit and SG&A by more than $71 million.

Inventory increased approximately 43% while annual revenue was effectively unchanged. The company attributed much of the operating cash deterioration to inventory purchases at higher costs caused by freight and raw material inflation, along with weaker operating income. Cash from operations declined by approximately $204 million year over year, and the company consumed roughly $249 million more cash from operations than it spent on capital expenditure.

That level of deterioration should change the entire growth conversation.

The challenge is no longer simply acquiring more customers or increasing transaction volume. The organization needs to understand whether its pricing, assortment, inventory, supplier economics, store structure and commercial strategy can produce enough contribution and cash to support continued operations.

The forecasts were deteriorating during the year

One of the more useful pieces of evidence is how management’s outlook changed during 2022.

In February 2022, Party City initially projected revenue of approximately $2.275 billion to $2.350 billion, with adjusted EBITDA guidance of $275 million to $300 million. By May, the company’s adjusted EBITDA outlook had declined to $235 million to $265 million. In August, it was lowered again to $170 million to $200 million.

The 2022 annual filing ultimately reported adjusted EBITDA of approximately $127.7 million. Because historical non-GAAP measures were subsequently revised, the absolute figures should not be treated as a perfectly comparable mechanical bridge. Nevertheless, the successive downward revisions to contemporaneous management guidance are clear evidence that expectations were deteriorating during the year.

This is where I’d want to understand how the organization was using its operating data. Were gross margins, inventory commitments, store productivity and customer demand being assessed together? Was the forecast incorporating the financial consequences of changing consumer behavior and rising costs quickly enough? And were decisions being made with sufficient urgency as the outlook deteriorated?

Those questions are easier to ask retrospectively, and public financial statements cannot establish what management knew internally or what alternatives were available. But a structured Growth Quality Score would have focused attention on the relationship between deteriorating demand quality, falling margins, increasing working capital requirements and the company’s limited financial flexibility.

Why the first bankruptcy wasn’t enough

Party City filed for Chapter 11 in January 2023, with approximately $1.7 billion in debt and an operating business facing substantial financial pressure. It emerged from restructuring in October 2023 after eliminating nearly $1 billion of debt, renegotiating lease terms and reducing its store portfolio.

CEO Brad Weston described the company as financially stronger and positioned for future growth. The business emerged with nearly 800 locations and additional financial flexibility. Those were meaningful achievements, particularly given the scale of the debt obligations and the complexity of restructuring a national retail organization.

But the underlying competition, consumer demand and operating requirements didn’t disappear with the debt reduction.

By the period between July 2023 and July 2024, Party City’s comparable-store sales had declined approximately 9.5%, while sales in its consumer products division fell approximately 24.8%, according to reporting on its second bankruptcy. Continued inflationary pressure, weaker discretionary spending and competition from alternative retailers contributed to the deterioration.

In December 2024, the company filed for Chapter 11 again and began winding down its corporate retail and wholesale operations. In February 2025, an affiliate of Ad Populum won an auction for the Party City brand and related Amscan operating assets with a net bid value of approximately $20 million.

That final transaction is particularly interesting. A recognizable brand and certain commercial assets retained value after the business operating around them became unsustainable. The $20 million winning bid cannot be compared directly with the 2012 enterprise valuation because the assets, obligations and transaction circumstances were fundamentally different. But it illustrates why we need to separate the value of an asset or capability from the value of the organization built around it.

What I’d have wanted Growth to diagnose

Party City’s problems extended across the enterprise. No single marketing initiative could have guaranteed a successful turnaround. But the growth function should have been working with Finance, Merchandising, Supply Chain and Operations to understand where customer and unit economics were deteriorating.

I’d have wanted store-level contribution economics, including revenue by category, traffic, conversion, basket size, gross margin, occupancy, staffing, fulfillment and inventory carrying costs. Those measures should have been compared across markets and store cohorts, distinguishing stores creating sustainable contribution from those consuming resources without sufficient returns.

The customer analysis would need to account for frequency, seasonality, occasion-driven purchasing, cross-category behavior and price sensitivity. A Halloween shopper, a customer purchasing balloons for a birthday and a frequent small-business customer may have very different economics, purchase cycles and alternatives.

I’d also have examined whether wholesale distribution and vertical integration were still providing meaningful advantages. Manufacturing product internally can improve margins and differentiation when volumes and utilization support the model, but it can also introduce inventory, capital and fixed costs that become difficult to absorb as demand changes.

The central question would have been whether the organization could redesign the business around the capabilities and customer segments that still produced attractive economics, rather than continuing to support the entire historical operating structure.

Party City’s failure can’t be reduced to private equity, COVID-19, helium or Amazon. Those factors were important, but the deterioration reflected their combined effect on a business with substantial fixed costs, debt and limited financial flexibility.

What the three businesses tell us

Hilton, HCA and Party City don’t establish that one particular business model is universally superior. Hilton evolved toward a capital-light commercial network, HCA continued operating a capital-intensive healthcare system, and Party City attempted to sustain a vertically integrated retailer under increasingly difficult conditions.

What matters is how each company converted its capabilities and relationships into economic value, and whether the organization could sustain the investment required to maintain those advantages.

Hilton’s brand, distribution and loyalty capabilities supported continued fee-generating expansion without the company needing to own the majority of the properties added to its network. HCA’s established market positions and operating capabilities generated sufficient cash to support substantial ongoing investment, even with significant financial obligations. Party City’s brand, stores and manufacturing capabilities remained recognizable, but the economics associated with operating them deteriorated to the point where financial restructuring alone wasn’t sufficient.

There is an important limitation to this comparison. These companies operated in different industries and periods, and I selected them knowing the outcomes. A retrospective explanation cannot establish that the Growth Quality Score would have correctly predicted their future. A credible model would need to be tested across a much larger population of businesses using information available before the outcomes occurred.

Nevertheless, the histories reveal the kinds of relationships I’d want to examine: demand quality, incremental contribution, working capital, capital requirements, pricing power, financing flexibility and the speed with which an organization can respond when those conditions change.

How I’d use the Growth Quality Score to steer an organization

I wouldn’t start with a new dashboard or a scoring exercise. I’d begin with a more fundamental question: what do we actually know about the economics of the customers, products and services that produce growth, and how confidently can we connect that understanding to the company’s financial performance?

In many organizations, the information exists in different systems, but it’s rarely reconciled into a consistent operating view. Marketing measures acquisition costs and reported conversions. Product examines activation and engagement. Sales measures pipeline, bookings and contract value. Finance reports revenue, margins, working capital and cash flow. Operations measures capacity, productivity and service delivery.

Each function may be reporting accurately within its own definitions while leadership still lacks a reliable understanding of the complete growth system.

Start with the customer, including the one we don’t know yet

For customer-facing businesses, I’d build the analysis around the progression from unknown prospect to identifiable customer, through acquisition, onboarding, monetization, retention, reactivation and eventual attrition.

We need to understand where customers originate, what motivates their initial purchase, which behaviors indicate future value, what it costs to acquire and serve them, and how those economics change over time. The objective isn’t simply better attribution or a more elaborate customer dashboard. It’s establishing an economic view of the customer that the business owns and can use to make decisions.

That requires connecting acquisition data, transactions, customer behavior, product usage, service interactions, refunds, discounts and financial outcomes. Where appropriate, predictive LTV models can help estimate future contribution from early behavior, but those estimates need to be calibrated against realized cohort performance rather than accepted as facts because a model produced them.

I’d also want to distinguish customers acquired through different offers, channels and product experiences. A lower acquisition cost doesn’t automatically mean a better customer. Heavy promotional activity can reduce reported CAC while attracting customers with weaker retention, lower repeat frequency or greater servicing requirements.

The question is whether the next cohort is expected to produce more economic value than it costs to acquire and serve, and whether those expectations are being realized.

Understand the marginal economics, not just the blended average

One of the easiest ways for a business to miss deterioration is to rely too heavily on blended historical performance.

A subscription company might report a favorable LTV ratio because it acquired large customer cohorts several years earlier at attractive costs. Meanwhile, its most recent customers may be more expensive to acquire, slower to monetize and less likely to retain. The blended ratio can look respectable even as the economics of incremental growth are weakening.

Similarly, a retail business may report stable aggregate revenue while new stores deliver weaker contribution, mature stores experience declining productivity and inventory requirements increase. Party City’s 2022 results provide an example of why revenue stability should never be confused with economic stability.

I’d examine marginal contribution, payback, acquisition costs, retention and capital requirements by cohort, product, segment, market and channel. The analysis needs to account for genuinely incremental activity, rather than accepting every platform-reported conversion or sales increase as growth created by marketing.

This is where experimentation becomes essential. Holdouts, geographic tests, incrementality studies and carefully designed product or pricing experiments can help distinguish activity that creates additional economic value from activity that would have happened anyway.

Reconcile the operating view to Finance

The growth function needs a direct relationship with Finance that extends beyond budget approvals and monthly reporting.

I’d establish agreed definitions for contribution, customer value, payback, working capital implications and incremental returns. Those definitions should be reflected in the company’s operating data, forecasting and financial reporting, with differences investigated rather than explained away.

A campaign that improves reported customer acquisition efficiency but increases discounting, refunds or downstream servicing costs may not improve the business. A new distribution arrangement that expands sales while compressing margins could produce attractive top-line growth but weaker overall economics.

The same applies to technology and organizational investment. Reducing the cost of completing a task is useful, but the broader question is whether the change improves contribution margin, customer outcomes, operating capacity or cash generation. Savings that simply shift work and expense to another team don’t necessarily improve the operating model.

I would also distinguish maintenance investment from investment intended to create incremental growth. A business needs both, but mixing them can obscure the returns generated by new activity.

Connect the score to competitive and environmental changes

The Growth Quality Score should never operate independently of the external environment.

I’d maintain a separate view of market conditions, competitor activity, changes in customer expectations, technological alternatives, supplier concentration, channel dependency, regulation and financing conditions. This is where the Doomsday Score becomes useful, particularly for identifying the ways a category’s established competitive advantages may be weakening.

For example, consider what happens if the realized price of a company’s core product falls 20% while costs remain unchanged. It needs 25% more volume simply to recover the original revenue. At a 50% price reduction, it needs twice the volume. If the cost of serving that additional demand doesn’t decline proportionately, revenue recovery alone might not restore contribution or cash flow.

I’d want the organization to model these scenarios before significant price compression occurs. The purpose isn’t to predict every possible disruption, but to understand which economic assumptions are critical and how much room the company has to respond.

The same framework can evaluate opportunities. New technologies may allow a company to automate expensive activities, introduce new products, expand distribution or improve customer intelligence. But we should examine those developments through their effects on the business, not simply their novelty.

Build an operating cadence that changes decisions

I would use the first 90 days to establish the financial and customer baseline, identify the largest sources of economic deterioration or opportunity, and begin testing changes in resource allocation, product economics and the customer journey.

The first 30 days would focus on reconciling performance and understanding the operating model. The following 30 days would examine where the economics differ across cohorts, channels, products, markets and operating units. By the third month, leadership should be making informed changes to investment, accountability and the activities that materially affect growth quality.

That might mean redirecting acquisition investment toward more valuable customers, reducing promotional dependency, changing product packaging, improving retention, reallocating organizational resources or reconsidering parts of the business that no longer produce sufficient economic value.

Beyond the initial assessment, I’d establish a weekly operating review focused on changes in the leading indicators, a monthly reconciliation with Finance covering realized economic performance, and a quarterly assessment of the external environment, capital allocation and organizational requirements.

The distinction between those cadences matters. Weekly discussions should influence near-term decisions. Monthly reviews should establish whether the decisions are improving financial outcomes. Quarterly reviews should challenge whether the strategy, resource allocation and operating model remain appropriate for the conditions ahead.

I’d also want a record of material operating decisions, including the original assumptions, intended outcomes, expected economic effects and actual results. Businesses learn much less than they should from decisions because the assumptions behind them are rarely preserved in a way that can be evaluated later.

A disciplined operating review should examine both successful and unsuccessful decisions. If a pricing experiment increases conversion but reduces customer contribution, we should understand why. If a new acquisition channel generates attractive early results but weaker retention, that information should influence the next allocation decision. If the organization repeatedly identifies a problem but cannot act because ownership is unclear, that’s an operating-model issue, not a measurement problem.

What would make the score useful rather than decorative?

I’d want to see evidence that the Growth Quality Score changes capital allocation, product decisions, customer strategy and organizational priorities.

The initial score should establish a baseline, but its movement over time is more important than the absolute number. I’d also separate the underlying economic components from the confidence of the data supporting them. A company whose customer economics are poorly understood should not receive the same assessment as one with reconciled, consistently measured outcomes.

I’d avoid presenting the score as a probability of bankruptcy or success. That would require much more extensive historical testing and sector-specific calibration. Its initial value is diagnostic: identifying the relationships between growth, margins, cash, competition and organizational capability that conventional reporting may overlook.

The model should also allow leadership to distinguish external pressure from internal execution. A decline in market demand isn’t the same as losing share because of a deteriorating customer proposition. Both can affect revenue, but they require different decisions.

And there needs to be accountability for change. If customer economics are weakening, Growth, Product, Operations and Finance should be working from the same evidence and making coordinated decisions. A score that identifies problems without connecting them to owners, actions and outcomes simply adds another layer of reporting.

Bringing the analysis back to Getty Images

Getty remains an interesting contemporary test of this thinking because the company still has valuable relationships and capabilities. Its archives, exclusive content arrangements, editorial access, licensing knowledge and enterprise distribution aren’t suddenly worthless because generative AI can produce convincing stock images.

But the economics of its creative and editorial businesses are changing differently. Getty’s second-quarter 2026 results showed editorial revenue increasing 9.2% year over year, while creative revenue declined 2.6%. That contrast suggests that content tied to actual events, specialized access and established rights may face different competitive pressures from more substitutable creative imagery.

A Growth Quality Score assessment would need to examine those businesses separately, including pricing trends, customer retention, contribution, content acquisition costs, licensing economics and the cost of maintaining the capabilities required to serve each market.

I’d also want to understand whether the company’s financial restructuring provides enough flexibility to change its business mix and operating structure, and whether management can develop additional revenue streams around the capabilities that remain differentiated.

The question isn’t simply whether Getty survives Chapter 11. Its agreement is designed to preserve operations and strengthen its financial position. The more consequential question is whether the resulting business can produce sustainable growth under an operating model designed for the market ahead, rather than the economics that made it successful in the past.

The larger question

Looking back at the Yale Club conversation, I understand why being described as the “how” guy stayed with me. The longer I’ve worked across businesses, the more I’ve come to appreciate how much value sits in understanding how something actually operates, where the economics originate and what needs to change when the environment becomes less favorable.

Ideas matter, and innovation matters. But executing an idea, developing the customer relationships that support it, building the right capabilities and maintaining the economic discipline required to sustain the business is a considerably more complicated undertaking.

Hilton, HCA and Party City show that successful businesses don’t all look alike. A capital-light franchise network and a capital-intensive healthcare operator can both create substantial economic value, provided their operating models support the requirements of their industries. A recognized brand and extensive distribution network, meanwhile, can become increasingly difficult to sustain when demand, pricing, costs and financial obligations stop working together.

The challenge for founders, CEOs and growth executives is recognizing when those conditions are changing, and making the necessary decisions while the organization still has the financial and operational flexibility to respond.

I suspect nearly every category has its own version of a Doomsday Score. The exposure may vary, and disruption won’t necessarily produce failure, but the moats we once thought were extraordinarily difficult to challenge may become increasingly vulnerable as technology, customer behavior and competition change.

The Growth Quality Score is my attempt to develop a more systematic way of understanding what those changes mean for an individual business, how its economics are evolving and whether its operating model can support the next phase of growth.

I want to know whether we’re building a business that becomes economically stronger as it scales, or simply expanding the size and complexity of an organization whose historical advantages are becoming less valuable. The earlier we can answer that question, the greater our ability to do something useful with the answer.

And that’s ultimately what being the “how” guy has always meant to me.

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Research sources and financial notes

Getty Images

1. Getty Images, October 12, 2026 restructuring announcement. The planned prepackaged Chapter 11, financing commitments and anticipated operating continuity.
2. Getty Images, October 12, 2026 SEC Form 8-K. Restructuring terms, debt arrangements and shareholder ownership provisions.

Hilton Worldwide

3. Blackstone, October 24, 2007 acquisition completion. Acquisition terms and shareholder consideration.
4. Hilton Worldwide, 2013 IPO prospectus. Management and franchise expansion, ownership structure, room growth and international development.
5. Hilton, January 2017 separation announcement. Separation of Park Hotels & Resorts and Hilton Grand Vacations.
6. Hilton Worldwide, 2025 Form 10-K. Hotel network, customer relationships, segment economics, cash generation and debt.
7. Hilton, full-year 2025 results. Adjusted EBITDA, network expansion and RevPAR.

HCA Healthcare

8. HCA, November 2006 private acquisition announcement. Transaction value, sponsors and management.
9. HCA, March 2011 IPO announcement. Offering structure and financing.
10. HCA Holdings, 2011 Form 10-K. Revenue, adjusted EBITDA, financing and debt.
11. HCA Healthcare, 2025 Form 10-K. Operating performance, cash flows, capital expenditure, reimbursement, debt and repurchases.
12. HCA Healthcare, second-quarter 2026 Form 10-Q. Market concentration and reimbursement exposure.

Party City

13. Party City, 2015 IPO prospectus. Ownership, business model, competitive position and IPO terms.
14. Party City, 2019 financial information. Comparable sales, helium shortages, store optimization and pre-pandemic performance.
15. Party City, fiscal 2022 Form 10-K, filed March 2024. Revenue, margins, operating cash, inventory, EBITDA and debt.
16. Party City, February 2022 results and guidance. Initial 2022 revenue and profitability expectations.
17. Party City, August 2022 guidance revision. Reduced revenue and adjusted EBITDA expectations.
18. Party City, October 2023 restructuring completion. Debt reduction and restructuring outcomes.
19. Retail Dive, December 2024 liquidation reporting. Post-restructuring trading deterioration and competitive pressures.
20. Party City, February 2025 intellectual-property auction announcement. Sale of brand and associated assets.

Methodology: The Growth Quality Score and Doomsday Score are proposed analytical frameworks. Financial data are from historical company filings and disclosures, with calculated margins and changes derived from reported amounts. Adjusted EBITDA is a non-GAAP measure and is not directly comparable across companies or necessarily across restated reporting periods. The framework has not yet been calibrated or backtested as a predictive measure of business distress, and these retrospective case studies should not be interpreted as proof of predictive accuracy.