Entrepreneurs Need To Take On Different Kinds Of Debt To Succeed
You know about financial debt, but what about the other options?
In Teaching Startup this week, technical founder Matt Lavin answered an entrepreneur’s question about managing technical debt. It was a great answer, and I learned something. But one particular bit actually had me nodding my head vigorously in agreement:
“As a developer myself, I’ll say something blasphemous: Technical debt is not inherently bad. Businesses often take on financial debt to move quicker than without it. From a business perspective, the debt-free approach is not always the best idea. Like financial debt, you need a plan to make sure your debts are managed and not growing out of control.”
While Matt went on to explain the different kinds of technical debt and how to erase them, I’d like to take a couple minutes to talk about the concept of how an entrepreneur can and should be leveraging different kinds of debt.
Financial debt is a pretty simple concept. Your startup needs raw materials, labor, and equipment to get off the ground. So you pay for it yourself or borrow the money from someone else against the eventual returns of the business.
But a startup needs all kinds of infrastructure pieces in place before it gets to revenue, including your time to lead it there. In the beginning and for most of the early stages, your time isn’t being paid for by the profits of the business, but rather your commitment to the cause.
You want to be paid back for that time. Ergo, that’s another kind of debt, albeit a very low-interest, low-pressure loan.
Technical debt works almost the same way. I wrote a piece last week exploring the real costs of taking a company from idea to IPO. A lot of those costs, including the $50,000 it takes to get a minimum viable product to market, come in the form of time costs and opportunity costs.
But those costs can and should include taking on technical debt: Borrowing against the cost of future problems in order to get a working feature live today. And in that, Matt is spot on. Technical debt is not wrong, and in fact I’d call it mandatory, especially when you want to…