Every self-respecting startup CEO has an eye on both the revenues and expenses. She probably also knows the balance sheet of the company on the back of her hand. As soon as a company's financial debt goes out of whack, you start worrying about how you are going to service it. And, correctly so! However, there are many other non-financial debts that are neglected. Often, you don't even know what those are until it might be too late.

What are some of those?

#1. Technical/Product debt

Most early stage startups build something quickly to validate their product. It is usually a modest start. Soon, with the right product and customer insights, and a bit of luck, the product starts having real usage and hopefully, real revenue. The customers and the market want more. A feature here, and an upgrade there; before you know it, you start getting into spaghetti code. The system becomes a patchwork of non-scalable components, you start accumulating nasty technical debt. The system works but is very fragile and also dependent on the original folks who wrote it.

This is a problem, not just for early stage startups, but also more mature companies. The rate of pace of technology innovation is so fast that now a system and its underpinnings become obsolete in about 3 years. Worse, if the system is not architected right, then it may be hard, and certainly expensive, to replace things in a modular manner.

Product debt is similar and often will involve user experience, design and a medley of features that may be rarely used. We keep adding, but we rarely remove features. One of my favourite interview questions for a product manager, is what are the 3 features you would remove from your favourite product?

Technology and Product debt is a silent killer. You lose time to market when you want to launch new products/features. You are unable to move quickly when a technology stack or design patterns change.

Recommendation:

Not addressing Technical Debt periodically will lead to needing to change the wheels of the car while its zooming down 100 kmph down the freeway.

At every stage invest in technology that will let you handle 5-10x of what you are expecting to grow. One way to protect against this debt is to allocate ongoing bandwidth for "infrastructure/fixit" projects.

#2. Process debt

Speed of essence in any business, most certainly an early stage startup. Startups win because they are nimble. Even legendary startup gurus such as Paul Graham have argued that startups should not worry about doing scalable stuff early on. However, people misconstrue that to throwing “people” and “ad-hoc” ops at the problem even beyond the first few customers. That is plain wrong!

You might start allocating people or tasks through a spreadsheet since you are doing 10 transactions a day. Ironically, that becomes worse as you start succeeding and doing a 500 transactions a day since you need to keep throwing more people at the problem. This problem is worse yet in emerging markets like India, where the cost of “ops” related workforce is more modest. Hence, one is even more likely to fall down this slippery slope since it looks "cheap". It isn't.

Many emerging markets companies tend to have have an “Ops First-Tech Later” vs. a “Tech Ops” (Technology to solve operations) mindset. A TechOps company like a Google or Amazon will provide great products implemented through great automated process and technology. Don’t believe me? Try finding a phone number to call someone at Google or Amazon. You won’t be able to find the numbers easily and yet Google and Amazon have some of the best NPS scores of any company in the world.

Recommendation:

"Have a TechOps mentality and not an OpsTech one"

Just don’t throw people at the "ops" problems. Solve them using technology and thought out process. For every 10X growth in your core business "transactions", there should be less than 1X growth in people. The lesser the better. That’s when you get operational leverage!

#3. People debt

Startups have different phases. There’s the 0 to 10 (inception), 10 to 100 (early growth) and 100 to 1000+ (scale-up) phases. You need pirates or bandits for the startup phase. People who just get it done and take no prisoners. The early growth phase requires some acceleration of the basic tenets, aggressive growth, fewer short cuts but still a lot of focus on speed. As you grow, you require scale, discipline, process orientation, changes in hiring, building organisation capability, etc.

Here’s the challenge. People who are good at the inception phase are not the ones that may be good at scale-up phase, and even if they are, they may not find it rewarding and enjoyable. The same applies in reverse as well. You can’t take someone from a super large company who does not have a hustling mindset in the conception phase and expect them to succeed.

So, what is the people debt? Well, as your company keeps growing both in business and in the size of the organisation, you need to keep adding the right people in the right places and perhaps getting some people off the bus. You may also need to rotate people to responsibilities that are better suited for them.

Recommendation: 

You need to evaluate if the right people are in the right roles every time the company grows by 3-5X in terms of number of people. Each newly hired or promoted leader should easily be able to scale up to the next level both in people skills as well as the required functional competency.

#4. Compliance debt

This is one the areas that is most neglected by startups. And I don’t necessarily mean the basic compliance with the laws of the land (though, trust me, we’ve seen plenty of that too). Basically, are you holding yourself to a higher bar in terms of the financial, business, people, HR, and other best practices as if you were a big, publicly traded company that was a lifeblood for many customers in your chosen sector.

It may seem foolhardy to "over-invest" in this but it isn’t. Here’s why – having clean books and a high compliance bar makes you more attractive for investment, acquisitions and even an IPO. It isn’t just that you can’t get funding or an M&A offer but even if you do, it might take months or God forbid, a few quarters, to pull something off. I have personally seen deals called off because the books and overall compliance were messy and hence significantly increased the risk of the deal.

Recommedation: 

Pretend like you are going IPO in 6 months; are you ready for all your books, systems, processes, compensation of your executives, your filings, etc. to be publicly scrunitised? If not, start fixing them one by one! Trust me, some day you will thank your stars that you did.

In conclusion, every CEO should totally keep their eye on the P&L and the balance sheet. However, it would behoove the great CEOs to ensure that company is technical, process, people and compliance debt free as well. That's what will distinguish the great companies from the good ones. The start of 2018 is as a good time as any to address them!

Do you agree or disagree with these debts ? Are there other debts that are big and missing? Please do share your thoughts, comments and suggestions below.

About the Author -

(Amit Somani is a Managing Partner at Prime Venture Partners, an early stage Venture Capital firm based out of Bangalore, India. Prime VP invests in category creating, early stage companies founded by rock star teams. Prior, Amit has held leadership positions at Makemytrip, Google and IBM. He is also deeply engaged with the early stage startup ecosystem in India and actively volunteers with iSpirt, TiE and NASSCOM. He tweets at @amitsomani)

This article was originally published on Linkedin