The Inevitability of Operational Debt in Startups (& what to do about it)

When you’re knee-deep in the startup or scale-up hustle, making decisions on the fly is part of the game.

It used to be all about moving fast and breaking things, but we all know that that playbook is now outdated.

Why? Because the economic climate in tech has changed.

The days of abundant VC money are fading, and those generous cash runways are not what they used to be.

We can’t afford to play fast and loose anymore.

But we’re all still trying to manage “building the plane in flight” or “keeping the car moving forward” or “dealing with the train that has left the station”

So now what?

Tech Debt 

As all this is happening - as we develop and go-to-market, refine our products, build our customer base, to drive revenue, we also often have to deal with tech debt - the lingering consequences of those quick tech fixes and shortcuts we take to keep the momentum going.

And if you think about it, tech debt is more than just a tech issue - it’s actually an indicator of our operational choices.

Tech decisions ripple out far beyond the IT department, touching every facet of our organizations  in the form of failed product launches, missed sales targets, customer service issues, you name it.

And tech debt isn’t going anywhere. We recognize it as a by-product of growth and the inherent complexities of the technological landscape.

But tech debt is just one piece of a larger puzzle I like to call “operational debt.”

Operational Debt

Operational debt is like tech debt on steroids, affecting not just tech decisions and their implications, but every operational and interpersonal aspect of our business.

If tech debt is the multi-faceted consequence or resulting debt that accumulates from making tech-related decisions, then operational debt is the multifaceted consequence or resulting debt that accumulates from making any operational or interpersonal decisions.

In either scenario, you opt for solutions to maintain momentum or meet immediate demands - and you’re often postponing more thorough, sustainable solutions and sometimes not even thinking through the natural implications of those solutions. This postponement and the need for future rework or adjustments is what constitutes the debt.

Operational debt sneaks into every corner of our startups - from hasty hiring to hit immediate targets that lead to role confusion and responsibility overlap among team members, to marketing teams pushing out half-baked campaigns for quick leads, resulting in high costs and a disconnect with market interests.

It’s the accumulation of all those ‘good enough for now’ decisions that start to weigh heavy on your company’s shoulders. This insidious debt creeps into sales, marketing, HR,  everywhere - chipping away at our efficiency, our morale, and ultimately our chances of success.

But operational debt isn’t just about these visible, tangible decisions.

It also manifests in more intangible, often overlooked ways.

Just think of the impact of leadership behaviors - like a manager consistently ignoring emails from their team or sending messages outside of work hours, for example.

These actions, while seemingly minor, can have far-reaching effects.

They can breed resentment, lower morale, decrease productivity, and even lead to gossip and toxicity within the team.

These less obvious elements of how we operate and interact contribute just as significantly to the growing operational debt, chipping away at the foundational culture and effectiveness of our organization.

How Do We Effectively Manage Operational Debt?

Operational debt in startups and scale-ups is a part of the growth journey, but left unchecked, it can do more than slow us down - it can bring us to a grinding halt.

Jeff Szczepanski, CEO and Founder of Reframe Technologies and former COO of Stack Overflow, (affectionately known as Tall Jeff) suggests that keeping tech debt low is every CTO’s core responsibility.

By extension, I’d add that managing operational debt is every leader’s responsibility, especially now as we navigate a tighter economic landscape. It’s no longer just about implementing a series of quick fixes. It’s about strategic, long-term thinking - what Tall Jeff calls, 'planning for success.'

So in the face of immediate challenges and the drive for short-term wins, how do we truly 'plan for success'? I found valuable insights in a discussion with Tall Jeff on this very topic. 

From our conversation, it became clear that success in startup environments requires more than just ad-hoc solutions.

What's needed is an intentional system - a comprehensive methodology - that balances the need for immediate results with the long-term sustainability of our businesses.

This methodology isn't just a set of abstract ideas - it anchors our actions in six practical principles, each designed to guide us through the world of startup growth and operational management. 

The following six principles serve as guideposts, forming a strategic framework that helps leaders anticipate, manage, and minimize operational debt, critical for achieving long term success and viability in their startups.

1 - Expect and Embrace the Complexity

Startups are complex beasts, operating in equally complex environments.

I love looking at David Snowden’s Cynefin Framework of simple, complicated, and complex domains to understand this better.

In simple or obvious domains or situations, cause and effect are clear, and following best practices works like a charm.

Like when you need to track expenses.

The task has a clear cause and effect. You spend money on a team lunch (cause), you record it in some pre-identified app or spreadsheet (effect).

Sense, categorize, respond. Easy peasy.

In complicated domains or situations, although the relationship between cause and effect might require some analysis, logical approaches can still lead us to a solution.

Like when optimizing your website for SEO.

Doing this involves understanding and implementing a range of best practices like keyword research, on-page optimization and backlink strategies. While the basic principles of SEO are well-understood, applying them effectively requires expert analysis and consideration of various factors like algorithms and competitor strategies.

The cause (SEO efforts) and effect (search rankings and web traffic) relationship is not immediately apparent and requires deep analysis, but there are established methodologies and tools to guide the process.

The process involves gathering data, interpreting it, and then formulating a strategy based on these insights.

Sense, analyze, respond. Not too shabby.

But in complex domains - where most startups and scale-ups live - it’s a different ball game. Here, cause and effect are not immediately apparent. There are so many interconnected elements. Each situation is unique, and so is each context.

Crafting a marketing strategy for example, often involves dealing with unknowns and variables that can change rapidly.

Like responding to a sudden shift in consumer preferences or adapting to a new social media platform’s algorithm.

Here the approach would be more experimental - launching a series of small-scale, diverse marketing campaigns across different platforms and demographics, then observing which resonates the most with the audience.

The relationship between cause (these marketing efforts) and effect (customer engagement or conversion) is not straightforward.

The game plan? Probe, sense, respond.

Or take product development, for example.

The relationship between development choices and market reception is not linear or clear. Startups are often in a constant loop of iteration based on user feedback, market trends, and technological advancements.

This aligns with Teresa Torres’s emphasis on continuous discovery, where product teams are encouraged to engage in a cycle of generating ideas, testing assumptions, and learning from the results.

This process involves probing through prototypes or minimum viable products (MVPs), much like Torres suggests - experimenting and learning through quick, iterative releases.

Sensing then comes from actively collecting user feedback and performance data, aligning with her advocacy for evidence-based decision making.

Responding is then about refining the product in line with these insights.

This journey of product development occurs in a complex environment, and as Torres shows us, is full of uncertainty, demanding a high degree of adaptability and an open mindset to learning from emergent patterns.

Dharmesh Shah, the CTO and Cofounder of Hubspot, also aligns with this view, treating organizational culture itself as a product that needs constant iteration and feedback.

Just as we iterate products based on external feedback, we also need to adapt our internal systems and culture based on internal shifts and feedback.

As Shah puts it, 'culture is a product' that requires thoughtful design and continuous refinement.

It’s normal and expected that as startups expand rapidly, they undergo significant changes in team size, structure, and dynamics.

Shah emphasizes that building culture should start early and be approached with the same rigor as product development, focusing on understanding and responding to the needs of your ‘customers’ - in this case, your employees.

This internal scaling process presents its own set of complexities. Maintaining a cohesive and positive organizational culture becomes a complex task where the cause and effect of changes are not always clear, and traditional management approaches may fall short.

In this complex context, just like product development, there’s an unpredictable nature to managing internal change.

Leaders are required to navigate the company through uncharted, uncertain, and volatile waters.

This involves a continuous cycle of probing internal processes and culture, learning from the feedback and experiences within the team, adapting strategies accordingly, and responding to emergent patterns.

This mindset is crucial for maintaining a healthy organizational environment amidst rapid growth.

2 - Keep Creating Awareness and Clarity

Now that your mindset is one that understands and embraces the complex context of our startup world, the real work begins with staying clued in to what’s actually happening.

And I mean what's really happening, not just skimming the surface or being okay with dealing with symptoms at the tip of the iceberg.

We’ve got to go deep, peel back those layers to uncover the true heart of issues, be it in a specific situation, department, or the organization as a whole. It’s about getting to the root of things, not just slapping on bandaids.

'Bandaiding' may work, but it’s always temporary and ignores the interconnectedness of things.

Like my mentor and previous boss, Dan Seligson, once told me early on in my career, “The patient is bleeding on the table in the ER. Bandaids won’t keep them alive.”

And this call for awareness isn’t limited to what’s happening inside our own walls. It’s about keeping our fingers on the pulse of both the internal and external landscape.

Asking the right questions helps us peel back layers to get to the core issues.

• What’s shaking up the market?
• How’s our tech holding up internally?
• What are our customers really telling us they need?
• How’s the team handling the new challenge?
• How are the teams getting along?
• What does communication look like?
• What processes are slowing us down?
• What are our immediate goals and what’s our long game?
• How are we really doing and what are the metrics telling us?
• What metrics should we be looking at?

It’s about getting real with the state of affairs in our organizations. The data and input we get from probing questions like these allow us to gain the insights we need to keep creating awareness and clarity.

Also, remember - sensing or data gathering is a constant cycle in complex environments.

It’s an ongoing loop: Probe, sense, respond.

If we’re just probing and responding without truly sensing - without collecting and analyzing the right data - we might as well be shooting in the dark.

Effective decision making in a complex environment is an ongoing process, not a one-off task.

Continually creating awareness is about asking the right questions, diving into the data for insights that go beyond the obvious, and then using this newfound clarity to make decisions that are not just reactive, but strategic and aligned with our long term vision.

Even if we don’t like what we see. That’s how we stay ahead of the game, not just play continual catch-up.

Which brings us to the next principle.

3 - Articulate and Focus on Desired Outcomes

In the whirlwind of startup life, where every day is about quick decisions, juggling stakeholders, snagging short-term wins, and extinguishing the latest fire, it’s easy to lose sight of the bigger picture.

That’s where Tall Jeff’s mantra kicks in - “What is our desired outcome?” or “What is the dream state?”

Posing these questions is like hitting the pause button amidst the hustle, forcing us to create clarity and align our efforts with our ultimate goals.

This reminds me of a pivotal moment in my career.

Part of my team had launched a series of event marketing campaigns that were a hit.

Attendees were thrilled, social media buzzed with our event photos and videos, and the team was riding high on the excitement.

And in the middle of all this buzz, I encouraged my team to hit pause and reflect.

I asked my team three critical questions:

• What are we ultimately trying to achieve with these events?
• Are they genuinely helping us meet our goals (what do the metrics say)?
• Could there be other strategies that are more cost and resource-effective and also impactful in achieving our desired outcomes?

Upon reflection, they realized that while the events were flashy, felt good, and generated buzz, they were also resource-intensive and not effective in moving us closer to our key goals.

As much as it pained us, we decided to put these events on hold, refocusing our efforts on strategies that directly contributed to our desired outcomes.

This experience demonstrates the importance of always asking “What is our desired outcome?”

Again, it’s about probing beyond the immediate success, sensing through hard data and honest introspection, and then responding in a way that aligns with our long-term vision.

It’s not just about the immediate applause - it’s about the sustained growth and success of our venture.

Keeping your eye on the end goals, desired outcomes, and dream states allow you to  and make choices that steer your startup in the right direction and minimize the accumulation of operational debt.

Otherwise, you risk getting lost in the sauce of short-term gains that don’t contribute to your ultimate journey.

Which brings us to the next principle.

4 - Make Conscious Trade-offs

In the startup rollercoaster, where every decision can feel like a high-stakes gamble, understanding the art of making conscious trade-offs is crucial.

It’s a part that’s often overlooked, especially by leaders, yet it’s fundamental to sustainable and scalable growth.

Life, as we know it, is a series of trade-offs.

We’re constantly choosing one thing at the expense of another, each with its own cost - not always financial, but always present.

In a startup for example, leaders may decide to fast-track a product release.

The trade-off might be taking on some tech debt. It’s a calculated decision, not inherently good or bad, just a part of the journey.

Let’s say you’re under pressure to expand your team quickly due to growing customer demand.

The immediate trade-off is hiring rapidly, which might lead to operational debt like inadequate onboarding or overlapping roles.

Recognizing this debt upfront is key, and so is planning to address it to keep your operations, team, and organization healthy.

Now, trade-offs are different from compromises.

While a trade-off is about choosing between two neutral options, a compromise might mean straying from your core values or integrity.

It’s like when you choose to hide a product flaw to boost sales.

Or manipulating NRR data to raise funds.

Those aren’t trade-offs.

They’re compromises that chip away at your organizational integrity.

As Tall Jeff puts it, compromises often stem from avoiding the hard choices or not fully utilizing the tools we believe in.

That’s why sticking to our core beliefs is essential when making these tough calls. Every decision should reinforce, not undermine the pillars of our organization.

So whether it’s accelerating hiring or patching up code for a quick demo, recognize the trade-offs and the resulting operational debt.

Understand the implications, align them with your organization’s core values, and have a plan to manage the fallout.

This approach isn’t just about making choices - it’s about steering your startup through its growth journey without losing sight of what you stand for.

Which brings us to our next principle.

5 - Have Rebound Strategies

This brings us to a pivotal, yet often overlooked aspect of navigating our startup’s complex landscape - what Tall Jeff calls the ‘Exit’ Strategy.

In tech debt scenarios, this term is spot-on.

It’s about finding our way out of the quicksand we knowingly step into.

Think about it like a basketball rebound - the ball misses the mark, but there’s this immediate, agile move to grab it back, to regain control and redirect the play.

This is the essence I see in what I like to call a “Rebound Strategy.”

It’s more than an exit - it’s a strategic ‘get back on track’ onto our growth trajectory.

It’s a critical component in our approach to operational debt management, where every deliberate trade-off is balanced with a well-crafted plan to manage the debt we knowingly embrace.

They’re two sides of the same coin.

Take our expedited hiring example.

The immediate trade-off?

We bypass comprehensive onboarding due to pressing demands which we deem necessary, but may lead to some confusion.

Here, our ‘Rebound Strategy,’ could be to pair new hires with seasoned team members for initial guidance.

And once the dust settles, we could roll out a detailed onboarding program to the new hires.

It may not be ideal, but it’s a conscious, dynamic plan, consistently evolving to stay aligned with our shifting needs and objectives.

Growing a business isn’t just about tackling immediate challenges; it’s about ensuring our choices contribute positively to our long-term vision.

The same goes for the product development example.

When we push for a faster product launch with less polished code, our ‘Rebound Strategy’ could be to implement a proactive schedule for code optimization that addresses the inevitable tech debt in subsequent phases.

Having a rebound strategy allows us to acknowledge the need for quick action while simultaneously planning for future course corrections, ensuring our short-term moves align with our long-term goals.

In every scenario, the key lies in pairing conscious trade-offs with a strategy that not only addresses the immediate operational debt but also aligns us back with our path of continued growth and success.

Whether we call it an ‘Exit Strategy’ or a ‘Rebound Strategy,’ the essence is to navigate our startup journey’s choices with foresight, adaptability, and a clear focus on where we’re headed.

Our eye is always on the basket, ready to make those agile, strategic rebounds that keep us moving forward.

6 - Uncover and Address Unconscious or Hidden Trade-offs

But our journey doesn’t end with the ‘Rebound’ strategies for the trade-offs we’re conscious of.

Another crucial, and potentially most debilitating, aspect lies in the shadows - the unconscious, hidden trade-offs.

These are the subtle decisions and their ripple effects that often go unnoticed, buried in the day-to-day operations or resulting from choices made without the lens of our first five principles.

It might show up in the continued tolerance of bad behavior just because someone is a ‘star’ performer or a close associate.

It’s in the small but significant habits, like a leader consistently starting meetings late or failing to follow through on commitments.

Or it’s in those hurried business decisions, like abruptly changing pricing structures, launching product features without thorough research, or adopting messaging and positioning simply because it’s championed by the loudest voice in the room.

Each of these, while seemingly minor and disconnected, can silently accumulate and create an iceberg of operational debt, chipping away at our efficiency, effectiveness, and impeding our growth.

In these challenging economic times, the importance of uncovering these hidden aspects is more important than ever.

It requires openness, diligence, and a deep look into the operational dynamics of the organization.

It’s about looking beneath the surface of the iceberg, challenging the status quo, and having the courage to confront and realign inefficiencies.

Once identified, the challenge is to develop responsive strategies that align with our overall objectives, ensuring positive contributions to our organizational health.

This proactive approach is particularly vital when resources are limited and every decision - conscious or unconscious - can significantly impact our runway.

A neutral third party, like Methodorum, can be invaluable to startups on their journey - helping you uncover hidden operational debts and develop strategies for sustainable success.

If you’re navigating these waters and need guidance, feel free to reach out to me.

In the meantime, stay tuned for an upcoming article that will offer a structured approach for startup leaders.

We’ll take a look at how to assess organizational health, identify operational debt, and rebound effectively.

This guide will be an essential tool in today’s economic landscape, equipping you to not only recognize your current position but also to strategically steer your venture toward scalable and sustainable growth.