Management Debt - The Perilous Cost Of Not Knowing How To Run A Larger Org

I have a neighbor. Name is George. Marine veteran. Early 70s. Built like a mountain carved down into the shape of a man. Always has a smile on his face. At his house, the sign out front reads, “Forget the dog, beware of the fucking owner.” I love that sign.

And because so much of my life (happily) swirls around startups, that sign has me contemplating the gap between the things founders fear versus what, perhaps, they should fear.

One example that comes to mind is the obsession over technical debt. While I accept that, over time, technical debt deserves attention, I’m increasingly convinced that it’s the lesser danger for most early-to-mid-stage founders.

Let’s take a step back.

Technical debt refers to the cost of maintaining and updating a software system that was created using shortcuts or quick fixes.

Since no one took the time to design and build the system properly, it might slow down or become increasingly difficult to upgrade. It may be challenging to integrate with or futile to secure. The end result can be lost revenue or worse.

The problem with technical debt is that it builds slowly, and then all at once. You end up with brittle systems that are too hard to maintain and cannot withstand shock. That one extra user or one additional data request and all comes tumbling down.

In other words, shortcuts go from annoying to expensive to existential.

There is broad consensus that technical debt is dangerous — often nebulous to measure but important to address.

But you know the type of debt I more regularly see stunt the progress of a promising young business? It’s management debt.

Management debt refers to the cost of poor execution. It’s a result of startups skipping past dozens of tried and true operational practices that deliver better performance. And I see this all the time.

Startups that skip past solid goal-setting rituals, assuming financial or product metrics alone, can guide the ship.

Founders who only build financial plans for board meetings and fundraises, resulting in models that are utterly divorced from the daily operations of the business.

Founders who leave meeting cadences and norms to chance, ignorant of the enormous cost of having humans inefficiently gather for extended periods of time.

Leadership teams who ignore proven hiring practices in the interest of filling open roles more quickly.

And then those same leadership teams disregard mature feedback and termination protocols, leading to injured cultures and/or lawsuits.

The list goes on → not learning how to lead board meetings, run professional fundraises, implement strong value systems, ship good code, test marketing channels, etc.

And just like technical debt, the affliction spreads so slowly as to escape notice. But then one crisis emerges, and the brittle systems break. Productivity vanishes, targets are missed, trust breaks, team members leave and dreams are crushed.

Here is what happens far too frequently.

The founder is an artist. She dreamed of something the world needs. And she was right. The magnetic pull of the founder’s charisma + her compelling solution to an old problem draws early employees, customers, and investors.

And suddenly, the founder is surrounded by many more stakeholders. Dozens, perhaps hundreds. Yet the founder has not really changed much. And as a result, she continues to rely on many of the same practices she used at the beginning. But a funny thing happens after growing from 5 employees to 50 — let alone to 500. Those practices completely fail.

As the audience grows and grows…

  • Employees won’t know what is most important to work on.
    The way they will collaborate will be inefficient at best and counterproductive at worst.
  • High performers will be insufficiently recognized and groomed.
  • Low performers won’t be well counseled or exited.
  • And the founder will feel alone at the top of a large team that seems to move without urgency.

And sure, perhaps some of the code was written in a way that won’t scale…

A few days ago, I had the pleasure of leading an AMA with a group of 20 early-stage CEOs. We covered a range of topics related to go-to-market, hiring, and capital raising. But before the time expired, I turned the AMA around and asked some questions of my own.

“Will you please raise your hand if you have fewer than ten employees today?”

Every hand went up.

“Please keep your hands raised if you believe you would be able to manage double that number right now.”

Three-quarters of the hands remained raised.

“Please keep your hand raised if you believe you would be able to manage 5X that number, or 50 total employees, right now.”

One-quarter of the hands remained raised.

“Now, keep your hands raised if you believe you would be able to manage 100 employees right now.”

No hands remained.

“Ok, now please raise your hand if you imagine building a company big enough to need 100 or more employees.”

Every hand shot back up.

Then I asked my final question… “Will you please keep your hand raised if you know how you’re going to learn the skills required to manage a group of 100 or more employees?”

Every hand vanished.

Don’t worry about the dog. Beware of the owner.

h/t to Enjoy The Work Managing Partner Leslie Fine and author/entrepreneur Alistair Croll for their contributions to this post.

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