Organisational Debt -Mental Model 081
The Debt That’s Not On Your Balance Sheet
The short-term sacrifices of a company that will inhibit its long-term performance.
Example: Steve Blank wrote about a CEO of a startup. It had a revenue of $40M the previous year. It was expecting to hit $80M the coming year.
To keep up with the growth, they had doubled their employees from 100 to 200 in the previous year. They were looking to double it again to 400 in the coming year.
Yet, despite intending to expand their workforce, they were accumulating organisational debt. Why? Because they did not having training programs for the influx of new employees. So they would have trouble retaining their existing recent hires who were working for intern-like salaries with no training and little equity.
The new hires will help in the short term, but if the organisational debt is not dealt with, it will hurt the company in the long run.
After talking with Blank, the CEO realised they needed to avoid the organisational debt, and developed a plan to manage new hires, reorganise original hires and increase the remuneration of key employees, and re-examine the company culture.
Wisdom: “Just when things should be going great, organizational debt can turn a growing company into a chaotic nightmare.” — Steve Blank