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The one startup debt you can’t pay back
There are a few lines in the Silicon Valley that have shaped how we build products and companies. They all encourage founders to take on…
There are a few lines in the Silicon Valley that have shaped how we build products and companies. They all encourage founders to take on “debt” and find the fastest path to market.
“Move fast and break things”
“If you’re not embarrassed by your first product, you launched too late”
“Do things that don’t scale.”
This focus on speed is successful. For the chance to increase velocity, compromises are made around product quality and technical scalability. We delay marketing efficiency and ignore unit economics. Initial pricing in the enterprise space is optimized for adoption rather than margin. In the early days, partnership terms with suppliers may be far from ideal and often a blind eye is the best tool to navigate regulatory hurdles. And, when it comes to hiring, founders take on diversity debt. We fill seats with those we know or at least those we know are capable and accessible. We move fast rather than spending the time to attract the best candidates from diverse backgrounds. We take on this diversity debt believing it is the same as the other types of “debt” and can be paid back as we scale. I think diversity debt is different because unlike other startup debt, the cost of diversity debt, the effort required to pay it back, rises dramatically with scale.
Startups are a race against time and founders are pushed to find the first, good enough solution, build that and then iterate toward the ideal. You gotta use every advantage you can, find every shortcut and clever trick to build what the market wants. Speed over quality. Without speed you die. Quality can be added later. If you achieve enough velocity, any debt can be repaid — and if you don’t break out, you’re dead anyway.
When it comes to product and technology, this works because the cost of the debt is well understood and the payback can be planned for — and the debt actually gets cheaper relative to company scale. The highest cost of technical debt is rebuilding the product from scratch. As you scale, you have more people and resources and what felt like a monumental task with three people is easily accomplished with 30 or 300.
Product is not the only thing that gets built this way. We also build teams like this — leveraging every advantage we have, finding every shortcut and clever trick to hire the best available as fast as we can. This means we leverage personal networks to fill seats through an idiosyncratic recruiting and hiring process. We write job descriptions we think are compelling to people we can imagine being good at the job aka people like us and we count on the culture of the company to pull people in who will be successful because they are the “right fit.”
Conventional wisdom pushes founders to find the first, good enough solution for every hire. No time for structure or process. Use every advantage you can, find every shortcut and clever trick to get the functional team you need. Speed over diversity. Without speed you die. Diversity can be added later...
Diversity debt is framed the same way as technical debt. But, the payback is much less understood and the costs compound with scale. Unlike a product, where the problem stays the same size as the team gets bigger, diversity debt grows with your company. If you have no women on your team of 3, it’s easier for a woman to join than when you have a team of 30 men. Getting anyone to be the first becomes incrementally harder as you grow and as the culture solidifies. The difficulty of adding diverse people also compounds with scale. The personal networks tend to be homogeneous and create a homogeneous pool of recruits. With scale, these homogeneous hires becoming hiring managers and the social proximity debt compounds. The idiosyncratic decision process and ad hoc recruiting approach of early satge startups builds teams that have a high degree of social comfort, are quick to adopt specific and comfortable norms. As the company scales, these teams are biased to ascribe success to group dynamics and team cohesion — compounding the diversity debt as increasing weight is placed on qualitative measures of fit for each new hire tipping the scales against the known benefits of the structured interviews and programatic recruiting and hiring practices that are implemented when your company gets big.
These compounding effects work in reverse as well. Founders that make the decision to build diversity into the DNA of their culture from the start can take advantage of more diverse personal networks, broader social norms and more inclusive group dynamics to recruit incredible people. These hires will become hiring managers and the success will compound.
It takes more effort (and time) at the beginning, but I think it’s worth it.