Organisation debt - What does it look like in practice?

As part of Uncover Consulting and our work with start-ups, I’ve been thinking a lot about the concept of “organisational debt”. This is the second part of a three-part post on the topic.

You can find the first part here or you can subscribe to my newsletter to get all my articles as they come out.

Why even think about this like debt?

Recently I was at a house party and someone mentioned my previous post on organisational debt (which was both nice and surprising). This person asked me a very reasonable question which was “why should we think about org debt or tech debt as debt at all?”

On a more general level, I’m a huge believer in learning through analogy. There is strong evidence that analogies help people grasp new concepts (especially abstract ones) more quickly. It allows people to connect the new concept with an existing mental model they have, and gives them the language to interrogate the bounds of this new concept. However, not all analogies are created equal - so is “debt” the right one in this case?

There are three main reasons I like to use the analogy of debt:

• First, choosing the simple and easy solution in the short-term (which will eventually need to be changed) is a very direct way of borrowing “effort” from the future. You save time and effort in the short term, but will have to eventually pay it down later on. This borrowing makes a lot of sense in growing companies because the cost of wasting effort when you’re small & experimental is higher than when you’re bigger & more established.
• Second, similarly to debt, you have to pay the cost of servicing these decisions constantly. Small imperfections or bigger inefficiencies that result from organisational decisions are simply different “interest rates” on the org debt that you’re paying.
• Third, even if each individual borrowing decision is small, debts can quite easily rack up (see the US government debt clock if you want to feel nervous about debt build up).

So with that being said - a very reasonable follow up question is what does this debt actually look like, because that’s really where the analogy starts to break down a bit…

What types of Org debt are most common?

The majority of my projects at Uncover involve detailed discovery and diagnosis work - where I go into a company (often without that much context about how it’s run) and I try to understand how things are going. I use a range of research methods I’ve slightly shamelessly stolen from academic psychology - niche survey methods, long form interview techniques, some task-based protocols - to dig into what types of organisational debt the company might have. Part of the reason I called the company Uncover was to capture the need to understand what’s going on below the surface of the organisation. As a result of this work, I’ve seen the inner workings of quite a few start-ups.

In addition, whenever I explain my job to people, if they work in a start-up, they will normally want to talk (often at length) about issues their company is facing. [I actually really enjoy these conversations so if you find me at a party don’t worry about “talking shop” with me].

It’s clear from all of these datapoints that there are some common patterns; in particular, 5 categories of org debt seem to consistently emerge as companies scale (especially around the 80 to 200 person stage):

1. Difficulty maintaining organisational focus and prioritisation as your company gets bigger
2. Rethinking team autonomy and delegated decision making
3. Maintaining effective coordination, clear roles and effective cross-company comms as the organisation gets bigger
4. Needing to create space for career progression in a tight, flat org structure
5. Increasing pressure on middle managers without providing them with enough support

In the following sections I’ll go through each of these in a bit more detail, but it’s important to note that the specific challenges the companies face within these bigger themes are quite different based on their business context, industry and the company’s exact path of growth.

1: Difficulty maintaining organisational focus and prioritisation

If you want your teams to be really effective, you need them to understand what work is most important and crucially what work is not important at all (or at least not for now). This sounds very easy, but in practice is a constant mental balancing act of incredibly painful trade-offs.?

One of the most common challenges I see in start-ups is when they underinvest in making these prioritisation trade-offs explicitly as an organisation. This challenge tends to emerge for 3 reasons:

• First, when you are smaller, teams are more likely to understand what everyone else is doing so they can see quite easily how their work fits into the bigger picture. This means the mental model of individuals across the company tends to be broadly aligned and many of the trade-off decisions can be done implicitly. As you get bigger and your product becomes more complex, this assumption about alignment tends to break.
• Second, when a company has a less mature product, it tends to be clear where the big opportunities for value creation are. The “low hanging fruit” are everywhere and company leadership is under less pressure to provide a medium-term company strategy. However, as the company’s surface area gets larger and lots of the low hanging fruit has been picked - then the company needs to make more strategic trade-offs about where to put their time and energy. At this stage leaders have to then provide either direct advice about where people should be spending time or a clear mental framework for how to prioritise within those options.?This is really difficult to do.
• Third, as companies get more complex, individuals get asked to do a wider range of things. These can be running a particular business process, working on several product lines, helping coordinate across different teams or countless other work-related tasks. As a result, without clear intervention individual fragmentation increases. Individual fragmentation tends to really damage productivity because switching contexts and tasks have a cost. But as fragmentation increases we don’t ask these individuals to do less (often we ask them to do even more!). So they increasingly feel time-poor. And the first things that tend to go when people feel time-poor are thinking time and planning time. This then means individuals treat their work and their time reactively and the trade-off decisions are made based on urgency and not based on where the value is, contributing to a loss of company-level focus. I like to think about this as a form of “fragmentation contagion” - an individual who is fragmented will impact their team and eventually their company. This contagion happens most quickly when the person who is fragmented in a manager or a senior leader.

In summary, individuals become less focused due to bottom-up issues around fragmentation, it becomes more intellectually challenging for company leadership to provide clarity top-down, and as company size increases mental models need to be more explicit and trade-offs get tougher.?Often this situation is enabled by the fact that “working on lots of things at the same time feels productive” (a direct quote from one interview I did a while back). But something feeling productive is very different from it being productive.

One particular symptom of this issue I’ve noticed is the difficulty in less senior staff articulating what work is not a priority. Often leaders will be able to clearly state what is less important at any given time, but as you get further and further down the company structure individuals start to struggle more and more with the question. This might be because they don’t feel empowered to deprioritise effectively, or they feel like they don’t know what is least important. In multiple companies operational staff on the ground have told me that the important and urgent tasks are “functionally everything”. This further increases individual and team fragmentation, which slow your organisations down.

This issue is one of the main reasons that companies eventually adopt more deliberate priority setting processes such as OKRs or quarterly planning cycles when they hit a certain scale (normally at some point between 40 and 80 people). These processes are really crucial and help alleviate many of these fragmentation pain points, but companies often struggle to implement them well. [Note: At some point I’ll write a detailed guide on how I think companies should run quarterly business prioritisation and goal setting].

In my view there are three big aspects of solving this overarching form of org debt: leaders need to communicate a clear mental model to help individuals and teams understand what is and what is not a priority; the company needs a process to convert that mental model into more specific directions (e.g., breaking priorities into OKRs or work packages); and finally, the culture of the organisation needs to celebrate those who make explicit trade-offs that help their teams focus.

2: Rethinking team autonomy and delegated decision making

People who haven’t work in start-ups often think of them as open spaces where teams are autonomous and individuals are empowered to drive. In my experience, this tends to be true in some senses but not in all senses. It is normally true that delivery tends to be more autonomous and empowered than very large companies, but in early-stage companies decision making is often quite centralised.?

Centralised decision making often makes a lot of sense when companies are small. The founders have the clearest view on the company vision and will want to stay on top of the detailed work in building their product. They are also the ones pitching to investors and frequently have their eye on the narrative needed to raise the next round. However, over time this centralised decision model has to be diluted or rethought. This is typically for one or more of the following reasons:

• Founders get increasingly fragmented as the complexity of their company increases
• Their relative understanding (compared to other staff) of what’s happening on the ground, with customers or with their product diminishes over time
• The opportunity cost of their time being spent elsewhere becomes impossible to ignore
• Their particular set of skills, expertise or experience may not be suited to a centralised decision making model as the nature of the company and those decisions shifts over time?

As a result, founders and leaders more generally have to learn to let go of some of the control they have early on in a company as they scale. This is not a straightforward process, as they often feel very personally accountable for all the work that the company does on a day-to-day basis and giving up that control can leave them feeling exposed or vulnerable. As a result, they often rethink this decision making model only when forced to - which often means they change after the pain and org debt has already built up around them.?

There are normally several different ways that leaders can help delegate decision making to other parts of the organisation. One commonly important early step is hiring additional members of their senior leadership team to pick up responsibilities for large areas of the business. These are often crucial hires, and may involve a painful transition period as the leadership team learns to trust this individual and the individual learns to calibrate to the company’s needs.?

Beyond delegation of responsibility to additional members of senior staff, leaders also have to understand how best to delegate responsibilities from senior staff to teams within companies. This wider process of “decentralisation” can also be tricky. Teams can only be empowered if they have clear domain ownership and if they understand what they’re trying to achieve, which is why effective focus and priority setting are so crucial. However, the long term value is clear - these operational teams are closest to the delivery so they can learn and adapt to changes on the ground more quickly. But to make this work you have to set clear boundaries for what each team owns and can change - we have strong evidence that when boundaries are set firmly, people feel more freedom to colour creatively within those boundaries.

None of this means that leaders don’t have to make decisions in large organisations - if anything they tend to make more decisions and those decisions are often “bigger”. However, this process of letting go does leave more operational calls to others in the company, and leaders need to trust that teams know how to deliver what leaders want them to focus on.?

3: Maintaining effective coordination, clear roles and effective cross-company comms as the organisation gets bigger

A third common form of org debt relates to how small companies structure their teams and how they coordinate & communicate internally. As outlined in the first post in this series, early on in an organisation's life flexibility is of primary importance. As a result, in many small companies, even the idea of an org structure with clear roles and responsibilities is uncomfortable. There is a benefit of some constructive ambiguity, because you can allocate people more flexibly to work as your priorities change. However, this flexibility comes at a cost. Unclear roles lead to lower accountability, wasted effort and poor coordination (driven by the lack of identifiable points of contact).?

Over time it becomes more helpful for individuals to have topic expertise and a cohesive set of problems to focus on. People start to specialise, clearer accountabilities emerge and functional lines become firmer. As those functional boundaries change, you get a new set of problems forming - siloed communication between those functions. Without deliberate intervention the level of information flow between teams tends to get worse and things get lost in the handovers from one group to another.?

Accordingly this form of org debt can occur in both directions - if you don’t set up your company structure clearly early on you waste effort and if you overly formalise your company structure too soon you create silos. There are a wide range of more specific challenges in how teams interface with each other which flow downstream of your org structure and this is probably the theme in which I see the most variation in the specific challenges that each company faces. However, in general it benefits companies to be more deliberate - if you want to retain more flexibility in roles, that’s fine but it should be a conscious decision not an accident.?

A further aspect of related org debt that builds as your company org structure changes is how you communicate as a company and as a leadership team.?When it comes to general communication, early on a large share of conversations about how the company operates are two-way, where leaders solicit input from staff before making a decision. At some point, it starts to be challenging to include everyone in two-way decisions, and the pool of people solicited shrinks. This is its own balancing act - including too many people is ineffective and slow, too few people leads to decisions without all the information.

The scaling issue even exists within leadership teams. As your company gets bigger you might find your co-founders spending less and less time together. Where you could previously assume that leaders were fully aligned on their approach and preferred strategic direction, this implicit model has to be replaced with a more deliberate explicit model - e.g., a weekly breakfast where they meet to discuss approach.

Finding the right way of ensuring this alignment across an organisation as a whole can one of the most simple yet impactful interventions as your company gets larger.

4: Needing to create space for career progression in a tight, flat org structure

Start-ups want smart, hungry people to work for them. Smart, hungry people are typically motivated by learning and prospect of career progression. So organisations often find themselves making promises about the development and career opportunities they can offer - but these promises can be challenging to fulfil in practice:

• First, fast-growing companies tend to have quite flat company structures. This means they have relatively few “manager” slots that they can fill.
• Second, start-ups and growth companies (especially in the current funding environment) have less flexibility about their resources, either because they are slightly cash-strapped or because the opportunity cost of investment is high.
• Third, since senior staff are often busy and individuals tend to be fragmented (see above), it can be difficult to offer high quality learning. As a result, staff are largely learning “on the job” in a high pressure setting with minimal support, which is not the best for learning outcomes.

This can all result in staff feeling like promises about learning and progression are not being met, which is problematic because as mentioned before learning is a key driver of motivation.

As a result companies feel obliged to offer staff an alternative form of progression - one common approach is to give individuals more senior sounding titles (“Heads of”, “Leads”, etc…). Giving these title bumps feels like progression, but if they’re not thoughtfully planned and associated with additional responsibilities it may create more issues for companies later down the line. It’s especially painful when you have to benchmark pay or when you are hiring externally and need to re-level people internally.

Ultimately the longer term solution to create a more effective learning environment requires:

• Career paths for individual contributors as well as managers
• Stepwise increases in responsibility within roles
• More deliberate performance appraisal and managers who are trained to give better feedback
• Deliberate “opportunity design” where companies create opportunities for individuals to practise skills or build knowledge that are mutually beneficial?

5: Increasing pressure on middle managers without providing them with enough support

The final area of org debt is a topic I’ve written about quite a bit recently.?

Once a company gets to the roughly 50-80 person stage, one of the biggest business risks for them is the retention of their middle managers. This business risk often creeps up slowly over time, and rarely gets pushed to breaking point until one or more of these people leave so it can remain unresolved for quite a lot of time.

In particular, these middle managers drive a lot of the delivery approach on the ground both in relation to the team members they directly manage but also through their high visibility positioning in the company. They also hold deep institutional knowledge, have picked up lots of small processes, or have built relationships with stakeholders which nobody else in the business knows well. All of these are made more important because growth companies often lack well-documented processes. As a result over time and through no real fault of their own, middle managers can become single points of failure for the company.?

Within start-ups and scale-ups, we tend to ask managers to play a “Player-Coach” role where they have their own work alongside management responsibilities. While this is a sensible resource allocation decision - it further puts pressure on managers who might struggle to prioritise their time between the different types of work. When they are particularly time poor - they tend to approach their work less effectively; when under pressure, planning time is one of the first things that gets deprioritised and many managers tend to do more work themselves rather than investing the time to train their direct reports to do it effectively.

Frankly, many of these manager-related org debt issues are not exclusive to start-ups and scale-ups, although they are more acute in growing companies. As a result, we’ve seen sustained high rates of managers feeling unsupported and disengaged:

Solving this type of org debt involves a mix of three things:

• Offering a clearer path for individual contributors so people who don’t want to be people managers can still contribute and see career progression. This can lead to the pool of middle managers being more up for the challenges associated with the role.
• Creating a system that supports middle managers - typically this includes training, mentorship or coaching, and deliberate learning & connection with their peers.?
• Crafting company processes to remove some of the systemic pressures on these individuals. This could be as simple as protecting more “focus time” to document processes or planning more effectively, or alternatively could involve having people “pair” on more work to spread knowledge and expertise more effectively across the company.?

Final thoughts

So we’ve spent this post running through five common forms of org debt that I’ve seen in fast-growing companies. This list is almost certainly not exhaustive, but I believe it covers the most consistent challenges companies at this stage face.?

The next immediate question to answer is how to actually fix the org debt issues. I’ve given some suggestions within each of the 5 themes, but the remaining post will cover a more systematic approach to designing solutions for paying down the org debt bill.?

If any of this post has felt familiar or relevant to your company, feel free to reach out to have a conversation about org debt! You can reach me at [email protected].