StartUp Founders: Almost all decisions are centered around debt
Discover the importance of managing various types of debt in the startup world, and learn how to balance them for a successful and sustainable business journey.
Starting and scaling a company is not just about the technical and financial aspects. It’s also about managing various types of debt that come with being a startup founder. James Sinclair, a startup consultant, describes it as a “debt conversation” that involves managing technical debt, business debt, operational debt, financial debt, mental health debt, physical debt, and relationship debt at each stage of the startup journey.
While it may be tempting for founders to focus on scalability and automation, Sinclair advises them to figure out what level of debt works for their organization. Founders need to be strategic about what they can make up for later and what they can pay for now, as well as what they can deal with down the line if they scale or raise money.
According to Sinclair, debt takes many forms. Business debt can include trademarks, patents, and registration in different states. Operational debt can come in the form of manual processes that are not worth automating until the startup has scaled. Mental health debt can involve long working hours and burnout, while physical debt can include the toll that a startup takes on one’s health. Relationship debt can result from missing important family events or not spending enough time with loved ones.
One notable example of a startup that managed its debt effectively is Stripe. In an article for The Program, Sinclair highlights how Stripe would manually process merchant account requests in the early days, typing the form submissions into another website and creating a merchant account. They did not automate the process until it was worth building the technical tool to do so. This approach allowed Stripe to manage its operational debt effectively while focusing on growth.
In the words of renowned entrepreneur and investor, Paul Graham, “do things that don’t scale.” This quote emphasizes the importance of being resourceful and managing debt in a strategic manner. Founders need to be aware of the different types of debt and be mindful of the trade-offs they make at each stage of the startup journey.
In conclusion, managing debt is an essential part of starting and scaling a company. Founders need to be strategic about the debt they take on and prioritize what is important for their business, personal life, and mental and physical health. By doing so, they can effectively manage their debt and set their startups up for success.