People Debt: The hardest business debt to pay back

We decided to start The People Collective after seeing a lot of startups facing common challenges when scaling. All these challenges were focused around one key growth driver – People.

We looked at these challenges in more detail and most boiled down to communication, process, documentation, Org growth by default, not design and an outward focus on what others are doing instead of building for their unique business.

We see these problems accumulate rapidly from Seed to Series C and beyond, and together they form what we call “People Debt”.

People debt can be framed in much the same way as technical debt and is in some ways analogous. However, the payback is tougher, with more emotional challenges coming to the fore and the costs compound with scale. Unlike a product, where the problem stays the same size as the team gets bigger, people debt grows with your company.

So, what is people debt and why is it so problematic?

People debt is the accrual of poor process, documentation, communication, decision making and employee relations through default, not design. The cause of people debt is often a semi-noble one – speed and efficiency.

Traditionally, speed is considered equitable to success in startups and small companies do not want to burden themselves with unnecessary processes and administrative overheads when they scale:

“Move fast and break things”

“If you’re not embarrassed by your first product, you launched too late”

However, as my wise mother always said: “More speed comes through less haste”

This focus on speed above all else, in combination with the idea that efficiency is born through the reduction in process, means that even the most simple practises are often missing and the problems caused far outweigh the benefits of speed. These can include:

  • No clear vision or mission for the business or teams

  • No consistent brand exposure for hiring

  • No clear approach to systematic hiring

  • No structured onboarding process for new employees

  • No clear route for individuals to progress or develop in the business

  • No clear comp benchmarking, or equity planning

  • No clear route for feedback from or to employees

  • No training for inexperienced managers, who are put into manager roles through tenure alone.

  • No clear process for managing underperformance or handling tough conversations with employees

I would think even the best founders I have worked with would look at this list and admit they have not paid attention to all of it, although, as with many problems, admitting it is the first step to recovery and many of our clients have thankfully made this step. Although shout out to people like Caroline at Fluidly and Andrew Davies at idio have really done a great job of thinking through these problems!

But for those looking at this list and thinking ‘why does this matter?’ let’s dive into a few of those areas to see the impact.

Hiring and on-boarding are big bottlenecks and points of failure. A lack of a clear hiring process can see your time to hire increased, alongside the cost and we haven’t even thought about hiring quality yet. Yes, speed is important through hiring, but true velocity come through effective planning.

Ensuring your interviewers have basic training, taking the time to forecast and scope the roles properly and ensuring you have a consistent message on all marketing channels (linkedin, Glassdoor, careers page) will help a lot.

“72 percent of hiring managers say they provide clear job descriptions, while only 36 percent of candidates say the same. (HR Dive)”

This discrepancy says it all – you need to plan early to get great outcomes.

From here, say you’re a SaaS business, then CAC/LTV is one of your core metrics to report to the board. To improve this, you need your sales team to be ramping as quickly as possible. Your on boarding process lasts 1 day, and is mostly operational. You give them some target accounts and expect them to get on with it. By month 5, they are still not fully ramped and you question their capability when it is in fact your ability to get them up to speed that should also be called into question.

“55 percent of organizations say they do not measure the effectiveness of onboarding programs, hindering accountability for success and preventing opportunities for improvement. (Kronos)”

Create a clear plan – “From yes to desk”, ensure you communicate regularly with candidates, ensure you assess performance at the 6 week mark, and also ensure you let them know what they can expect from you in the first 3 months.

Then you’ve been going for a couple of years and you want to promote a couple of the team. You pick your best individual contributors and you make them managers. The problem is, they have never managed anyone before. You don’t provide the guidance and support needed for this change, but start to see key signs like a drop in their always-perfect performance, or complaints from their team.

This is because without training, most people aren’t great when they first manage others. This loses you your best ICs, frustrates them because they aren’t particularly capable managers and frustrates their direct reports for the same reason.

“At Facebook, people don’t quit a boss – they quit a job. And who’s responsible for what that job is like? Managers. If you want to keep your people – especially your stars – it’s time to pay more attention to how you design their work. (HBR)”

Take time as an exec team to design the org properly and then ensure your managers can design the work for the team. Once you hit 30 people, look at a levelling and benchmarking project, and have this feed into forecasting, hiring planning for levels, goal setting and performance management.

People perform well when they have clear goals to hit – both outcomes based and behavioural.

You can see where we are going with this. As a CFO I worked with once said, the problems startups face are rarely singular, they are death by 1000 cuts and if you can’t stem the small bleeds, then it could be fatal.

We have seen the impact people debt has on businesses sit as a root cause to failure. A startup where the leadership are so ineffective and belligerent that their reputation is toxic, so no hires join, no one stays, the company does not grow. Or another where they decided to just throw Spotify’s squads and tribes model into the business, causing them to miss two quarterly targets through the chaos.

It’s not just small companies – you can look at the collapse of Uber at an executive level and see clear correlations to a total disregard for people practises.

Recommendations

So the impact of People Debt on a business is clear, but what on earth to do about it?

We recommend companies start thinking about these challenges pre 20 staff, and continue to work through all of the foundations on their way to 100+, at which point you’ll likely have to reassess. This is a journey, not a total fix.

There are some simple things which any Seed / Series A / Series B business can do to limit the impact, or even better, get ahead of it at all stages of their growth.

Hire a Head of People or Talent or both earlier – many companies still view a Head of People as a luxury, but in a world where capital raises are getting bigger, but the skilled Labour market tighter, getting someone who can own all the problems and then share that great work with the world is very important and should not be sidelined.

If not at a stage to hire a full time resource, there are services like ours which can help across the board, and also contracting recruiters who can work on the hiring and onboarding

This is probably the most important one – recognise the impact and drive forward the changes as a founder in combination with points 1 or 2. Founders actions and words are taken as gospel by employees and learning to be mindful of their impact is key. Make 1:1s a priority across the board, ensure company comms are consistent, follow up with your managers to check they are onboarding people properly. All little things which can have a big impact.

Build stage appropriate frameworks. Don’t put in 360 reviews if you’re a 10 person business, don’t spend £30,000 on a videographer to capture your team, instead think about the strategy for what you are trying to achieve, I.e. consistent feedback routes and then work tactically to solve them I.e. enforcing a feedback roundup in a weekly management meeting. Strategy and nudges appropriate to your stage are very effective, think minimum viable process.