Management Debt, Costs, and Trust Capital

December 21st, 2021

I’ve been reading The Hard Thing About Hard Things by Ben Horowitz; it’s excellent and you should totally add it to your reading list if you haven’t already. Somewhere about the halfway point, there’s a chapter on the topic of “Management Debt” with some ideas I hadn’t considered before:

Like technical debt, management debt is incurred when you make an expedient, short-term management decision with an expensive, long-term consequence. Like technical debt, the trade-off sometimes makes sense, but often does not. More important, if you incur the management debt without accounting for it, then you will eventually go management bankrupt.

As a software developer, I’ve become all too familiar with the concept of technical debt, but this idea of management debt was new to me. Ben is writing from the perspective of the startup founder or business executive, but as I was reading I was struck by the idea that it would be useful to reflect on this cost from the perspective of the employee.

How Expensive Are You?

Say you’re about to join a new company, you’ve gone through the grueling interviews and conversations and finally negotiated an offer that you feel is fair, and so you accept. Congrats! Now you can kick back, relax, and wait until your starting date comes around, you’ve made it!

Well, that’s something you could do, and definitely something I’ve done in the past, but an older and wiser version of myself now sees this as somewhat of a wasted opportunity to consider the cost. No, I’m not talking about the cost of relaxing (which, to be clear, I have nothing against), but more specifically how much you are going to cost your new employer on the day you start.

Oh, you haven’t thought about this before? I hadn’t either, but you can be damn sure any CEO or startup founder worth her salt has likely read Ben’s book and has already thought about the cost and potential management debt that will be incurred by taking you on as an employee.

Now, the fact that they hired you is a good indicator that they think this is a net positive investment over the long term, so you’ve got that going for you, but what you might not realize is that most employees begin their employment with a slight deficit in their trust account.

Trust Capital

Think of your working relationship like a bank account. There are deposits, withdrawals, and someone somewhere is keeping a ledger of all the transactions (often mentally, sometimes literally). In the early days of your employment you begin with a slight deficit in this bank account, even though the company who hired you obviously values you – they wouldn’t have hired you if they didn’t!

You need to be onboarded, trained, potentially even certified all of which front loads your management cost and requires a non-trivial investment on the part of the business. There exists some amount of uncertainty about whether this investment will pay off, and the founder hopes that her vetting process and reference checks will give a good indication of the quality of the investment. However, there is always some amount of risk that this won’t pay off.

Of the many things that keep founders up at night, I suspect this is up there in the top 3.

The currency of this bank account is trust, and the fact that you begin your employment with that slight deficit means you should be highly aware of the need to move your balance sheet out of the red and into the black.

Build Your Own Onboarding Plan

One of the best ways to reduce your initial deficit is to come up with an onboarding plan. Yes, typically this is undertaken by your manager, but by thinking proactively about your version of that plan, you will set yourself up for success.

Consider what was communicated to you during interviews, what things are most important to the company? Where is the company heading? What would be most valuable? Then, come up with a 90 day plan and partition it into 30 day segments, writing down what you hope to achieve in each of those segments and questions to clarify with your manager. Here’s a few examples of questions that can help shape your plan:

What milestones do you want to hit?
What milestones does your manager want you to hit?
How soon do you want to be ramped up on the business domain?
When should you be able to push code to production?
When should you meet with the other people on your team?
What gaps exist in your knowledge of the tech?

The more detail and specificity you can add the better, just remember you need to be flexible as your plan might be less realistic than what your manager has in mind.

Once you’ve created a plan, you should figure out how you’re going to share it with your manager. You could do it proactively, before your start date, or you might want to wait until your first 1:1 session. Context matters, so use your best judgment.

Be careful not to be too prescriptive with this plan; present it humbly and ask to see if it resonates with what your manager has outlined. There will be things that are great and things that might be lower in priority; be willing to adapt to let your manager lead as you explore your plan together (they likely have more context than you do about what’s best for the company at this point).

Lastly, be positive, this is a great opportunity to collaborate!

Onboarding Tactics

Once you’ve begun onboarding, you should start thinking about what to do next. I’ve done this many times over my consulting career, onboarding with clients, and have a few lessons to share. Here are some do’s and dont’s:

You should ask lots of questions and be curious, doing so demonstrates willingness to learn. (Asking questions as someone new is a superpower; you can see things others might not, and the act of asking the question can uncover improvements).
You should take detailed notes during your onboarding experience and reiterate your understanding to multiple people along the way. This shows that you are engaged and actively looking to make sure you are in alignment with what the rest of the organization understands.
You should not prescribe sweeping changes right away (or at all), as doing this constitutes a large withdrawal from your trust account.
You should look for opportunities to improve things and write them down, you can even share them with your manager. (Be cautious here and consider whether your suggestions are reasonable. You might want to capture the notes first and then wait until you have a better understanding of the business’ needs).
You should start small and surgical and then, if appropriate, move on to large and technical. (You might have the expertise and skill to make sweeping changes right away, but it’s better to lead into this type of thing slowly with many smaller deposits of trust capital).
You should not make too many withdrawals in a short period of time. There’s an ideal ebb and flow to deposit/withdrawal that is unique to your company and you have to discover what it is. (This will also change over time as the company moves through various stages of growth; be ready to adjust your mental model).

Thinking this way significantly reduces your management cost right out of the gate, and will help you accumulate some assets, which can give you a significant infusion of trust capital that can often bring you into the black very quickly.

Reflect, Re-evaluate, Reinvest, Rinse, Repeat

Moving forward from here establishes a solid foundation on which to build. At this point it’s a good idea to keep your own ledger (mentally, or literally) of transactions in your trust account. Having self awareness about when you make deposits and withdrawals is to your advantage, especially in an age where so many companies have potentially trust-draining benefits like unlimited vacation.

Next, reflect on how you are doing on a monthly or quarterly cadence. This will help you ensure you are making the best investments to earn the most trust and compound interest as you grow in your role at the new company. It will also help you be strategic about when the right time to make that big withdrawal is.

At a startup these conditions are going to change more frequently than if you are joining an established larger company – you should understand this going in so that you aren’t surprised when priorities change and you need to diversify your trust investment portfolio.

The bottom line is, think of yourself as a savvy investor, trying to forecast, plan, and react to the market conditions in your new company as you make strategic investments to build up your trust account. 🚀