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This is a follow-up and a summary of the principle briefly scratched in my previous posts Human Capital (over)utilization and Owners vs. Employees.

I am not a finance whiz, but here’s what I (and most of the ordinary people) perceive when I hear the term debt: you borrow something for a certain period of time and you accept the obligation to return it, plus interest, by the end of the period. You would usually take a debt to obtain something (material goods, results, influence, etc.) now, rather than in the future, as you would if you followed the natural course of events. It’s a time-shortcut. Debt usually implies money or other valuable material things, but further I’ll illustrate it often applies to non-tangible valuables as well.

How this applies to business and work in general? Rational people try to minimize effort and cut corners whenever possible. One (good) way is innovation – try to achieve the desired outcome in a new, less effort-intensive way than done previously. Another way, that resembles innovation (but it is not) is by taking debt, often unconsciously. Debt by itself is not a bad thing, as long as you understand its nature and have the resources to manage it. Here are some wide-spread, but not widely understood ways you get in debt:

Technical debt

Well-known to software engineers and project managers, technical debt is what you get when you cut corners in the implementation of some technology paradigm or process. There usually is more than one way to achieve a working result – the best practice, the quick-and-dirty hack, rigorous testing, no testing, thorough documentation, no documentation, just to name a few of the usual suspects.

“We’ll do it quick-and-dirty now to meet the deadline / create a minimum viable product / [insert another excuse here] and we’ll fix it later, when we have more time / people / money / [insert another constraint here].”

This is how debt looks like. The problem is, the more you postpone, the more resources it will take to repay the debt – the original work to make it right in the first place (the principal) + the work put into the quick-and-dirty hack (interest) + the work required to fix all components, which rely on the hack, so they can work with the proper solution (more interest). But that’s not all, as the people with inclination to take shortcuts, usually do it over and over again, so this debt and the interest pile-up until they become unmanageable and the project, as in real life, goes bankrupt.

Innovation debt

Do you know why low-cost airlines have (mostly) brand-new airplanes? Wouldn’t it make more sense to get second-hand, perfectly good, cheap airplanes form another airline? It’s not because they want to be attractive to customers – if that was their prime concern, airlines wouldn’t cram seats so close – no, that’s an added bonus. It’s because newer airplanes are more fuel-efficient (innovative) than the older ones, so they are cheaper to operate and they have a bigger profit margin. Hence, technological innovation and efficiency is what enables their business innovation. Innovation enabling innovation which results in better competitiveness.

On the opposite side stands the lack of innovation – the innovation debt – when you say: “I’ll run with available processes and resources as long as I can, then I’ll innovate”. Which is fine, as long as the rest of the world does the same. The rest of the world, however, innovates, and does that at an accelerating pace. The interest of the innovation debt is many-fold – the cost to update to the state-of-the-art processes and technologies, the time to do it, the effort to combat lost competitiveness, the effort to combat lost market share, the lost attractiveness for top-talent, loss of existing human capital because of the lost attractiveness, etc.

Human capital debt

Just as with process and technology innovation, you must invest in developing your human capital as well – whether as an organization for your employees, or as an individual for yourself – trainings, conferences, books, time to learn, etc. If an organization does not manage human capital debt, best people will leave, destroying future opportunities and current potential alike. If a person does not manage this debt to her-/himself, (s)he will quickly get deprofessionalized.

And we are slowly coming from the more explicit to the subtle.

Social debt

“Honey, we’ll discuss this some other time, I have work to do.”, “Mom, I’m overwhelmed this week, let me call you back as soon as I’m free. Love you!”, “Sweety, your drawing is beautiful! Now go play in your room.”, “Hey, we’ve got a lot of catching up to do! I’ll call you up next week, I promise.”

Are these lines part of your vocabulary? That’s your debt to your spouse/partner, to your parents, to your children and friends. You know you love them, they know you love them, but it’s not OK. Unless you take meaningful steps to ensure quality relationships, as time goes by you’ll find your family went broken, you have no subjects to talk about with your parents, your teenage kid does not want to see you and your friends are not a part of your life anymore. These are your most stable foundations, but when you finally find the time to spare, there is no relationship anymore.

In the context of organizations, social debt is often transferable. Managers ask employees for extra effort – overtime, working at home, etc. – but since employees cannot miraculously create time out of thin air, they too have to borrow it from their family and friends. So in essence, in order to pursue organizational goals, managers make employees take debt from their loved ones, as well as themselves, and "spend" it on their agenda, effectively burdening far more people.


You probably do not realize, but you are in debt to yourself as well:

Work-life balance

Work should be just another part of life. It all comes down to balancing the different ingredients and voilĂ  – you get a life – sustainable or not.

I always advise employees to leave jobs and managers who expect or demand social and self-debt, except on rare occasions. Some managers do not do it directly – they create a work culture, which shames people if they leave work on time, or stop their career progress. Employees exchange skills and effort for that paycheck, not happiness or mental health. Encouraging employees to leave bad companies is a win-win-win: employees win back their happiness, good companies win new employees, even bad companies win by being forced to become a better workplace or perish.

Managers, do not let work put you and your crew in unbalanced and unmanageable debts. Employees, be proactive in realizing and controlling your debts, both at work and outside, as nobody else will do it for you. A healthy organization would have awareness for these processes and support them, which is the only sustainable way to exist for both organizations and individuals.

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