The Work We Do - Debt and Equity

Oct 19, 2015

Much of the work we take on in our day-to-day lives, both professionally and personally, can be thought of as either a debt or equity task. Knowing whether you’re working on a debt or equity task helps define what success looks like, and helps inform what to really focus on as a core competency. In this essay, I’ll define both debt and equity, then I’ll classify some day-to-day examples in both buckets.

Debt & Equity

Debt Instruments

Debt instruments represent a promise to be repaid in the future with some interest, since a dollar today is worth more than a dollar tomorrow. In debt, the best case scenario is that everything goes to plan and you are repaid; the worst case is you lose both your principal and interest.

Examples of debt instruments include treasury bills, corporate debt, and peer-to-peer loans. Debt returns range from 0 to an expected amount (a full repayment plus interest).

Equity Instruments

Equity instruments, on the other hand, expose upside. If you own half of a textile factory and its value increases tenfold, the value of your your stake increases pro-rata as well. Equity returns vary from complete loss on the low end (when a venture fails), to a theoretically unlimited upside, like making an early stage investment in a successful venture.

Bringing this Distinction to Work

This distinction carries over into work and tasks that need to be done. I think that when applied to technology ventures (and probably most businesses in general), most tasks can be put into either a debt or equity bucket by trying to understand the best case scenario.

Examples of Debt Tasks:

Examples of Equity Tasks: