The Work We Do - Debt and Equity
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 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, 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:
- Servers & Web Hosting - if you host an app online, it has to be sufficiently fast, but you also hit a certain threshold where it is fast enough and more incremental speed improvements will give diminishing returns. That said, if your servers are down, your returns will be the worst-case.
- Information Security - this one has been a hot topic as of recently. Security holes lead to sensitive data being leaked, which can often be fatal to a company, or lead to lawsuits, misplaced trust, and other detractors.
- Accounting - inaccuracies here can destroy a company, but having books that balance completely will not make one company win over another.
Examples of Equity Tasks:
- Building features that people want - the right company with the right features for the right customers is a huge win that can yield disproportionately large results, while not nailing this will return the worst case.
- Distribution - products that have distribution built-in can be significantly more valuable than their counterparts ceteris paribus. Products that really have sharing built in (Hotmail and Facebook, for example) benefit greatly.
- Hiring productive people - very productive employees can be hundreds of times more valuable than mediocre ones. This applies across an organization - as much in sales and design as it does engineering.