Technical debt or tech debt is a simple concept that can have complicated implications for business owners, especially small and mid-sized businesses (SMBs): one McKinsey study even showed that tech debt accounts for around 40% of IT balance sheets across different sectors.
What exactly is technical debt?
There are few organizations out there today that don’t heavily depend on technology to run and grow their business.
As companies grow, they might adapt or patch over existing tech systems for the sake of efficiency or cost savings. These short-term measures can have major consequences down the line, as the company accrues tech debt. That’s the idea that to improve the existing technology across a company, there’s a bit of a “tax” a company will need to pay to address the preexisting technical issues.
Decisions made over the years to deliver minimum viable product, or to meet tight deadlines, can cause tech debt to accrue. It happens when applying a number of “Band-Aids” at different points in the stack, creating a disjointed system with complexity as well as weak spots.
When the moment comes for a big upgrade, the company might have accrued a lot of tech debt.
Why does tech debt matter?
Like any short-term solution, taking some shortcuts when building an IT infrastructure doesn’t seem like a bad idea. The issue comes when companies decide they need larger upgrades to stay competitive.
A U.S. Chamber of Commerce study from 2022 found that even small businesses that invest in their technology are able to better run their businesses and stay competitive, and that technology investments help them outperform their competitors. At the same time, one survey found that as many as 78% of organizations overall took on additional technical debt as a means to stay competitive during the global pandemic.
This is something Olga Lagunova, GoTo’s CTO, refers to as “tech bloat,” and it can have negative consequences including “reduced productivity, technical inefficiencies, poor management of IT resources and time, skyrocketing maintenance costs,” and it “leaves IT teams with the constant battle to keep sensitive data secure amid the chaos of disconnected systems.”
Tech debt can also have an impact on less obvious things, such as customer satisfaction. If back-end bugs are causing problems with your website, that has a direct impact on customers, and thus your bottom line.
What causes tech debt and what does it look like?
Some specific examples of how tech debt shows up for businesses of all sizes include:
- Technical stack debt: When an organization chooses the wrong physical technology stack or hardware for their organization that fails to account for maintaining or scaling;
- Poor code quality: Code that is written with efficiency in mind without following proper testing or other best practices can create tech debt issues down the line;
- Lack of documentation: Just as code and tech stack choice are vital, so is the documentation that goes alongside them to make sure systems run reliably over the course of multiple years and worker turnover.
It’s important to note that it’s not only technology decisions that can create a situation of technical debt; there are business decisions and processes that impact this as well:
- Leadership-level decisions around cost-cutting can often trickle down to the IT budget without a broader understanding of the impacts of tech debt.
- Mergers and acquisitions: A large amount of tech debt can accrue as the result of multiple tech systems being put together when there is M&A activity, no matter how large or small. This is part of the larger set of costs associated with organizational transformation.
How can you reduce tech debt?
Working to reduce tech debt, like financial debt or other kinds of debt, requires an understanding of the goals and a plan for how to get there.
Companies who realize that a massive infrastructure update is required to take their business to the next level should crunch the numbers and understand just how much tech debt will be included in the cost of their upgrades.
More specifically, resources will likely need to be put toward:
- Determining budget for infrastructure projects including the “tax” of tech debt;
- Allocating time and resources from your IT teams;
- Looking at existing code and creating additional documentation or more testing, or rewriting the code;
- Investing in both new software and hardware.
What should small and mid-sized business leaders know?
Business leaders at organizations of all sizes should care about technical debt: it helps them understand the true costs of a large part of their business, and it plays a part in risk management. This matters to SMBs for several reasons.
- Cost: SMBs might be dealing with less cash flow and smaller budgets overall than larger organizations. That means that investing in the appropriate technology upfront, while it takes longer, might be more cost effective for the organization in the long term. If the right measures are taken, it can go a long way for SMBs. Data also shows that as a whole, SMBs actually outspend larger enterprises in most technology categories, according to McKinsey.
- Customers: Making sure the “customer is always right” is perhaps even more important at SMBs where every customer makes a difference. Investing in technology goes a long way toward building this kind of loyalty from the ground up. A GoTo survey of IT leaders found that 34% use three or more platforms to manage customer communications, which can lead to a lot of room for error and confusion.
- Core team: There is not just a war for customers, but also for great worker talent. Keeping tech debt in check not only helps customers stay engaged, but also helps you hire and retain top tech talent who want to work with efficient, updated systems. GoTo’s survey showed that 92% of IT leaders are aiming to reduce the overall burden on IT, partly through consolidation of technology and vendors. Lagunova adds that “the best way to tackle a fragmented technology stack is with IT consolidation.”
- Combatting constraints: From money to number of workers to time, SMBs are constrained in many ways that larger organizations aren’t. On the flip side, this can also make them more nimble, and more connected to their products, services, and customers. Positive tech debt management helps those SMBs grow and scale faster, being able to jump on market opportunities without getting bogged down in major investment projects.
Actions SMBs can take
First and foremost, the ability to be aware of tech debt and its pitfalls is most important. That helps you build the right strategy around your technology investments, always thinking about short-term benefits versus long-term tradeoffs. It is important for leadership to make careful decisions around resources—money, people, and time.
There are also specific technological steps SMBs can take:
- Increasing testing: Make sure to use frequent tests to help find issues caused by technical debt before they become larger problems.
- Utilizing automation: You can use automated tools to help implement things like unit, integration, and regression tests to catch bugs in your code. If you outsource this work, you can discuss with your vendor to make sure they are implementing testing and automation.
- Improving code quality: Take steps to improve existing code in a way that doesn’t change user experience. This should be a constant effort so that major issues don’t pile up. It helps reduce complexity and duplication.
- Updating technologies: As stated above, it can be better to make an investment than to wait until the problem is bigger (and more expensive). This goes for both software and hardware. Updating also helps fix bugs in external programs and makes sure the latest features are implemented.
- Frequent feedback: Open communication with your vendor or internal team members to review processes and products is important to know when it is time to switch things up. Constant reevaluation is key.
- Culture of quality: All the above point to a culture where quality—versus speed and cutting corners—is valued. This helps IT teams feel as though their work is important and pays off overall. This also includes things like providing training and mentorship. It also creates an environment of open communication, where workers feel as though they can bring issues to the table that need to be resolved.
By keeping both pitfalls and solutions in mind, companies can effectively manage tech debt and make sure their tech stack is an asset and not a liability to their organization, no matter what sector they are in.