Founder Resources
You need a great team, not just great traction, to raise a $10M+ round in Latin America
This article is the first in a series of three articles about building a team that will help you raise $10M+ in Latin America.
In the early 1990s, Ward Cunningham coined the term technical debt to describe what happens to startup engineering teams:
“Shipping first time code is like going into debt. A little debt speeds development so long as it is paid back promptly with a rewrite...The danger occurs when the debt is not repaid. Every minute spent on not-quite-right code counts as interest on that debt. Entire engineering organizations can be brought to a stand-still under the debt load.”
Early-stage startups generally need to take on technical debt while you have a small team so you can ship products faster and start a positive feedback loop. The quicker your feedback loops, the quicker you can reach product market fit. At some point, you’ll need to pay off the debt and fix the hacks that you initially used. Technical debt is a tool you need to manage, control, and track. If you don’t pay back your technical debt, it’ll crush you.
People debt and HR debt are similar:
It’s good to take on some People debt and HR debt when you have a small team because it’s better to use all your time and energy to focus on:
Most founders dislike HR because they associate it with bureaucracy that slows you down. Other founders struggle to upgrade their team and keep generating people debt because they don’t want to invest precious resources in upgrading the team.
But People and HR isn’t an all-or-nothing game. You need to act your stage. You shouldn’t build out the same HR function that a 500-person Series C company has when you’re 15 people, but you can’t keep your 15 person HR and People strategy when you have 50 people either. Prioritize the 80/20 or the 90/10: pay off people debt first and make sure you have A players and select senior autonomous leaders on your team. Then, prioritize paying back only the HR debt that will help unlock growth.
Early-stage startups should hire high-slope people who get their hands dirty, wear different hats, adapt, and grow fast with you and your startup. As you grow, you’ll promote top performers into more senior roles. Some of your top performers will be able to grow into their new roles and excel, but most will eventually top out. Most startups over-promote their best do-it-all team members into leadership roles they aren’t ready for.
Founders run into the Peter Principle: you promote your best people until they are in a role that they are bad at, leaving you with a company full of people who are incompetent in their roles, but would have been great if you had brought in stronger talent to manage them. You accrue people debt each day you have inexperienced people in charge of something they can’t handle. People debt makes it harder for you to raise money and execute. It will spread you thin and potentially burn you and your team out.
To avoid accumulating a mountain of people debt, you need to hire select senior autonomous leaders who you can delegate important work to who you know will do an amazing job. The first senior hires you make should deliver high-quality work, have good judgment, and work well with you.
Hiring senior people is hard and takes time. But the more you push it off and leave junior people in senior roles, the more people debt you accrue, and the more expensive it is to pay off.
Pay off your people debt before you pay off any HR debt. Getting the right people in your company early on is one of your most important jobs as a founder. As Vinod Khosla says:
Early-stage startups should avoid unnecessary processes and administrative burdens early on. If you don’t build a product that customers like, your company will fail, so you should focus on moving fast and trying to find product market fit.
As you scale, your team will grow and all of your processes will be ad hoc, generating HR debt: processes that aren’t scalable. Common examples of HR debt are:
The HR debt list is long, and most companies struggle to prioritize which processes they want to build first. Focus on paying off your People debt and building the right team around you first. Once your business is growing and you have a strong team, shift your focus to HR debt.
Drowning in People and HR debt happens much like the famous quote about going broke: two ways: gradually, then suddenly. Many founders experience the gradual, then sudden impact of People debt and HR debt this way:
It’s easy to ignore your People debt and HR debt. Until it’s not. Gene Kim’s quote about technical debt is also true for People and HR debt:
“Left unchecked, technical (People and HR) debt will ensure that the only work that gets done is unplanned work!”
Your most important people priority is building a strong team that complements each other. Hiring or promoting mediocre or bad people is extremely expensive. You need the right people in the right roles to be able to raise money and execute well. To start paying back your people debt:
Always focus on paying back your people debt before your HR debt. Without the right team around you, your HR processes won’t matter.
Most founders dislike HR because they see it as an off/on switch: keeping it off allows you to stay fast and agile, while turning it on brings processes and bureaucracy that slow you down.
Paying off HR debt is not about adding bureaucracy, it’s about allowing you to move faster. You need to think about your minimum viable process: the minimum amount of HR you need to help your company move quicker and more efficiently.
Bad processes destroy speed and agility, and processes are only good if they address real problems. Never build processes for process' sake.
We categorize HR debt into three stages to help Magma portfolio companies prioritize the minimum viable HR processes that will help them move faster:
You need to clearly communicate your mission and vision to attract top candidates, investors, and customers. The best leaders have focused priorities and communicate them clearly to their team. Start to:
Once your messaging is clear, reduce legal and compliance risks by creating your cornerstone HR processes.
Create a simple code of conduct or team member handbook
After you have clear messaging and basic HR guidelines, you can think about building repeatable HR processes. During this stage, consider hiring a Head of People who can focus entirely on building out more structure and help you:
It's good to take on People and HR debt early on to focus on building a product customers like, but you need to track, manage, and control these debts carefully.
We help Magma portfolio companies assess their teams and create hiring roadmaps to pay off people debt. We also help them develop minimal viable processes to address their most important HR debt. But by using the tips and guides in this article, you can better manage your team, avoid letting your People and HR debt snowball, and transform People and HR from a liability to an asset for your startup. Don’t wait until our company starts to break down to take action.
Use some of our frameworks like our A players framework, our high slope people framework, our senior autonomous leaders framework, or other frameworks like Danny Meyer’s 4 Types of Employees, Keith Rabois’ Barrels and Ammunition, and the 9-box template to track your team better and help you stay on top of your people debt.
Use tools and surveys like Alotten's score tool to help you diagnose your HR debt today and prioritize what to pay off.
Your team is the company you build, and it’s almost impossible to stumble into building a great team. Start building a better team today with intention.