Technical debt refers to the additional work and future costs that arise when a company opts for a quick, easy solution now instead of a more efficient and long-term approach. It’s like taking a shortcut that saves time initially but requires more effort to fix later. Technical debt can accumulate in various forms, such as outdated code, insufficient documentation, or temporary fixes that become permanent. Additionally, technical debt can also refer to outdated infrastructure, ranging from old servers to antiquated office equipment like fax machines and old copiers. Technical debt is an important aspect of Technical Due Diligence (TDD) that investors carefully scrutinise.
Why is this important?
Technical debt can lead to higher maintenance costs and more significant issues down the line. Addressing these problems early can prevent substantial future expenses, which is a key metric that investors seek to address.
Accumulated technical debt is a common cause of progressively slowing system performance, leading to inefficiencies and reduced productivity. Coupled to this, companies with high technical debt may struggle to scale operations effectively, limiting growth potential.
Excessive technical debt can limit a company’s ability to innovate and adapt to new technologies, directly affecting competitiveness.
What do investors look for, and what questions might you be asked?
Current state of codebase
Questions:
How well-documented is the existing code?
Are there any known issues or bugs in the codebase?
How frequently is the code reviewed and updated?
Evidence:
Code review reports and documentation.
Bug tracking and issue logs.
Version control history and update records.
Development Practices
Questions:
What development methodologies are used (Agile, Waterfall, etc.)?
How is code quality ensured during development?
Are there automated testing and continuous integration processes in place?
Evidence:
Documentation of development methodologies and processes.
Quality assurance and testing protocols.
Records of automated testing and continuous integration practices.
Technical Debt Management
Questions:
How is technical debt identified and tracked?
What strategies are in place to address and reduce technical debt?
Are there any significant areas of technical debt that need immediate attention?
Evidence:
Technical debt tracking tools and reports.
Plans and timelines for addressing technical debt.
Records of past efforts to reduce technical debt and their outcomes.
Infrastructure Assessment
Questions:
What hardware and infrastructure components are currently in use?
Are there outdated systems, such as old servers or office equipment?
What are the plans for updating or replacing these outdated components?
Evidence:
Inventory lists of current hardware and infrastructure.
Maintenance records and upgrade plans for servers, office equipment, and other infrastructure.
Reports on the performance impact of outdated systems.
Impact on Business Operations
Questions:
How does technical debt affect current business operations?
Are there any customer-facing issues caused by technical debt?
What is the impact of technical debt on the company’s ability to launch new features or products?
Evidence:
Reports on system performance and reliability.
Customer feedback and support logs.
Case studies of product development delays or issues due to technical debt.
Documentation that details the current state of the codebase, development practices, infrastructure, and technical debt management strategies is a key input here. Comprehensive documentation provides a clear picture of how technical debt is handled and its impact on the company.
Being able to show any records of code reviews and testing practices are crucial. These documents show how often the code is reviewed, the quality assurance measures in place, and how issues are identified and resolved.
Technical Debt Management Tools
Tools and reports used to track and manage technical debt provide insights into the company’s proactive efforts to address this issue. These tools highlight areas of concern and the steps taken to mitigate them. Conducting static code analysis can really help to show both the scope and scale of the technical debt in an application codebase; we have assisted companies setting this up where the skills to insert the tooling alongside their development efforts are missing or need some development.
Infrastructure Inventory and Maintenance Records
Detailed inventory lists of hardware and infrastructure components, along with maintenance and upgrade records, will help investors to understand the state of the company’s physical and technological assets.
Technical debt is an important component of modern software development that can often be overlooked in the push to bring a product to market, but it’s one that investors closely examine. Understanding and managing technical debt, including outdated infrastructure, is crucial for ensuring the company’s long-term success and scalability.
For company founders, being well-prepared with a clear understanding of what you consider to be technical debt, any code review reports, and being able to narrate your technical debt management strategies can help assure investors that you have this dimension of company costs under firm control. By addressing technical debt effectively, companies enhance their operational efficiency, support future growth, and maintain a competitive edge in the market.