And when does the debt become too high to be repaid?
But first, what is technical debt? It’s the debt owed to you by vendors that continually collect moderate to high maintenance fees or annual subscription fees but yet do nothing more than the odd bug fix. These vendors owe you a solution that is continually enhanced year over year. Especially if you are a SaaS client paying big money to keep the solution alive.
And in many of the bigger vendors, it’s growing massively, as chronicled by the deal architect in his post on the other technical debt.
And, as he notes, it’s really easy to spot. When a customer:
- makes significant customizations,
- has a stable of “ring-fence” applications, and, most importantly
- continues to use (large) spreadsheets that were supposed to be replaced by analytical tools
and the customer is still paying a significant SaaS license fee or maintenance fee years after product/platform acquisition, the vendor owes them a huge technical debt.
And as the deal architect pointed out, this debt will continue to grow if they dance to the investors’ tune and only spend 10% to 12% of revenues on R&D annually. Start-ups pay multiples of that, and that’s why they build great new technology. If a company isn’t spending about 1/3 of its revenues on R&D, it’s likely it will never deliver the value you need and its technical debt will only grow.
But don’t wait until its debt is too great to ever be repaid, that does you know good. Once it’s clear a vendor is not going to continually deliver the ROI you need, move on. Once a cost is sunk, throwing more coin on the pile only sinks it deeper.