We're in a debt bubble right now, led by the Federal Reserve keeping interest rates so low.
When rates are low, inflation goes up, which means the actual value of your debt will go down over time.
That's why so many people are borrowing right now and stuffing the money into non-cash assets with higher returns.
If the interest on your debt minus the interest of inflation is close enough to zero, you can invest in almost any money-making endeavor and be better off than keeping the money in your bank account.
And so stocks go brrrr, crypto goes brrrr, and we get a massive bubble.
But I don't want to talk only about monetary debt.
I want to talk about other types of debt too.
What about mental health debt? I believe we're in a crisis right now.
I keep telling myself: "I'll take a week off in a few months… or a few years. I just need to launch this one side project.... or maybe it's this next side project. Eventually, I'll hit it big — I'll find something the market wants and finally be free from 9-5 corporate servitude!"
And so instead of letting my mind be bored for a minute and have my body return to equilibrium, I keep pushing forward — to that next project… and then the next.
That's mental health debt right there.
But there's other types of debt.
And this is where my favorite type of company comes in: startups.
Startups are beautiful because they're like little bubbles of buzzing energy, working apart from the norm, trying to find a shortcut to compete with the big companies.
They have several ways of taking on debt in order to make their journey smoother: mental health debt, VC funding debt (otherwise known as autonomy debt), actual debt through financing, and over-promising debt.
Over-promising debt is the thing I really want to focus on because you see it everywhere if you work in startups.
“Today” does not exist in a startup: it's all about where we'll be tomorrow, the day after tomorrow, and the day after that.
And you never arrive. Have you noticed? It's an infinite treadmill of building features and bringing on customers because it's all about the speed at which you get things done — not the result. (In fact, that's how startups are valued: based on their growth rate and the likelihood they'll be able to maintain or accelerate that growth rate into the future).
You can have a very good month at a startup — big new client, record number of sales, 5 great new hires — and there'll be no celebration, no pausing to slow down, no idea you've even accomplished anything at all.
Because so much has changed already.
And tomorrow looks so much BIGGER, so much more EXCITING, and so much CLOSER than you ever imagined it could be.
Today just can't compete.
We saw this play out with the disaster that was Theranos — they over-promised and then over-promised ON TOP OF those over-promises, until one day, the whole house of cards collapsed.
So many companies do this, especially startups. It's normal.
And the executive team backs it up because it's the only way to get BOTH your customers excited and over-paying and your employees excited and over-working.
The employees don't even notice they're being drained because the excitement of tomorrow looks so glamorous.
And the customers don't notice because they assume any problems they run into are their fault and/or they're unable to admit the shame that they were scammed. They'd rather buy into the myth that the startup does what it promises (contrary to their experience) than admit that they were wrong.
So that's why over-promising works from a business standpoint.
I once worked at a startup that overworked all its employees, had an app that hardly worked (except when the CEO was giving you the initial demo), had no users that actually logged into the app, but had an excellent Sales team! We were able to bring in more customers than we lost every month... so investors valued us based on our "great growth rate".
Who can stop a business that grows by lying to prospective customers about what they’re buying into — and retains those customers by promising big changes are just around the corner?
What about regulators? What if a company isn’t just negligent, but puts a customer in danger? What if someone gets hurt?
Well, we see this with Tesla right now. They sell a product called FSD (Full Self-Driving) and people buy into the promise of it big time. They'll admit on forums that it's not 100% ready for the road and has caused a few crashes — but in the same breath say that Tesla will be a two trillion dollars by the end of next year, more than every other major car company combined.
And then I realized something about why this works. And why it affects tech startups more than any other type of company.
I think when the internet came along, it split the world in half — one half of the world stayed in regular time and the other half accelerated at the speed of instant communication.
And that opened up a gap.
A gap that can be exploited to take out debt with over-promises, create massive return for investors, and be closed up again by overworking employees to achieve the vision — before regulators catch on.
And I believe everyone (especially startups) is doing this.
It's made possible because tech startups live in the world of instant communication and live-updating reality.
And regulators, law-makers, politicians, and even journalists mostly live in the world of ordinary time.
What happens is this:
- You claim reality is one way.
- It is obviously not the case, but perhaps a few years out will be.
- As long as you outpace ordinary time, you win.
- If the regulators and investigators in ordinary time ever catch up to you — by that point you've filled in the holes in your technology and actually made the reality you were promising.
- Or, you're close enough to filling in the holes that it doesn't matter: they can see you're close enough that they only give you a slap on the wrist for lying a bit.
- They'll go back to their jobs and by the time they realize you've pulled the wool over their eyes, they'll be on to the next big thing.
Let's talk through a simple example:
- A company promises a truly unbelievable technical breakthrough
- Investors hop on
- The best talent in the world is hired based on the excitement around the idea
- A beta of the technology is released that doesn't come close to the original promise, but shows things moving in the right direction
- The markets, which doesn't fully understand how bad the technology really is, rewards the company for making "huge steps" towards the original goal
- The team gets excited and recruits more people
- Customers buy the early product based on the overall atmosphere of excitement
Do you see how even at this early stage, so much over-promising debt has already been taken on?
A whole world of dreams is built on top of this one early beta product that hardly works, but because things are heading in "the right direction", the company is rewarded massively.
The next steps are even crazier:
8. The company causes some issues for customers
9. Most customers blame themselves and the company doesn't care about them
10. Some customers blame the company and the company takes care of this with "excellent customer support": full refunds, settlements, recalls, whatever it takes.
Everything is done in the service of keeping the idea of the promise alive. It's not about reality. It's not about really helping people. It’s not about actually providing value. It's about creating the illusion of MASSIVE value at some point in the future.
As long as the illusion of the promise is preserved, everything is fine.
And then this happens:
11. Company causes some real issues with real people's lives OR the company fucks up in a public way that can't be ignored
12. Regulators, lawmakers, and the media jump into the mix and start researching the company and its practices
But the company is a moving target — moving at the speed of information.
As long as they can outpace the media and the regulators by telling a different story and developing just enough technology to make it look like a plausible explanation, they'll be fine.
Tesla has mastered this: they ship same-day software updates to their cars over the internet, fixing major problems like the self-driving system, the braking system, and the heating system before regulators even hear about them.
The news cycle moves on and people don’t care anymore.
As long as reality never catches up with the lie, they're safe. One step ahead.
It's the same debt that funds Kickstarter projects and Cryptocurrencies.
Are they good right now? Even fierce adherents will tell you: No.
But the promise of what they'll become once they're ready looks amazing.
And what are we buying in the meantime?
A future that doesn't exist.
But sometimes, I guess it works out. Sometimes you need the risk of speculation and a willingness to leverage the present for the future in order to get truly fabulous returns and results.
Because really, what does this kind of debt allow us to do?
It allows founders and startups to go out on a limb and really shoot for the moon.
Not only an electric vehicle that's beautifully designed, but one that has full self-driving capabilities... really soon!
It's the same promise Elon Musk makes over and over again: We have groundbreaking tech that's perpetually just a short time away.
But when people are able to use this debt well and actually execute... well, you get something that can truly change the world.