To stay competitive in our digital world, small and medium-sized businesses need to be equipped with and proficient in the latest technologies. Yet, unlike large companies, most SMBs lack the resources to staff an IT department. Along with lack of oversight, outdated software or hardware, inadequate cybersecurity, or one bad tech investment could seal the demise of a small enterprise.

In his new book, “Tech Debt 2.0®: How to Future Proof Your Small Business and Improve Your Tech Bottom Line”, senior global business and technology executive Michael C. Fillios offers expert insights and practical strategies to help small business leaders managing evolving technology to their advantage and avoid racking up debt that could put their company in peril.     

Fillios recent sat down with Young Upstarts to share his insights about the role of technology-related debt to the future viability of small and medium-sized businesses.

Here is some of our conversation:

Most of us are familiar with the term technical debt. What exactly do you mean by “Tech Debt 2.0®”?

In the software industry, the term “technical debt,” also known as design debt or code debt, is widely used as a catchall to cover everything from bugs to legacy code to missing documentation. That definition is nearly 30 years old, and hadn’t evolved with the pace of technology changes, from mainframe computers to the Internet to the cloud, and much more.

In “Tech Debt 2.0®”, we offer an expanded definition that is more inclusive and contemporary with current technology, and shows the impact technical debt can have on an organization if it is not actively managed. My team and I felt it was important to revisit this definition, and in particular, with an emphasis on small to medium-sized businesses. For SMBs, tech debt is a potential existential threat that could impact their future viability and very survival.

Tech Debt 2.0 is any liability incurred in the development, acquisition, use, and retirement of technology — i.e. hardware and software systems, or the skills set needed to support them. And it’s something every business leader needs to be aware of.

How do small and medium-sized companies routinely accumulate tech debt, and often without realizing it? What are some common warning signs?

There are three types of tech debt: unplanned, creeping, and intentional. The first two can accrue undetected. Unplanned tech debt occurs because of an unplanned event, often caused by bad development practices, poor technique or poor communication of requirements. Creeping tech debt is caused by obsolescence of systems or equipment. Systems age because of improvements in upgrades or new products. Equipment ages over time or is obsoleted by new models with improved speed or functionality.

Right now, chances are tech debt is accruing in your business—and it is not showing up in your monthly variance reports or other accounting controls that your organization depends on for recognizing financial its well-being or warning signs of trouble. It is also likely that someone in your organization, without explicit or implicit authority or oversight, has taken action or made decisions that have added to the technical debt of your enterprise.

As it relates to symptoms, firstly, I would say a likely sign is that your underlying business could be underperforming, whether financially, servicing customers, or not being able to grow or expand. More specifically, tech debt can be detected internally before it escalates if leadership is paying attention to some of the early warning signs, such as:

• The majority of IT investments are focused on keeping the lights on vs. helping to achieve business objectives.
• Project are consistently delivered late and over budget.
• Data is hard to access, its quality is poor, and it doesn’t drive decision-making.
• Inability to attract and retain IT talent.

Rather than leave it up to leadership to connect these dots, my team and I wanted to develop a more intelligent way to uncover these underlying root causes. Therefore, we created the Tech Debt 2.0 Diagnostic to help organizations understand and measure their TD score.

We’re all familiar with high-profile cyberattacks on major business and government organizations. Why should small business leaders take cyber risks seriously? What are some simple ways to reduce them?

The reason cyber advisory is critical for every SMB is 60% of all targeted attacks are towards small to medium-sized organizations. And of those data breaches that are successful, 90% impact small to medium-sized companies. What explains the higher success rate? Research shows 82% of small to medium-sized businesses are not adequately protected from cyberattacks. And the data shows that most small business owners don’t have a plan for response if they’re hit. That’s a problem, because cyberattacks can range from the mildly annoying to the deeply destructive.

Here are a few ways SMBs can reduce cyber vulnerabilities:

– Outsource security monitoring and management to a dedicated resource or cloud provider with necessary resources.

– Establish, communicate, and enforce security policies governing passwords, policies, procedures, especially around physical access, network access, email policies, data security.

– Keep all systems and equipment patched and up to date on security upgrades, and discard equipment or systems that are no longer supported.

You mentioned intentional tech debt. When can tech debt be beneficial to a growing business?

Tech debt can be beneficial when it is deliberatively incurred with a specific goal in mind, such as speed to market for competitive advantage or release of prototypes to clarify customer requirements. It is essential that intentional tech debt incorporate a plan for remediation at some time in the future and that the organization has rationalized the consequences of performing that remediation.

In addition, tech debt can play a critical role if a business is in the process of being bought or sold. This can be a double-edged sword depending on whether you are buying or selling a company.  For an investor or PE firm looking to purchase a company, it is very typical to review the amount of financial debt that you will be purchasing as part of the transaction. Tech debt is similar to financial debt, but you aren’t necessarily paying back someone other than yourself.

Conversely, if you are selling a company, and have managed your tech debt such that your liability or debt rating is low, this could create an advantage for you in negotiating a potential premium, as you have built tech equity rather than accrued debt.

How can small businesses stay up to speed on evolving technology and compete with large companies with IT staffs and state-of-the-art resources?

Staying on top of tech debt is especially difficult for SMBs that might not have the technology departments, CIOs, and CTOs of larger organizations. However, independent, experienced firms and individuals with no interest in promoting any one solution are poised to provide their expertise to help SMBs differentiate real technology advances from technology-of-the day solutions. They provide not only fractional services as traditional consultants but also often as virtual CIOs or CTOs, available on-demand to fill these roles for SMBs and help manage technology investment and technology strategies for the future.

Another path open to SMBs dealing with tech debt is collaboration. There can be substantial value in a collective approach to addressing shared issues. Collaboration opportunities come in a variety of forms and have different advantages. Vendor user groups, Chambers of Commerce, Roundtable Programs, and others, foster collaboration among similar organizations and peers sharing a particular technology, brand, or product, and in some cases, provide technology agnostic advice from peers.

For leaders of small and medium-sized businesses, it is crucial to both invest in consultants and seek out collaborators in successfully managing and leveraging tech debt 2.0.

[This article was originally published on youngupstarts.com.]