Debt that prevents reinvestment in evolution creates a death spiral
Taking on debt is acceptable if it funds growth, but debt that consumes so much cash flow that you can't invest in staying competitive is fatal. The inability to adapt to market changes (new technologies, customer expectations, competitive threats) because capital is locked up in debt service creates a downward spiral where declining competitiveness leads to lower revenue, making the debt burden even more crushing.
When to use
When evaluating financing options, especially leveraged buyouts or high-interest debt. Before taking on debt, model whether you'll still have capital to reinvest after servicing it.
Don't do this
Pursuing growth-stage debt or buyouts that leave no room for R&D, marketing, or competitive investments. Assuming current revenue levels will continue indefinitely without reinvestment.
1 Founder Who Did This
Leveraged buyout in 2005 increased debt from $1.86B to $5B. Company spent $400M/year servicing debt. No capital remained for store improvements, technology, or competitive initiatives. Stores became understaffed and undermaintained.