I spent years as a manager at a startup company. In my time, I learned a thing or two about the importance of preventing employee turnover. Aside from the time-consuming tasks of screening potential employees, interviewing, and re-hiring, losing and replacing employees is expensive.
On average, it costs nearly three times an employee’s salary to replace them. This cost includes recruitment, lost productivity, and lost opportunity.
A high turnover of assets and inventory signal success for the company, but high employee turnover can be detrimental to the foundation of the business. It is important to develop a retention plan right off the bat to keep employee turnover in your small business from becoming a very costly and aggravating expense. Here is how to do it.
1. Hire the right people
This may seem obvious, but it’s worth mentioning: the best way to ensure that employees don’t leave your new company is to hire the right people to begin with.
Before you spend the money and time trying to recruit the best person for the job, first make sure that it is the appropriate time to hire—that you can afford to pay them, and that the role isn’t something that could be filled without a full-time person.
In my experience, the employees of a startup company represent the future and face of the business. As a manager, I found that most people who applied for a job with a new business loved the idea of working hard to help build something from the ground up. Some liked the challenge that a startup can offer and wanted to be more involved in a business that offered the opportunity to make a direct impact.
I can remember my first day at the startup I worked for pretty vividly. I was hired to run the retail store and quickly found that my duties reached far beyond the doors of the flagship. I was asked to pack and ship product through our online store, come up with marketing campaigns, oversee and create budgets, and assist the CEO. It wasn’t what I was hired to do, but it was liberating. In my opinion, anyone that chooses to work for a startup company should be willing to do anything it takes to succeed.
If you are interviewing a person who has worked for a startup before, you probably don’t need to spell out the idea that “other duties as assigned” will be a big part of their role, at least at first.
However, it’s likely that most of the people you hire will not have startup experience. Make sure that the candidate understands there will be things in their position they must complete without the help of anyone else, simply because there is no one else to help—they’ll need to be a self-starter and great problem solver. If you start with making sure the potential employee knows the demands of working for a startup company right from the start, you are more inclined to hire the right person. So if the work is hard and the hours are long, don’t sugar coat it.
2. Fire when you have to
On the flip side of that, don’t be afraid to fire the people who don’t fit with company culture. Letting someone go is one of the hardest things you will do as an employer. It can be an emotional experience for both sides, but ultimately it is important to building a great team and executing the startup vision you put all your energy into.
Sometimes, even if you follow all the hiring advice in the world and trust your gut, you will still have an employee who just doesn’t fit the culture. No matter how effective they are at their actual job, an employee who is bad for your company morale is bad for your company.
If you have a team of say, four people, and one of them is failing to get their work done or is not carrying their portion of the contribution, it can have a big impact on your business. As a founder, know that it’s O.K. to fire the individuals who don’t fit.
Good reasons for letting someone go from a startup company are: they are dishonest or unethical; they create an environment that you and other team members do not enjoy working in; they ignore repeated feedback about issues you see; or you spend more time worrying about managing your new employee than on the rest of your work.
Chances are, if you are still a relatively new startup, this will be the first time you have to let someone go. Provide the employee with concrete observed examples of behavior that are unacceptable. Give them an opportunity to make the correction themselves. If this does not happen, you will need to let the employee go for the greater good of the company.
Make sure to talk to a lawyer to get advice and tips as to the best way to fire the individual, as well as for information on any documentation you will need to terminate them. Startups, busy as they are, should take time to lay out basic policies on disciplinary process and what will and will not be tolerated in terms of behavior and performance.
When you let an employee go, be polite but firm about your reasons for letting them go. Thank them for the contributions they have made to the company up to that point. Make it clear that their termination is effective immediately, and don’t let them stick around to finish up loose ends. This can have a negative impact on morale.
After you have fired the employee, talk with your remaining team about it. Let them know the reasons for the firing—but don’t go into detail. You have legal obligations around privacy. Don’t let the team dwell on the details. Reassure them that the decision to terminate wasn’t taken lightly and that the process that leads to that point was fair. Getting rid of problem employees is worth the investment to replace them in the long run.
3. Train properly
Having an effective training program in place for onboarding new employees is ideal, but because you’re building a company and your policies from the ground up, it might not be possible to have a full training program set up for your first few hires. However, you’ll still need to find a way to train new employees thoroughly and effectively for the roles they are going to take on.
Since you are a still a baby company in the grand world of business, it’s OK to make mistakes. If you do not have a proper training or mentorship program in place, do not worry. Instead, focus on creating a company culture where it is safe for employees to ask questions and seek advice from not only you, but other co-workers. Find an effective online training program to help your new employee gain the skills they may not have.
Creating a standard operating procedure (SOP) document that you can edit as you train can help you gauge over time what works and what does not. In this document, determine what your training goals are for the position, and make them clear and concise. Training employees reinforces their value in the company, while helping them set and achieve goals. By investing in employee training, you can look forward to improved job performance as well as a higher profitability for your company.
As a founder, reach out to your professional connections for advice on what has worked in the past for them as far as training. Learn from other businesses' mistakes to avoid making the same ones in your company.
4. Work on your management skills
One of the secrets to keeping your star performers is enhancing your management skills. Acknowledging your weaknesses as a manager is the first step to improving. The truth is, employees don’t leave their company—they leave their managers. So, focus on how you can be the best manager and tweak your skills when necessary.
There are plenty of resources available for new managers to improve (or create) their management skills. Check out books like “Help Them Grow or Watch Them Go,” “Becoming the Boss: New Rules for the Next Generations of Leaders,” and “Work Happy: What Great Bosses Know.” Even in a busy world, it’s important to focus on gaining and retaining good management skills for the sake of your startup.
If you simply don’t have time to read a book, consider listening to podcasts like The #AskGaryVee Show where Gary Vaynerchuk talks about a variety of topics including business management, leadership, and self-starting tips. Jesse Lahey also has a great podcast called “Engaging Leader“ in which he dedicates his time to leadership and communication principles, both of which are very important when working on management skills.
In my experience as a manager, I found that the most important skill I needed to develop was simply listening. When my employees had a concern regarding their job or the company, I had to listen well and then give feedback accordingly. Fostering a culture of trust with your employees is important to the long-term success of your business.
5. Offer praise (and benefits)
No one is going to work at your company for free, but as a startup company, it may be difficult to provide competitive financial benefits to employees.
However, before you post a job opening, run your financials. Make sure you can compensate your employees properly. If you cannot offer something close to the market rate salary for an employee, you should delay hiring until you can. Alternately, you can consider hiring contract or project-based freelancers to keep your overhead employee cost low.
If the roles you are hiring for are going to be meaningful and help you move toward greater profitability, then go for it! But if the cost of new employees is going to potentially cause layoffs in the future, avoid the churn by stopping it before it even has a chance to start.
Since benefits and salaries account for such a large portion of employers’ costs, it’s O.K. to offer non-monetary benefits. Things like flexible work structures can make a big difference for your employee’s work-life balance; flexibility can be anything from offering offsite work days, to allowing them to make up hours they may have lost to deal with child care or health appointments.
When you complete a project or meet a major company goal, send a “good job!” email to make employees feel appreciated. Keeping your employees happy not only benefits them, but it benefits you and your company. Let your employees know how their work is directly contributing to the company’s success.
Being able to offer competitive salaries, bonuses, health plans, and paid time off is important to employees, and should be important to the organization. However, these types of benefits can be extremely taxing on a startup’s financials. Offer whatever benefits you can as a startup company to stay competitive in the job market.
If you can’t offer certain benefits like paid vacation, try offering a job sharing position, where two part-time staff share a full-time position. This will give each employee more time to pursue their vacation dreams on their days off. If you can’t provide benefits like tuition reimbursement, consider a four-day workweek to give your team time to pursue a degree on their own. If you can, provide stock options for your employees. These types of opportunities can help increase your staff’s sense of ownership, making them more invested in their position and the company.
6. Be transparent with employees
Communication is an important aspect of any relationship, but especially in a startup company. No matter how big or small your company is, having effective communication throughout is important to building and maintaining credibility. You don’t have to be best friends with your employees, but giving them time to voice their concerns or opinions is important.
Chances are, as a startup company you have a small number of employees. Including your employees in decision-making processes helps you stay transparent about the company while allowing your staff to come up with solutions and ideas. Keep them updated on your financials, and allow them to offer advice. Keeping employees involved helps them to see your company in their future. And if things aren’t going that well, your employees can probably sense that. If you don’t address the elephant in the room, you may find that employees get nervous and start to look elsewhere.
The startup I worked for met once a week as a full team to discuss the path that the decisions we made were taking. If they were going in a positive direction, we discussed what worked and how to build on those wins. If we weren’t achieving the results we hoped, our CEO allowed employee criticism.
By asking for and creating a safe environment for employees to share their opinions or criticism, you can make better decisions for your company. Have an open door policy in your startup business. Your employees will appreciate the opportunity to have direct and meaningful conversations and contributions.
There are so many aspects of business that demand your attention as a founder, but your employees are a key piece of your company’s ability to succeed. When it comes time to expand your team, it’s important to create an employee retention plan to limit turnover and choke the churn before it starts.
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