How to Prevent Employee Turnover in Startup Businesses

Over three million Americans left their jobs each month between May and September of 2018, according to statistics from the Bureau of Labor. And while turnover affects nearly every business, startups are particularly vulnerable to the damage turnover wreaks. Some turnover is inevitable. When employees retire, move to be with their family, or decide to go back to school, little can – or should – be done to stop them. But, most turnover is preventable.

Turnover costs are estimated to be about one-fifth of an employee’s annual salary. These costs include: severance pay for the former employee; on-boarding expenses for the new hire; administrative costs for activities such as payroll changes, soliciting new hires, and then interviewing them; expenses incurred from paying overtime to employees who must pick up the slack for the missing employee; and lost productivity while a new person gains experience.

While these costs affect every business, startups feel these pains more strongly than larger, better established companies. Because startups have fewer employees, each employee matters more. At the same time, startups usually lack the resources of bigger companies to offer large benefit packages and high salaries. Larger companies also benefit from their brand recognition – when your Twitter feed has millions of followers and your human resource department has scores of dedicated employees, finding new talent isn’t that difficult.

But startups have some cards to play. Businesses attract different kinds of people at the time they are founded than at the times after they are well established. Simply put, there is a pool of talented applicants who are more attracted to startups than they are to older, larger businesses. Strategic, creative, and risk-tolerant professionals not only don’t mind the challenge of working at a startup, but they are also attracted to what the startup has to offer: fast upward mobility, greater flexibility, and the possibility of large returns on their investments. As the startup develops, however, it will (hopefully) have more positions, and will also (probably) have more well-defined policies and procedures (i.e., red tape). Employees who value stability will find companies in this phase more attractive.

Future Workplace and Kronos study found that 87% of employers believe improving retention to be a critical priority in their organizations. The following strategies, in the long run, can help a startup deal with employee turnover better and retain top talent for longer.

Hire the right people

The first employees a startup hires must be more than mere domain experts; they will make up the face and future of the business. Finding people capable of advancing – with the right education and demeanor and experience – will position your business for growth.

But in order for the business to grow, people have to work hard. So, when searching for the right people, don’t sugar coat things. There will be long hours and stressful days.

But these negatives must be offset by the by the startup’s strengths – it’s capacity for growth and its flexibility. Large companies can offer higher salaries and more stability, but it’s at the expense of stagnation and red tape. In a large company, an employee’s career may flounder for decades while the old guard considers retirement. And the company’s stability is created in part by an inflexible need for their employees to follow a rigid schedule. No CEO could keep up with all of Wal-Mart’s employees – and so all of Wal-Mart’s employees follow their schedule or get fired.

In a startup, not only can you promise rapid promotion, but any promotion you can offer is directly tied to the quality of work your employees give – as they succeed, your company succeeds. And you can meet the needs of individual employees. If your one-man stock crew prefers to work nights and your part-time accountant needs to work from home, your smaller company can – and should – accommodate those needs.

Train properly

Trained employees are valuable employees. New employees will need to be trained effectively and thoroughly for their new roles. Training provides startups with improved productivity as well as higher job satisfaction. It’s in the training process that a new employee begins to feel like part of a team.

Especially when dealing with a younger workforce, startups should focus on a training program that promotes employee feedback. Encourage employees to seek advice and ask questions from anyone in the company. Shore up any holes in your training through media such as online programs, industry workshops, and benchmarking at successful startups.

To help evaluate what works over time, you can create a standard operating procedure (SOP) document. This document will determine the goals of the training program for specific positions. They should be as clear and concise as possible. Make sure to learn from the mistakes other startups have made. Network with startups in your area or industry through local chambers of commerce, social media, or professional industry associations.

Employee Engagement

Performance in any company, whether a startup or not, is driven by engaged employees – that is, employees who know their roles in an organization, who understand their purpose, and who view the company holistically. Employee engagement promotes the capturing of employees’ creative potential and better decision making.

According to Gallup, employee engagement levels are directly correlated with performance measures. These performances measures include:

  • Productivity
  • Safety incidents
  • Quality (defects)
  • Absenteeism
  • Profitability
  • Shrink (theft and damage)
  • Customer ratings
  • Employee turnover

The relatively small scales in which startups operate may make them vulnerable to economic shocks such as recessions. However, according to a 2016 report by Gallup, startups with more engaged employees can more easily weather tough economic times. This report showed that growth in earnings-per-share for companies with the most engaged employees exceeded that of their competitors by more than four times. Companies with higher employee-engagement levels realized higher productivity, fewer accidents, better customer engagement, better retention, better employee health outcomes, and 21% higher profitability.

Traditional employee engagement techniques – walking the floor and shaking hands and chatting – are simply not possible for many modern companies. Today’s workforce is less centralized in both time and place than that of the last millennium.  Fifty years ago, employees gathered at the same place and the same time during the same days of the week. Today, this is less and less true. Larger companies – the Wal-Marts and Amazon’s – have 24-hour shifts and facilities around the world. For these larger companies, this decentralization creates a slew of problems – every time they drop a box in a new suburb, they have to find hundreds of people to fill it around the clock.

And startups don’t escape these problems. You can offer to let that amazing applicant who lives an hour away skip their drive and telecommute. And you might be able to let the guy who likes to work nights set his own hours. But – and this is crucial to any business – you still have to find a way to motivate these employees. To engage with them so that they are engaged with the company.

And that’s where employee engagement software like EPIC, TinyPulse, or Culture Amp can help. When employee engagement software is used to bridge the gap between traditional and modern methods of engagement, it’s been shown to:

  • Promote peer-to-peer recognition
  • Decrease absenteeism and staff turnover
  • Motivate employees
  • Improve the work environment

Employee engagement is important for growth and innovation. It makes employees feel heard. This drives them to innovate and improve every day they work.

Work on management skills

Improving your team’s management skills will help retain top talent, says LSA Global. Management training fosters a healthier working relationship with employees based on mutual respect through constant feedback and fair employee treatment. The first step is to acknowledge any faults or weaknesses you might have as a manager; just because you have the industry know-how to start a business doesn’t mean you’re the perfect leader. Faults such as providing inadequate feedback, being too friendly, or lacking time for your team can be worked on for better employee retention.

A manager needs to be more than a domain expert. And yet, domain experts are what most startups hire. The reason is obvious – they need less training to do their job. But, a domain expert – no matter how good they are at their job – may not have the right training or mentality for management. As your company grows, it’s important first to put people with the right mentality into management roles, and then to continue training them so that they can be the best managers possible.

There are plenty of resources to help managers improve their skill sets. Online platforms are the most easily accessible. They can show you how you can improve your communication and leadership skills. Communication implies both listening and conveying a message successfully. Encourage employee feedback as to the performance of their managers. A startup should foster a company culture where effective communication is encouraged and employed.

Ensure the employee training program includes intensive management training on a regular basis. This maintains company culture throughout the startup’s existence. Employee turnover takes a nose dive when you equip your management team with the necessary tools to motivate and lead.

Offer praise (and benefits)

A startup’s relatively small size may place it at a disadvantage when it comes to employee compensation. Therefore, before hiring, make sure you can afford to remunerate your employees adequately. Review your financial status and budget accordingly.

If hiring will be too costly, consider alternatives such as outsourcing to project- or contract-based freelancers. Review the job role you want to fill and ensure that hiring someone is essential to overall productivity.

Offering non-monetary benefits can also encourage employee retention. An example is offering employees flexible work structures. Give them time for personal health or child wellness appointments and offsite work days. Startups have more flexible timelines than older, larger companies. Use your flexibility to retain employees for your business. Let them choose which work days work best for them. This show of empathy greatly boosts employee morale and retention.

Praise your employees when they perform well at their jobs. Let them know you appreciate their efforts with feedback such as a “great work today, keep it up” email. The startup’s success is tied to the efforts your employees exert. Let them know this.

Although offering paid time off, bonuses, and health plans may strain financial resources, a startup should offer what they can to stay competitive in the labor market. Part-time jobs can take the place of a full-time job, a four-day workweek can enable employees to pursue further studies. If an employee is important to your startup, try to find some middle ground.

Be transparent with employees

A startup without good communication is doomed to failure. Efficient communication between different teams promotes credibility, better collaboration, and better customer engagement. Keeping employees in the loop about the company’s future growth trajectories builds more productive relationships between management and employees. Tell them when things are a bit rocky, and give them a sketch of your plans and strategies and hopes, before they get nervous and look elsewhere for better employment opportunities.  

Encourage employees to voice their concerns as well as ideas and solutions. The opinions and suggestions of employees can be passed on to upper management through staff committees. An open door policy results in more meaningful contributions and conversations between employees and management, thereby promoting worker retention.

Fire when you have to

You need all employees working as a team to execute the company vision. However, at times the team may perform below par. After a diligent investigation, the startup may need to fire an employee in order to remedy the situation. Firing someone is not easy. But, do not hesitate when all other haven’t succeeded. Sufficient grounds to fire someone include:

  • behaving unethically or dishonestly,
  • undermining company culture,
  • working on other tasks which are not job-related (ie, time theft), and
  • ignoring instructions and feedback.

Thank the employee you are firing for their contributions. Inform them whether the termination is immediate or not. Before rumors have the chance to spread, it may be wise to give the other employees the facts around the termination – the reasons and timeline – without going into personal details. Let your remaining team understand that there was a process in place, and that their jobs are secure.

Although people might quit their jobs due to matters beyond the employer’s control, most of the causes of employee turnover can be mitigated. The tips we’ve laid out should be part and parcel of a startup’s worker retention plan. Open communication and employee engagement are essential parts of this arsenal. They are your best defense against employee attrition.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.