How to play "Employee Retention" on hard mode
So you’ve closed a funding round. Congratulations! Brew yourself a coffee and buckle up, because it’s about to get interesting. You say your company’s userbase is growing by 15% month-on-month? That’s awesome, but…
It suddenly dawns on you that your small group of misfits is no longer able to sustain the growing demands of your app’s users. You wake up at 3AM in a cold sweat and come to a terrifying realization that some founding team members were perfect when the company had 5 employees, but are having a tough time fitting in your 50-person company. You finish Blitzscaling by Reid Hoffman in a frenzy, and immediately start flicking through The Hard Thing About Hard Things by Ben Horowitz. The below quote hits you like a truck moving at 140km/hr:
“Hard things are hard because there are no easy answers or recipes. They are hard because your emotions are at odds with your logic. They are hard because you don’t know the answer and you cannot ask for help without showing weakness.”
Entering rapid growth
OK, so your KPIs are on point and your startup seemingly evolved overnight. Welcome to the growth stage of your company! You get advice to draft an org chart, and decide to hire “department heads”. You redefine responsibilities of some existing coworkers, and begin to notice that you have to wrangle their threatened sovereignty with the wants of their recent more senior managers.
Your marketing team needs cleaner data to make better decisions, so you look for data scientists. Your product team wants to A/B test features more frequently, so you hire more developers. With the sudden influx of new users, the ops team is talking about NPS and customer satisfaction, so you study the role of customer success management. You redraft the org chart. Then you scrap it and redraft it again. A couple of coffee sips later and you suddenly have 35+ employees in your office.
You begin to notice friction. You realize that new joiners will fail regardless of how good they are if you haven’t clearly defined the job role prior to hiring them. You realize you’ve just added a volatile dynamic to an already volatile venture. You begin to tinker with job descriptions. Sure, “we all know what a product manager should do”, but this can get very difficult very fast especially if you’re hiring roles that you’ve never interacted with before.
Competition for competent talent
You’ve got a sick team. They believe in the company vision. You have a couple of bumpy months, but overall, the machine is working. Startups all around you begin closing big rounds. You read MAGNITT’s most recent report: MENA VC funding reached $2.6B in 2021. That’s 138% more than the funding received by Arab startups in 2020.
Suddenly, you realize that a region which has traditionally been overlooked by global VCs starts getting double digit tickets from the likes of Sequoia and Tiger global. The supply and demand of talent flips. Countries start courting founders to setup into their jurisdiction, and regulations begin to loosen in your favor. You, meanwhile, start courting product managers, performance marketers, and data scientists, but struggle to find the right talent.
You love your team. They’re talented and dedicated. You decide to increase salaries across the board. You give more ESOPs. People are happy, until…
HEEEEEEEEEERE’S THE RECRUITER!
Bigger rounds bring inflated startup valuations, which utilize the funds on bigger paygrades and employee perks even Google couldn’t dream of. Employees are now in the driver’s seat. You put your coffee down for a second, rub your eyes, and realize that hundreds of GCC startups are signing with dozens of recruiters to hire from a talent pool of 30 product heads.
You try to balance gender and ethnic diversity against an ever dwindling talent pool, and you entertain the idea of working with recruiters. The same recruiters that reach out to help you are giving their business cards to your employees. You tell yourself there’s nothing wrong with that, it’s just business. You take another coffee gulp. STEP conference comes and goes and everyone is talking about NFTs, the regulatory landscape, and bigger rounds, but nobody is talking about the elephant in the room…
How do I part ways with poor fits?
Let me preface with this: I often wonder if I’ve made the right decisions at Hala, especially when it comes to making tough calls that could having lasting effects on the lives of others. The truth is at certain points I hired people I shouldn’t have, and unfortunately also fired people I shouldn’t have.
An article published by Inc.com in 2013 stated that “Startups fire nearly 25 percent of their employees within the first year of the company’s existence”. I’m not sure how COVID-19 affected these numbers, or how it applies to MENA startups, but I’d hazard a guess that it’s probably higher.
“Hire fast, fire faster” is a mantra that has been trickling slowly from mentors, advisors, and investors to first-time founders (including myself) and I don’t know how I feel about it. Firing a poor fit quickly may be optimal to the company’s success, but not for the candidate.
What’s even more frustrating is that sometimes a poor fit does not constitute someone who is intrinsically poor at their job. So many factors come into place: they didn’t gel well with the existing team, or their role was not defined clearly, or the company pivoted into a new model, or any combination of the above along with the fact that this is not really what the candidate signed up for.
Ok, so how do I hire and retain good talent?
My experience may not really apply to you, but here goes. At this stage of Hala, I’m only interested in hiring talent that believes in what they’re doing. They don’t have to join us with the intention of revolutionizing insurance (that’s a tough sell), but I want nothing more than to work with a product owner who’s obsessed with how customers think, or a content marketer that consistently throws hilarious campaign ideas until something sticks. I firmly believe that single function employees do not have a place in early stage startups.
Back to you. Here’s an unpopular opinion: I don’t think that you should focus on employee retention. Nope, I’m not kidding, you’ve read that right. Business books and TEDx gurus rave about the secret hacks of retaining talent, but I feel that retention for the wrong reasons is selfish and misguided. Sure, low employee turnover lowers separation costs and recruitment expenses, but that’s only a part of the story.
I’m very comfortable paying for Hala employee courses, certifications, and will gladly increase their salaries or double their ESOP, but not for the purpose of retaining them in Hala. I do it because every single one of them earned it, and deserve to have ownership in the firm.
I wonder… What if we change how we think of startup employees, and instead think of them like customers? Just because you retain a customer when you sell them car insurance does not mean that they are loyal to your brand. They may have only stuck with you because your product is:
- More affordable
- Mandatory by law
- Lacks competition
How would you, as a founder, feel if your employee is only with you because they have family or financial obligations, or if they are clocking in every day due to the absence of an alternative?
I know for a fact that several Hala employees with “challenging” passports intend on immigrating to Canada or Europe sometime in the near future. I support it wholeheartedly and welcome it with open arms. No employee retention strategy could or should trick someone from finding something better for their future.
My words aren’t gospel, I can only hope that I’m doing the right thing. All I know is that we’ve had zero voluntary employee churn since the company started, other than a recent junior colleague parting ways with us during their probation due to them getting a better offer elsewhere.
The last coffee sip
If, at a certain point, I cannot match a poaching competitor’s salary offer, I would be honored to see “ex-Hala” under my team members’ LinkedIn profile. It would mean that at some point they were proud to work with us.
What if you give ESOP, pay for employee courses, train them, and they leave?
Good question. What if you don’t and they stay?
I need more coffee, I’ve been talking to myself for too long.