Hiring and Retention
One of the common myths in business is that the “Customer Comes First”. While this may be what you tell your customers, in reality, without an effective team of employees, you will never be able to scale, deliver on your promises, provide a quality service or product and continue to execute your innovations. Instead, searcher/CEOs learn that “Employees Always Come First”.
Hiring and retaining the workforce rapidly rises in importance once the challenges of taking over the business after closing are dealt with. In survey of over 30 searcher/CEO’s ranging from 3 months to 8 years of leadership of their business they rate hiring/retention on a scale of 1 to 10, at an average of 8.2. As time with their business increases, the importance rises from 7.8 to 8.6. One claims that it is “the only thing that is important”. As a searcher/CEO scales up the business they need to be pursuing a strategy of “Always Hiring”.
On the first day after closing, searchers report that it feels like every single employee is indispensable. As time goes on, their comfort with the business grows and they find that those on the payroll eventually move on under their own volition or with a push. The survey also revealed that by the end of the first year, 80% of employees were still on the payroll. By the end of the 2nd year, 66% remain which drops to 33% by the end of the 3rd year and at 6 years out, only 20% remain.
With this attrition rate, hiring becomes important very quickly along with techniques to insure retention once the hires are made. Searcher/CEO’s learn to “Change the People or Change the People” and put in place employees that will scale as the business grows. Searchers reported on what worked well for them and more importantly what did not as they put talent acquisition systems in place and found ways to reduce turnover.
Hiring – what seems to work
Having a “process” that provides structure and follow-through helped one searcher, “We use Workable recruiting software in conjunction with indeed.com and find that if we are diligent in contacting, tracking and following up on potential candidates we do better. We also closely adhere to our probationary period with interim review steps.” Mike Katz at Molded Dimensions feels, “People want better and sooner feedback than in the past and we diligently provide 30, 60 and 90-day reviews.”
One frequently cited source of new hires is the current employee base who are encouraged to tap their friends, prior co-workers or family members. While relatives may create some issues between themselves, generally there is a positive effect from family/peer pressure on attendance and performance and transportation/ride sharing. Lars Gehre at Green Vault recommends, “Make a ‘big deal’ out of it by introducing them to the team and who referred them. These new employees don’t want to disappoint the friend/colleague who referred them.”
Lars Gehre also suggests, “Have permanent job postings, even at time when no position open, to build a candidate pipeline. Hiring typically takes 4-6 weeks, it is difficult to find talented people that are not in active employment on such short notice. One of our advisers told us to ‘hire fast and fire fast’, especially in lower paid positions in which people switch jobs more often, the cost of not hiring or waiting too long can be greater than making a wrong hire once in a while. We have reviews with every new hire after 30, 60 and 90 days. If someone isn’t progressing, we meet again after 2 weeks and for feedback and part ways as necessary.” Another mirrors this, “Keep all managers in a ‘always be hiring’ mandate as described by Dr. Brad Smart in the book: Topgrading.”
In periods of immediate needs, temporary employees may be an attractive source as one searcher/CEO found, “We hire temps using Kelly Services. when we need the flexibility to scale up quickly without investing heavily in interviewing.” Another searcher recommends, “We hired a temporary worker to run the process to screen 75 candidates to select 5 new team members; reducing our own time commitment and we could not afford a full-time role.” Trish (Bisset) Higgins at Chenmark Capital Management found, “Our company bit the bullet and hired a full-time recruiter who oversees sourcing and on-boarding employees. In our industry, it seems that everybody complains about not finding good people but doesn’t allocate any resources to it.”
Sourcing from your local community for specific skills is a viable alternative as a California searcher found, “On-campus recruiting has also turned up strong junior talent for certain roles. Our jobs need to be ‘pitched’ to quality candidates to gain their interest so these higher-touch tactics like these visits seem to give us a better opportunity to convince top candidates than online job postings.” Zack Belzberg at Northmont in Canada reports, “We have started to recruit at community colleges and offer in house training. It is expensive but necessary.”
“Affinity networks” were found helpful to one searcher, “Many of our technicians are veterans and we have tapped into that network with their guidance.” Another says, “I rely on my own personal network for referrals and prospects.” For another, “Nearby job-fairs, has given us some good leads in the nearby communities.” Doren Spinner at Norfil, said “Relationships with instructors at trade schools has worked well for us.” Scott Duncan at Bancroft Holding discovered that “Be in a position to hire when your competition is laying people off or going out of business.”
Another source of talent for professionals one searcher found, “Executive recruiters have produced the highest quality candidates by far, but it is very expensive and therefore requires a clear vision for the role and robust evaluation process.” Reggie Stevens at Crescent Peak warns, “Industry specific headhunters work best for us, generalists just don’t understand our business.” One searcher found, “Linkedin has been a great resource for us in direct outreach along with new college graduates and former customers.”
Utilizing web-based software benefited the process as Lars Gehre found with, “We began a more thorough candidate screening process with a candidate assessment testing software: CriteriaCorp. All applicants take the test, which has been a nice indicator of a candidate’s fit for the role. Employees we hired that scored higher on the tests have proven to perform better in the job; those that didn’t do well, and we wanted to give them a chance in fact were struggling.” Another screening tool is Predictive Index which is offered by searchers Mike Zani and Daniel Muzquiz and has been in business since 1955.
Sean O’Neill at AltEquity uses fundamental HR practices, “Creating specific and detailed job descriptions is a must for every person having her/his own interpretation of their role. We also found it helpful to sell the opportunity to join a company where the person’s individual contribution will have a meaningful impact on the business because of our size.” Your compensation package may also attract candidates, as one CEO found, “Benefits are also important factors, and in my opinion, overvalued by candidates and can make up for wage rates that are on par or even lower than market.”
Juan Aguilar at Padua Capital puts the responsibility squarely on the searcher/CEO, “To be constantly looking for candidates, even if you feel comfortable with the person currently assigned to a specific role, try to always have a backup. Every time a good resume comes to you, meet the candidate even if you do not have an opening for them and keep them on you CRM system and follow-up.” Another urged searcher/CEO’s to consider, “Always be recruiting, particularly in parts of your organization where people have niche, highly specific knowledge that is hard to train. Consider over-hiring a bit too; you will lose more than you think!”
Hiring – What does not work so well
Reflecting on their 6 years as a searcher/CEO, they observed “Networking with as many people as I could always yielded great results for me as the CTO(Chief Talent Officer). However, scaling that network approach to my managers as a way to approach recruitment in the same way, has been very hard.”
The more mature web-based sites did not get such high ratings from searchers and included ZipRecruiter, Monster, and Craigslist at $15-$75/posting. Other searchers had poor results with staffing agencies and mixed results with “headhunters”. A searcher/CEO hiring technicians found that, “Third-party recruiters require a lot of hand-holding and did not get us the volume of candidates we needed.”
One searcher found a lack of discipline in their recruiting systems resulted in problems, “Whenever we take shortcuts on the recruiting process like reducing the number of interviews and quantity of individuals interviewing, we ended up with employees who did not meet our quality standards or were a bad fit with the company.” Another found, “Hiring people from big companies in hopes that they can help scale/professionalize/systematize us in a manner like their previous companies has not worked well for us. Their skills just don’t translate well.”
Understand what “market” in your local area is can be critical to attracting candidates, as one searcher reflected, “You’ll never be Google or Zappos on perks and benefits, but you can be better than the other local employers which will require an effort to keep up to date and listening to applicants themselves.” Ben Murray at New Forest found, “Newspapers were expensive, Government programs are very time consuming and candidate quality was indescribably awful.”
Finally, Marc Cussenot at Pacific Oak found, “Keeping people on if they seem not to be working out well or who bring negativity at work is a mistake and micro-managing them is not the solution.”
Retention – What works well
Having a very professional image worked well for a searcher, “Providing a clear vision of what the organization or specific team is setting out to accomplish and ensuring that the employee is a fit with their role and making adjustments if necessary.”
Scott Holley, CEO at Eddy Line Kayaks observed, “Find ways for line employees to become ambassadors of the company. We reimbursed our team members to put up a booth at a local business conference that had no perceivable value to the company. However, it did give them a chance to visibly present their craftsmanship to their own community members.” Another searcher/CEO points out, “Small things can go a long way. Team lunches, pizza Fridays, uniforms, badges, employee of the month, lockers, free tea and coffee station with good quality – free soda and kitchens stocked with snacks are good investments. Just be consistent in providing them but in a way that they don’t become entitlements.”
One searcher reported that the ability to simply be flexible resonated with a segment of their team, “Our lenient ‘time-away’ policies when employees are experiencing acute personal/family stress seems to carry a reciprocal obligation for longer than anticipated.” Another reports, “Being flexible when good people want to change job roles or go part-time has helped us retain them rather than lose them.” One found, “In a few cases, the non-compete prevented employees who were contemplating leaving. I don’t have to talk about it much, it just works.”
Being pragmatic helped one searcher/CEO, “Showing the team that I cared about them and that I wouldn’t let a single individual ruin it for the team, whether that person was exceptionally good or bad. I found that fairness goes a long way.”
Incentives can play a role, if crafted carefully, as a searcher discovered, “Our best motivation is paying disproportionate cash rewards for exceptional performance relative to average performer.” Another found, “Having a clear job description along with a clear progression on how to advance and the pay-scales associated with those promotions.”
Retention – What does not work well
In the 60 days after closing, only a few searchers reported employees leaving, as one said “One pivoted into a completely different industry. The other wanted to experience life at a large firm as part of their professional development. Trying to talk either of them out of what they wanted, selling them on the long-term potential of my company, using the seller’s relationship to try to retain them was just ineffective.” Attempting to retain “important” employees who are not happy, cautions one searcher to observe, “Convincing someone who does not want to be here that they should want to be never works for long.” Another discovered that, “A last-minute counter offer, when they have an alternative in hand, does not work – it is too late at that stage to ‘rescue’ them.”
Basic employee practices not working well cause losses, as one CEO found, “The root-cause has been poor fit of the person to the job and our inability to recognize and address it quickly.” Or another says, “Not addressing unhappy employees quickly enough means they will share their unhappiness with other employees and escalate the problem. Other employees know who is working hard and who isn’t.” Marc Cussenot at Pacific Oak observes “Showing respect, appreciation and fairness always works well and having a good manager in place makes a huge difference.”
Patricia Riopel at MAGNUM Capital Partners found that, “Pushing people too much beyond their comfort zone and projects that are too unstructured may cause them to leave.” Sunny Kanneganti at searcher/CEO at Mobile Sweep, found “Avoid complicated financial reward systems such as ‘do these tasks and you make extra money’. Either it’s gamed by crafty employees, or people don’t understand it and you don’t get the desired behavior change.”
Many agree that there are not many easy solutions, “Focusing on ping pong tables, vacation time, and social events are transparent. Think of it as an iceberg: the 10% visible above the water is all of the superfluous stuff, 90% below the water is the stuff like upward mobility, culture, core values, organizational clarity, communications, alignment, public recognition, transparency about successes and challenges, financial performance and growth.”
Addressing specific individual issues, may have unintended consequences as one searcher/CEO discovered, “It was a huge mistake to give a raise to an employee that I thought was really critical. She was unhappy, wanted to leave and that unhappiness impacted others. She ended up leaving anyway after a month; I should have just let her move on; I was too worried about retention. With a good team, things will work out.” However, one searcher observes that “Exits of even non-key employees have caused significant disruptions given the relatively small size of our team of 3 dozen.”
Another area that causes employees to depart is related to growth as you scale up which was pointed out by Mark Anderegg, CEO at Little Sprouts, “As we expanded quickly, we had some growing pains and our senior leadership became distracted and distanced from the front lines.” Another pointed out that, “When our growth exceeded 30% a year, it felt to me like the ‘wheels were coming off’, and this chaos permeated down into our organization in a variety of negative ways.”
Advice to searcher/CEO’s
Especially during the first year, searchers observe, “Don’t agonize over retention of legacy employees because an employee you hire will be 10 times better than one you inherit and they are more likely to fit the culture you’re trying to create, excited about the vision, growth plans, and hired on to work with you instead of having you imposed on them.” Another says, “We focused on a number of small wins with our employees. New knee pads, tools, phones, overtime hours and equipment upgrades. Small costs with a big impact.” Reggie Stevens CEO at IRIS Solutions found that, “Prior to closing the transaction, develop a plan for how you would fill every position. The plan must be detailed and actionable with recruiter names, phone numbers and lead times. Hopefully you will never use it, but having it helps you make people-related decisions objectively without fear of not finding a capable replacement.”
As time moves forward, employees that you felt were critical, become less so, “Turnover is scary, but it has been one of the best things to happen to us; we should have been more proactive about making it happen rather than reacting to it happening.” However, another warns, “Exits of even non-key employees have caused significant disruptions given the relatively small size of the team.” Sunny Kanneganti at Mobile Sweep concludes, “I wish I made my first fires earlier. I was hesitant for all the typical reasons, and I wanted to try to reform and improve them. Ultimately, other employees started becoming resentful because they had to work with the offending employee when they were doing good work.”
Expect challenges, as one CEO warns, “This is a tough environment for recruiting so you have to go into it knowing that it will be difficult. Just like ‘searching’, recruiting is a numbers game. Find multiple channels to bring candidates in the door starting with your own website.” Another cautions, “Be thorough in the interview process. It’s easy to get desperate – I certainly have – and pick the wrong person, but that takes much longer to deal with than getting the right candidate in.” Sean O’Neill at AltEquity remarked, “We did not have a culture of accountability or clear job descriptions. It takes a long time to change the culture of an organization. These changes do not happen overnight but when they begin to take effect, they are infectious.”
Keep an open perspective, as a searcher/CEO points out, “A single good hire can reshape your business. A single bad hire cannot sink your business, as long you resolve it quickly.” More significantly, understand your own perspective like this CEO said, “In my case, walking into a blue-collar environment with white collar habits made me waste some precious time. Quickly, I had to adapt to my environment and not the other way around.” Another perspective from Zack Belzberg at Northmont found, “Stay close to the issues. It is easy to assume employees care primarily about compensation but in reality, they care more about the intangibles. Make employees feel like they are a part of your broader plan by presenting your strategy and soliciting feedback.”
Failure in the hiring process is common place, it is not unusual to hear a searcher/CEO say “Of the 8 I initially hired, 4 remain, I only have a 50% success rate; one did not even show up on their first day! Keep those 2nd and 3rd candidates on your monthly call-back list and give yourself permission to fail.” Another advises, “Always be recruiting, which is hard to do. More importantly, move quickly to remove anyone who is toxic in your organization because you will lose good people if you don’t.”
One searcher/CEO observed, “I have found the return on great hires to be the top driver of growth. Hold out for a great hire as opposed to a good one.” As another added reminder, Mike Katz observed, “To remain competitive your unit labor costs will be rising and probably will for some time so take that into account in your projections and how you can pass that value along to customers in higher pricing.”
Mark Anderegg at Little Sprouts gives advice about taking action early, “It really is ALL about the people. It is important early in your ownership to prioritize organizational design and the necessary key hires rapidly as your financial circumstances will allow. You won’t get to where you want to be until you surround yourself with passionate self-starters who augment your personal weaknesses. Once you do, you won’t believe that you allowed it to be any other way!”
Showing empathy to your employees was stressed by Sarah Moore at Kenston Green, “Treat people the way they’d like to be treated, not the way you’d like to be treated. Get in the mud with them; when I know a task is going to really suck, I help out for a little bit to show them that I get it and that I care.”
Ben Murray at New Forest cautions, “Be fearful! This should be one of the top areas that keeps you awake at night. As a new manager, my biggest stresses have all been when a critical person had to be fired for misconduct – removing someone you really need will test your values. You have to be brave enough to do it when it is necessary.” You can get a handle on issues you may face before closing, as one searcher found, “When you are talking to the seller about their employees, listen to subtext (tone of voice and body language). Repeat questions so that you can hear if there are any frustrations or sticking points that the owner is trying to hide.”
Trish (Bissett) Higgins at Chenmark Capital Management observed, “Wherever you worked before buying a business you probably dismissed HR as a trivial role. Post-closing, you will quickly understand that it is the most important role at your company.” Finally, another searcher/CEO draws parallels with the skills you learn in search, “Success at recruiting is very much like deal sourcing: you need to build a funnel, be quick to dismiss inadequate candidates, manage the relationship before and after the close.”
No searcher/CEO finds talent acquisition and retention easy, but it must be at the top of their list. While you may have acquired a good company at a great price, you always must strive to hire and retain great people, not the good ones. It takes effort, patience and practice to develop the experience to lead the organization to find and hold on to talent and be effective at it.
Feel free to share some of your own best practices or experiences in dealing with these issues in the blog comments. I encourage comments and dialog, allowing all in the community to learn from both my views and the views of others – a virtuous learning cycle. Jump right in! I frequently update individual blog posts, add to the Reference section and Search tips, so visit the www.jimsteinsharpe.com website regularly.