Last few weeks I had the opportunity to speak with a no of startup. Some run by friends, and some other connections. Amongst the many things we connected on, one of the most consistent themes of our discussion was cost management and retention challenges.
A belief that got re-enforced is the general lack of org structure and lack of focus on cost management especially when it comes to employment cost and cost of operations. Consistent in 90% of the companies I spoke to. This is not to say that these companies don’t care, but it is more around the lack of awareness and education.
Businesses cannot operate successfully or sustainably without really understand the external talent dynamics in today’s time especially.
Startups are looking for short term solution and ignoring long term implications.
I had very detailed discussion on their short- and long-term talent development and retention thinking and it seems that in most cases there is none. Many of them are afraid to lose talent. This is a very short-term approach. We didn’t even get to the implications of manager capability, culture, performance management etc. We spoke about equity plans and how ineffective they are at the lower levels and how to hook the leaders in terms of incentives but link it to long term success of the business.
I had to be blunt in my conversation about the realities of org design, true retention management, asking difficult questions and forcing them to think about sustainability. In many cases the founders didn’t have answers to many of my questions. I don’t blame them as they have to deal with 100 things daily but lack of awareness means a huge risk.
Employment cost is either the no 1 or no 2 cost to any business in the world. You have to be strategic and holistic in how you approach it. I don’t like the word “cost savings”. I prefer that we use and think about “cost optimization” as it changes the way we think and approach this.
You also need to think about cost of operations pertaining to employees. Technology, culture, training and development, travel , fancy offices etc.
Retention is not a challenge in itself. You need to understand the drivers, benchmarks but also understand your ability to manage it. Who are you trying to retain?. There are plenty of strategies a company can use around retention challenges and some of them are very simple. There are plenty of companies I know who do not believe in retaining talent. If an employee leaves, then so be it.
Managing employment cost is both an art and a science. A business must always think both short and long term and take strategic decisions in balancing this equation.
There are always different ways to “optimize” your cost model especially at the startup space. Growth alone means nothing. In the long run they survive and sustain because they manage their expenses, drive profitability, and focus on fundamentals.
