Employees are Everything: Turnover and Scaling
Over the Great Resignation, turnover has increased to over 50% between voluntary departures and layoffs. Ideally, a healthy turnover is closer to 10%. So what can be done to bridge this gap? Traci and Rob discuss these turnover numbers and how having a strategy is the best first step towards retention and scaling.
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Announcer:
Welcome to the Overly Human Podcast, where we discuss all things human in the workplace. Because it's not just business—it's personal too.
Rob:
So Traci and I have gone to I think I would venture to say dozens, if not hundreds of different events over the years. And several of them—a whole bunch of them—focused on small business, creative agencies, web studios, whatever you'd like to call them. And the constant theme of these events over the years has been business development, how to find new work, how to sell. And I think the real reason is, is that's a major pain point for so many small businesses, especially in the creative services area. And it's often the difference between surviving or going out of business, is can you sell more work? Can you find new clients to continue moving on?
Well, something very interesting happened to both of us earlier this year. We were at an event and the main theme was not sales and biz dev. It was people. It was hiring. It was retention. And we both walked away from that event thinking, "Wow, this is remarkably different. Something's changed." And I think that matches a lot of my experiences over the last couple years and some of Traci's as well.
Good morning, Traci. How are you?
Traci:
Good morning. Excited to talk about this topic. It's perfect for us. And it's been such an unusual time these last couple of years. And you and I have had a lot of these conversations recently about how interesting it is that a lot of people we talk to, a lot of business owners that we've spoken with are doing really well from a business perspective. Even having a hard time keeping up with the level of business and having to think about—instead of biz dev, thinking about how to service these customers correctly and well.
But there's something happening behind the scenes, which is this turnover rate. Turnover rate has been off the charts. And there's been just a lot of shifting, and we all know the reasons behind that. But the reality is, is business owners having to deal with that. How do we manage the turnover?
And I think that we have to be so more strategic than we've ever had to be in the past, which is a good thing. So, this can be the silver lining, which is, can we as business owners look at this area of our business, which is anything and everything around employment: retention, hiring, interviewing, onboarding, off boarding, all of those things, and really say with a strategic eye, do we have this figured out? Do we know what we're doing to retain our employees, to win the best employees? Do we have a good interviewing loop, onboarding program, off boarding program? What does it look like for our company? Is it working? Is it not working? Does it even exist?
And it's amazing how many business owners I've spoken to who've said, "We've always just been reactive in this area. We haven't been quite proactive from a strategic standpoint in this area." And now they have to double down. Now they have to sit down and think about it.
And of course, coming from my strategic mind, this is something that I get excited about, looking at this and really trying to understand, especially retention, because I just find that fascinating. I just think it's fun to talk about. So I'm glad we're going to dig in on a deeper level over the next couple of episodes.
Rob:
Yeah. And I think that's where we want to go is, this is the perfect mix for topics for us. It's humans and strategic and having to be intentional about it. So those three things put together, make it good content for this podcast and to do a little series on everything that happens before and after employment is how we're talking about it.
I think it'd be really good to talk a little bit deeper about turnover first. And one of the things that's really interesting and I think just probably worth making sure that everyone understands upfront is turnover happens. It's just going to happen. And in the right dosage, it's actually pretty healthy for our businesses.
There is obviously I've been on both sides of running businesses that we've had way too little turnover in some cases, where things feel stagnant. And maybe there's not some of that new blood coming in and new ideas and all of those kinds of things. But you also don't want to be in the extreme other side of having to replace everyone all the time, because then you lose that consistency.
So I know you did a little bit of looking into this. What does the industry or the economy say a good turnover number is?
Traci:
10% or less.
Rob:
That sounds really low right now, compared to what most of us have been experiencing.
Traci:
Really low right now. Turnover in 2020, 2021 has been about 57%. Now, this is combined voluntary and layoffs. So, as we know with COVID and all sorts of things, there's been some layoffs in that as well. But if we just pull out the voluntary turnover number, it's about 25%. So, we're looking about double the healthy turnover. And I know for a lot of businesses that we work with, especially in 2021, turnover was even higher than that. A lot of businesses were somewhere in the thirties.
And so, that's been hard. I think we predict that it's going to even out a little bit more, but one of the things the pandemic did is gave people a pause to think about what it is that they really want to do? Is this the company for them? How's their company responding in crisis? Do I want to work from home? Do I want to be in an office?
All these things have weighed up. Also, hourly rates have gone really high. Companies are getting more competitive with their pay. Some companies can compete in that and some companies can't. So we really have a lot of factors that are affecting this. Regardless, we have to learn how to navigate them.
I think also one of the things that I read about was that high performers were actually only 3% of the turnover rate. And so, there's something to be said about high performers and highly engaged employees in a company tend not to leave. And I think in there is the little of all the research I read, was the golden nugget. What are we doing to engage our employees? Have we even identified who our high performers are? And then how do we care for those high performers to make sure they feel valued and engaged and utilized properly? Are we tapping into their expertise? Are we allowing them to master their craft? Do they feel engaged? Are we giving them a healthy amount of agency every day?
And so if you are, and we can keep our employees engaged, then that retention level goes way up. So you can see the correlation in there. So retention is, there's a whole bucket of strategic initiatives and just easy to-dos that as business owners and leaders if we can get good at those things, we're going to see our retention level go up which means our turnover rate's going to go down.
I say getting behind retention first and foremost is key. It's the number one strategic goal.
Rob:
Okay. Just to push on that just a little bit, especially in tech, the average career is somewhere between two and a half and four years, not career, but tenure at a company. There's a lot of moving around in tech.
Traci:
Yep.
Rob:
And some of that, I think we saw in 2021, was pent up not leaving in 2020, because of the market being the way it was. There wasn't a lot of mobility in 2020 during the pandemic.
And I don't know, I've always struggled with this idea of retention being everything. And not that I don't want it to be better right now, but this gets into the whole thing that I've always said is there's seasons for things. And we won't probably be the last place most employees work. And we talk about that openly. We say, "Hey, part of your job here is to... We're going to kick as much butt as we possibly can during our time together. And then when our goals no longer align or whatever happens, you get to be an alumni and we'll celebrate you on the way out."
And so there's always been this weird line of wanting to make sure we're focusing on retention and taking care of people and giving them incentives to stay, but also letting them know that when the time comes that's a normal part of the journey.
Traci:
Yes. And I totally agree with that. I always tell the leaders that I'm coaching to hold your staff with an open palm. If you feel like you are holding onto anybody's ankles, that is just not good. We want to make sure, just as you're saying, that our employees know that we care about their journey. And if all of a sudden their growth journey has stopped with us, or we can't provide what they need, or all of a sudden they wake up and think that they need a lot more money and we can't give that to them, okay, fine. We totally get it. We totally understand, and you can move on.
That is a very healthy perspective to have as an owner and a leader because we can start to take things really personally if we don't have that attitude and we don't have that perspective. We can start to feel very hurt every time somebody leaves. I've seen owners who get really depressed. They take it all super personally, not looking at it in the big picture. So, I like the big picture context.
That being said, there is an art to this. There is something to be said about really having a dedicated strategy against retention. If people leave within that strategy, that's fine. But we need to go a little bit deeper when we think about how we look at each employee. And we should know, we should be able to look at our entire staff. And depending on how big we are, maybe the HR is doing this, or maybe we're just looking at our leadership team, or if our company's small enough, we're looking at our entire staff, and we know who the high performers are. We know who the people are that need to be coached up or a little green, but there's a lot of potential there.
And we know who the low performers are. The low performers, we're always giving them a chance to grow. But if they're perpetually performing not up to expectations, then we need to coach them out. Those are the people we need to say, being very blunt and saying, "Look, it doesn't seem like a fit here. Are you feeling the same thing? Is there anything we can do on our end to change? Can I help you find a position somewhere else that will be a good fit? What's happening?" Those conversations should be going on. And if they're not, I don't think you're being very strategic about how you're looking at your staff.
And then coaching up the middle, making sure we're really pouring into those people, they know what their growth trajectory is, they're learning how to master their craft, and then really making sure our high performers are taken care of,
And I had a lot of high performers on my team at HGTV that stayed with me for 10 years. Now, I know the tech industry's different. In a way, the media industry is just as, if not more vicious in their recruitment from each other, and offering higher pay and all of that. So, it was a pretty competitive cutthroat world. But if you can create an environment where these people feel like they can still exceed expectations and still master their craft, I don't think there's a lot of reason to want those people to leave, unless they give you reasons. Yeah, we can talk about stale ideas or not having… but we can supplement for that. You can keep those who are mastering their craft in your company and supplement it with some young, fresh ideas, and blood around that.
Again, we're thinking deep here. We're thinking strategic when we're looking at our staff. So, when I talk about retention, I'm looking at my whole org chart, and I'm really thinking about these people and what they need and what's best for them, and what's best for the company. And then I'm saying, okay, what is our strategy around retention? What are we doing from an internal marketing standpoint? Have we branded ourselves internally, not just to our clients? I mean, people spend a lot of money and a lot of time branding themselves to their clients and their customers—as they should. But are we spending that much time branding ourselves internally? Are we talking about our mission, vision, values? Do our employees even know what our culture is? Do they see themselves in it? All those types of strategic bullet points under internal branding, I think are really, really important right now.
Rob:
And they're even more important when turnover is high because if turnover is high and you're maintaining your size with new hires, that means you have an ever-increasing amount of people who have never heard that.
Traci:
Yes.
Rob:
And I know for us, it has felt even more like we are repeating ourselves over, and over, and over, and over again because of the amount of new people and that they haven't heard those messages, and how do we do that well?
Traci:
Right. And doing creative things. We have our exit interviews, well, hopefully, everybody's pretty clear on why people are leaving. And we're asking those questions, making sure we get that intel, but are we asking people why they're staying? So, when you're having your town hall or your event where you're pulling everybody together, whether it's in person or online, why don't have a few people who have been there for several years and ask them, why are you still here? What do you love about Sparkbox? We'll use Sparkbox for an example. What do you love about this company? What are some of your favorite moments? Tell me how you're different from the first day you started to today.
And just let these employees, no matter what their position, tell the story. It reminds them why they've been there, and it's a beautiful thing. And then all these new employees and everybody who's been there, they're hearing why people are staying and they're like, "All right, I can call this home for a while." And so, those are some of the creative things that we can do to really build up that internal branding, to make people understand the culture and to really work on retention.
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Rob:
Okay. So let's change the conversation just a little bit. We've talked about turnover. There's other reasons that one may hire, like growth or other positive things that aren't just people leaving. And I don't want to leave that part out.
Do you have a good metric on when it's a good time to hire?
Traci:
Well, I feel like there's a few points that will help you, a few indicators I should say that will help you understand if it's time to hire.
Now, we know you're looking at your utilization all the time. How are people being utilized? What's the utilization rate? What's the burnout rate? In our polls checks with our employees, are they feeling overworked? Have we seen an increase in PTO? Has our customer service or the way we're servicing our clients, are we starting to get complaints from our clients? That type of thing.
But then on the more positive side, are we winning new business? Are we not able to take on business? Have we started turning away proposals or turning away opportunities because we just don't have the staff?
I think that it's very important if you don't have a head of finance or a CFO or a virtual CFO or somebody you're working with, you need to understand and be forecasting for your hiring. You need to know when you can afford it and when you're ready to take that risk to scale or to hire, above and beyond just replacing people. When are we able to expand our staff? So, those are two different things. We're always going to be replacing people, but when are we going to scale?
And scaling is so scary for business owners. Rightfully so, because there's risk involved. You can feel like, especially when everybody's talking about a recession on the horizon. So, people now are weighing up like, "Yes, I need the staff, but am I going to be able to keep the staff?" And so, we can start to talk ourselves out of hiring people. And we have to be very careful of fear-based decisions.
But what are Sparkbox metrics? Do you guys have a tool that you look at when deciding when it's time to hire?
Rob:
Yeah. Some of it's based on what our business goals are and what the trend lines are. Because I think that you correctly pointed out is, is how far in the future can you predict and forecast your business? And as we've gotten better at that over the years, we've been able to see farther.
But I also look at how long it takes people in different roles to become productive members of the team. And for some roles—project manager is a good example—for us, it takes about four to six months to have a productive project manager on our team. And for a developer, if we're hiring not through our apprenticeship program, but somebody that's coming in, we're possibly looking at two or three months before they're at full capacity, full speed.
So, for a lot of companies like ours and like people in our industry, that pushes against how far your forecast really is and how far your good data is. So you almost have to play a little bit about what my needs are going to be into the future. One, for turnover to make sure that I have people to step in for things, but also what that growth looks like.
And one of the things that really struck me going back to some of those events that you and I have been to over the years is, for people who haven't done much hiring or growing, there's a lot of fear over it. And I've heard things where very small businesses were like, "Well, we'll hire the next person when I've got a year's worth of their salary in the bank." And my response usually is, “Then you'll never hire.” That's not guaranteed. That's a big number for a lot of people, especially for people in our industry. And when you're only a couple people and looking to have a whole nother year's salary for everybody, plus that person, that's a lot of cash to then put at risk.
I think that you're better off having that track record of being able to predictably grow your ability to sell new work and sell into those new people, but know you can do it, instead of having those commitments because of the ramp-up time. And there is risk involved, there's always risk, but there's that comfortable place of where entrepreneurs live. And most entrepreneurs are on the more risk-averse side of things, but there's a spectrum inside of that too. You and I have both met people who are the crazy risk takers on the entrepreneur side, and they're really good at getting something going, but not as good at maintaining a lot of times. And there's people probably like you and I, who are on the more risk-averse of the risk takers.
Traci:
Yeah.
Rob:
That's how I would describe myself is, I realize I'm in that upper third, because I'm in this business and I've done this, but I'm in that lower third of that third.
Traci:
Yeah, that makes sense. And I mean, I agree with everything you're saying, and I think it's wise because it's a much more proactive way of looking at your hiring strategy, because you don't want to hit crisis and then be forced to jump into the hiring pool. It's a really bad position to be in. And some leaders do that because they're not as close to the work. So all of a sudden, because they're not taking a pulse check and they don't understand really what's happening, and in the production side of it. All of a sudden they're like, why are people quitting or what's going on with the...? And then they're three steps behind.
And I know we'll talk about recruitment and when to do recruitment in our next episode, and we'll pull that philosophy and that psyche apart a little bit more. But I think having that long-term view is really important.
And I think that's what you're describing is, what's the long-term view in weighing up your risk and opportunity within that long-term view, as opposed to being this immediate reactive type of leader? And all of a sudden you're going to see a lot of upset employees because they're the ones who suffer when we wait too long to scale when we wait too long to hire. The people who suffer typically aren't the leaders, maybe they see their bottom line affected, it's our employees. So, it's a very bad leadership tactic to not be ahead of your hiring, instead of behind.
Rob:
Yeah, totally. So when we talk about the employee journey, I think one of the things that we'd like to talk about in this series is it actually starts well before they get an interview or even they apply. It lasts from the moment they hear about your company through the relationship at the end after they leave. And I think we want to talk about all of that, that very human experience.
And I think the other thing that you and I have both made the analogy to, is the recruitment interviewing process, the pre-employment stuff is a lot like business development. It's a lot like that process of telling people what you believe, finding people that believe what you believe, identifying those people, and then putting them through a pre-qualification process to see if they should join what your mission and vision are.
Traci:
Yeah. And I think that's going to be a lot of fun to talk about in the next episode is that, how are we setting the stage? How are we identifying who our target audience is, not from the client perspective, which we're so used to thinking about, but from our employee perspective, and all that's wrapped up in that? Because we have lots of different positions. We have billable, we have non-billable. We have leaders, we have those who are going to be producing. So I love talking about that stuff. So that's going to be really fun to get into our next go round.
Rob:
I'm excited.
Traci:
Me too.
Rob:
All right. Thanks, Traci.
Traci:
Thank you.
Announcer:
The Overly Human Podcast is brought to you by Navigate the Journey and Sparkbox. For more information on this podcast, or to get in touch with Traci or Rob, go to overlyhuman.com. If you like what you've heard, subscribe and tell your friends to listen. Thanks.
