Record low unemployment is making it harder and harder for growing companies to find and hire top talent. I was at lunch last week with four successful entrepreneurs, and like most conversations I have with business leaders, the topic quickly turned to their biggest concern – hiring talent. One founder rolled his eyes, another sighed and all complained about the difficulty they have and the fierce competition of attracting top talent. These entrepreneurs are impressive; one just raised $40 million, another is on Crain’s Fastest Growing Companies, another developed a tech solution designed to match talent with tech companies and all were exasperated with the struggle to find the right employees to grow their companies.Although low unemployment is good for the economy, the lower the unemployment rate, the harder it is for businesses to find good employees. According to the Bureau of Labor Statistics, the unemployment rate dropped to 3.9%, which is at its lowest point since the late 1960’s. If you take a deeper dive into the data, you’ll find unemployment for adults over 25 years is 3.2% and for those with a bachelor’s degree or higher it’s at 2.2% – making it even harder to find talent with a degree.
The issue of attracting talent is real. Attracting talent is something companies must focus their energy and resources on. Yet, in meeting with 300+ businesses in the last 18 months, I’ve noticed a trend – more a trap – most of these companies fall into.
They look at the problem of ‘attracting top talent’ and instead of taking a long-term approach, they focus on the short-term solution – throwing money at the problem. It’s as if they are dealing with a leaking bucket and instead of taking time to fix the leak, they just keep adding more water into the bucket to replace what’s flowing out.
A perfect example of this can be seen in a fast-growing tech company in Chicago, let’s call them Company X, that just raised $7 million. Most of the funding is going into hiring tech talent to develop their product for new markets and in building out their gorgeous new office space with a game room, nap room, kombucha on tap and a cereal bar. To hire the needed developers, coders and digital marketers– they pay a recruiting firm 25% of each new hire’s starting salary. At an average salary of $150,000, Company X pays out three quarters of a million dollars across three recruitment companies just to hire twenty new employees. At their current turnover rate of 30% – Company X will also need to hire 6 more people in the next year just to maintain their team–they’re throwing away $225,000 to recruiters each year.
Another common solution to attracting talent is to keep raising your offer price. One founder I recently spoke with shared how excited he was to hire this rock-star Head of Development to his team. When I asked how she was doing, he dejectedly told me that she turned down his $350,000 offer for even more money at a Fortune 500 organization. Small and medium sized businesses can’t afford to keep raising the stakes when they are competing solely on pay with the Fortune 500s.
Most companies hire recruiters, pay exorbitant recruitment fees, enhance their perk packages and continue to raise salaries – even though people are leaving almost as fast as they are hired.
It’s a vicious cycle.
The cyclical nature of this problem, which most companies find themselves in, creates huge opportunity – one that only a few organizations have tapped into.
Instead of focusing on the trap of attracting talent – on filling the bucket with more water –strategic entrepreneurs take the time to fix the hole in the bucket –retaining their talent.
How does it work?
You’ve heard the phrase it’s cheaper to keep a client than to find a new one – the same holds true for your employees. The companies who provide deep-rooted intrinsic value for their employees win in the long term.
I’m talking about creating an environment where people want to come to work, where they can see the perceptible impact their daily actions are having on the business, and where they can grow their skills to leave better than when they first walked into your doors.
If you don’t believe this is possible, take look at Hireology and DMC, both frequent names on various best places to work lists. I’ve had a chance to take a close look at the structure and leadership of both companies.
In these companies – you’ll find they have a culture of people who love to work for them and they reap the rewards of resources spent on developing their people rather than solely on attracting people. Both companies provide autonomy (the freedom to do their work), competency (the opportunity to succeed and develop mastery in a specific area) and connection (an environment where employees feel connected to each other and see the impact of their work). If you look at the research by Ed Deci and Richard Ryan on human motivation, these match the needs of humans as defined by their Self Determination Theory of Human Motivation. Hireology and DMC are great examples of companies with clear values, vision and mission, who ensure their managers are leaders, not doers, and who provide a structured operating system for their employees to grow within.
When you focus on having a sound foundation of values, vision and mission; on empowering your managers to be coaches rather than micro-managers; and on adding value to the talent you already have; you will have employees who want to stay. Talent will find you because they want to be a part of what’s going on at your company –and are willing to take less money in return.
The problem is, only a few companies have the foresight, patience, and commitment to do so.
Originally published in Forbes on August 28, 2018.