How to Fix the Employee Turnover Problem at Tech Startups
Strategies to get beyond vague platitudes when it comes to employee churn
The first thing I ever shared in my CEO peer group was that I had logged onto our HR portal and was surprised to see that my seven-year-old startup had just as many past employees as we had current ones. “Is this normal?” I asked.
Rather than be shocked or appalled, the others all immediately shared stories (and data) regarding their own struggles with attrition. In the year since, at least one of us brings up a topic related to employee turnover every time we meet.
Employee attrition is a fact of any business. The Bureau of Labor Statistics cites 3.7% as the average turnover rate for all employers in the United States in November 2019. A 2018 LinkedIn study suggests the turnover rate in the tech sector is much higher, and at 13.2% is the highest of any industry. Anecdotally, a tier-one venture capital firm told me their portfolio companies see an average of 25% turnover each year.
Given that no one talks about employee churn in tech startups other than in vague platitudes, I’m excited to share goTenna’s turnover data so we can have an open conversation about the realities every startup deals with. In addition, the CEOs of three other venture-backed tech startups in New York City have allowed me to share their anonymized data. Our companies range from four to 10 years old, each employing roughly 50 to 80 people in 2019. Three are post-Series C startups approaching profitability and growing somewhere between 60%–200% year-over-year.
You can find the full spreadsheet here, but here are some callouts from the compiled data:
Age of business trends:
- Two of four companies had a 15% turnover in Year 3 (including goTenna).
- Two of four companies had 50%–60% turnover in Year 5 (including goTenna).
- Two of four companies had (or were on track to have) 23%–36% turnover in Year 7 (including goTenna).
- Two of four companies were experiencing their worst year of turnover to-date in 2019 (not including goTenna).
- Two of four companies appear to be increasing in turnover (not including goTenna).
- Two of four companies have been a bit up and down, but are overall decreasing in turnover (including goTenna).
- The average annualized attrition rate for the three post-Series C startups is 33.6%.
- The average annualized attrition rate for all four companies (that is including Company C which is post-Series A) is 31.9%.
While four venture-backed tech startups hardly comprise a statistically significant dataset, the directional learnings from a handful of peer NYC companies helped me contextualize goTenna’s performance with regards to employee attrition.
My key takeaway? Employee turnover of anywhere from 15% to 58% is entirely compatible with fast-growing tech startups. This means that goTenna, with an average attrition rate of 32.5% over its seven years, is typical of similarly situated companies. It doesn’t mean it’s ideal, but it’s certainly not abnormal.
Perhaps it’s unsurprising that when there were only five employees at goTenna (in Year 2, or 2014), we had a 60% turnover rate. Or that it was 50% when we were at 18 employees (in Year 4, or 2016). Growing pains — and inexperienced hiring managers (namely me), as well as a pivot from B2C to B2B/B2G, might explain a lot of it.
But in 2018, we saw a 44% turnover — up from 30% in 2017. So by mid-to-late Q1 2019, we decided to really tackle the issue head-on. And I’m proud to say we got goTenna’s attrition rate down to 29% in 2019.
Here’s how we did it:
Strategic alignment initiatives
- Fully implemented clear objectives and key results (OKRs) on a company-wide level to enable aligned clarity and prioritization throughout the organization.
- Delivered our first-ever detailed long-term product roadmap, to enable greater visibility (and excitement) about our growth trajectory and development plans.
- Hired a chief of staff to drive cross-functional projects at the executive level, all the while increasing strategic focus, accountability, and efficiency.
- Unveiled the company’s core values as well as set an overall theme for the year (for example 2019 was the “year of the customer”), iteratively building this language into our daily culture and vocabulary.
- Made all-hands a monthly (rather than ad hoc) event.
- I started sending weekly “HPM” (aka “highlights, people, and me”) emails to the entire company, outlining what’s happening in every department (highlights), shoutouts to colleagues doing excellent work that week (people), and giving exposure to my own focuses every week as CEO (me).
- Sent out our first-ever engagement survey, inviting anonymous feedback from everyone at the company. We then transparently shared the results with the entire team so everyone is aligned and accountable.
Human capital initiatives
- Rebuilt our people operations department which had previously been underdeveloped. This was kickstarted by hiring a culture-aligned people ops lead as well as our first-ever full-time recruiter.
- Proactively weeded out low performers and people whose skills/goals were misaligned with the company’s needs/goals. (This focus also led to Q2 attrition being quite high, at 64% on an annualized basis.)
- Aggressively yet thoughtfully hired 43 people to address both employee churn as well as the team’s perennial sense that the organization was under-resourced. Most critically, we really up-leveled our vetting process making it less likely we hire the wrong person.
- Reframed performance reviews as “coaching sessions,” — to foster more of a team mentality — wherein each employee and manager make clear commitments to each other regarding growth and development.
- Provided new benefits ranging from $15,000 for fertility/family planning to a 401(k) plan to adding a few new company holidays — including birthday PTO! — and expanding our parental leave policy.
- Hosted our first-ever leadership team strategy off-site, including personality/communication assessments to foster better interpersonal relations.
- Launched various learning-and-development initiatives including an engineering book club and an Electronics 101 class.
- Launched an “employee of the month” callout which has now evolved into a very sweet shoutout, trophy, and acceptance speech tradition.
- Developed a complete onboarding program, including clarifying goals, role expectations, and setting each new hire up for follow-up meetings in the first 90 days with both people ops and their manager. (My favorite part is that every single new hire is assigned at least one “big win” to achieve within the first 30 days at goTenna.)
- Invested in up-leveling managers by sending nine people to intensive offsite trainings around general management, executive management, agile/scrum, and more.
- Regularly reminded managers and employees about our long-standing (yet under-utilized) annual education stipend to drive greater use, leading to one-third of the company using their stipend for a variety of conferences, books, or classes aimed at their professional growth.
- Started various culture initiatives such as team excursions, games during/after team lunches, and Bar Cart Friday.
- I began working with an executive coach (a former startup and public company CEO) and joined that aforementioned CEO peer group. In combination with my long-standing weekly psychotherapy, these have all given me greater capacity as a leader and human.
Ultimately, 2019 saw goTenna grow revenue by 200% year-over-year and reduce attrition by 65% over the same period. (Thank you to my three anonymous peer CEOs for sharing their attrition numbers, Alissa Ott for crunching the data, Emily Eckert for her notes early on, Ryan Bobrowski for embedding the iFrame, and Albert Wenger for his final edits.)
This was originally published on industrialfelt.com.