This column originally appeared in Forbes.
The great business debate at the start of 2021 was how companies would adjust to hybrid work environments as the scope and severity of the pandemic appeared to wane. I expressed my own caution about hybrid work some months ago and remain uncertain. Yet over the last few months, a new workplace conversation has overshadowed any hand wringing about the return to offices: the problem of keeping the employees you have.
In September, McKinsey & Co published a ground-breaking study on what might be the most significant business fallout of Covid-19. Since April of this year, more than 15 million U.S. workers have quit their jobs, their study finds. The most salient point of the research is that many companies do not understand the underlying causes of what McKinsey calls “The Great Attrition”:
When employers were asked why their people had quit, they cited compensation, work–life balance, and poor physical and emotional health. These issues did matter to employees—just not as much as employers thought they did. By contrast, the top three factors employees cited as reasons for quitting were that they didn’t feel valued by their managers (54 percent) or their organizations (52 percent) or because they didn’t feel a sense of belonging at work (51 percent).
There is a temptation to conclude that these findings pertain largely to the lumbering, “old economy” enterprises that, pre-pandemic, were already struggling with digital transformation. But the entrepreneurial and technology sector would be naïve to assume that it is immune to these trends.
What, then, can a startup business operating in a competitive environment do? Three realities have emerged that I believe fast-growth companies in particular have to confront.
- The CEO, above all, is responsible for creating a deep, sticky culture. How a CEO signals their commitment to making employees feel valued will be watched and measured.
- The pandemic has created an opening to rethink the social contract with employees. A company that acts as if a return to the status quo is imminent will see workers vote with their feet.
- The link between smart hiring and strong culture has never been more important. Rather than just trying to shut the door, a company eager to enhance its culture will need to find new ways to persuade top talent to join them.
The CEO’s Role in Culture
In fact, even before the pandemic set in, the technology industry suffered from an employee turnover rate in the teens — higher than any other sector. Making things even tougher is the ongoing shortage of skilled software engineers and programmers.
The new reality for all firms – including start-ups – is that employees are restless, job switching has never been easier, and a workplace (even remote work) that does not figure out how to deepen ties with its own employees will be at a competitive disadvantage. Company culture has opened up a new front in the war for talent.
One of the pitfalls of remote work for a small company is the lack of day-to-day contact with leaders who invariably establish a pace, a style, and a sense of what matters most. It is easy for a remote CEO, preoccupied with Zoom calls all day, to forget that creating culture is one of their first responsibilities.
Of course, business leaders have been talking about company culture for a long time. It usually emerges as an explanation in the wake of a scandal or failure: “the corporate culture wasn’t right.” In his recent book, The CEO Test, former Amgen CEO Kevin Sharer argues that one of the most important responsibilities of a successful leader is to make culture an intentional part of the organization.
“Tempting as it may be for leaders to throw up their hands in frustration, building a strong culture is a leadership imperative, another crucial test that will determine whether they succeed,” he writes. “At its best, a strong culture can help with recruitment and retention, creating a kind of special club that people want to join and protect once they’re part of it. Done right, culture will engage something deeper within employees’ sense of themselves, ideally in ways that are aligned with business goals.”
This advice applies to CEOs regardless of the size of their company. Many start-up companies have succeeded initially by selective hiring and rewarding long-term incentives — both proven tactics. Retention, however, will demand a focus on building the atmosphere and support where, two years into the job, employees will feel their work is highly valued and they have a voice in the organization.
Putting Employees First
In Silicon Valley, some companies are putting Sharer’s counsel into practice. Indeed, one of most interesting developments is how the pandemic has prompted imaginative CEOs to create a different kind of working environment for their team.
Nikesh Arora, the chief executive of Palo Alto Networks (where I serve on the board) realized a few months after moving workers home last spring, that this was a rare moment to rethink the entire employee experience. “Employees were disrupting their lives and everyday habits to accommodate the reality of Covid-19,” he told me. “Why couldn’t we start to disrupt every aspect of work and employee experience – benefits, learning, collaboration, and even basic internal communication.”
Liane Hornsey, Palo Alto’s chief people officer, believes a shift is underway. “Throughout history,” Hornsey explained, the employer has decided when you work, where you work, the devices you use, and even the office décor. We realized that there could be a new underpinning for the future of work based around employee choice.”
At the heart of their approach are the metrics the company now values most. For knowledge workers, Palo Alto Networks largely stopped measuring how people work and focused instead on what they achieve. This approach introduced a new type of accountability and helped to build a sense of employee autonomy and employee belonging.
Hiring Validates Culture
Developing a strategy to make your best employees feel valued by their manager and the organization are the new table stakes. But as the McKinsey report makes clear, “the Great Attrition is happening, it’s widespread and likely to persist—if not accelerate.” That requires companies to develop not only a strong culture, but a more finely honed recruitment strategy.
Laszlo Bock, who led Google’s People Operations for a decade, has persuasively argued that refocusing your resources on hiring better will have a higher return than almost any training program you can develop.
In the past, recruitment began with posting jobs and running campaigns to attract the right candidates. Steve Bartel, the co-founder and CEO of Greylock-backed Gem, an all-in-one SaaS recruiting platform, argues that there has been a move toward actively identifying the best candidate fit to fill a job, which is often someone not even looking to make a change.
The search for those passive candidates can only happen with better data analytics and automation. Bartel believes that recruiting organizations and HR departments still lag behind sales and marketing teams when it comes to investments in data-driven prospect identification. “The best talent is getting bombarded with recruitment emails and LinkedIn messages,” he says. “Better data will help you develop a more personalized approach.”
It is also true that better hiring is closely connected with retention. David Wadhwani, Chief Business Officer at Adobe, has pointed out that when companies struggle with retention, bringing in new talent can help settle existing employees. If done well, the existing team gets excited about partnering with accomplished people who bring new perspectives and skills to a company.
For employers who are nervous about the Great Attrition, this point should not be overlooked. While it is clearly critical to invest in a culture of belonging, sometimes the most important validation of a company’s culture is the decision by outside, exceptional talent to come join the team.
All this is part of the new mindset that ought to be embraced by start-up leaders striving to build an enduring company. If 2021 was about preparing for a post-vaccine work environment, 2022 and beyond will require leading-edge companies to think deeply about why employees want to stay engaged in the organization – and how to create a work atmosphere where employees don’t want to leave.