Have you thought about how much it costs to react to a problem after the fact vs. taking a proactive approach before you have a problem? In a February 2011 McKinsey report, one of the companies surveyed for the article said it had a struggling executive team. About the executive team and their company, McKinsey reported “Fewer than one in five of its members thought it was highly respected or shared a common vision for the future, and only one in three thought it made a valuable contribution to corporate performance. The company’s customers were very dissatisfied—they rated its cost, quality, and service delivery at only 2.3 on a 7-point scale—and the team couldn’t even agree on the root causes.” Ouch! That smarts.
Here’s a team and company way out of alignment…and they realize it. They were unable to agree on the causes of their problems, which is unfortunate. It makes me wonder how many of them may be thinking about running for the door. Do you think they’ve considered what it has cost them thus far in time, dollars, and productivity to have issues so detrimental to the health of their organization? Why aren’t they discussing how to fix the problem? Given my experience, I’d assert they are just so overwhelmed with the idea of fixing their problems that they’re paralyzed? This is unfortunate, but not uncommon. When human beings get overwhelmed, we often bury our heads in the sand and hope it gets better. Of course it rarely ever does.
Companies can utilize proactive solutions to prevent issues they may encounter. Making the time and spending some money to build their organizations the right way the first time will save them considerable time and money in the short and long run. Companies can also choose to take a reactive approach after they have encountered costly problems related to talent, which is the norm.
In general, companies that take a reactive approach in business have many reasons as to why they didn’t work proactively in the first place. The most common reason I hear from venture capitalists and executives is that they feel that being proactive is like spending money before it’s necessary: also referred to a “soft dollars”. I would analogize this to not going to the doctor for an annual check up or “well visit” and waiting until your sick. It often costs more money and time with this type of approach.
I had a prospect early last year that was referred to me because of the “churn” in employees they were experiencing. The CTO & Co-Founder knew their churn was costing them a fortune though he was not willing to actually look at the costs involved. They were making money in spite of that and weren’t in enough pain yet to take steps to correct their issues. In a perfect world every startup would take the proactive approach and build their company from the beginning by identifying not only mission, vision, values, goals, objectives, strategy, etc., but will determine where they want to go in the short and long term and build a holistic, aligned organization beginning at the founder level where they can attract, hire and retain the top talent to get them where they want to go. They will revisit these processes and strategies on an as-needed basis to ensure alignment and health and tweak when and where necessary.
This is NOT a perfect world
We don’t live in a perfect world, so taking the reactive road to correct your issues is a lot better than sinking further into an abyss you may not be able to pull out of. As I always say, better late than never!
Let’s take a look at 2 cases where companies lost employees for different reasons and the associated costs:
The first case was a Director of Learning and Organizational Development at a F500. She was with this organization only a year before being let go. They said she wasn’t a fit with the company. Her total comp over that year was $225K (180k + 45K bonus). When we added up the exit, severance, onboarding, interview, relocation, T&E, and search costs, these expenses came to just over $179K. Add this to salary and bonus and the loss to the company becomes $404K!! Yes, they lost over 400 thousand dollars. Could this have been avoided? I would assert they could have, and would have, if the company had the vision to align their executive team and then build a talent strategy around this.
The second example is the case of a sales rep who achieved 96% quota in his first year with the company and quit for another opportunity. He had issues with company management, and particularly his direct manager. Salary, commission, bonus, and non-recoverable draw added up to him earning $229,530k. He sold $1.25MM, of which $100k was services. When we consider all the other involved expenses, which include exit costs, lost revenue for three months without a sales rep covering the territory full time, initial onboarding and recruiting expenses, etc., the company earned $483K. You may be thinking that this isn’t such a bad profit considering the guy quit. But it’s imperative that we remember sales is the only direct revenue producing function in a company. All other positions are a debt on the company and it is the sales division’s responsibility to generate enough revenue to compensate for all the non-revenue positions. Remember that Profit = Gross Revenue – Cost of goods – Cost of operations – Cost of sales.
Something else to consider
It is important not to weigh one qualification too heavily over another. For example, many companies focus on skills and abilities and don’t give enough thought to cultural fit or vice versa. There are many pieces to your approach to business and talent and it’s imperative each one is carefully considered. A study by LeadershipIQ found that almost half of employees will fail within the first 18 months of employment. It’s never just one thing. It’s a multitude of items that are either not considered and/or not considered and worked through carefully enough.
Lastly, smaller companies have considerably more to lose than large companies with the same issues. It can be devastating to a small company when it loses key people, both for morale and financially. I know that fixing problems takes time, effort, commitment, and even struggle. What I can tell you is that once you’re on the other side it’s like a huge weight lifted off your shoulders. The work is worth it and you’ll see this when you look back on the process you went through to become a healthy, desirable, and successful organization.