Keeping the Good Ones Around

Limits of Retention

No entrepreneur gets a perfect score on retention. Some employees should leave while others, for one reason or another, simply won't be kept. And some approaches to retention do more harm than good.

One of the worst remedies is to throw money at employees who are viewed as important to the enterprise. Entrepreneurs who hope to do well at retention must offer competitive packages of pay and benefits, experts say. Beyond that, however, pay isn't the answer. "Trying to get people to stay by giving them more money is a three- to six-month Band-Aid at best," McKeown says. "Money is a satisfier, not a motivator. You can't use compensation as a retention tool on its own."

It's also worth considering that some employees, including people who may be important to the enterprise, are actually hindering retention by their presence. This is especially common among entrepreneurial companies, McKeown says. As firms grow, old-timers who have been there since the beginning often block other employees from having input or opportunities to advance. "When I get called into entrepreneurial businesses that have high turnover, it almost always turns out there is a big dog lying around the business who has the ear of the boss," he says.

Today's successful retention program may nor work tomorrow, as employee needs and competitive offerings evolve. The workers of the near future are likely to be more interested in work-life balance than baby boomers are, and also less likely to job hop than Gen Xers, says McKeown. "They're not going back to the same mindless loyalty [of baby boomers], but they are hardworking and loyal," he says.

Ultimately, employee retention and entrepreneurial success are different sides to the same coin. Entrepreneurs can't succeed without quality employees. But top-shelf workers won't stick around a floundering enterprise, either. "If the company grows and continues to grow, and it's challenging every day, people will stay," says Spear. "If our revenue levels off or [we] become unprofitable, it's going to be a different situation. The best way to retain employees is by working hard to make sure the company grows."

Top Retention Tips

  • Tip #1: Listen Well.
    There is no one-size-fits-all solution to retention. Jacqueline Patterson, founder of engineering firm J.L. Patterson & Associates in Orange, California, asks employees what they want, then supplies it. "If they want to advance in the technical area, give them technical seminars," she says. "If they want to advance in management, enroll them in project-management courses." When a worker gave birth and didn't want to use full-time day care, Patterson let her work from home four days a week for a year. Says Patterson, "Flexible hours and ways of working are very important to [workers] in the company."
  • Tip #2: Test the Waters.
    Bad employees can slip through even the most rigorous interviews. That's why Don Elias and Mike Jansen, co-founders of software company ImageRight in Conyers, Georgia, send new hires through a six-week boot camp to evaluate technical and people skills. ImageRight holds two to three camps a year, each with up to a dozen people. Despite extensive pre-interviews, as many as half drop out or are asked to leave before the end, Elias says. ImageRight spends $500,000 annually on camps, but it's worth it, says Elias: "Once they get through the boot camp, we know they actually fit the company."
  • Tip #3: Give Them Ownership.
    In the late 1990s, everybody wanted stock options. After the dotcom bust, nobody did. Now, giving employees equity stakes may be coming back. Entrepreneurs are finding that workers who own part of the company are less likely to leave. Employees, meanwhile, are realizing that their best prospects lie with companies that not only build value, but also share it with team members. Larry Spear, co-founder of Go2call Inc., an Evanston, Illinois, company that sells VoIP services, says his company's retention plan centers on stock options. "Most of the employees here have equity in the company," he says. "That's hard to get with another company, and the value of our shares has gone up."
Mark Henricks is Entrepreneur's "Staff Smarts" columnist.
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This article was originally published in the April 2006 print edition of Entrepreneur with the headline: The Long Haul.

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