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Keeping the People Who Keep You in Business – Part 1 of 3

ku-xlargeTop 4 Reasons Why Employees Quit Small and Medium Businesses (SMBs)

This three-part series explores voluntary turnover in small and medium sized businesses – its causes, its effects, and how to keep the employees you want to retain.

Think about the last time you lost an employee you wanted to retain.  You know, the one you knew could handle challenges, solve problems, and sooth customers. The one you really

trusted.  The one who hung in through belt-tightening, cutbacks, and unending requests to work harder, work smarter or just plain work longer. That employee.

How much did that hurt?  And how much did it cost?

When an employee makes the decision to leave a job, it is called voluntary turnover.  To be sure, it is a part of normal business activity: employees come and go as personal situations and life goals change. But when good employees leave small and medium sized businesses (SMBs), there is additional stress and expense as managers and employees try to fill the work gap and deliver the same level of service to customers.  It can take a lot of work to buffer potential negative effects on customers.

But as U.S. economic growth continues, SMBs can expect more employees to start actively looking for new job opportunities.  And the ones who will be the first to leave are the most valued and successful employees.

A survey completed in late 2012 found that 25% of workers plan to change jobs in 2013 or 2014.[1]  The survey asked employers to estimate how many employees they thought were looking for jobs and they estimated 5%.  Looks like employers are about to be blindsided by turnover.

With so many employees planning to make a job change, the effect of voluntary turnover on SMBs is important to both understand and manage. The effect of losing employees in SMBs is different than turnover in larger organizations.

If a company has 100 employees, losing an employee or two will still cost a lot, but will have relatively small business effects. When a company with 10 employees loses one, it is a 10% drop in the ability of the company to deliver its goods and services. This is especially hard on SMBs because most do not have enough employee bandwidth to cover the work or the financial resources to selectively recruit and fill talent gaps quickly.

Everyone knows that keeping the best employees delivers a competitive advantage for SMBs.  When employees understand the business and its customers, they can serve clients better, faster, and even cheaper.  While business processes and products can be rather easily copied, it is never easy for a competitor to replicate the skills of employees.

There are several key reasons that SMB employees leave.

1.  SMBs cannot offer the same opportunities for professional growth, training, and career advancement.  People like to learn and grow. If they see a job as dead-end, they start looking.

2.  Overall, turnover is generally higher in SMBs than in larger organizations.  A big driver is that smaller businesses do not know how to figure out which candidate is a good fit for the job and the company.  When employees don’t “feel right” in a job, they start to look around.

3.  SMBs are more likely to fail than larger organizations – that adds weight to the employee’s side of the risk equation.  Many people would rather work for a larger company just because it is more stable and predictable.

4.  SMBs cannot offer the same level of compensation and benefits as larger organizations.[2]  Employees tend to stay if their compensation is relatively consistent with others in similar jobs.

In mid-April Affintus’ Arturo Coto conducted a quick, non-scientific, LinkedIn poll about turnover asking people to share what drives people to leave a job. The response pattern

mirrored research findings:

1.  Opportunities for growth are very important.

2.  Good managers and leaders matter.

3.  Sometimes money matters.

The next blog will identify the ways that voluntary turnover can affect SMBs and their bottom lines.

Sources:

[1] CareerBuilder Survey of Employers and Workers.  2012. http://www.careerbuilder.com/share/aboutus/pressreleasesdetail.aspx?sd=1/24/2013&id=pr735&ed=12/31/2013  (Accessed March 15, 2013).

[2]Hope, John B. and Patrick C. Mackin. 2007. The Relationship Between Employee Turnover and Employee Compensation in Small Business. Small Business Administration,

Advocacy Office, Contract number SBAHQ-05-Q-0012.  www.sba.gov/advo .