In The Front Door, Out The Back: Attrition Challenges At High Growth Startups

In The Front Door, Out The Back: Attrition Challenges At High Growth Startups

While companies invest heavily in recruiting, a bit more focus on retention might pay significant dividends.

Life inside a startup—especially a high-growth startup—is inherently chaotic. For many, it can feel like a race against time along a track whose ground is always shifting. 

The challenges are especially acute for human resources leaders. Budgets are limited, but demands are huge. You’re under constant pressure to help professionalize the company, deploy new benefits, establish a compensation framework, and create incentive plans, employee engagement programs, and diversity initiatives. Yet all those imperatives take a back seat to your top three priorities: hire, hire, hire.

Now consider this. Those great employees you just brought in get restless, start looking for new opportunities, and leave. Maybe you had them for two years, maybe one, maybe less. All of a sudden, your two-year mandate to double the workforce, say, from 100 to 200 people, means you’ll have to find some 150 new hires, not 100. Congratulations, your job just got significantly harder.

Unfortunately, that’s exactly what appears to be happening at some of America’s most successful VC-backed companies. A Founders Circle survey of 25 large hyper-growth

startups—including a number of “unicorns,” or private companies valued at $1 billion or more—found that one-in-four of their employees leave in a given year. That attrition rate (25%) is roughly double the overall industry attrition (13%), as reported by LinkedIn. It translates into an average employee tenure of just two years. To make matters worse, attrition is most acute in categories like engineering and sales, where talent is hardest to find, especially in tech hubs like the Bay Area and New York.

Here’s another way to think about the issue. High-growth startups spend a huge amount of money and resources to recruit talent. And yet, one in four of new recruits heads out the door within the year. Given the sky-high cost of losing employees—it can range from tens of thousands of dollars to as much as double the employee’s annual salary—it suggests that a little more focus on, and investment in, retention could do wonders for companies that are struggling to scale up. 

Lest you think the startups surveyed are outliers, or poorly run, consider the following: on average, the companies are seven years old, have roughly tripled their workforce to more than 300 in the past two years, and have grown revenue by 70% in the past year. Thirteen of them had sales of at least $50 million. In other words, the companies, which are spread between the Bay Area, Southern California, New York, Boston, and other locations, are among the most successful startups anywhere.

What’s more, nearly all offer a slew of HR benefits that a majority of American workers lack, including paid parental leave, management training, work-from-home programs, tuition reimbursement, and in-house prepared meals. 

So what’s ailing companies whose very growth should create plenty of opportunities for their employees? What’s making their workers restless? And what can they do to overcome these challenges? If startups — even those which by all accounts seem to be doing nearly everything right — still lose talented employees at a higher rate than industry averages, what can be done to help them lower attrition rates and hold on to the best talent?

The survey explores the employee retention crisis in detail, including its causes and possible solutions. Meanwhile, Founders Circle convened a series of conversations with HR leaders and experts in culture to elicit further insights on what is increasingly obvious: startups need to do more to invest in their people.

Founders Circle Capital Disclaimer: The information contained herein is provided for informational and discussion purposes only and is not, and may not be relied on in any manner, as a personal recommendation or as legal, regulatory, tax, accounting, valuation, or investment advice. Neither Founders Circle nor any related person (i) is acting as a fiduciary or financial or investment adviser to you or (ii) is providing any investment advice, opinion or other information in respect of whether any proposed sale of securities is prudent.

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