Profit Minded

How not to lose talent as your startup matures

I once worked for a small nonprofit that generously provided employees with free K-cup coffee. One day a junior staffer noticed that a video camera had been installed in the break room ceiling, its eye pointed at the coffeemaker.

Emails started flying. Why was management spying on staff? Were conversations being recorded? Were lunch hours and coffee breaks being monitored?

I went to the HR director to find out. She informed me that unusually large quantities of milk had been disappearing from the fridge. She was determined to find out who was taking all that milk and to penalize them. Installing a security camera, with no explanation, was her best solution.

Never mind the cost-benefit analysis that would inevitably prove lost pints of milk to be far cheaper than installing a camera and paying someone to watch hours of video to catch the culprit. The cost of creeping out employees was immeasurable. At that organization, such a move was par for the course. Smart people who were fed up with bizarre management and a pathological culture had already begun fleeing.

But serial entrepreneur and startup guru Steve Blank describes this week in the Wall Street Journal how a business can start the wheels of discontent rolling with thoughtless changes. Author of The Startup Owner’s Manual, Blank describes what happened at a small engineering firm when the new CFO persuaded the board that free sodas and snacks were an unjustified expense; instead they should offer vending machine items to staff at a discount. In his article, The Elves Leave Middle Earth, Blank writes:

“I had lived through this same conversation four times in my career, and each time it ended as an example of unintended consequences. No one on the board or the executive staff was trying to be stupid. But to save $10,000 or so, they unintentionally launched an exodus of their best engineers.”

What’s a 50-cent soda to a well-paid engineer? Blank says the seemingly innocuous new policy made those nose-to-the-grindstone workers look up and take notice of how their beloved startup’s culture was evolving. And they didn’t like it. Blank says, “The best engineers quietly put the word out that they were available, and in less than a month, the best and the brightest began to drift away.”

Here’s his simple advice for retaining talent as your zippy startup matures:

"As startups scale into a company, founders and the board need to realize that the most important transitions are not about systems, buildings or hardware. They are about the company’s most valuable asset — its employees.

• Be careful of unintended consequences when you grow
• Recognize the transition boundaries in company size
• Preserve and manage an innovation culture

Great companies do this well."

You can find more of Blank’s small business management wisdom in his weekly Wall Street Journal column.

Have your own startup culture tips to share? Tell us how you keep employees or how you've seen them alienated. Share in the comments section below.

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