How to manage people, pay & performance in a scaling business
Last month we co-hosted our "Startup Stories" breakfast together with Jump.Work and Unleashed. Here are some of the key takeaways from the event.
All companies want to attract the best talent out there, but how can startups compete with established companies when it comes to salary?
There isn't a straightforward answer to this problem. Naturally, startups lack the resources to match giant corporations; however, what startups may lack in wealth, they more than make up for in opportunities and prospects.
Therefore, for startups to attract the best talent out there, they must distance themselves from larger companies and instead benchmark and compare themselves with companies who are similar in stature.
When someone joins a startup, money is never likely to be the primary motivator. Instead, things like company culture, benefits and long-term opportunities are likely to be more decisive factors.
However, even if money is not of primary importance, it does not mean that the issue can be swept under the carpet.
While company culture is extremely important, startups should be conscious that strong company culture is unlikely to be the sole basis for attracting candidates and that offering an attractive basic pay rate will still hold value to people applying for jobs.
Very few candidates are likely to do a job below the market rate, so startups must pay good people good money. Companies do not want to get an image of being miserly, and it doesn't take long for a company to gain a bad reputation.
Consequently, startups must be transparent and honest from the outset. Realising that they're not competing with large corporations means setting realistic expectations for both themselves and prospective candidates.
It's important to appreciate that when someone joins a startup at the beginning of its journey, they are often doing so at great professional and personal risk. It is no secret that life in a startup can be volatile—a staggering 90% of all startup projects fail.
There is a direct correlation between personal risk and professional risk, and if a startup fails, ultimately, those involved in the project will be left facing unemployment.
There's an additional personal risk too. Failing in a startup can be highly demoralising and can lead to a loss of confidence and a sense of failure. While those involved in startup failures should console themselves with the fact that nine in ten startups don't make it, it can still have an impact when choosing their next career move.
Consequently, when someone jumps aboard a startup ship, they're often sailing into the unknown. While that may provide a sense of adventure and intrigue, it also has to offer a certain amount of security.
As a startup begins to grow and prosper, it is only natural for employees to feel that they should be, or deserve to be, earning more.
As we've already mentioned, startups do not have bottomless pockets, so when employees ask for a salary increase, it may mean that a company has to modify their pay structure. Doing that carries its own risk as not only could it encourage other employees to do the same, it could also even lead to a breakdown in team morale.
This is part of the course for startups. Decision-makers will have to weigh up whether it's worth losing someone because they don't want to pay more or recruit someone less experienced and then train them.
Doing the latter is only ever a temporary measure and there is never any guarantee that the same problem won't occur further down the line.
It is perfectly normal that people expect to evolve as a company grows. So, when faced with a dilemma of this nature, companies must weigh up the pros and cons and the opportunity versus the cost of losing a high-value member of their team.
There is another dimension to employees asking for a pay rise. While the end result may be a pay increase, the reason for the request may not always be financially motivated. Sitting down with an employee to establish why they want an increase can help decision-makers understand how they can support.
"Discover how you can bring value in different ways and understand what your employees' intrinsic motivations are."
Andrea Consonni, Co-founder & CEO @ Jump.Work
Let's imagine that an employee has a young child. They approach their manager and ask for an increase in salary as the cost of sending their child to nursery five days a week is just too much. A problem like this may be resolved without a pay increase. Instead, a remote work proposal may be a viable alternative.
An issue such as this isn't strictly one that only startups face. Lots of companies would do well to understand the reasons behind employees' pay-related questions. Finding solutions isn't always easy, but encouraging honest discussions between employers and employees can lead to a compromise that suits both parties. For startups, thinking outside the box allows them to compete with much larger and more established companies.
Performance & targets
There are many reasons why it is not easy to review employee performance in a startup. Whether it be because of a lack of due process or simply an inability to measure existing versus prior performance, startups can sometimes struggle to find a system that suits them.
Nevertheless, performance reviews are crucial in ensuring that employees feel valued in their roles. They are also important in helping both employees and managers understand where performance meets the required standards and where it can be improved.
"Proactive and regular conversations are key to set expectations and understand what motivates people."
Hannah Keal, Managing Partner @ Unleashed
A year is a long time in a startup. Instead of implementing fixed annual reviews, companies could try and review employee performance less officially on a monthly or quarterly basis.
By doing this, managers can track performance and results more consistently. They can also affect change and react to situations more quickly and efficiently.
Performance and target setting are linked and a review always provides an excellent opportunity to discuss both. However, when an employer insists on conducting reviews annually, they do not leave themselves much time to affect change.
Let's paint a scenario where an employee has met their target in the first three months of the year. In this case, what is their target for the remaining nine months and what is their motivation to turn up for work? After all, their yearly objective has already been met, and if they're being measured solely on that, then there's little to incentivise them to go beyond it.
Regular and proactive discussions that allow for realistic expectations to be set are far more likely to benefit both the employee and the manager.
Let's look at it reversely and presume that an employee did not meet their yearly target. Discussing performance just once a year means that one meeting becomes a confirmation of employee failure.
Had reviews been conducted more frequently, both the employee and manager could have discussed ways to improve results and establish whether they had the right tools to do their job.
By conducting reviews more regularly, employers can negate many of the previously mentioned problems and can instead manage their employees and their performance systematically.