One major challenge facing startup founders is hiring to build their team. As the book The Founder’s Dilemmas outlines, founders face many choices when hiring their first employees. There is no clear right or wrong choice, but all choices have consequences. Hire friends and family or strangers? Hire young, enthusiastic staff or experienced workers? Hire people with startup experience or people with institutional, corporate experience? The questions about recruiting and keeping talented employees are endless. One solution for startup businesses is to consider the advantage of internal development of talent, which can prove to be a cost-effective way to secure quality employees with engrained company loyalty.
Research shows that young firms are more likely to hire young workers. Especially in areas where innovation and technology development are crucial, hiring young workers with the capacity to learn and grow along with the developing field can prove beneficial. Young workers tend to have higher employee turnover as they seek the best employer “match” as their skills develop. Therefore, hiring younger and less experienced employees and encouraging them to develop specialized skillsets helps them “match” their talents with their job responsibilities which could lead to fewer employee turnovers.
Photo courtesy of Samuel Mann via Flickr.
The idea of developing internal talent, rather than hiring experienced talent, is promoted by W.L. Bulter and The Goltz Group, two companies featured in the book Small Giants, as well as by star-companies like Zappos. The advantages of this method are that one can hire relatively inexpensive workers who are a culture fit for the business, develop and raise the expertise and value of the worker, and gain loyalty from the employee in the process.
W.L. Butler Construction engages in training its staff for advancement to help employees feel cared about and like an integral part of the company. For example, the book Small Giants shares how Gina started at the company as a file clerk. The company paid for her education and now she is the Vice President of Finance. Similarly, the company’s president Frank, began as a laborer and was able to move up to became a major decision maker within the company. W.L. Butler is able to have its staff grow within the company due to a large training budget, which they call Butler University. They provide every employee, at every level, a computer and encourage them to find the training and tools they need to succeed. This method creates loyal employees which helps strength the culture of the company. In addition, creating loyal employees results in reduced turnover, which can be expensive. Employees will stay because the investment that has been put into them builds an environment where they feel like their employer cares about them and wants them to stay and succeed.
The founder of The Goltz Group, a framing company, initially wanted to hire people who had prior experience, but soon recognized the value of training someone with limited prior knowledge who would not have to “re-learn” the framing process. Jay Goltz, the founder, realized that what he really needed was to find someone with limited experience that he could mentor and train. Later, when the first hire under this process was offered a job elsewhere for more money, the employee chose to stay at The Goltz Group. He said he chose to stay there because of the way the company was run, how much he valued how employees were treated at the company, and because he viewed Jay Goltz as a teacher.
At Zappos, the training of their employees is primarily motivated by finding a strong culture fit. Their vision is to have most of their employees hired at the entry level, but the company will provide them training, mentorship, and skill building so employees can become leaders within the company in five to seven years. They accomplish this using many tactics including classes, training, and an incremental promotion schedule. They have required reading for their employees to help encourage learning and growth. In some cases, they have classes about particular books to help strengthen employees’ skill sets. They have also instituted a promotion system that allows for employees to have smaller incremental increases every six months, rather than larger promotions every 18 months. The employees eventually have the same growth in terms of their job training, certification, and compensation, but Zappos found the smaller increments provide more incentive for the employees to grow.
A Kauffman study examining Kansas City high-growth companies also highlights the benefit of developing talent internally. The study shows a divide between company leaders who believe that talent is lacking in Kansas City and creates a disadvantage for companies starting in the area, those who believe talent is strong, and companies who strongly promote intra-company training. One Kansas City company with this intra-company training philosophy says:
“…have a long-term strategy to train their employees over the course of years. More specifically, they create a working environment that attracts people with high potential, trains them to be top-notch programmers, and creates a culture and reward system that retains the talent.”
In all of the examples mentioned above, the founders of the company were intentional about putting resources into the training and skill development of less experienced employees. For them, the financial and time resources used were worth the trade-off of creating loyal employees who were fully engrained into the culture of the company. Other businesses could benefit from examining how these lessons could be applied to their own businesses and its hiring, training, and reward processes.
Wasserman, Noam. The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton: Princeton University Press, 2012. Print.
Burlingham, Bo. Small Giants: Companies That Choose to Be Great Instead of Big. New York: Penguin, 2007. Print.
Hsieh, Tony. Delivering Happiness: A Path To Profits, Passion, And Purpose. New York : Business Plus, 2010. Print.
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Emily Fetsch is a research assistant in Research and Policy for the Ewing Marion Kauffman Foundation, and assists in the processing of new grants including grant research, grant write-ups, setting deadlines, and reviewing financials. She also assists in writing literature reviews and informative briefs, and conducts quantitative and/or qualitative analysis on the economy, policy, and entrepreneurship.