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How Do Entrepreneurs Tame the Red Tide of Employee Turnover?

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After many months of planning, negotiating and saving you've bought a small business, or you've gone out on your own to start one. Your product or service is beginning to sell, your little firm shows promise, and the future is beginning to look bright. You start to breathe a little easier. You're going to make it. You feel like you're on your way to becoming one of the 5-10% of entrepreneurs whose startup survives.

Then your most valuable employee walks into your office and announces that he or she is resigning to accept a better offer. All Hell breaks loose in your mind. You wonder why you ever quit your underpaid but steady old job to become an entrepreneur.

Welcome to the red tide of employee turnover. Just when you've conquered the hard parts of going out on your own--figuring out how to sell your product or service, getting financing, fine-tuning your manufacturing or service protocol, setting up a smooth administrative operation--you discover that you have another mountain to climb before your company becomes stable. And that mountain looks in some ways like the most difficult, nebulously definable obstacle of all. You don't know where to begin.

Later that evening, after a few hours of shock, you admit to yourself that maybe your company is a little bit of a crazy place to work, not a nirvana for employees who just want a paycheck so they can feed their families and pay the rent. Now that you think back, every week has been tainted by some combination of tough deadlines, emergencies, cash crunches, difficult clients, inter-office rivalries--the usual minefields that entrepreneurs tiptoe through on their way to oblivion, or riches.

So you wonder: What's it going to take to do Human Resources right and make your employees, and yourself, happy?

The answer: More than you think, since American employees have, for the past 65 years or so, looked to their employers to make their lives have meaning, happiness and a semi-robust checking account. That's a heavy burden for any employer to shoulder. Once you understand that, however, you can begin solving the puzzle.

First, believe that you can stem the red tide of employee turnover--if you give proper attention to it. I know, because when I was building a three-time INC. 500 company I was absolutely terrible at H.R. Sure, I can come up with a trainload of excuses: I was busy with day to day operations and financial management survival, juggling sales, operations and suppliers' needs, the way most early stage entrepreneurs are. But deep down inside I was an introvert and utter misfit for running a company, and I probably drove my employees nuts; many of them up and left. It took years to realize I needed help to build a happy, healthy organization in which people could envision staying for the long haul and building a career.

I realized that I needed a nicely profitable company so that I'd have enough positive cash flow to fund good wages and salaries, vacation days, sick leave, allowances for health care premiums, and so forth. Without profits and positive cash flow, there is little pie to share.

Then I saw that part of the problem could be solved at a low cost, and probably more quickly, in a startup than at an established big company that had had an H.R. department for decades. I'm talking about intangibles like respect, empowerment, fun, teamwork, and just plain good fellowship. Doing these things right brings everyone closer together and unleashes spirit, energy and motivation. You can be lousy at H.R. like I was, but if you get the right person to take over and run H.R., it can be fun to watch the results play out.

When H.R. is done right, everyone benefits and, yes, productivity and thus profits can also go up. It's like clearing the air on a sticky issue in a marriage. Once everyone has had their say and a solution is agreed upon, the love and trust begins to flow again. That's why an entrepreneur needs to be, or at least hire, an H.R. wizard for his or her constantly evolving company.

But, how do you enable this at your own company if you're an H.R. klutz like me? I suggest you do what I did--hire someone who is skilled in the areas where you are weak. I chronicle the journey from ragtag startup to polished growth company in my book, Chicken Lips, Wheeler-Dealer, and the Beady-Eyed M.B.A.: An Entrepreneur's Wild Adventures on the New Silk Road.

When my little company finally took off I tried to convince my talented extrovert friend John Jeffery to come run the operations side of things. He was an underpaid and overworked manager of seven retail stores in Wisconsin, Illinois and Iowa, piling up late hours and too much time on the road. So I called him for lunch one day and pitched him my offer. He listened politely, but nearly burst out laughing when I suggested he come work for me. I guess back then my company was too small and tenuous for anyone to take too seriously.

So I went back to my office with my tail between my legs and promoted an existing employee. Well, that was a merciless solution. Given the rapid growth of my upstart company, pretty soon the key employee I promoted almost went up in flames, what with the stress and deadlines and all. She resigned soon thereafter, looking for a calmer atmosphere.

So I approached my friend John again. But again he said no. With no other options I hired a "pro" after months of scouring resumes. The pro lasted a few months and then gave up during our busy season, leaving me in the lurch with exploding sales and a nearly imploding company. That very night I banged on John's office door one more time. It was past 7 o'clock, but he was still slaving away at is desk under a sea of paperwork.

"We gotta' talk," I said as I burst past his semi-closed door. "My key man just quit..."

I heard John mutter an "Oh my God--I'm so sorry."

I kept going: "...and I just know this is your opportunity, now. You'll be paid more and better appreciated. I need you, and it's a good fit." I plunked down a one-paragraph job offer I had banged out in 90 seconds before leaving my office.

John picked it up, looked it over, and then looked back at me. "I'll think it over," he said.

It was the reply of a veteran poker player. He just wanted me to get out of his office so he could get back to work. I grumbled something and slunk back to the parking lot and drove back to my office, hoping I hadn't embarrassed myself too much.

Then a funny thing happened: Three days later John called me at home. "I want you to know that I am considering your offer," he said. I froze with disbelief.

And so that Sunday evening, on a cold late December day, we sat on the edge of a snow bank in a small urban park, since my young kids were running wild inside our house across the street. We talked for an hour under the glow of a streetlamp.

Afterwards I skipped inside and told my wife there was really a chance he would say yes. Our own St. George might come to slay our company's dragons. Or so I hoped.

Three nights later he called. "I accept your offer, he said." I went limp with relief.

Two weeks after that he started, and things rapidly began to fall into place. In a few weeks' time my emerging company became a place where employees could in fact envision a career. They enjoyed a new respect for the titles and job descriptions they held. While work couldn't always be fun, it was sometimes fun, and it was properly structured and rewarded. We sponsored a softball team in summer, planned picnics and pizza, and organized meetings with advance agendas. A 401(k) was offered, along with other benefits. Performance reviews were held on a regular basis. John created an employee handbook that formalized and expanded on what I had held in my head for far too long.

A few years after that the company won the national customer service award for our industry. Our own St. George had tamed the turnover dragon.

All it took was realizing I was terrible at H.R., and then finding the right person to pinch hit for me. One with people and operations skills, experience, humility, work ethic and leadership. When I met John, I knew I had found that person. I just had to convince him to come join my runaway train of a company. It took over two years, but he eventually signed on to take over the operations and people side of things. That changed the company, and my life.

But this is nothing new. Star employees have been promoted or recruited to fill this gap for hundreds of years. The trick is finding them and then turning them loose to shine on their own.

The moral of this story? Whether you start and build a landscaping business, boutique restaurant or software company, or any venture in between, hiring your H.R. and operations boss will probably be the most important employee search of your career as an entrepreneur. So start figuring out if you are weak in this area, and who you know and trust who can fill the gap.


Frank Farwell is founder and past president of the WinterSilks catalog. His book, "Chicken Lips, Wheeler-Dealer, and the Beady-Eyed M.B.A.: An Entrepreneur's Wild Adventures on the New Silk Road," was nominated for the Financial Times/Goldman Sachs Best Business Book of the Year Award. Its Appendix lists the attributes of an ideal product for building a winning business. The book is available from Amazon, or frankfarwell.com.