Managing Turnover: The Hidden Cost Black Hole

When you hear the words "turnover" and "churn" do your thoughts turn to chilly fall evenings with fresh-baked apple-filled pastries and a big scoop of ice-cream? Or do the words give you a staffing headache?

A lot of small-business owners make the mistake of not interviewing to hire once. They don't know it, but their hiring practises mean that they have to go through the hiring cycle a couple of times before they find someone that is the rght fit for the job, and will stick around.

There are two main problems here:

1. The wrong person gets hired, and is unproductive. The business owner makes too many concessions for this lack of output, and the company suffers. If you're a small business, you have to be especially aware of the return on investment you get from your human capital. If you keep the person around and their workrate or quality of work doesn't improve, the company suffers for a longer time, but if you fire them you have to find a replacement who will be more productive. And that's hard to know from an interview.

2. A very qualified and skilled candidate is hired, but the job is not challenging for them, and they quit. This leaves the business owner having to go back through the hiring process, which can be time consuming and costly.

If you Google search for "cost of hiring the wrong person" you're going to see a lot of ads for staffing services with some good information attached.

It can cost money, time, productivity, staff morale, customer goodwill and loyalty, when you hire the wrong person. That's why getting it right first time is so important.

So how can you get it right?

It's simple, really, if you pay attention to the skills and behaviors needed to perform the job functions.

Be realistic about the job, and how qualified the person really needs to be to do it. Very often, business owners hire over-qualified candidates. Hiring for where you want to be is a good thing, but you have to get there quickly to keep your employees engaged. Some jobs need the candidate to have specific experience, with or without a degree. Not everyone can be a decision-maker, so hiring people with significant decision-making experiece is only likely to disappoint them. And worse, they might question your ability to lead your company, causing disharmony among your other employees.

Be realistic about how much you're paying. Assess how much you're offering as compensation for the position, then look at the skills and experience of your candidate pool and estimate how much a person with that background could reasonably expect to earn. The bigger the discrepancy between the numbers, the shorter that person is likely to stay. There are exceptions, of course, especially around people changing careers or retraining. But by and large, though, people rarely expect to get paid the appropriate rate for the job they do. They expect to get paid the appropriate rate for the jobs they could be doing with their skills and qualifications.

Don't oversell the job to the candidate. If you know that you're hiring for a dead-end data-entry position, don't sell it up as having management potential. Being honest about that will set the right expectation from the start. It will also cause the people most likely to quit to remove themself from the field. When that happens, you're left with the people who either a) really need a job, any job; or b) really want to work for your company. In both cases, they're much more likely to stick around.

Then there's the question of how to thin the herd in the interview process, but that's covered in another article.

Five Lessons Every Small Business Can Learn From...The Karate Kid

In middle school, me and my friends all wanted to be Danny Larusso. Rocky had turned the sports underdog story into a legitimate genre, but The Karate Kid series made it something that resonated with us as 10-year-olds in a way that Hoosiers just didn't. Okay, maybe it was because it was really about kicking butt and getting the girl. 

On June 11th, we get to see how the classic 1984 movie has been remade. The setting has moved from California to China, Ralph Macchio's title role is being played by Jaden Smith, and Pat Morita, who found fame as the iconic Mr. Miyagi (Mr. Han in this remake) has been replaced by Jackie Chan, in a role that may let him show off his dramatic chops in a way we haven't seen since Ging Chat Goo Si (Police Story) in 1987.

Both the original and the remake are simple stories: a kid, brimming with self-confidence, is moved to an environment where he must make new friends and establish himself in the high school pecking order. While he's doing that, he gets on the wrong side of the local thugs, and realizes that merely defending himself won't earn him any respect from the bullies -- he must stand up to them, and defeat them.

If you're getting your butt kicked, talk to an expert.

Sometimes experts don't look like we expect them to look. Whether it's the handyman who's a martial arts expert or the tech support guy who speaks three languages, we can be surprised by what people know. One of the most common things employers suffer from is that they forget that their employees came to their current job with prior work experience -- and sometimes that experience is in a different but useful field. Social networking, whether it's on Facebook or Linked-In, is vital to contacting people who can provide credible help when you most need it -- however, the cost of social networking is that you must be active and give your own expertise whenever you can. Nobody likes people who just take and never give back.

Know what the competition's like when you move to a new market.

The only way to approach a new market is with confidence. However, that confidence should come from the fact that you have researched the environment, the competition and the opportunities, and that you know you have a better product or a better value proposition for consumers. If you don't do your research and jump in with both feet, you're likely to get the kind of whupping usually reserved for red-headed step-children. Confidence is good, blind certainty is bad.

Practice is boring. But it does improve your skills.

Who says you can't learn karate from cleaning cars, sanding decks, and painting fences? If you want to sell, sometimes you have to practice your pitch, but sometimes you have to practice the other things that make you good at presenting. Firm handshakes, eye contact, active listening, objection handling -- these are all good things in sales. Conversations with friends and family can take care of eye contact and active listening, dealing with your kids will likely make you a better objection handler. What you do on the practice field doesn't always look like a game-time move.

Copying an old formula works -- if you do it well.

Stories of overcoming adversity to become the best are not new. They were around a long time before we ever put them in movies. Who'd have thought that a guy who never went to high school would invent the automobile, or that college drop-outs in Massachussetts and California would invent machines which would revolutionize every workplace in the world? Frachises (and not just the celluloid kind) work on the same principle. Take an idea that works, figure out why, sell it to other people. McDonalds, Subway, Seven-Eleven, Kinkos -- you know what kind of service you'll get in every single one of these places. You know that the menu, whether it's food or services, is the same, no matter if you're in Goose Creek, N.C., or Reedsport, Ore.

Respect and discipline will win in the long run.

In The Karate Kid, Danny wins out because he and Mr. Miyagi have a mutual respect that the Cobra Kai goons and Kreese, their teacher, don't have. Respecting your suppliers and customers helps those relationships to develop. As a result, you may get better deals on credit terms from suppliers, and good word-of-mouth from customers. If you can develop those relationships while focusing on disciplined control of your expenditure, your business will be a winner.