How are The Great Resignation and Inflation connected?
Ever since the pandemic, we’ve seen increases in prices when it comes to the food and housing market. Combine that with the highest ever rate of resignations and career switching ever in the history of US (In November 2021, 4,510,000 people quit compared to 3,084,200 in November 2019) and you get a huge surge in salary increases and the hottest job market in decades. Great situation for employees, since everyone will get a raise by switching jobs, and horrible for companies, especially startups.
I’ve been pondering the connection between Inflation and The Great Resignation lately after reading this article Why Thinking about Inflation Leads to More Inflation on The Hustle website.
Quite simply explained: inflation of basic goods leads to people fearing more inflation and preemptively asking for raises or switching jobs for higher salaries, higher salaries lead to higher prices for services and products by companies so that they can maintain profit margins, and to higher market demand considering there’s money in the consumers’ pockets which results in fear purchases. This spiral often has a significant negative effect on small businesses.
What are Startups experiencing right now?
Running a start-up has never been for the weak-spirited ones. 70% of small businesses fail in the first 3 years of their existence according to the Bureau of Labor Statistics and I’d dare to say stakes are dramatically stacked against SaaS start-ups in their first 5 years of existence. What I’ve seen currently happen with the clients I’m actively consulting, as well as some of the former ones I stay in touch with, is that they are paying anywhere from 20%-30% more in base salaries for sales representatives than pre-pandemic.
In addition to the challenge of developing a unique tech solution, finding product market fit, identifying the core growth team, finding funding, and hitting revenue targets, startups have to find a way to keep their talent inhouse and from leaving, usually with no HR support and even more limited resources.
Proactively handle the objection
Just two weeks ago a client I’m actively working with called after a rep I helped him hire 4 months ago gave notice after getting an offer from another SaaS company for $30K more than we were paying him. We were able to “save” the rep by offing $25K more, but I warned the Founder that once the door to leave has been opened it never completely closes again and I would expect this rep to be gone in the next 12 months. This rep wasn’t actively looking and was approached, but the money and the impact to his lifestyle was alluring.
I don’t want this to happen to you. It’s my recommendation that you understand what the current salary, commission, and work situation landscape looks like in this hyper-competitive market to make sure that your existing reps compensation situation is competitive.
Even if you have to proactively increase base pay by $10K- $15K, you’ll probably come out ahead by keeping your current team happy and productive vs. the cost of replacing even a single rep.
You can’t buy loyalty, or can you?
In the event you choose not to heed the aforementioned advice, what should you do when an important part of your team comes and says they’ve received an offer and would like you to counteroffer and keep them in your core start-up team?
As a start-up CEO, or owner you should weigh every decision of this type on a case-by-case basis. Here are some questions to help you determine how to respond.
The great resignation wave does put some chips in their court, but how irreplaceable are they to your team functioning and operating.
- Do they have a network, resource, unique skillset, understanding of the market, and technology that is hard to find?
- How hard/long would it be to replace them and how would it affect your business day-to-day for the next 3 months, 6 months, or a year vs the increase in their salary.
- Do you have someone that can take over their pipeline and close those deals at the same rate?
- Is this a person you see in the company 1-3 years from now since you believe they have the capacity to grow their skills as your company grows?
- Are you willing to “save” them?
- Try to put yourself in their shoes, no matter how much you believed in a mission and loved a team a 40% salary increase is something that can dramatically change the quality of one's life.
Pro tip: If uncertain how quickly you’d find the replacement, run a free job posting on Linkedin for that position to see how many quality applicants you get in the first couple of days.
Negotiating a solution
In cases you decide to “save” an employee, there’s the obvious answer of giving them the raise they asked for, or even a bit above compared to what they’ve been offered. Everything is negotiable, and negotiations are a good way to see if the person really wants to stay or it’s just about the money.
Here are some things you could include in your offer:
- Working from home a few days a week, if not remote already
- More flexible working hours
- Different responsibilities or a new shiny title
- More PTO days per year
- 4-day working week
- Commitment to improving general benefits, and finding a plan with the team how to achieve that
- Offering part of the increase as commission for achieved goals and KPIs
Preventing or minimizing effects of The Great Resignation
Do you know how you can stop your child from burning your house down? By not giving it the matches.
The same goes here, if you want to keep your employees’ retention high throughout all of the changes - be proactive. Consider other perks you could offer that are as important as money that you can implement right away. Have a hard and honest conversation with them about the situation in the market and what improvements you can implement right away vs what is something you’d have to work to as a goal to achieve the increases gradually. Most companies, regardless of if they’re a startup or a big corporation play a push and pull game with their employees with salaries and benefits instead of working together towards a common goal, and by changing that you can stand out from the crowd both in keeping your current team and finding the best candidate during the employee shortage in the market.