WHY GOOD PEOPLE LEAVE GOOD COMPANIES AND HOW IT IS DESTROYING SMALL BUSINESSES

As the CEO of a tech company for 15 years, I have seen a lot of good employees come and go for many reasons. Being a small employer was hard enough going into the pandemic. But now, in a world where small employers aren’t just competing for talent locally, but nationally, or even globally, the challenges can seem insurmountable. In the previous 4 months, we have seen more turnover than in the previous 2 years combined. Which begs the obvious question, why? Why are good people, some of whom have been with us for 10+ years suddenly all deciding to leave at the same time? What changed?

Having spent the better part of the last 15 years building a company that put an enormous focus on taking care of our employees, I have been scratching my head trying to understand the answer to that question. Not only have we not cut back on the investments we make into our culture and staff, but during the worst of the pandemic, we doubled down, making sure our staff were taken care of during a difficult time. Then, being in one of the industries that boomed during the second half of the pandemic, our staff shared in that opportunity more than most, being that 40% of the company was gifted to them back in 2016.

So if it isn’t us, it must be them, right? That’s not it either. While any business is going to turn over a certain percentage of employees for not being a culture fit or not being able to perform in the role, that is certainly not what’s driving this movement. Which begs the question, what is?

Reduced Workforce – Nationally, the labor force has been reduced by 3.5 million people—levels not seen since the 1970s. This situation was largely created by the pandemic, but is exacerbated by the massive number of baby boomers exiting the workforce.

Strong Economy – The US economy is booming across many sectors. While this is terrific in many ways, it creates even more demand for talent that can start right away and hit the ground running.

Increased Competition –Employers, especially smaller employers, primarily only had to compete locally for talent. In a post-pandemic world where many companies are offering remote only positions, suddenly not only is every market available to them, many companies and recruiters are targeting secondary and tertiary markets where the standard offer they would make in a primary market is going to represent a 20%-30% pay increase. 

Desire for Change – While this one is the hardest to quantify or measure, many people are just looking for a change. Having been forced to put their entire lives on hold for 18 months, many people are following an instinctual desire to swing the pendulum in the other direction.

Increased Dependency on Tech – While the other 4 factors apply to most industries, there is an additional factor in the tech space. During the pandemic, businesses were forced to accelerate their technology adoption and are now much more dependent on technology. Add to this all the national attention on cybersecurity and the fact that many businesses have stronger balance sheets and great economic forecasts. What you get is a willingness to spend more on technology, which means hiring more people to support, implement, and manage that technology.

While I am sure there are other reasons, those are the four that I have most closely observed. However, the real story is what the impact of this is going to be. There are a number of unintended but not insignificant effects of this massive disruption to the labor force. Most small businesses set their pricing based on local factors. Either their pricing is driven by the local labor market and what they are expected to pay for talent or it is driven by the prices their local customers are willing to pay—or in many cases, both. However, if all of a sudden they need to compete nationally with major metropolitan markets when it comes to wages, small businesses are going to find that their prices are incompatible. That leaves a best-case scenario of significant price increases to their customers who will in turn have to increase their prices, and so on. Or a worst-case scenario where a business is simply unable to compete and closes up shop.

So who really wins in this scenario?

I think we can agree it certainly isn’t the small business owner. But what about the loyal employees who stay? Surely it means more opportunities for them? While that might be true in the short term, it also means more work, longer days, more stress and less happy customers to serve. Okay, well then what about the employee who is getting the 30% raise to jump ship? Sure, short term that raise is great, but long term, what is the effect going to be? As the economy slows down and automation catches up, a number of those jobs that were created in a desperate dash to chase an opportunity will be eliminated.

Furthermore, I have yet to understand how anyone who by design may never meet their employer can truly be engaged. How does one get noticed, learn, grow, get mentorship or connect with the mission of a company where their contributions will boil down to merely the work they can do from behind a screen in a remote location? So then, like usual, it must be the big corporations who are getting all the benefit, right? No, I don’t think this benefits them either, at least not in the long run. I don’t think any of the corporations have cracked the code on how to create meaningful engagement across a highly remote workforce that is being hired faster than it can be onboarded.

This brings me to the question I worry the most about, what’s going to happen? Hyperinflation? Significant offshoring? Destruction of small community businesses? I am not sure. However, I think what worries me most is that as salaries skyrocket and companies make desperate attempts to plug holes by throwing money and remote options at the labor force, the labor force is going to become less and less engaged. For many generations a job was just that, a job. It was a task you performed to earn a living to support your family. However, somewhere along the way, jobs became about more than that. The millennial generation was credited with demanding more from their employers than just a job, they wanted an opportunity, a purpose, an education, and sure, maybe a lot of praise and recognition. In exchange, that same workforce drove innovation, creativity, and change. And while at times it may have been a struggle, I think employers and employees mutually benefited. However, I fear that engagement is going to wane, which in the end, hurts all of us.

So what do we do? While I certainly don’t profess to have all the answers, I do hope that we approach this situation with eyes wide open. Support your local businesses, be kind and understanding if things are taking longer than usual, understand that price increases are likely coming, and when it comes to your job, ask yourself, is that higher offer really worth it? Is that employer actually going to care about you for the long term? Are they going to invest in your community? Are you going to feel good about the work you do?