Retaining key talent is key in determining the value of acquiring your company.
Company culture is often cited as a key factor in successful exits. Employees who love coming to work, enjoy time together outside of work hours, who respect leadership, and feel valued can all be measured by the company’s retention rate, which could be as high as 90.00%, and on the low end below 70.00%. And then there’s the “Value ROI”. The average replacement cost for an employee with an annual salary of $125,000 can be as much as $312,500. So if a large corporation is acquiring your company, you want your retention rate to be as high as possible. A high retention rate means a high return on investment per employee and productivity.
So how can you ensure your company culture is conducive to a successful exit? In this blog post, we’ll explore 5 ways to create a company culture that will help you achieve the highest valuation of your company at exit.
1. Compensate your employees and establish financial incentives.
Company culture is formed at the top, good and bad.
When I worked at Bad Boy Entertainment, Puffy wanted us to work just as hard as he did. Now I don’t remember anyone shying away from performing their best, but we were not equity holders in his company, so we didn’t have the same incentive. This was a big gap in an agreement between Puffy and the employees that often created a tense work environment. And pay did not always match the enormous scope of work for many positions.
If you care about work-life balance and financial incentives like bonus plans and stock options, you will have happy employees who don’t want to leave. If you are someone who traded in their family life for a corporate ladder for yourself, that could burn employees and cause them to leave.
2. Encourage employee community building
In many situations at work, the best support is another colleague. Maybe they are in the same department, maybe not.
When I worked at JP Morgan Chase as a banker, I loved running the annual 5k race at Jones Beach, competing against other branches, and meeting new colleagues outside office hours for weekend events with their families. When I left the bank to go to UBS, it was very difficult, as if I was leaving friends behind. Still, my time there is memorable for the community I built there and all the amazing opportunities like taking additional financial courses the bank created for us to know each other. Even at UBS, there were plenty of personal development events. My most memorable memory is meeting self-help guru Brian Tracy.
3. Have a focus (Family, Finance, Health, Relationships)
At JP Morgan, it was about relationships via community events. At UBS, it was about relationships through professional development. But at other companies, like Bloomberg Media headquarters in New York City, it was about health. In their main lobby conference center, you can find healthy snacks, fruits, and vegetables available complimentary to all employees and guests.
Healthy employees are happier, more productive, less stressed, and make smarter decisions. Companies promoting healthy eating habits are promoting a holistic wellness focus to their work that keeps turnover low and retention high.
4. Hire managers who share a value ROI vs. performance ROI balance.
Founders at bigger companies will not know every employee, which is critical to hiring managers that share your values. Prestigious degrees and work experience will often be the shiny object when hiring, but not emotional intelligence, causing fractured, toxic employee-manager relationships.
If you flip this around and hire qualified managers with strong self-awareness, emotional security, and interpersonal skills, employees will feel connected, belong, and included.
5. Innovate & Automate Internal Systems
I remember when the Internet was born, it was not unheard of to hire over 100 programmers and spend over $1 million to build a custom website. Today, you can build a website in a few hours, no code is required, just pay for $200 in annual hosting.
Regardless of industry, many internal business units of your company can adopt technology to make workflows less time-consuming, more convenient, and cost-effective. By saying this, I’m also implying that by automating many of your internal workflows, jobs could be eliminated. This is why I believe strongly in business plans that include a hiring strategy that works in parallel with your company’s tech roadmap. This is the best way to effectively manage human resources and prevent massive layoffs that could hurt office morale. For older, larger established corporations, adapting technology often leads to disruption, as old systems that don’t require so many resources are downsized, and jobs are lost. Kodak was once a large corporation, creating photography and film products and employing 80,000 employees around the globe. Technology in photography has evolved so rapidly that Kodak had to lay off over 70,000 employees over the last 20 years. Since Kodak went public in 2013, its highest stock price traded at $37.20, and today 9 years later, the stock price is $5.99.
On the other hand, automating as many internal systems as possible frees up not only your time but the time of your staff. It creates an opportunity for a culture that focuses on well-being and innovation. I believe Google is famous for this because when you walk into their headquarters in New York, there are whiteboards everywhere with Legos. The cafeteria has every sort of food imaginable.
When you have systems in place that bring cost savings to your company in an innovative culture, you can always plan to do interesting new things cost-effectively by creating the corporate fruit basket and healthy outlets for expressing creativity and collaboration of new ideas.
Create a company that sets up employees to do their best work, and you will also become a company that’s not only valuable and attractive to work for, but a place that people want to partner with and investors want to invest in. This means low turnover and high retention that will become an increasingly important metric when it comes to talking about the value of your shares in an exit.
I provide outsourced CFO services designed to help start-up and early-stage founders craft strategies that help them scale, keep control of their company, and build personal wealth. Here’s where you can reach me whenever you’re ready: 1:1 with Daniel Evans