High turnover for startups: Why it happens & how to fix it

Got a problem with turnover at your startup? You aren’t alone. Startups tend to have one of the highest rates of turnover in any industry.

What causes this problematic attrition? Is there anything you can do to prevent or reduce it? We’ve done the legwork to answer these questions for you, so let’s dig in.

Today, we’ll cover: 

• Startup turnover rates: Cause for concern
• Why startups struggle to keep employees
• The high costs of startup turnover
• 6 ways to to reduce startup turnover

🚀 What are the 4 key components to a successful startup? Does your company have them all?

Startup turnover rates: Cause for concern

Before you tell everyone you’ll be the next Bezos, consider this statistic: staff attrition rates in startups are around 25%. That’s roughly twice the national average (13%). 

It’s worth being aware of how long the average employee stays at their job, and how this might impact turnover too. Take a look at these statistics from the Bureau of Labor Statistics:

Many startups rely on a young workforce, and when you combine their low tenure length with the increased attrition rate, you can see why they might find themselves short of staff very fast!

But why is staff attrition in startups so high? Do employees see startups as a risk which may not offer the security they seek? Or are employers not spending enough time on choosing the right staff who can grow with the company? 

The real reasons startups struggle to keep employees

Some of the reasons startups face high employee turnover are fairly obvious:

• Startups have lower budgets than more established companies. This makes it harder for them to compete when it comes to salaries and attracting top talent so staff may jump ship if a better offer comes along.
  
• Those lower budgets also means less attractive perks and benefits packages. They may not have the same on-site facilities as “older” companies such as gyms or cafeterias, or might not be able to provide equipment to remote workers.
  
• In the early stages of a new company, full-time staff may be expected to work longer hours than an established business, thus reducing the ability to maintain a work-life balance.
  
• Scarcer resources means that startup companies may not be able to afford the best, or most up to date, equipment to help employees do their job. That could even include something as basic as a unified communications platform.
• Startups often have remote employees located all over the world. These employees often have different communication tools that just don’t work well others’ tools. This can lead to disjointed communications which can quickly lead to bigger problems.
• With startups having such high failure rates, job security can be a major issue for many employees. If they worry that the business will not survive, then looking at a more secure post is natural.

Of course, every startup is unique. There might be other underlying reasons team members don’t stick around, but these are some of the biggest factors and some important areas to examine at your own company.

The high costs of turnover for startups

High employee turnover presents problems on a number of levels. Your human resources (HR) department faces the time-consuming challenge of finding new recruits to fill vacancies created by staff leaving, as well as continuing  to fill new vacancies created by growth. 

Beyond the recruitment factor, there is also a financial cost in dealing with employee turnover. These costs can vary greatly but when you consider that finding new staff involves recruitment, onboarding, and training, you can see that the costs could quickly mount up.

Here are the average costs of employee turnover:

• For a leadership team level employee with an annual salary of $125,000, the cost to replace that employee can be as much as $312,500.
• An entry level employee with an annual salary of $60,000 can cost around $30,000 to replace.

As you can imagine, these extra costs can really impact a startup’s burn rate and overall profitability. 

6 ways to reduce your startup’s turnover

Of course, employee churn is not just about those financial costs of replacing them. Depending on their role in the startup, essential tasks or projects may be interrupted and delayed. And in the time it takes to find a suitable replacement, the workload will likely increase on existing staff. So what steps can you take to try and reduce your turnover rates?

1. Modernize your recruitment process

Your headcount planning and recruitment process can be a crucial step in reducing future turnover and increasing employee tenure. Recruiters should look deeply into an applicant’s resume and their history, but also account for attitude and willingness to learn. They might look fantastic on LinkedIn, but without that passion for your ideas, they might not stick around.

With today’s tech, it’s easy to recruit and hire remotely, anywhere on the planet. Who knows? A remote worker in Australia might just be your missing link! 

2. Streamline your team communications

If you run a hybrid team—or even if everyone is all in the same place—important messages can fall through the cracks. One cost-effective way to ensure everyone gets the message: use a single cloud communications app to handle all of your team communications. RingCentral MVP brings together messaging, video calls, and your business phone, which means everyone is on the same page.

See RingCentral in action:

3. Foster a sense of belonging (especially for remote workers)

While you may have important projects to complete in a limited time frame, all work and no play makes for a disgruntled employee. Introduce fun and camaraderie to your work environment to build a real sense of belonging and teamwork. 

Where possible, organize team building events outside of office hours or free up an afternoon for an activity. If people seem reluctant to do something in their free time, look to gamify some aspects of their work using your messaging and communications platform. 

However, this isn’t just about fun and games. It’s about ensuring employees feel heard and valued, no matter their role or background. Startups and small companies can easily feel like cliques to a new employee, so make sure you go out of your way to be welcoming and inclusive to newcomers.

4. Build a positive company culture

Even the smallest startup should be looking to develop a positive culture from day one. That culture starts from the top (you) down. Investigate how your employees want to work and whether a new model will work without affecting productivity. It may even help increase it!

Startups tend to have smaller numbers of employees so involving team members in brainstorming and decision making at work can make them feel valued and more likely to stay with you. That’s easier when you have low numbers. However, video meetings make it easy to involve large teams in discussions without having to fill up a physical meeting room.

5. Prioritize a healthy work-life balance

Work-life balance is something that has become a crucial factor for many people. One thing to consider with startups is that you may often have to ask new employees to work extra hours or even on days off, so you need to balance that with incentives. Offering extra days off for working extra hours can be a great incentive. 

Flexible working is another thing that can really help. Many startups operate outside the traditional 9 to 5 model, so if your focus is more on ensuring tasks are completed, consider bringing in flexi-time and/or remote working. This way, your staff can work when it suits them as long as they complete a certain number of hours weekly or monthly.

6. Offer paths for learning and advancement

It is unlikely that any of your employees want to be stuck in the same role forever. While it may be difficult to offer promotions while your company is in its infancy, you can easily offer opportunities for learning.

Offering learning doesn’t need to make a hole in your budget either. Investigate relevant online learning courses that will benefit your staff (and you). Ask equipment providers about any training they offer (it is often free) that can be delivered via online webinars. If you find an interesting (and relevant) resource or podcast such as a TED talk, share it with your staff. 

Make team retention a top priority for your startup

Avoiding high staff turnover rates is perhaps more important for startups than it is for more established businesses. You need to keep a close eye on all costs, from salary caps to how much you spend on your tech, including any communications platform. 

RingCentral offers a cost effective, burn rate friendly solution that can grow with your business. We deliver superior scalability, industry leading security and features to startups of any size.

Originally published Sep 30, 2021, updated Feb 23, 2023