CHURN. More specific regrettable churn. Now, if this topic caught your eye, I doubt this is news to many of you and to be perfectly fair probably pretty eye-roll-inducing I know.
Bear with me for just a minute, I’ll make it worth your while promise.
As a consultant talking to business owners all day every day, it never ceases to surprise me how basic of a concept this is and that is rarely a topic of conversation. Very often this is ‘known’ but not understood on the right levels.
I want to break this down into 2 very simple ways of understanding this idea quickly, ensuring safety and success for businesses and owners.
Either we’re never taught it or we were taught, but forget somewhere along the way. Other items, initiatives, success, money, or goals become shinier.
Churn #1. Employee Churn
The simple and hard truth you may not want to hear
You cannot hire enough quality people, train them quickly enough, ramp into a knowledgable and contributing role to replace the people going out the door.
One thing I remember learning in business school very early on is that they say it takes almost 3 years before an employee is a net positive for the company. Before then they are either an investment (if they last) or a drain (if they churn) on your bottom line.
It flat out isn't possible and will ultimately come back to bite you if you let them churn. I can speak from personal experience in a number of different companies I worked for, one of which is still alive and another of which is dead. Out of respect for the dead and the living, I won't use their names.
Every bad hire or person you let fail is a nail in your coffin.
The living one, I started when it was just over 200 people. By the time I left, it was over 1200 people. We had acquired 6 companies and went public. They had an unspoken policy of underpaying people and just hiring new grads to backfill. That worked for a while. I left that job (for that exact reason) 6 years ago because I was severely underpaid. Just last week they went private again and I saw a message from the CEO acknowledging that they had lost a lot of good people during that time and wanted to invite people back.
The moral of this story is that sure you can treat people like expendable resources and cogs in a larger machine. That can get you by for a while. This company was a publically traded company for 6 years and by all accounts moderately successful. During that time, they failed to achieve the same level of growth that had led them to go public in the first place. Their employee churn eventually caught up with them and staggered their growth.
The dead company was at the time considered a very hot MarTech startup. It had one of the largest series B fundraising rounds in years for Colorado with some well known VC firms backing it. When I started we I was employee #34. Fast forward 14 months, I was the 8th most tenured employee there. We had staffed up to over 115 people at one point but then had contracted back down to 70 all within the same 18 month period. Most of that churn occurred with the legacy team and more specifically engineering and sales. This was all a sacrifice at the alter of VC-backed-Bay-Area-Silicon-Valley ‘hyper-growth’. While I’m not trying to fully discredit this approach, it's a lottery ticket approach. It’s gambling at the highest levels, in this case, it was a bet that did not pay off. Now, no one will say that was a smart strategy to turn over all of these people, and this clearly a cautionary tale, but there is a fine line between cultural fit and being a tyrannical spendthrift burning through people and setting cash on fire.
The bottom line is that people are investments and hiring them to let them walk is a poor investment strategy in your business no matter what the reason.
Institutional knowledge is very real. Every time someone leaves, that's experience, knowledge, and, the most valuable asset, opportunity walking out the door. If you’re serious about growing your business either adjust your hiring profiles for a better fit, adjust your hiring plan for scale, or adjust the process or people who are training them.
As a very wise person once told me,
“People don't leave companies, they leave managers”.
I suggest you let that one marinate.
#2. Customer Churn.
No matter what you've heard from anyone, I promise you…
YOU CANNOT OUTSELL CHURN.
You may think you can, but it's not the outselling that is the problem, it's the mentality that customers are replaceable. Regardless of the fact that it’s almost impossible to do long term, its a symptom of a larger systematic problem.
I get the feeling that the fever of ‘top-line growth at all costs’ is starting to break now, but for many years it was the only mentality. Even now I think there are many who still buy into it.
For a while, the prevailing thinking was that topline growth is the only thing that matters and that everything is about new customers/clients. That signing a new client is the only thing that matters. Getting them to sign a contract and then the rest will work itself out.
Why that doesn't work is 3-fold
#1. If a client cancels, churns, or defaults, before or at the end of their contract, you're upside down and have incurred a significant loss.
#2. You’re missing opportunities for success stories, case studies, and referrals while you're also incurring poor reviews and lowering employee morale. It's a double whammy of failure.
#3. Real growth occurs from your customer base, not massive new customer acquisition.
True scaling in business comes from growing your customer and their success with your product and service.
- Anything else is a ‘false profit’ (pun intended).
It's about gaining trust and credibility with a client/customer that you’re going to do what you say. If they churn after their contract, you either did a poor job of identifying fit or you didn't make them successful.
Either way you lost.
What does it mean + what should I do?
These are your leaky buckets and will undoubtedly make you go broke eventually. You may manage to survive, but your continued growth and scaling efforts will continue to be vexed.
They are the two biggest contributing factors to failed growth opportunities and far too often company death.
Ultimately, the solution lies within your problem, exit interviews. You must take exit interviews seriously and have a process that drives that information back into the business to correct the problem. Do not make excuses for them, it's too easy to ignore them or write people off as bitter, angry, weak-willed, not-bought-in or uncommitted.
Sometimes bad employees and bad customers need to go, other times, they don't.
You need to know the difference between a bad fit and bad choices.
