Brain drain or key people leaving after a change or acquisition is a major problem for organisations, whether they care to admit it or not. Whilst this research study focuses on what goes wrong when companies acquire start-ups, the lessons have much broader implications for managing staff in most organisations and how to prevent brain drain.
When start-ups are acquired by larger organisations, it is often the case that the key staff leave after a short while, denuding the acquirer of the very thinking, skills and knowledge they often think they are acquiring. Not only that but the study discovered that the ‘key staff’ are more than the obvious main people. Start-ups are actually held together by what are known as ‘link people’. These are the people who act as the glue and make sure things get done and the communication flows around the company. Losing them is a serious problem for any organisation…
- The problem of brain drain
- Three primary reasons people work at start-ups
- Four human resources practices to retain those staff and prevent brain drain
Usually one of the central reasons to buy any business is to acquire the talent, knowledge and skills the company possesses. In fact the value in most companies is contained collectively within its people.
However, it has been found that when start-ups are bought out many of the best people tend to leave and head to pastures new after an acquisition. This often leads to an empty shell where the true value of the company acquired dissipates with just the product, service or even, in some cases, just the brand left behind.
Research from Cornell University looks at how to prevent this brain, energy and know-how drain and comes up with some simple answers to keep those that ultimately made the start-up what it was that attracted the acquisition in the first place.
The study found that it is important to understand why these people prefer to work for a start-up and not larger companies or organisations. The researchers found three primary reasons people prefer to work in a start-up over a major company:
- Potential share appreciation. Many of those working at start-ups will work for a share of the company. When that value rises, so their investment grows and, come the acquisition, they can often cash in for great returns.
- Responsibility and opportunity. Compared to a multinational, the employee of a start-up will often work across many boundaries and do far wider range of roles and have input across many more areas for the start-up than they ever would in a larger company.
- With the responsibility and opportunity usually comes continual feedback and recognition of expertise, ability to think, input, energy and effort. These are often a social, psychological and financial set of incentives which frequently disappear in larger organisations where recognition is often sparse to say the least.
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Human resources practitioners should investigate those who are coming into the larger company and see what drives and interests them personally. The study found that there are 4 distinct categories of practices that can help retain key staff:
- Find the link people: It isn’t just the high performers and key staff you should seek to retain. There will be people whose skills or social networks may be critical in keeping the company together. While they may not have high performance metrics they will often make the company happen. Seek them out and target them for retention. Find out who these link people are, discover why they are there and replicate it.
- Cultural integration plan: Being aware that the culture of a small, entrepreneurial start-up is going to be radically different to that of the new parent company is key. From the outset of the acquisition process human resources teams need to work out what the culture is and develop a cultural integration plan to ensure that people still want to work for you.
- Benefits: Where many larger companies will have great family benefits, including leave, start-ups tend to attract younger people without families or older people whose children have left home. These people tend to stay behind to get the job done or come in on their day off to fulfil a rush order, for example. This level of flexibility is often important. However the study found that you can leverage the benefits of your organisation, for example people in start-ups’ often favour employee benefits including gym membership, subsidised meals and subsidised transportation.
- Personalisation: This comes down to three key areas:
- Consider allowing personalised office space such as house plants, pictures from home and so on. These soft touches have been shown to improve employee retention and are often a feature of start-ups.
- Offer flexible working locations such as the opportunity for them to work from home.
- Flexible working hours. While some roles are time of day dependent, other roles need to be done in a wider time-period. Offer flexible working hours to allow the job to get done at the convenience of those working there.
Whilst this research study focuses on what goes wrong when companies acquire start-ups, the lessons have much broader implications for managing staff in most organisations and how to prevent brain drain generally.
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