SMEs are the engine of economic development. Thanks to their private ownership, entrepreneurial spirit, their flexibility and adaptability as well as their potential to react to challenges and changing environments, SMEs contribute to sustainable growth and employment generation in a significant manner. All over the world, it is evident that SMEs play an important role in the national economic development of any country. SMEs are becoming more and more a subject of high attention in the developing countries, countries in transition but also in the countries with developed economies. In some economies in MEA region SMEs employ more than 75% of country’s workforce.
Looking at the growth and job creation potential, SME should have good focus on their human resource, but usually SMEs face many challenges specially when it comes to human capital issues that might mar the growth of this sector. It makes it rather non- negotiable to work on the internal structure, HR processes and practices to ensure growth and attract talent.
Managing Talent is a very important factor for Companies irrespective of their size and years of existence; where issues to their Talent Management such as Attracting the right talent, motivation, development and retention usually exists.
While the bigger companies have lot of options to invest on, the start-ups and SMEs face a lot of challenges in managing and retaining their talent pool.
What are the challenges that startups and SMEs face?
The major challenges faced by startups and SMEs in managing talent arise due to its budgetary restrictions and inaccessibility to newer and more effective talent management plans. recruiting the right people is crucial yet challenging. It’s not enough to attract and hire top talent, retaining them is also essential. The most common challenges faced by startups and SMEs with regards to talent management are:
Challenge #1: Capability and experience to attract and hire the right talents
Some Startups and SMEs might not need or can they afford dedicated experienced talent acquisition teams.
Startups are short on manpower as is. The core team is made of overworked individuals working on absolutely essential and unavoidable functions. As talented as they might be, hiring talent is not their thing. They neither have the specific expertise to attract great talent nor can they dedicate time to manage or retain the talent.
It’s no wonder startups are always at a disadvantage in the talent acquisition war.
There’s a reason why you should get your hiring process right, beyond being efficient. As prospective employees, candidates assess your company based on your interview process. A company with a systematic approach in the hiring process obviously creates a positive impression on the employee’s mind.
Corporate and large companies who have decades of operational experience have a well-defined recruitment process. They have tried, tested over the years, perfected the art of attracting talent. They also have a multitude of tools at their disposal for interviews, coding assignments, and assessments. Often, startups and SMEs do not have access to latest technologies and tools which would enable effective talent management. Using less expensive and less proven technologies leading to waste of time and less productive results.
Solution: Leave it to the experts
When you want something done but you can’t do it yourselves, what would you do? You will delegate or outsource that bit to someone who can.
You can find and hire top talent without talent acquisition teams too. There are several companies that help with recruitment.
Preparing an excellent employee hiring and onboarding strategy is a first step towards employee retention as well. Technology can help a lot in that.
If you’re stuck in this cycle, it’s high time you find an assessment tool, they can help you conduct a highly structured and transparent assessment. There are several tools available for assessment, by which you will be able to conduct a highly effective, transparent, and systematic hiring process without burning a hole in your budget.
Challenge #2: Competitive pay
Acquiring the right talent with the desired skill set can prove to be pretty difficult especially in the experienced, mid and senior level positions. With the competitive talent market offering more attractive salary packages and a better brand name, it becomes very difficult for small start-ups and SMEs to get access to desired talent pool. This is a pain-point for startups – especially if they haven’t been funded yet.
When they cannot compensate candidates like big corporations do, startups end up losing top talent due to lack of funds.
Solution: be realistic about the limitations.
There is simply no way that a company just developing a prototype can match the current salaries and benefits offered by established competitors. Yet there are real advantages to being small. Without an entrenched personnel bureaucracy and long-standing compensation policies, it is easier to tailor salaries and benefits to individual needs. Creativity and flexibility are at a premium.
Thus, be thorough and systematic about analyzing the options. Compensation and benefits plans can be expensive to design, install, administer, and terminate. A program that is inappropriate or badly conceived can be a very costly mistake. Startups should evaluate compensation and benefits alternatives from 4 distinct perspectives.
1- How do they affect cash flow? Survival is the first order of business for a new company. Even if you have raised an initial round of equity financing, there is seldom enough working capital to go around. Research and development, facilities and equipment, and marketing costs all make priority claims on resources. Cash compensation must be a lower priority. Despite this awkward tension (the desperate need to attract first-rate talent without having the cash to pay them market rates), marshaling resources for pressing business needs must remain paramount.
2- What is the competition doing? No startup is an island, especially when vying for talented executives. Companies must factor regional and industry trends into their compensation and benefits calculations.
3- Pay for performance. When hiring someone who has a hard-to-match base salary at their current employer, we cushion our offer with a lucrative bonus structure, commission pay, or other performance incentives. That way, they get paid for the value they add, up to or beyond their current base salary. And it shrinks the gap between cash going out and coming in for the company since you’re often not paying out the money until the additional revenue is banked.
4- Leverage equity compensation or profit sharing. Stock options are often a major component of compensation packages. give each incoming employee an equity grant that vests over four years with a one-year cliff, so if a new hire leaves within the first year, she’s also leaving behind her shares. When we grant these options, we explain what they might translate to in cash as the company grows, and we discuss how that employee can contribute toward increasing the stock price. Some companies instead leverage profit sharing, whereby all eligible employees take home a set proportion of cash proceeds at the end of each quarter. In both scenarios, your team does well when the company does well, thereby aligning incentives for performance.
Challenge #4: Lack of brand value
Big Brand names attract talent.
One of the huge advantages large companies enjoy, over the years, they have created such a reputation that there are people who consider working for them a privilege. Given their value proposition, it probably could be too.
Every company that isn’t a brand has to face this challenge. You need great employees to become a great brand.
Solution: Offer a Great Employee Value Proposition
Your key to compensate for the lack of a brand name is your EVP. EVP is the unique set of offerings and values organization provides that positively influences target candidates.
It’s not essential to provide great perks, but you need to capture a good competitive edge as an employer clearly defining your EVP, it is the promise that you can communicate to your future employees. EVP might include statements related to career growth, learning, fun, flexibility, innovation, organization culture, work-life balance…. etc.
Therefore, investment in your employer brand, as part of your marketing activity is crucial.
Challenge #5: Employee Retention
Acquiring talent is not just sufficient. Retaining employees is more crucial than actually hiring them.
When an employee doesn’t accept your job offer, there isn’t much damage to your reputation. However, when an employee leaves during the first year, it sends a message about your organization, internally as well as to the prospect future employees outside.
As a startup, you cannot afford that to happen frequently! There are several reasons that lead to early employee turnover. The organization culture, the workload, lack of support or onboarding, mismatched profiles, unclear job descriptions – so many factors influence the decision.
It’s much more difficult for startups and SMEs when people quit. It affects your organization financially. Employee retention should always be a priority for startups and SMEs.
Solution: Special term-based bonus schemes, get feedback and set the right culture
A talent retention strategy should be implemented as part of its strategic planning.
Reduce risk in case of turnover. You can cushion or reduce your risk with a signing bonus or quarterly retention bonuses, both of which are swiped if an employee leaves the company too soon. A signing bonus can also be used to poach an executive from her current company prior to an annual bonus or ahead of a stock vesting schedule — the cash up front is a form of reimbursement for what she’ll be leaving behind. The initial outlay for you can be worth the cost savings of retaining good talent.
Integral to your talent retention strategy is finding out what your employees’ value. Start an annual employee engagement or employee experience survey and try to implement a strategy that addresses the low scoring – top priority issues you received from employees.
Startups can define and shape their own culture, that’s an incredible advantage! Great organization culture is essential for retaining employees.
Conclusion
While startups and SMEs face various challenges in hiring talent, they are not without solutions. The unique nature of a startup itself can be effectively used for attracting top talent.
So, if you are looking for recruiting some great talent this year, start with a hiring strategy and explore tools like hiring and assessment software. Create a great EVP and nurture a unique culture. Be innovative and create a remarkable employee onboarding program.
Finally, it is always a good solution to hire an expert specialized in hiring and designing HR solutions for startups – companies like Talenta Group can connect you with top talent across the globe and design best fit HR solutions that can help you grow your start-up with affordable payment plans designed especially for start-ups.