It hurts real bad when an employee you spent the most time grooming leaves for a fat funded startup.

Founders who are disciplined with how they allocate their capital, i.e. bootstrapping or taking very little outside capital, find it hard to retain their employees when heavily funded players come marching in. There are two ways it impacts them. First, funding signals more stability. Most people think that a well-funded company means a well-capitalised company therefore less career risk, and are naturally attracted to them. Second, that massive funding amount can be spent only on two things, hiring and advertising.

No investor on the board ever objects to hiring even if they ask questions about the effectiveness of marketing advertisements. So fat funded startups increase the market salaries by 2-3X to win talent.

It is said that money is a satisifier and not a motivator, but wait until a Sequoia-funded startup offers your employee a 2.5X pay increase. Even if the employee does not feel motivated by money, his family will smack him into taking that salary increase.

Every time the funding market heats up, like what is happening now, capital-efficient founders get hurt. The problem is real, not a fun problem to solve and not an easy one either.

Here are a few things you can do to give yourself an edge when you don’t have the capital to fight.

Surround employees with good people and give them autonomy

One of the most under-appreciated factors that contribute to high morale at the workplace is teammates. Star performers like to work with other star performers. When you are hiring keep that in mind. That does not mean hiring people with fancy degrees or from another branded workplace. It is more to do with things like grit, subject matter expertise and work ethic. We all appreciate and miss that office cafe assistant who customises your coffee at the temperature you prefer and the blend that you love. Think about how this next hire can delight everybody around him just by his/her presence.

Most of us have been told what to think and do all through our lives, be it at school, college or home. When you get autonomy at work, you feel heard and appreciated. The moral boost that comes from this has no parallels. Hire the best and let them lead. As their manager, be available to remove only bottlenecks.

You may be thinking that everyone can’t work in this style. Some may need to be task-driven rather than have an outcome-driven work style. Most task-driven work profiles are a symptom indicating the person requires more training. Invest in that training for them. Once people experience the autonomy of an outcome-driven work style, they don’t like going back to being micro-managed.

Communication is the heartbeat of healthy relationships

Relationships don’t die a natural death, they are murdered most often by a lack of communication. First-time founders underinvest in communicating with teams, they don’t share frequent news on where the company is headed. They think that the job of an engineer is to just execute on the scope of developing code.

Let everyone in the team know how well you are progressing? Send weekly update email, schedule frequent All Hands. A clear company vision of where things are headed is interesting to employees. What is even more motivating is when they are able to see how their contribution moves the needle towards the vision. Show them the strategic importance of their work. Managers play a key role here in providing that translation. What is even more impactful is when managers are able to translate how the work moves the needle for company vision as well as personal ambition.

One of my favourite CEOs used to often say, “Repetition does not break a prayer.” Repeat your communication, the founding story, the mission at every avenue possible. Don’t think of this as tax on your overburdened schedule. Think of this as the investment you are making in saving future attrition.

Chart career paths so that they know how to progress

Ben Horowitz has a great line in a talk that he gave at Stanford a few years ago: “It is in startups more than large companies that you need more processes.”

As early as possible, define how someone in the company can grow in their career. Without that know-how, employees end up thinking that if they cosy up to the founder and impress them or persuade them in any other way, they can get promoted. That sets a bad precedent for everyone. The ones that are good and don’t like playing politics would get demoralised. Write down what the different job descriptions are. Tell them how they can progress from the current level to the next.

Promote from within. Best people are driven. They want to do more and earn more. If you always hire from outside then they will get the impression that they have to leave to move up. Have a 50-50 split when looking for new roles to fit. If you can then limit your external hiring only when you cannot find an internal potential that can grow.

Do salary benchmarks, provide stock options and continuous feedback

In startups, especially capital-efficient ones, salaries are below market. Fat funded ones come and rupture that benchmark time and again. From time to time find out what the market salaries are for every position and benchmark your pay to it.

Use stock options as a way to fill the gap between your current offer and the benchmark. Employees think of options as a lottery ticket where they know a digit or two of winning one. Make it real for them. Funded companies offer buybacks, making employees feel the lottery ticket was real. Nothing stops a bootstrapped company that has cash from doing it. iZooto, which has been bootstrapped fully, did that and became talked about by employees in fat funded competitors for months.

Put a performance or impact assessment system in place

Many prefer to have 360-degree feedback to assess performance in conjunction with OKRs. You may have a simpler mechanism. Whatever mechanism you use ensure that it is put in place. Without a good feedback mechanism in place it is hard to learn how progress is being made. If you don’t know how slow or fast you are going, you cannot improve your speed.

Write down your culture, one place where you can differentiate uniquely

What marketing is to product, culture is to hiring.

Culture may sound like a warm fuzzy thing, a hard thing to put a finger on. Culture is how a team, org or a group behaves. Those behaviours are shaped by some unchanging core beliefs of the founders and the initial team. Write them down, communicate it and reward people that exhibit those behaviours.

If you are remote and will continue to be remote then ensure that word about it spreads. In many industries and teams, co-location may not be needed for teams to work well. In the knowledge industry productivity is a mythical idea. Yes you need camaraderie but you don’t need to measure productivity. If you don’t have belief in remote work find something that will help you stand out uniquely.

Build your employer brand. No, it is not fluff

Many founders have a secret disdain for branding. They think it is talking about themselves and they hate talking about themselves. They hate the companies that post incessantly on LinkedIn and believe that self-promotion should not be done. Self-promotion is not branding. It is quite contrary when others promote you that adds to your brand.

Branding means recall. What do people remember you as? To be remembered for something you have to stand for something. If you worked on writing down your culture, you would have written the core beliefs that carry you and your team forward. And you will have conviction in those core beliefs for you to talk about them and not feel shy about. When you repeat those beliefs through words and actions then that is what you get remembered for and that becomes your brand.

For example, if you care deeply about diversity in the workplace, you exhibit that in your hiring. You will talk about that with conviction in any public place including Linkedin, and eventually will get remembered for that, and therefore build a brand around that.

Once you have articulated what you stand for, get others to give you quotes on it and get more social proof around. Very tactically, focus on Glassdoor rating if you are less than a million dollars in revenue. If you are above a million dollars in revenue, then it is a good time to start thinking about GPTW - Great Place to Work ranking.

Remove inconvenience, personal and professional

This is why many companies add a concierge service. Add company-sponsored lunches and snacks. Unlimited vacation is another good example. Any policy you design, the best employees will underutilise it and the bad employees will overuse it.

Don’t optimise for preventing over-utilisation. Even the bad employees don’t take 300 days of leave in a year. When you keep it unlimited, your team member stops worrying about calculating days if they have to take leave for an emergency, such as a health issue or any other dire need.

Gone now does not mean gone for good

In startups you win by focusing on what is in your control and not worrying about what is not in your control. If you have done the first step of benchmarking the compensation and plugged the gap by awarding  ESOPs and RSUs, demonstrated liquidity of the stock, and followed up by making the workplace sticky by building a strong culture and brand, listening to employees and solving their troubles, providing progress feedback, then you have done what is in your control.

Employees may still leave, you can’t control that.

One of the startups that I worked with went through three near-death situations where team size went from 40 to 6 because funded competitors flooded the market. If you take a longer time horizon then you know that this is a temporary blip. Things that go up do come down and this frenzy too shall pass. Because they had built a great culture, the people that were lured to leave because of the hike but soon get burned by unrealistic expectations, came back to work at the capital-efficient startup. While they got a better pay, they got a horrible culture at the fat funded startup. It started affecting their physical and mental health and they were smart enough to understand the longer-term implications of the choice they made.

Gone for now does not mean gone for good. You may lose in the short term but will win in the long term. As a manager if you block 30% of your time on these topics then you would be better off than most in retaining your employees in the long-term no matter what a fat funded competitor throws at you.

Thanks to Malvika, Tanuka, Minakhee and Shekar for reading the drafts of this.


You may also like:

Why and how to build Diversity and Inclusion into teams
Underestimated founders and founders who don’t get opportunities are often mispriced in what their value is. So when Upekkha invests in underestimated founders, that’s a great bet to pick.
How to run meetings that don’t suck
Counter-intuitive as it might sound, it is in startups that you need better meetings. Better run meetings.