Starting up a business is no easy task, and it’s not surprising that the vast majority of entrepreneurs fail the first time around. Although there are a number of reasons many start-ups end up unsuccessful, most new business owners make the mistake of not recognizing or investing in their talent. The best businesses are built with great people, and the only way to recruit, retain, and engage true high performers is through a true obsession with talent.
Here are the top five talent mistakes I have seen entrepreneurs make when starting a new business:
1. Recruiting using skills and not behavior as the criteria
Entrepreneurs are keen to hire the most talented people, but they often focus on candidates’ skills, to the exclusion of their attitudes. They may not realize they have hired the wrong person until months later when it becomes clear their new hire is not aligned to the company’s culture and is performing below expectations. Author Mark Murphy, in his book Hiring for Attitude: A Revolutionary Approach to Recruiting and Selecting People with Both Tremendous Skills and Superb Attitude , cites data showing 46 percent of new hires fail within 18 months. Of those, fully 89 percent fail for attitudinal reasons, and not for lack of required skills. To find the right kind of personality, employers should ask probing, detailed questions during the job interview, writes consultant Fletcher Wimbush. Look closely at the candidates’ work history. Ask why they left some of their previous positions and how they got along with their past supervisors. Check their references and, if possible, contact previous workplaces to learn more about how the candidate functions in a team environment. Wimbush also advises to make use of assessment tools or conduct a second interview with another manager present, in order to get a second opinion.
2. Leaving the onboarding process up to HR
Entrepreneurs and managers should make sure new hires feel welcome and appreciated in a way that recognizes them as individuals. Don’t leave this to your human resources department. Make sure their first day is more than filling out HR paperwork, showing them their workplace and being quickly introduced to co-workers. Let them know why you’re hiring them, what you see as their valuable attributes and clearly outline your expectations. In the first six months, make sure they feel comfortable asking questions and find out what they need to be successful in their new role. Leaders need to set aside regular, dedicated time to give them feedback. And for those who have a strong workplace culture, do like Zappos and other successful companies do, create a culture handbook and throw out your employee handbook. Developing culture handbooks gets all employees involved, is a living document and creates a sense of ownership amongst employees. The reverse is true of an employee handbook that is read once and referenced only by employees who are dissatisfied with their employment.
3. Providing only an annual performance feedback
Annual reviews are a poor way to assess employee performance unless part of an ongoing feedback loop. The biggest problem with reviews is they happen too infrequently, says management consultant Aubrey Daniels. Managers should address issues as they arise, not months later, he tells Bloomberg Businessweek. “Think of a sports team: A coach doesn’t wait until the end of a season to give his players feedback,” he says.
4. Using the wrong reward system
Companies often use incentives and reward programs, like Employee of the Month or Top Salesperson, to motivate their workforce. But these programs can demotivate employees, according to a study published by Harvard Business School. Researchers examined a reward program for good attendance and punctuality at a commercial-industrial laundry. Employees won gift cards in a draw for going a month without unexcused absences or tardiness. Unfortunately, some employees ended up “gaming” the program, improving attendance only when eligible for the prize. It demotivated workers who had always been punctual. Productivity fell. Researchers concluded that the success of award programs depends on how they’re implemented.
5. Not answering employees’ questions or not asking great questions
Employees can flounder when dealing unaided with their own shortcomings. An observant manager should be alert to their difficulties and ready to step in with coaching techniques to help them attain their true potential. Ensure they feel comfortable asking questions when they are unsure. Use open-ended questions when discussing how to better performance, such as “how can we improve customer satisfaction?” Posing the right questions, in the right manner, will elicit thoughtful answers, and allow them to devise and commit to their own solutions.
Remember that when you invest in talent you and your company will see the rewards in higher retention of your top performers leading to better company performance.
Originally published on The EO Blog February 19, 2014. Updated for 2022.