Culture Club: The Harsh Soft Costs of Bad Hires and How to Prevent Them

When your startup is getting off the ground, culture is not something you really have to worry about. For most new companies, it’s just you and maybe a friend, family member, or colleague you’ve known for some time. However, as you start hiring additional “outside” staff, the company’s culture will shift and change over time. Depending on how quickly you scale your company, the culture you started off with may be drastically different just a few months later.

One of the “unicorn” Silicon Valley insurance startups had their internal culture exposed to the world when their founder and CEO was ousted a few of years ago. The culture, as reported, resembled more of a frat house instead of a multi billion dollar valued company. Your company may not have the issue of rapid growth, where you hire hundreds of people in one year. However, even one bad hire can dramatically change your company culture, and cost you much more than the “hard costs” (compensation and benefits) of that bad hire. The “soft costs” are often the ones that hurt your company and cost you more in the long run.

The true soft cost of a bad hire can be significant and is often overlooked. In a survey conducted by SHRM* of over 2100 CFOs regarding the cost of bad hires, 39% were concerned about degraded staff morale, 34% were concerned about a drop in productivity, and only 25% were concerned primarily with monetary costs. 95% of respondents said a poor hiring decision at least somewhat impacts the morale of the team while 35% said morale is greatly affected. So what does this mean?

Let’s start with employee morale. The truth is that employee morale can be significantly affected by a bad hire. At best a bad hire may temporarily affect production or efficiency. At worst, a bad hire can be a cancer in any organization, with dire consequences for a company looking to grow.

The bad hire can create problems with issues such as: bad attitude, poor work ethic, poor work performance, or personality conflicts. The bad hire’s work performance or work ethic can result in increasing workload for other employees that may have to pick up the slack. It can even lower the bar for other employees due to his/her poor performance.

Many leaders believe the top-performing employee sets the bar for all employees. While that may be true for other engaged and motivated employees, the truth is that the bottom employee actually sets the bar for most employees.

For example, have you ever been late to a meeting? How badly did you feel walking into the meeting late? Now, imagine three minutes later, another co-worker walks in and apologizes for being late. What happens to that anxiety and stress you felt when you were late? For most people, the stress goes away. Why? Because in your mind you are thinking, “Whew! At least I’m not as late as he was.” The last person to the meeting set the bar, the same as the lowest performing employee will set the bar for your company.

There’s no I in team, but there’s an M and E.”

Another negative effect of the bad hire is personality conflicts with other employees. There is always one person that believes in “There’s no “I” in team, but there’s an “M. and E.” Whether the person is not a team player, or simply abrasive, a company cannot ignore an employee who is difficult for all others to get along with. You cannot have a solid cohesive team, with one person that just doesn’t get along, regardless of his/her performance. This absolutely includes leaders. The atmosphere of the company will be directly affected by it, which will ultimately impact results.

The “Negative Ned or Negative Nellie.” Negativity is another critical effect the bad hire can bring to the company. Have you ever been around that person who’s negative towards everything? This person is negative towards “everything,” from meetings, trainings, to management directives. What is worse is when the negatively leads to “bad mouthing” the company, spreading the negativity around the organization. This bad hire becomes a “dark cloud” that can spread throughout the company and infect others. Many times these employees add even more problems upon departure. The longer the bad hire stays with the company, the worse the “infection.”

One last comment about employee morale. The effect of the bad hire many times is not temporary, but can linger with the company. How a company handles a bad hire, may determine the extent of the effect. If the situation isn’t resolved in a proper manner, the risk is extremely high that the company will increase the chance of turnover for other employees. The good employees may seek alternate employment because of the negative effects the bad hire made and the company’s response or lack of. Lastly, the opportunity cost of money, time, and effort that could have been focused on other areas can be enormous.

One major area of soft costs that is often forgotten is the customer experience. A bad hire can produce a bad customer experience, whether it’s a potential customer, new customer, or an existing customer. The bad hire can ruin the experience for a prospective customer where it may take years before this prospect let’s your company back in the door, if at all. Worse yet, the bad hire can ruin a relationship that took years to build. Luckily some loyal customers are forgiving. However, this may be the crack in the door for that other companies to steal your client. Can you really afford to have many bad hires?

So what can you do to reduce and prevent bad hires and create the culture you want?

1. Decide on the culture you want/your core values: For example, is it fast paced or relaxed? Family oriented or work only and nothing else matters? Win and move on or high service orientation? Team or individual focused? Corporate or casual?

2. Recruit and interview for cultural fit: Giant Asterisk: Cultural fit doesn’t mean hiring everyone that’s the same or eliminating diversity. It means you screen for values and traits that fit your company culture. Sample screening questions:

· What type of work environment do you excel it?

· What are you looking for in your new place of work?

· Tell about a time when you didn’t get a long with a fellow co-worker and how did you resolve the situation.

· What is the one word that would best describe you?

· What are your core values?

3. Communicate early and often: The leaders of the company must consistently communicate the values that are critical to its culture and success. It’s not something that’s just written on the wall, but an ongoing process. Remember, it’s “ Do as I do, and say.” The leaders of the company also communicate through their actions. You set the tone for what’s acceptable and wanted not just through your words, but your actions as well. Often times, the biggest violators of the cultural values are the leaders. You must lead by example and commit to the values you created.

4. Coach, counsel, reward: Coach and counsel employees appropriately when they are behaving inconsistent with your company culture. On the flip side, don’t forget to celebrate and reward, when you catch them doing something right.

5. The 3 “Ts” when someone isn’t working out: If an employee just isn’t working out and is affecting your company culture, follow the 3 Ts in order.

· Train: Provide additional training, coaching and development

· Transfer: Is there a role that’s better suited for this employee that may change their behavior and results?

· Terminate: If nothing works, you must pull the plug. As stated earlier in the blog, the longer you hang on to the bad hire, the more it will cost your company in the long run.

Developing a great company culture doesn’t happen by accident. It requires discussion, planning and constant implementation. Although this may take time and effort to develop and maintain, it’s well worth it. A great company culture can help you achieve your financial goals, retain talented employees, and reduce the soft costs of bad hires.

Share your company culture. We’d love to hear about your good and bad experience in the blog comments section.


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