A new problem has emerged within the past year for small businesses and larger corporations across the country: employees are needed everywhere, but -there are more vacant jobs than available workers. The “Great Resignation” of 2021 was essentially the mass voluntary exit of approximately 47 million Americans, largely prompted by Covid-19. As we get to the other side of Covid, these workers have yet to return. In attempts to induce more Americans back, corporations like Amazon and Target are offering higher wages and more benefits. Needless to say, small businesses don’t have the same flexibility to raise wages and benefits.
Small businesses and startups are price takers in that they must match wage and benefit increases in order to attract workers when employment opportunities are plentiful. But their margins are generally narrower and their ability to pass on higher labor costs can be somewhat limited. So how can small businesses compete in a tight labor market?
The data shows they can compete effectively, in fact. A study conducted over a three-year span by the Fiscal Policy Institute examined small business activity in states that increased the minimum wage above the federal standard, and compared them to small businesses and startups in states who did not raise their minimum wage above the federal standard. The study concluded that over a three-year period, small businesses grew at a rate of 3.1% in states that raised their minimum wage, while small businesses with lower minimum wages grew at a rate of 1.6%. It seems when small businesses raise their wages, it benefits the growth of their business; furthermore, the study also found that employment grew 1.5% more quickly for small businesses that raised their minimum wage. Despite the data, many owners of small businesses are still unclear on how to implement higher wages and attract the talent they need.
We talked to Business Scalability and Growth Coach Sunni to gain clarity on this issue, and provide insight on what small businesses can do to compete in a tight labor market.
How can small businesses that are struggling to hire enough employees fix this problem?
Coach Sunni first explains the most important part of the hiring process is understanding you’re not hiring employees – your hiring humans. Humans need liveable wages, and money is just “one form of energy.” There are various ways in which you can compensate and create a business that benefits the people that work for you, like flexible hours, compassion, and creating a work environment that feels comfortable and positive for all. It’s important for small businesses to recognize that hiring someone part-time – without thinking that they would have a second or even third job – creates unrealistic expectations for employees. “What small businesses really need to focus on is what they can do for their employees: a small business is a family.” An important component of compassion within your small business is honesty, and being transparent about the wages that are offered. Small businesses are as much about what you can do for the employee as what they can do for you.
“There’s someone out there whose dream job you have – and being able to market the job that’s available is really important in hiring someone who will mold well with your business and become an asset.”
How can small businesses compete with larger corporations in their local area to hire the right employees?
Small businesses need to be profitable, plain and simple. Sunni explains that raising wages for startups that are in the red is nearly impossible, but sharing the progress and success with your employees is vitally important: “You have to be a solvent profitable business in order to raise wages.” That said, people interested in working for small businesses are different from those looking for jobs with larger corporations.
People who want to work for a small business want the benefits that a small business can provide. Even something as simple as remembering an employee’s birthday is just one example of the way in which small businesses offer personability that larger corporations just can’t offer. Sunni clarifies that small businesses don’t need to compete with larger corporations and shouldn’t – but instead should focus on what their business can do for those who work for them: “know your audience.”
All these aspects of employer and employee relations can only be successful if the small business has a good grasp on its mission, culture, and who they’re targeting, while genuinely caring about paying fair wages and offering benefits. The key word Sunni highlights is caring; understanding employees are human and utilizing this to their advantage can give small businesses the setting they need to succeed.
Last, small businesses provide employees with an opportunity for skills development, learning, and advancement that is unique relative to large corporations which are more hierarchical and political by their nature. Small businesses offer a distinctly flexible, human, and high-potential work environment to individuals as Coach Sunni emphasizes. Leaning into their difference, rather than competing on the same terms as large companies, is the avenue to winning in the war for talent.