Employee Outflow: A Leading Indicator of Company Failure

2023 is already setting records for company failures. While there are countless factors that can impact the success or failure of a company, one often stands out as a harbinger of doom: an increasing rate of outflow of human capital from a company.

As employees depart, taking their knowledge, skills, experience, and output with them, a company's negative trajectory often accelerates. In this post, we explore six of the companies that have recently gone bankrupt or shutdown. Each of the companies demonstrates the inextricable relationship between the exodus of human capital and an organization's downward spiral. Explore the relationship between human capital and company trajectory for:

• Pear Therapeutics: 15 months from hiring slowdown to bankruptcy
• Boxed Inc: 10 months from hiring slowdown to bankruptcy
• Reali: 6 months from headcount inflection point to shutdown
• Party City: multiyear headcount decrease
• Argo AI: 3 months from first net headcount decrease to shutdown
• Lucira Health: 5 months of employee outflow prior to bankruptcy filing

Examine each company and its human capital timeline to failure (along with a few puns) in the story below.

Using real-time human capital data to avoid falling knives

One of the biggest risks in investing is "catching a falling knife" – investing in a company on the brink of failure or experiencing a downward spiral. Traditional financial metrics and market indicators offer some insight, but they often fail to capture some of the underlying issues that can lead to a company's demise. This is where understanding employee movement and its correlation to company health becomes invaluable.

Human capital, the driving force behind a company's success, acts as a powerful leading indicator. It serves as a crystal ball for the overall health and potential trajectory of an organization. Significant outflow of employees, whether voluntary or involuntary, is often indicative of deeper problems at a company.

Voluntary employee exits, such as resignations or higher-than-average turnover rates, can signal systemic issues within a company. Employees, as the pulse of an organization, possess invaluable knowledge and insights into its inner workings. When a significant number of employees choose to leave, it suggests underlying dissatisfaction, lack of engagement, or a loss of faith in the company's future. These warning signs often foreshadow a company's potential downfall.

Involuntary employee exits, such as layoffs or downsizing, also carry their own set of red flags. While companies may resort to these measures to cut costs or restructure, excessive, sudden, or repeated involuntary exits can indicate a company in crisis. It may reflect financial instability, poor strategic decisions, or an inability to adapt to market changes. Investors who pay close attention to such trends can avoid investing in companies that are already teetering on the edge of failure.

By recognizing the significance of employee movement as a leading indicator, investors can make informed decisions and mitigate the risks of "catching a falling knife". Companies with a healthy and stable workforce tend to demonstrate higher productivity, innovation, and long-term sustainability. On the other hand, those experiencing a mass exodus of talent are likely to face operational disruptions, loss of institutional knowledge, and a compromised ability to compete in the market.

To further solidify the link between employee movement and company failure, numerous studies have highlighted the correlation between high employee turnover and negative financial performance. Research has shown that companies with higher turnover rates tend to experience lower profitability, reduced shareholder value, and increased costs associated with recruiting and retention. This only reinforces the notion that human capital trends provide crucial insights into the overall health and potential success of a company.

Understanding real-time employee movement can help investors avoid catching a falling knife. The outflow of human capital, whether voluntary or involuntary, often reveals deeper issues within an organization and serves as a warning sign of potential failure. By carefully analyzing employee trends in real-time, investors can make more informed decisions, safeguard their investments, and steer clear of companies on a negative trajectory.

Real-time insights into human capital trends

In today's rapidly changing economic environment, real-time data is paramount. While the insights into the failed companies highlighted above may seem like post-mortem, they are demonstrative of the value of real-time data.

This holds true not only for financial metrics and market trends but also for understanding human capital trends within organizations. Leveraging real-time insights into human capital trends as they unfold, investors can gain a competitive edge and make timely, well-informed decisions.

One of the key advantages of understanding human capital trends in real-time is the ability to identify warning signs as they happen. By closely monitoring employee movement, such as resignations, layoffs, or shifts in talent retention rates, investors can detect potential red flags early. This proactive approach allows for timely intervention, whether it involves divesting from a troubled company or engaging with management to address underlying issues.

Understanding human capital trends in real-time enables investors to stay ahead of the curve and identify emerging opportunities. A company experiencing a surge in talent acquisition, particularly in key areas of expertise or industry-specific roles, may be positioning itself for growth and competitive advantage. By recognizing these patterns early on, investors can strategically align their portfolios and capitalize on the potential upside of these organizations.

The growing availability of advanced data analytics and technology solutions further enhances the value of real-time human capital insights. With the aid of machine learning and AI, vast amounts of data can be processed and transformed into actionable intelligence. Investors can leverage these tools to detect patterns, uncover hidden correlations, and make data-driven predictions regarding company trajectories.

Embracing the value of real-time insights into human capital trends empowers investors with a deeper understanding of a company's health, potential risks, and opportunities. By being attuned to employee movement and other critical indicators as they happen, investors can make informed decisions, seize advantageous positions, and protect their portfolios from potential pitfalls. The ability to navigate the dynamic landscape of human capital trends in real-time is a valuable asset that can drive success in today's rapidly changing business environment.

By harnessing the power of real-time human capital data, investors can better avoid post-mortems after a company goes bankrupt or experiences a significant decline. Instead, by proactively monitoring human capital trends, investors can make informed investment decisions, mitigating risk and maximizing returns.

Interested in the human capital trends at other companies? Reach out below to get detailed, employee-level insights.

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