Should startups fire under-performing employees? If yes, how?

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Irrespective of the reasons, asking an employee to leave is always a tough call, and almost always a stressful situation for all individuals involved.

Because it is tough to get people to work for a startup in the first place, often entrepreneurs hesitate to fire an employee even if he/she is a misfit in the organization. Also, they worry about the impact it will have on the other employees. And these are valid concerns.

People management is a critical role that entrepreneurs have to learn play, and play well. Founders should budget about a third of their time in people management, including thinking about the right team structure; roles & responsibilities; finding the right talent; interviewing; onboarding; engaging and nurturing the people in the organization.

When hiring a person for a startup, founders have to make sure that prospective team members understand the challenges and the dynamics of working in a startup. Often people who have not worked in startups have no idea about how different it is to work in a startup versus working in established companies.

In a startup, as the team is figuring out what works and what does not, often adjustments will be made in many different aspects of the business – on the business model; product/service; pricing; customer segments; markets; positioning, etc. To someone who does not understand that this is the way most startups figure out their ‘model’, it will appear as if the entrepreneurs are not focused or not clear or are a confused lot. This leads to frustration and discomfort for an employee who was not prepared for constant changes in the business. When hiring people for startups, entrepreneurs should make efforts to explain these dynamics.

They should also clarify that the startup is likely to be lean, resource starved and cannot be expected to be ‘a smaller version of a large company.’ A startup is fundamentally different from an established or larger organization.

But despite all this, there will be situations when entrepreneurs need to take the tough call of asking someone to leave.

Do remember however, that for startups, where the right model is yet to be discovered, it is important to hire people for their attitude and drive rather than for their competence on a particular aspect. Hire people with passion and enthusiasm. Hire people who are responsible and self-driven. If they are not, then even their competence for the role is not going to be effective in a startup.

When should an employee be asked to leave?

My view is that if an employee is a misfit for a startup, entrepreneurs should talk to the person at the earliest, see if there is a way of improving the situation, give the attempt appropriate time, assess the results and if the situation does not improve, then ask the person to move on at the earliest. You have to do it sensitively but swiftly. And very clearly, objectively and without hesitation.

There are three broad reasons why a person should be asked to leave:

  • Non-competence or lack of interest in the role
  • Value system, personality or culture misfit
  • Ethical issues or dishonesty

In a large team, a few non-performers do no make too much of a difference. However, in a startup, there are likely to be only one or two people driving any key function, and an under performer in small teams impacts the overall performance of the organization.

Also, tolerance of under performers by the management also has an adverse impact on other employees.

Hence, entrepreneurs have to be clear and swift about asking the person to leave in case you assess that the relationship is not working out.

Of course, if there are integrity issues, cheating, misappropriation of funds, or any other ethical issues, the person should be fired there and then.

Yes, there will also be situations when startups need to ask people to go (and sometimes ask good people to go) because the business can no longer afford them. These are tougher to handle. But in the interest of the others and the business, often entrepreneurs need to do this as well.

How should the firing process be handled?

An entrepreneur’s first priority should be to retain an employee that has been hired after ensuring that he is a good match for the organization.

As an entrepreneur, it is important to assess why an underperformer is not able to deliver, make attempts to address the core reasons, have a clear talk with the person, assist the person in overcoming the challenges and basically do everything you can to make the engagement work out well.

If after all this, it is still not working out entrepreneurs should be swift in asking the person to leave.

Below are some suggestions on how firing a person can be handled:

  • First, talk to all other key employees and explain to them the reasons for your views, ask for their thoughts and help them accept this as a collective decision taken in the best interest of the organization
  • Have a frank and transparent talk with the person being asked to leave – state the reasons clearly, explain that this is an objective call, explain why this is important for the organization
  • If possible, give adequate notice period to ensure that the person can find another job (of course, this should not apply in case of ethical & integrity issues or dishonesty)
  • Handle the announcement responsibly and with respect to the person. Often it is best to make a joint announcement (entrepreneur and the person leaving) to the rest of the team, saying that the person has decided to move on to pursue other opportunities.
  • There will be some skepticism within the team, there will be doubts on whether the business is in trouble or whether the organization has a ‘hire & fire’ culture.  Address these concerns one on one. Proactively. Speak to each employee if possible.

Of course, it is also important to do an exit interview with the employee to take feedback on the team, the leadership, the company, culture, etc. Often employees who are leaving can provide excellent and valuable insights to entrepreneurs.

Net: Firing someone is tough. But if it needs to be done, it should be done.

 

What should you know about hiring one of your competitor’s rock star employees?

(I am assuming that there are no legally binding or even friendly agreements between you and the competitor on poaching from each other).

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To begin with, do not hire just because a rock star employee from a competitor is available. Evaluate a few key things before you hire:

  • Do you really have a need for a person with that skill set and experience? Sometimes the possibility of getting a rockstar performer from a competitor to work for you can tempt you to hire the person simply because it ‘feels like there could be value’ … and, perhaps, it may give your ego a minor boost. Evaluate if you really need a person with that skill set and experience or, are you tempted to hire just because he/she is available. In some cases, even if you do not have a need for the person just yet, you and your board/investors may take a decision to hire the person simply because that employee may not be available when you need them. If you do not have an immediate need, assess when you are likely to need a person of that competence and caliber and how difficult will it be to find someone else. And then, take a decision based on costs, opportunities and risks. If you have an immediate need, then go ahead and hire (of course after evaluating a number of other parameters… some are mentioned below).
  • Even in the same division (e.g. sales), if you have different needs than what the person was working on with the competitor, check if the person you are hiring can deliver on that need: E.g. a head of sales, who has been delivering exceptionally good results in converting customers may not be as effective in designing sales programs and marketing communication material, if that is the key requirement of your organization currently. Also, the person may or may not have a passion or interest in doing different things that they have recently excelled at. Hence, don’t just evaluate his ability, but also his willingness and interest to do different things than in his previous job. In some cases, if the deviation is short-term (e.g. designing sales processes and hiring a sales team and developing sales/marketing material) ,  the new person and you may agree that he/she would oversee/drive that activity before moving on to do what he/she has been a rock star at doing.
  • If you are at a different stage of growth than your competitor is, that rock star employee may not be able to deliver the same results as he/she did for your competitor. E.g. if you are just entering a particular market, whereas the competitor is a well-established player, the dynamics of the on-ground realities may vary. Hence, your rock star employee may or may not be able to deliver on them in the changed circumstances.
  • Check if there is a ‘fit’ with your company personality, value-system, aggression (or lack of it), work culture, policies, infrastructure, etc.:  People who succeed in one environment may not necessarily be as effective or productive in a different environment. E.g. if your competitor’s work culture was more aggressive or competitive internally than yours, while your company’s work culture is more ‘encouraging rather than pushy’, the person may ‘respond differently’ and may or may not perform as he/she used to in the previous assignment. (In the Indian context, I would use the example of a person, working with let’s say Reliance, not being able to adjust in a TCS or Infosys.)

Also evaluate possible risks

  • Would there be any backlash or reaction from the competitor
  • Would it have any impact on your existing team (especially among those whose level that rock star employee may come in as)

Of course, there could be a lot of positive side-effects in hiring a rock star employee from a competitor. Here are a few possibilities:

  • The most important positives are the information (whatever legally permissible), learnings and industry connections that the person brings to the table
  •  Often, a rock star employee is able to convince more folks from that company to join in, thus making hiring a bit easier
  • It could be a positive signal for customers/partners/investors

We would love to hear your views on this.