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RodinStar / Startup

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 persons involved.

Because it is tough to get people to work for a startup in the first, often entrepreneurs hesitate to fire an employee even if he/she is not a fit with the organization. Also, they worry about the impact it will have on the other employees. These are valid concerns.

People management is a critical role that entrepreneurs have to learn play and play well. Founders should budget about 1/3rd 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, on the product/service, on the pricing, on customer segments, on markets, on 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 than established or larger organizations.

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 then on 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. 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 larger teams, a few non-performing persons won’t make that 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.  

Of course, 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.

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

This article was first published on my blog The Hub for Startups

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9 Comments

  1. Profile photo of asha chaudhry

    hey thanks for this one prajakt… i think a lot of rodinhooders have been facing hiring & firing issues lately. 

    the next post in the sequence would be about firing a co-founder…?!

    sumant mandal was our chief guest at our recent open house in mumbai and he had a very interesting story to share with us about firing founders/CEOs of companies. a couple of points he mentioned on the topic that i recall are:

    – the term he prefers to use is “transitioning out” and not “firing”

    – the quicker you fire a person, the faster he grows

    – (and like you mentioned) the usual reason for “transitioning out” a person is a fundamental difference of values

  2. Profile photo of asha chaudhry

    alok, as you know, has also written on the subject of getting fired…

    http://therodinhoods.com/forum/topics/you-are-fired

    So, Andrew Mason – the CEO of groupon.com was FIRED yesterday.

    While the Wall Street story has the more ‘propah’ details, this is what Andrew Mason wrote on his own blog:

    “People of Groupon,

    After four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding – I was fired today.

    If you’re wondering why… you haven’t been paying attention. From controversial metrics in our S1 to our material weakness to two quarters of missing our own expectations and a stock price that’s hovering around one quarter of our listing price, the events of the last year and a half speak for themselves. As CEO, I am accountable.

    You are doing amazing things at Groupon, and you deserve the outside world to give you a second chance. I’m getting in the way of that. A fresh CEO earns you that chance. The board is aligned behind the strategy we’ve shared over the last few months, and I’ve never seen you working together more effectively as a global company – it’s time to give Groupon a relief valve from the public noise.

    For those who are concerned about me, please don’t be – I love Groupon, and I’m terribly proud of what we’ve created. I’m OK with having failed at this part of the journey. If Groupon was Battletoads, it would be like I made it all the way to the Terra Tubes without dying on my first ever play through. 

    I am so lucky to have had the opportunity to take the company this far with all of you. I’ll now take some time to decompress (FYI I’m looking for a good fat camp to lose my Groupon 40, if anyone has a suggestion), and then maybe I’ll figure out how to channel this experience into something productive.

    If there’s one piece of wisdom that this simple pilgrim would like to impart upon you: have the courage to start with the customer. My biggest regrets are the moments that I let a lack of data override my intuition on what’s best for our customers. This leadership change gives you some breathing room to break bad habits and deliver sustainable customer happiness – don’t waste the opportunity!

    I will miss you terribly.

    Love,

    Andrew”

    **

    When I read about the news for the first time, I smiled.

    3 events flashed before me:

    The first was the firing of a trusted and co-founder of Mobile2win in China, by the board. He was guilty of not ‘listening’ to the board that comprised Softbank China & Siemens Germany.

    The second incident was the firing of my second most trusted partner who I personally put in charge to take over from the original co-founder. The same board fired him on the grounds of being ‘disobedient’ and undependable.

    The third and most dramatic incident was the FIRING OF MYSELF from Mobile2win!!

    The message of this post will be incomplete unless you read that incident. It’s part produced here, with a click out at the end:

    ” By 2005, a company I had co-founded called Mobile2win (originally started in China in 2001 and then brought into India in 2003) was sailing…

    We were first movers in the India Mobile VAS (value added services) space and things were looking up – thanks to all our learnings in China. The first Indian Idol voting platform had been successfully handled by us (and ever since) and Sony India had made us a long-term partner. We were partnering with lots of media companies, selling our mobile games on Vodafone and creating creative marketing platforms. Rajiv Hiranandani – head of the business was doing a great job.

    The success was also creating a sweet problem:

    The business needed a series B investment to scale and my existing investors – Siemens Mobile Acceleration from Munich and Softbank Ventures from China were not at the best of terms with the management of mobile2win.

    Just a month earlier I had come back from Shanghai and attended the most bizzare board meeting ever in my memory.

    The meeting started at 9 am and by 9:30 am, there was war in the boardroom. 2 Germans (Helmut Struss and Oliver Kolbe from Siemens), 1 Indian (Gopala Krishnan (GK) – the CEO) and 2 Chinese (Peter Hua and an Observer from Softbank) were all screaming at each other simultaneously in German, Chinese and in Hindi (me telling GK to control himself).

    The issue was typical start-up stuff – scaling up, finances, hiring, firing etc, etc, and while I let them go at each other (Softbank shouted at GK for pointing fingers with this hand – a very ‘disrespectful’ act in China), clearly this was a board that was not going to co-operate with me for raising money in India.

    Back home, when I started showing mobile2win around, there was massive interest. Sandeep Singhal of Sequoia India was kind enough to stay up late night in his room at the Taj, Mumbai and hammer out a term sheet for me the next morning.

    All these and more got no responses from Softbank and Siemens. So I asked them what they really wanted?

    Softbank was not going to put money in and Siemens wanted out. They were non-Indian VC’s and only Indian VC’s would understand Indian Mobile VAS space and hence invest.

    This was going to be a tough deal to close out.

    One afternoon, I met Pramod Haque and Vab Goel of Norwest Venture Partners. ( I later learnt that Anupam Mittal of shaadi.com fame had turned down a term sheet of Norwest for funding Mauj.com).

    Norwest stepped on the gas and took an active interest in talking to Siemens and Softbank and understanding their motivations. They engaged with mobile2win management and also spoke to other investors.

    A few days later, late afternoon I received a phone call that precipitated into the ‘toughest decision of my life’ :

    Vab indicated that he had settled all issues of valuation, exit and new investment between Siemens and Softbank and the management of Mobile2win (GK and Rajiv), and that Norwest and another VC was ready to go ahead in massively funding mobile2win at great valuation terms.

    Except, there was one condition:

    Alok (me) had to exit the company!!! – cont’d – here

    So, what does this incident teach us all?

    I believe, the following lessons:

    – Going ‘public’ or floating an ‘IPO’ is the last thing a startup should indulge in, not the first! Company after Company gets pounded for not performing on the stock exchange (remember the flak Facebook received when it went public?) and its promoters and CEOs got punished for not living up to ‘stock market expectations’

    Let me ask a hard-hitting question – would Andrew Mason have been fired if Groupon was not a public listed company?

    Think hard and tell me what you think?

    My personal belief is that the ‘real manhood’ or ‘womanhood’ of a Company is not just measured by the metrics used by the stock exchange – aka its topline and bottomline growth. I believe that the dashboard of a ‘real’ Company includes data points of market creation, category creation, customer retention, global growth, employee satisfaction and lots more.

    A startup Company has LOTS of issues in the first 5-7 years. This includes rapidly changing consumer habits (I believe that’s the problem facing Foursquare just now), wearing out of the ‘novelty’ of the business model (amply visible in Groupon’s case) and also massive competitors (remember how Facebook just erased MySpace?). This ‘adolescent time’ is NOT for Companies to go public. Instead, they should be busy repairing and rebuilding themselves.

    – If you do want to go public, then have the BALLS or the STOCK or the VISION to stay in the Company as CEO

    Steve Jobs was kicked out of Apple because he had a dud performance. But check out the preferred stocks that Zuckerberg has granted himself in Facebook to keep him as CEO. The board can definitely not throw him out. He will either voluntarily retire OR quit if he does something really stupid (a la shameful like Tiger Woods or something).

    A man that I am increasingly beginning to almost WORSHIP is Jeff Bezoz. This guy has the BALLS to look at Wall Street in the eye and tell them to buzz off when he reports widely gyrating profits and numbers. But instead of buzzing off, they reward him with an increasing stock valuation? That’s because Jeff Bezoz sells his VISION to Wall Street.

    He explained to them how he is investing for the future. And in the case of Companies, the future is more important than the present.

    – A new CEO may or may not work!

    In the case of Mobile2win China, after both my CEOs were fired, I lost hope. I just wrote the Company off. The board in the meanwhile hired Heidrick and Struggles to look for a CEO. H&S found a native Chinese and he was signed on by the board. I was barely kept informed about the terms and equity being offered to him.

    But lo and behold – a few months later, things began to improve. The Company started to perform and there was a renewed sense of buzz in the business. A few months later, Disney acquired the Company in an all cash deal (low millions US$).

    Similarly, when Carol Bartz was fired (read about my meeting with her), and Scott Thompson hired, things went from bad to worse. But when Scott Thompson was fired and Marissa Mayer hired, it seems like Yahoo! is on an upswing now.

    Changing CEOs is like getting heart transplants. The success of survival, death or improvement varies case by case.

    While you absorb all this, think again and tell me – would Andrew Mason have been fired if Groupon was NOT a public listed Company?

    ****

  3. Profile photo of Alok Rodinhood Kejriwal

    completely agree.

    In fact, 3 weeks ago, someone who had agreed to come for an interview called and said ‘i don’t want to work for games2win because they hire and fire’ because he had ‘heard it from someone’.

    while we countered his ‘heard it from someone’ by writing to the 3 people (who denied it and had left g2w on their own), I actually mailed that potential employee saying:

    If you dont want to be fired, then work for the Bombay Municipal Corporation.

    If getting fired is on top of your mind as the chief scare, then you are potentially very unproductive.

  4. Profile photo of Anamika Joshi

    I can’t say how much I can relate to this topic.. It’s like someone far in the city learned about the mess in my thoughts regarding this topic and cleared it all..Thanks a lot Prajakt for this. The most important part me is to be transparent and include other employees as well in the process.

    Thanks again!!! Keep writing for us!

  5. Profile photo of Karan Pandhi

    Prajakt Sir,

    Awesome Sir …… though Sir Alok had posted out this in the prior post….. yet the 3 points why you should tell an employee to leave … puts up a mark ……

    Thank you so much as always … 

  6. Profile photo of asha chaudhry

    sorry prajakt,

    i kinda messed with the top of your post!

  7. Profile photo of Prajakt Raut

    🙂 thanks Asha 🙂 

  8. Profile photo of Alok Rodinhood Kejriwal

    Over time, I have become more brutal about firing.

    I just say “its not working out”. Bye.

  9. Profile photo of Sumit Soni

    This is so timely. Today is the day after 3 months of trying to bringing it back to course.
    We have decided to approach it objectively so that the other it can be calibrated against other performing peers.
    But yeah, final words will be “its not working out. Bye”.

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