CHAPTER SIXTEEN
FIRING: WHEN IT'S NOT WORKING
I hate to end this section on this topic but it's unavoidable: sometimes, you have to fire people. On the worst days, you have to lay them off.
NO ONE SHOULD EVER BE SURPRISED TO BE FIRED
One of our most important management training mantras is “No one should ever be surprised to be fired.” As hard as it might be to actually fire someone, the really hard conversation should have taken place weeks or months prior. Here are some stages that should always precede firing someone:
- Alert the employee that his or her job is at risk. Every employee you or one of your managers fires needs to have heard the following sentence weeks earlier: “Things aren't working and here's what you have to do to fix them—or you will be fired.” That last phrase needs to be explicitly stated and repeated in writing. I can't stress this enough. No euphemisms. Don't say “part ways,” or “move on.” Say “or you will be fired.”
Note: There is one exception to this rule: if someone commits an egregious violation—for example, theft or assault—there are no intermediate steps. Fire them immediately.
- Institute a performance improvement plan (PIP). PIPs should be as specific and quantitative as possible. Sometimes, the criteria you have to set will be impossible to meet: an underperforming sales-person just won't be able to close X dollars in 30 days. Nonetheless, PIPs make it clear that firings aren't random and if they really do seem out of reach, employees will often quit of their own volition.
- Radically increase supervision of at-risk employees. If you meet with your direct reports for weekly check-ins, meet with at-risk reports twice or three times a week. This sends an important message: you're trying very hard not to fire this person. The onus is on them to improve.
The first time I ever had to fire a person while I was at MovieFone was one of the most awkward and awful experiences of my professional life. I think it was harder on me than it was on her. I'm not being glib: she told me that. It was a lay-up: she was being fired for cause!
It's hard for an empathic person to look people in the eye and tell them they don't have a job anymore, whatever the reason. I also think that people are generally well served, even if they don't think about it that way at the time, if they can understand why they're being let go. That allows them to constructively develop their careers going forward and seek out jobs in which they might be a better fit.
TERMINATION AND THE LIMITS OF TRANSPARENCY
Transparency is one of our most important values at Return Path. There are a number of reasons why I wish I could extend that to cover every termination at the company:
- Explanations make terminations look less random. You don't want high-performing employees to think they could be fired at any point, without real cause. If the circumstances of one or many terminations are a mystery, they might start to believe that there was no good reason.
- People create their own explanations. Human beings need meaning, even if they have to create it. If you don't explain your reasons for firing someone, your team isn't going to be satisfied with a lack of explanation altogether. They will just come up with their own reasons—and that alternate reality could send exactly the wrong message.
- Terminations reinforce company values. When you explain your reasons for firing someone, one of the messages you're sending is that you're serious about your company's values. Violate them and you're out. That message may not come through with a quiet, discrete termination.
Given all those advantages, why not be transparent about terminations? It's a liability issue. Put your reasons for firing someone in writing—or broadcast them to a large group of witnesses—and you give the recently fired employee ammunition to pursue legal recourse against you. I hate to retreat behind a wall of lawyers but this is a very real risk. The best you can do is to communicate your reasoning to controlled groups, which is probably more than half the battle anyway. Additionally, you should be able to trust your senior staff: if anything, they would probably respect you less if you didn't fire someone who was underperforming or violating your core values. Uncomfortable as terminations are, they validate everyone else's work.
Severance Pay
As I mentioned earlier, you should avoid contracts whenever possible. You want to create relationships built on trust—and you want the flexibility that the lack of written terms gives you. If one of your employees does have a contract, it will include severance terms—probably between three and six months' pay. If you don't have a contract, have a policy and stick with it. (At Return Path, we give two weeks' pay per year served, rounded to the nearest week.) You can be more generous than your policy stipulates—but not less. Keep that in mind when you formulate it.
Sometimes, this can be a hard nut to swallow. Employees fired for cause have either woefully underperformed or really violated your company's values. Sending them off with a check might seem like a bit much. Do it anyway. If there's bad blood and you end up in court for violating a severance policy, you will pay significantly more in legal fees, no matter who wins. End the relationship with a clean break. Pay up.
One thing I've increasingly seen in employment contracts is something called the “salary bridge.” It's intended to reinforce the concept of severance as a payment to tide someone over between jobs, not as a fixed payout. You can always offer someone X weeks of severance plus Y weeks of salary bridge (payment if they haven't found a new job) if you would like to be more gracious on someone's exit but not create an entitlement if the employee finds a new job.
LAYOFFS
Short of declaring failure and shutting down your company, there is nothing worse you will ever have to do as a startup CEO than lay employees off. This isn't firing for cause—employees aren't being asked to leave because of their own failings. They're being asked to leave because the company can no longer afford to keep them. It's not their fault. It's yours.
I had to lay people off on three separate occasions early on in the life of the company. They were the worst days of my professional life and probably in my top 10 worst days period. You don't want to do it any more than is absolutely necessary, so follow these guidelines to get it right the first time:
- Cut earlier than you have to. Things are always worse than they look, even when things look this bad. Financing will take longer to come through, receivables will dry up, and so on. Assume you have less runway than expected and cut early.
- Cut deeper than you have to. You really, really don't want to go through this a second time. Cut more employees than you think you have to and reduce the risk of a second round.
- Use the occasion to remove all poor performers. You have no choice but to remove people if their positions are being cut altogether. However, you can also take this as an opportunity for some major housecleaning. Just be sure to work with someone who can help you navigate the legalities.
- Plan talking points in advance. A round of layoffs is likely to be one of the most emotional moments of your career. Don't wing it. Plan everything you're going to say in advance, both to the individuals being let go and to your team as a whole.
- Follow layoffs with an all-hands meeting. Layoffs are emotional for the entire team. Follow them by an all-hands meeting explaining why they happened—preferably an explanation backed by metrics—what's next, and whether people who weren't laid off are at risk. (Be honest!) Ideally, the people you're laying off will be there, too. You want to honor and thank them in as public a forum as possible.
In the end, the only positive thing that came from having to lay people off (other than saving the company!) is that the mere thought of ever having to do layoffs again drives my thinking about everything from business model to profitability.
Nip Problems in the Bud
As Einstein once said, “A clever person solves a problem. A wise person avoids it.” At your best, you're wise, preventing problems before they arise. More often, you will have to be clever and solve problems after they come up. You have to nip problems in the bud immediately but that means you have to look out for them. Do you have an employee who has shown up late for work a few days in a row—and are they better dressed than usual? They might be interviewing for a new job. Do the complaints about a new employee have a consistent theme, regardless of the source? They might not be fitting in. Make sure you and your team spend enough time thinking about your business's vulnerabilities. Call on your inner paranoia once in a while to make sure you're cognizant of the major potential threats to your livelihood. Learn to spot smoke as an early warning detection of fire.
Etsy CEO Chad Dickerson on How a CEO's Role in Talent Changes Over Time
One of the only constants for startup CEOs is the fact that building and fostering talent will occupy a significant percentage of your time. How you spend that time—that changes. Etsy CEO Chad Dickerson gets the last word on how a CEO's role with respect to talent changes over time.
There are three stages to a CEOs role in building out talent:
- Articulate your values.
- Scale trust in hiring.
- Evolve into the “closer in chief.”
Articulating Values
Every CEO says some variation of, “I want to hire smart, motivated people,” but in your company does “smart and motivated” mean successful candidates will be able to endure Darwinian contests among team members to achieve goals? Or does it mean the ability to operate in an open and collaborative culture where people are expected to work together to make each other, their ideas and their execution better? I prefer the latter, but every CEO must clearly articulate and communicate their cultural values before hiring anyone. Culture is the baseline for everything you do and determines what kind of organization you want to build.
Scaling Trust in Hiring
With cultural values articulated, the CEO should focus on hiring talent that fits those values in each functional role: marketing, engineering, product, HR, and the rest. Filling these roles well is all about scaling trust, since the CEO needs to be able to trust these functional experts to hire their team members and build out their teams. When you hire someone, ask yourself if you trust that person to hire people in that functional area without your input. If you do, you're in good shape. If not, you don't have the right person for that role—and it will be difficult to scale your talent efforts.
Becoming the Closer in Chief
In the early days of a startup, the CEO might interview every person who gets hired. As a company climbs into the high double digits and puts trusted functional leads in place, having the CEO interview everyone becomes logistically difficult. The CEO could be creating a bottleneck that slows progress, frustrates candidates and subtly suggests mistrust of the hiring managers.
There is a way to stay involved broadly and productively, though, as “closer in chief.” No matter how big a company gets, the CEO should always make him-or herself available to close key candidates at all levels. This does two important things for the company and the CEO:
- Closes candidates, of course, and
- Keeps the CEO's recruiting pitch sharp.
It's also the perfect way to meet the future stars in the company and establish relationships beyond the immediate management team.
Chad Dickerson, CEO, Etsy