The First Cut is the Deepest: Notes on Firings at Small Companies

This post originally appeared on Matt’s Medium in July, 2013. You can read the original post here.

Firing employees is an important and difficult part of building any company. One bad apple spoils the barrel; the smaller the barrel, the faster it spoils. But here’s the rub: when you’re a small crew, packed into a tiny office pulling all-nighters together, it’s especially difficult to bring yourself to do it. You’ll fear that everything will fall apart before your company even had a chance, so you’ll rationalize your tolerance of the situation. But if you conduct your first firing fairly and decisively, you won’t just nip a problem in the bud. You’ll also send a strong signal about your values, making it one of the most important culture-building steps you take as CEO. 

If you’ve worked at a big company, you’ve heard the adage: shit flows south. The most annoying tasks are dumped into your lap while your bosses deal with more “valuable” things. As a CEO, you quickly realize that the opposite is true. The real shit—the nuclear waste—flows north. And it parks itself on your desk until you deal with it. The smaller the company, the lower the threshold. So in a startup, every hire, every strategy change, and every employee problem will end up in your lap. That will cause you a lot of anxiety and fatigue.

As it turns out, it’s really difficult to make important decisions rationally when you’re engulfed in anxiety and fatigue. What’s worse, the stronger the emotions, the more likely you are to imagine them in your staff. If you’re worried about the stability of the company, for example, then you’ll assume, usually incorrectly, that your employees are, too. It’s called psychological projection, and it impedes your ability to make rational decisions.

Here’s how it works. You are terrified that if you terminate an early employee, the business will come apart. You’re afraid that the shock to the small, close-knit group of employees will defocus and demoralize them.You’re afraid of an exodus. You’re afraid of these things largely because you’re taking the anxiety and uncertainty you feel in your gut and imagining it in your employees.

When it’s time to fire someone who’s been working closely with your (small) team, your gut will scream, “everyone’s going to quit!” But that’s irrational, and here’s why.

• Everyone wants coworkers who are a pleasure to work with.
• Bad employees are usually noticed by their peers long before they’re noticed by their managers.
• Good employees feel resentment when poor performers are kept around, earning money and equity on terms that treat the performer and underperformer equally.

In reality, if the employee is a jerk, isn’t productive, or isn’t a cultural fit, everyone already knows. Even the people who are friends with the employee outside of work probably know he’s a bad coworker. They are, in a twist of irony, likely projecting their sense of resignation onto you—and expecting no action.

So if you fire him or her, will everyone quit? Will the business fall apart? Will you become an evil CEO before you’ve even built a company?

No. To the contrary, you’ll show those who are performing well that you value their excellence, and you’ll hear a big, collective sigh of relief from your team. “Why didn’t you do that sooner?” is more likely than “Is our business failing?” 

In general, but especially under these circumstances, your team will be more motivated and loyal when you:

• Show that you hold yourself accountable for the quality of the team you’ve assembled, and you admit and correct your mistakes.
• Provide clarity for what you expect of employees. There are much less dramatic ways to achieve this than firing someone, but when it’s necessary, you’ll demonstrate your resolve.
• Engage in productive conflict with a firm, fair hand, rather than seeking harmony through avoidance or postponement.

Thus, even in cases where the employee’s shortcomings aren’t necessarily obvious to everyone, because the problems are subtle or because everyone’s too busy to notice, even the B player who’s gotta go can be safely fired, provided you’re being fair. Your team can take it, and they’ll trust your judgment, even if sometimes a person’s shortcomings are only apparent to others after he’s gone. 

Although I have dreaded each firing I’ve had to do—I have a conscience, and I know these things affect the lives of people I let go—my own regrets are limited primarily to not doing it soon enough for my sake, the company’s and the employee’s. This is especially true very early in the company’s history. It’s hugely important to get things right when there are just a few of you. One bad apple spoils the barrel, especially when it’s a tiny barrel.

Don’t worry about your company falling apart when you fire an early employee from a small team: it’s a natural but irrational fear. Be fair and decisive, and you’ll find that the remaining team will rally around you as a leader, rather than running away from the company they’ve already poured so much energy into. You’ll be surprised and relieved to see how quickly everyone gets back to building.

Thanks to Jon Feldman and David Lieb, Dan Gill and Tyler Bosmeny for their thoughtful revisions to this post.

Notes

1. Given that I am an active CEO, I want to make a little disclaimer here. First, I’m talking here about early stage firings. Not firings at a company over 100 people. That’s another post. And in a company of any size, not everyone you fire will be “bad” in any absolute sense. There’s yet another post to be written here, but I actually think that some of the people I’ve let go are terrific, talented and a pleasure to work with. They were either skill mismatches (which can happen as your business needs change), or value mismatches (which I should have caught at the interview). Regardless of the reason, many of the people I’ve fired have gone on to be very successful in their subsequent gigs, and I’m glad. Employee quality is relative to the company; it’s not absolute. And firing people alone does not make you a better CEO.
2. Worst job on earth: POTUS.
3. If you’ve ever returned home at night only to face another slew of small but necessary decisions–what am I going to eat? what am I going to wear tomorrow?–and felt borderline angry about it, you’ve experienced what I call decision fatigue. It’s one of the most annoying side effects of making significant decisions all… day… long. You’ve got a tired prefrontal cortex.
4. This is especially important in the early days of a company. You’re setting the culture in motion, and it’s easier to mess up–and easier to fix–at the beginning than in later years. Although younger companies are more likely to fail outright, the team is also already aware of how things are going, and your firing someone probably doesn’t change how they interpret what they already know, for better or for worse.
5. Don’t take their trust for granted, of course. Be transparent with your team (as best you can be) about your reasoning without setting the precedent that the CEO needs to explain his decisions each and every time. That’s also unreasonable.