Firing at start-ups

Constantly under pressure to attract and recruit staff, performance oriented organizations such as start-ups fire without hesitation. Moreover, many exhibit „hire and fire” mentality.

Start-ups fire for many reasons:

The management strives for high performing teams and consequently penalizes every under-performance. At some companies, ranking talent in terms of performance becomes a weekly exercise. The tool supporting it is based on the traffic light system. Accordingly, staff receives red, yellow, or green mark based on their performance. Reds are fired at the next round, yellows are being observed closely, greens are on the safe side for the week. No doubt, start-ups are too lean to accommodate staff that does not create value as the business model and strategy evolve.

Hiring mistakes must be corrected. Young management teams are not versatile in assessing candidate’s experience, skills and aptitudes. Too frequently, they reference back to their intuition and sympathy that they develop to the candidatesd during the recruitment process. Leaders later discover that the company and the employee isn’t a good fit at all.

Objective talent needs may change as the understanding of value creation process improves and customers’ expectations mature. This constant refinement of an ideal candidate put employees who do not develop or adjust to the new requirements at risk.

Upgrading talent is a must. Sometimes, having a mediocre talent is better then having a vacant position. As start-ups struggle to attract top-notch talent they need to compromise their position requirements in the meantime. Under time pressure to fill-in the position, they make the selfish decision to hire people who only partially fulfill the job requirements and replacing them with better talent as they come into radar.

Dismissals are a quick fix of wrong management decisions. On one hand, I recognize that start-ups must invest in building internal capabilities and hire ahead of the revenue, profits, and market share. On another hand, I believe it is advisable to follow a conservative approach when it comes to hiring. A helpful metric is a ration of cost center and profit center staff and a rule of thumb that a headcount increase follows a sustainable revenue and profit increase. Unjustified over-investment or investment in wrong departments may only require restraining costs at some point in time. Ironically, such firing waves can be than labeled lay-offs due to bad business conditions.