The first time I let someone go, I botched it so badly that the employee asked if they were getting a promotion a few minutes into the conversation. By the time I was 7+ years into being a CEO, I had a much better handle on how to fire with empathy and respect, in a way that caused as little pain for all parties as possible. And now as a VC, I’ve come to realize that it’s very common for first-time founders or managers not to know how to fire, or to be scared of letting people go.
This makes sense: letting people go is awful. It’s painful. It can be stomach churning. You’re ending someone’s salary and changing their life in a way they usually don’t want. It’s by far one of the worst parts of being a CEO or Manager. And yet, unless you’re perfect at hiring (hint: no one is), you are going to need to let people go. If you’re not, you are likely retaining people who are not beneficial to the business and could be damaging your own company.
But given how hard firing is, especially for first-time managers, I wanted to share some advice/ideas for startups under ~75 employees about how to let go of underperforming employees, with the hope that it helps people navigate everything that comes after the firing decision with respect and clarity.
Disclaimers:
- This is NOT legal advice. Seek legal counsel before the first time you let someone go. Especially because there are so many state-specific laws (for example: did you know that in California, when you fire someone, you’re supposed to hand them a check on the same day as their job ends, and you get penalized for each additional day you’re late, including weekends?)
- There is no one right way to fire. The Netflix founder says this. Brad Pitt says this. The guidance below is a bit more of the standard practice I’ve seen be pretty effective at early stage startups.
- While this article isn’t about the “why”, it’s important to state that typically, when someone needs to be let go, it’s your error as much as it is the employee’s. After all: you made the choice to hire them. So find the time to do a post-mortem after letting someone go to try to avoid making the same mistake twice.
What this article is (and isn’t) for:
First, just remember that the vast majority of startup employees in the U.S. are "at-will" – they can quit any time and you can fire them at any time for any lawful reason. (Though remember to check their employment contract – some employees have offer letters or employment agreements with severance triggers or “cause” definitions that change the picture and could alter their “at will” status. There are also other exceptions to the at-will doctrine that are outside the scope of this article.)
In general, there are 3 common reasons for firing someone, two of which I won’t focus on here:
- For Cause: This is mostly legal issues, where the employee did something to violate their contract or the law. If you’re going to fire someone for cause, the tldr is: work with a lawyer to build a plan to exit this employee ASAP, and with all appropriate documentation. This article is NOT for you.
- Layoffs / Downsizing: This is another one that’s a longer topic and has lots of content available online. Downsizing sucks and is awful no matter what, especially because it’s usually either nobody’s fault (restaurants during COVID, for example) or is mostly the CEO’s fault (over-hiring, for example). For layoffs / downsizing, this article is NOT for you.
- Performance Issues: This is what this article is for – when someone isn’t performing and you need to let them go. The purpose of this article isn’t to turn their performance around or how to figure out what the root of the problem is. Those are entirely other articles. This is all about: how to let go of underperforming employees at an early stage company.
Once someone isn’t performing:
When someone is starting to show signs they aren’t performing, managers should ideally (a) document any employee’s underperformance in writing (doesn’t have to be very formal – but write every note as if the employee’s lawyer will read it aloud someday: factual, specific, and free of snark), and (b) make sure the employee is fully aware of their performance issues (documenting that awareness also helps).
I repeat: make sure they are aware that they aren’t performing.
If someone is surprised they are getting fired for performance, then you’ve failed as their manager, and this could come back to hurt you in three main ways:
- Other employees may wonder “Eric didn’t know he was underperforming, then got fired out of the blue. What if that’s the case for me, too?” – you probably don’t want a culture where even your star employees are paranoid about being fired.
- What if the person could have actually improved, but didn’t know they weren’t performing? Now you’ve done both yourself and them a disservice by not alerting them to what they’re doing wrong.
- You can open yourself up to legal disputes later on (even if you did nothing legally wrong) which costs time and money. Even if you strongly believe you're right.
Instead, when someone is underperforming, managers should have a regular cadence of 1:1 meetings with the underperforming employee – whether 2x / week or weekly – where the employee’s performance is discussed explicitly. I’m not saying managers should spend hours telling every employee if they’re doing a good job (everyone has their own style – mine certainly isn’t to do this). But “bad job” should be well-understood and specific, with examples and targets for what improvements are needed or what “good” looks like.
After these 1:1 meetings, write a recap of what was discussed and send it to them via email or slack. Some founders will say you should give people 2-4 weeks to improve based on the feedback. Others will say less. Others will say more. See what is right to you, including enough time for the person to have adopted the feedback. Are you asking them to cure cancer and only giving them 2 weeks to do it? Make sure both your expectations and the timeline for those expectations are reasonable. Keep employees apprised of if they are making progress or not. If they’re not making progress, then it’s probably time to let them go.
By the way - the above is NOT a formal “PIP” (i.e. Performance Improvement Plan). See the PIP section below to learn more about that.
Now let’s say this person isn’t performing, and it’s been 2-4 weeks like you planned. What next?
First, if you don’t already have them, have your lawyer create separation documents for the employee to sign. The heart of these documents typically is a release of claims: the employee agrees to release claims (often, they also agree not to sue the employer or executives over the released claims). That release is the main thing you’re getting, and it’s one of many good reasons to offer severance as a part of them signing the document. The documents will usually also reaffirm obligations the employee already agreed to when they joined (for example, confidentiality and non-disparagement). FWIW, under the documents we typically see, departing employees are bound by the prior obligations regardless of whether they sign a new release, but the the release is valuable for you to have, especially so you reaffirm their obligations.
In exchange for them signing those documents, they usually get severance and continued health coverage for some reasonable amount of time after the firing, which your benefits provider can help manage. One thing to check: federal COBRA (which makes it so an employer can still cover health insurance even after someone leaves) only applies once you have 20 or more employees, so if you’re smaller than that, it may not apply to you… but many states have their own “mini-COBRA” laws that impose similar continuation-coverage requirements on small employers. Ask your benefits provider (like Rippling or Gusto) or your lawyer which regime you fall under before you promise anything. You can also provide this without legally being required to, but you should understand what your legal obligations are, regardless.
How much severance should you give?
Obviously, it depends. Severance can usually be some amount equivalent to their salary for a duration of time, usually based on tenure. I won’t give some generic recommendation for how much severance to give (since it depends on a lot of factors – your runway and their tenure within the company being two crucial points) but for early stage companies, I often see severance packages between 2 weeks (for very short tenure) and 6 weeks. Later-stage companies can usually afford to be more generous and flexible, but there’s no right or wrong answer.Four more logistical notes for you to ensure you’re on top of before you’re letting the person go:
- If the person you’re letting go is 40 or older, the timeline (of how long they have to sign the severance docs) is not fully in your control. For the release of claims to actually hold up, a federal law that applies to employers with 20 or more employees requires you to offer the employee at least 21 days to consider the agreement (45 days if you’re letting go of a group at once) and a 7-day window after signing, during which they can change their mind and revoke. The agreement can’t take effect until that revocation window closes, and it has to specifically reference age-discrimination claims and tell the employee they can consult a lawyer. So if you have 20 or more employees and you are terminating an employee who is 40+, you have to wait out the prescribed period, even if everyone wants it signed and done sooner. Your lawyer should build these timing requirements into the documents; just know going in that the paperwork may take a few weeks to fully close out. Even if you have less than 20 employees, if you are in California, you are required to offer any employee (regardless of age) at least five business days to review a release before signing.
- Several states — California is the big one — require you to hand the employee their final paycheck, including accrued but unused PTO if you don’t have an ‘unlimited PTO policy’, on the termination day itself. Check with your lawyer or payroll provider on the applicable state’s rules before the conversation happens, so the check is ready to go.
- If the person is on a work visa — an H-1B is the most common — loop in your immigration counsel before the conversation. Termination may trigger obligations for you as the employer.
- Don’t forget about equity. Most startup employees hold stock options, and when an employee leaves, their unvested options usually are forfeited, and the post-termination exercise window — often 90 days — begins (after which, vested options expire). Again, you will want to know what is in their employment contracts, restricted stock purchase agreement, and your equity plan. Talk to your counsel to understand what the options are for the employee and also what you need to do (if anything) to reacquire or cancel their unvested shares. Often Carta makes this quite easy to do.
How to have the firing conversation
Unless you are worried about how the person will react (throwing papers, yelling, claiming something you know isn’t true, acting litigiously etc), I often recommend a 1-1 with the manager and the person being let go. In my opinion, I find 2 on 1 can feel a bit more like you’re ganging up on them (even if your intention is to show that you have more people attending because you care). That said, some lawyers will recommend the employer have 2 people. And if you have any concerns around litigiousness, I’d do 2:1 with someone like your co-founder or your head of Ops or Finance joining.
Second, location matters a lot. You don’t want to do this in a glass wall room in the middle of your office with everyone watching. Instead, do this either 1) in a private room near the elevator / exit or 2) at a nearby coffee shop.Next, this goes without saying, but do it with respect. Don’t beat around the bush. When communicating the decision, open the conversation in a way that makes it clear they are being let go (for example: “Unfortunately, today is your last day at this company.”). Don’t make the mistake I made the first time I did it, where I led with a bunch of compliments… this will just confuse the message and make a difficult conversation even harder.
Once you’ve told them they’re being let go, you should NOT plan to go into lots of detail in this meeting – after all, you should’ve already explained the issues to them over multiple performance check-ins in the past. At this point, you’ve made your decision, and you just need to convey it. Most CEOs, managers, People Ops leaders, and lawyers I’ve met will recommend keeping the talk track tight, just referring to the prior performance conversations you’ve had in the past.
For example: “I know we’ve spoken several times in the last month about you missing your core KPIs. Because we haven’t seen the improvement we told you we wanted to see, unfortunately, we’ve decided to let you go.”... There is a tendency to want to over explain and talk a lot. Instead, I’d recommend being succinct and to the point. (If you have a Head of People, you can also direct them to reach out to him/her later if they have any questions.)
Assuming the conversation is happening on their last day, many companies will have someone with admin rights shut down their access to their work email, slack, Claude, GitHub, and any other tools immediately. It’s extremely rare, but I’ve seen and heard of instances where someone takes it poorly and makes a bad choice (for example, I’ve heard of just-fired-employees running to Slack after the conversation and writing nasty messages… or going to their email and forwarding themselves a bunch of private emails… and so on.) One related note: even after their accounts are shut off, make sure the person still has a way to get to their pay stubs, benefits, and equity paperwork — usually those live with your payroll, benefits, and cap table providers anyway.
Some companies will let the person finish out their work on that final day or over the next week, but this is a bit more rare. After all, the person was just fired, so they’re probably not in the best spirits.
Communicating the decision to the team:
Again, do it with respect. Most people will say you shouldn’t speak poorly of this employee or tell everyone that you fired them “because they weren't good”. If you bad mouth people, your employees will worry that you're going to bad mouth them next.There’s a lot of ways to communicate the decision to the team. I’d argue no one way is right for everyone, so just decide on what you want your culture / process to be, and try sticking with that and seeing how it feels for you. Two of the more common example options are:
- Say “this person is no longer at the company” and let employees interpret it however they want. Note that while this is easy to do, it also can lead to gossip or fear of people being worried if they’re next.
- Be open that the person just wasn’t a fit, and give a high level rationale of why, keeping it to performance only (and it just not being a fit for your company). This can also be risky, as you don’t want people thinking you’re bad talking them or their friend and you also want to avoid any potential claim for defamation from the former employee.
For people who don't work directly with this employee, it’s probably best to let people know sooner than later, so they don’t find out because of an unanswered Slack message or a bounced email. Many companies will have managers tell their teams over the coming days (or more urgently, if it affects a specific team’s job).
Most companies will have directly impacted people find out right away, and the rest of the company can find out at whatever your weekly all-hands or newsletter is (no need to make a big event of it, though – unless it’s a senior leader or key employee leaving). It’s just very important that people whose roles are impacted find out soon after it happens, since this will likely affect their day-to-day role.
You can also use this moment to remind managers that they need to be communicating underperformance to their teams clearly and consistently.
PIP or no PIP?
A PIP is a Performance Improvement Plan, or a formal process with clear documentation and specific milestones that need to be hit for an employee to not be let go. PIPs are more common at mature companies or growth-stage companies with formalized HR processes. There are pros and cons to having employees go through a performance review.
It’s generally agreed that the majority of employees placed on a PIP either end up terminated or leave on their own before the PIP wraps up. That said, lawyers may still advise using a PIP in cases where documentation is important, and the employee may be deemed a higher litigation risk for one reason or another. In those cases especially, a formal documented PIP can help create a clearer record if performance doesn't improve and you have to dismiss the employee.
There are many reasons not to do them too. They can cause people to become really negative, which might spread toxicity to the rest of the team over multiple weeks/months. And usually, by the time someone is in a PIP, they're already having severe performance issues, and you're just drawing out the inevitable.
In my experience, most startups with under 75 employees avoid PIPs, since it can sometimes just be a decision you've already made. And since the majority of PIPs fail, many companies treat PIPs as a last-resort backstop and instead invest in continuous feedback so problems get caught before a formal plan is needed.
A few quick thoughts I’ll end with:
- A quote that is often said in the startup world about whether to hire or fire someone is: “When in doubt, there is no doubt.”... Aka, if you're thinking of letting someone go, you probably should. Another version of this: imagine person X came to you and said they're quitting because they won the lottery. How would you feel? Are you relieved or extremely upset to be losing the person? If you feel relieved, it’s a good indication that action needs to be taken.
- Just make sure 2 things are true before you decide to fire someone for performance issues. First, you need to make sure that their performance is not due to a bad manager, or to them not being set up for success. Second, make sure that expectations of what good performance looks like have been clearly communicated. If you’ve made sure that both of these are the case, and someone is still underperforming, then it’s likely reasonable to fire someone.
- Often, founders hire a People Ops leader way too late. If you’re approaching 30 or more employees and expect to grow fast, I’d strongly recommend beginning to look for a People leader. They could (and likely will) still be 75% recruiting focused, but having someone who can help you with implementing / thinking through the processes above can be very helpful. And if you’re averse to that, consider a People Ops Advisor.
Big thanks to the Lowenstein Sandler team for reviewing this article ahead of me publishing it, and the many people who are unfortunately experienced with the above (you know who you are) who gave me feedback.