5 employee performance management tips for startups


Managing employee performance at a startup can be hugely challenging. Employees multi-hat, making it difficult to set clear performance measures. With rapid growth, metrics change frequently. New goals and responsibilities get added frequently. It is difficult to give individualised attention to employees and track their work activities.That said, managing performance is absolutely critical. With limited resources of startups, you want maximum bang for the buck. In large companies, under performers may disrupt goal attainment for their specific areas. But in a startup, an underperformer could throw the entire company off track.

Performance management is one of the most dreaded areas for employees and managers alike. A study conducted by WorldatWork found that ~60 percent of respondents rated their performance management systems as “C Grade or below.” So if large corporates also struggle with performance management, is it a lost cause for startups? No – startups can actually do it better! Here are 5 tips to better performance management at startups:

1. Understand the intent

Most corporate managers perceive performance management as a necessary evil. Jack Welch’s philosophy behind forced rankings has been bastardised into a means of distributing salary increments and bonuses among a bunch of employees by assigning ratings.

Performance management is more than ratings; it is a continuous cycle involving planning work, setting goals, monitoring progress, developing the employee, assigning ratings and rewarding performers. It must align what the employee is doing with what the company needs, guide in the right direction and enable greater contribution - the underlying belief being that you want to make the employee succeed. Think of yourself as a coach who needs to guide the team rather than an auditor who needs to evaluate.

2. Define goals and objectives using MBO

Performance goals are not the same as a job description. A JD could be a typical starting point for goals but in startups, JDs themselves can be highly fluid. Also, in a startup, you seldom have established procedures and need employees to commit to results rather than get blind-sighted by work tasks. And you need employee commitment to the goals and objectives.

Start with your organisational objectives and cascade them to your teams. Get into 1-1 discussions with each employee to discuss the objectives and what they need to do to achieve them. This approach, called Management by Objectives (MBO) was promoted by renowned professor, management and author - Peter Drucker.

Bill Packard, co-founder of Hewlett-Packard, explained the power of the MBO approach as follows – “No operating policy has contributed more to Hewlett-Packard's success … MBO … refers to a system in which overall objectives are clearly stated and agreed upon, and which gives people the flexibility to work toward those goals in ways they determine best for their own areas of responsibility.

3. Set SMART goals, smartly!

Performance goals must clarify exactly what is expected and the measures used to determine if the goal is successfully completed. They must be SMART:

  • Specific – Clearly call out the who and what of the goal
  • Measurable – Have quantifiable targets defined
  • Attainable – Be challenging, but not unrealistic
  • Relevant – Aligned to the role requirements and organisational needs
  • Time-based –Having a clear time horizon for tracking

Defining SMART goals the text-book way could create some rigidity and lead to over-fixation with the activity - it just won’t work in the dynamic startup environment. That’s where you need to get smart with the SMART goals! Consider – “Sell 500 software licenses to schools in India by the end of the financial year.” If the objective is to sell each licence at Rs 1 lakh, consider setting the target as “Achieve Rs 5 crore of revenue from...” This way, you are accommodating for pricing changes and actually encouraging the employee to try out more innovative pricing approaches. Similarly, if schools are only a potential customer segment for a new product, you may decide to define the target segment more broadly.

4. Share frequent feedback

Giving feedback is not the same as an appraisal. An appraisal is an overall evaluation of performance over a period of time and includes giving feedback. But you mustn’t wait for six months or a year to share feedback. It can be given on specific tasks/accomplishments and is most effective when given in a timely manner. Remember that the intent is to help the employees succeed. Give frequent feedback so that employees can make course corrections to meet the overall goals. Positive feedback is also very important; it helps reinforce the right behaviours and enhances motivation.

There is no single right way to give constructive/ developmental feedback; styles should ideally be adapted for different employees. Some need things to be sugar-coated, while others like it direct. But one universal approach is to be specific and quote instances – avoid any sort of generalisation.

5. Document

As a busy entrepreneur, you will probably already have tons of things taking up mindshare. It is recommended that you document all feedback that you share. This helps in two ways. Firstly, it helps you observe larger trends in the employee’s performance over a period of time. Secondly, your documentation will help you quote specific instances from the past basis which you have arrived at the larger performance message that you want to communicate.

I have consciously not gone in to the specifics of conducting a mid-year/ annual performance review. If you have followed the steps above, you should be fairly well prepared for this conversation. You will also find several online resources that guide you on how to conduct appraisal conversations.


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