[Matrix Moments] Why it makes sense for startups to build performance management systems in the early stages

“Performance management tends to get ignored in the first two years of a company's journey. But it is crucial when the startup is at a very early stage,” says Rajinder Balaraman, Director, Matrix Partners India. 

In a discussion with Rajinder, Rupali Sharma, VP – Human Capital, Matrix Partners India speaks about why it is important to focus on performance management systems early on. 

Rupali says that as a recruiter, she knows how difficult it is to get a high performer on board. 

“If you're not able to engage and retain them, the problem sustains. PMS (Performance Management Systems) shows very clearly that its perceived effectiveness by employees and the employer is very high when the company is small in size. So, on a scale of one to four – where four is highly effective – the perceived effectiveness towards PMS is as high as 3.43 if the company size is less than 1,000 employees and it goes down as the number of employees goes up,” she explains. 

Startup founders are often focused on building their company and work towards achieving a larger vision. However, once the company grows beyond 30 to 40 people, they are unable to keep a tab on the team’s activities on a day-to-day basis. 

"They can't maintain direct oversight over the execution activities of each team member. And so, having a PMS becomes quite important. We generally invest in seed, Series A and occasionally, Series B companies as well. We often invest in companies where the team strength is somewhere around 30 to 40 people. And that's kind of the place where founders know what everyone is doing,” adds Rajinder.

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Performance management system for scale 

He adds that once you get to a scale of 100-plus employees, it becomes practically impossible to manage them. There are multiple management layers such as a VP layer. Thus, it becomes important for a performance management system to be put in place.

“Whether you start adding key hires laterally, or even with freshers, many don't necessarily know how startups are built as they are still very early in either their professional careers. It is therefore important for a founder to say – ‘how do I drive execution and faster execution to win against my competitors?’ It’s very important to implement some version of a performance management system to drive that execution,” says Rajinder. 

He explains that people end up working on different kinds of tracks and are not necessarily aligned to work on the key initiatives of the company. The feedback loop could take weeks or months, sometimes quarters or years, to sort. 

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Culture and performance

He adds that there also is an unsaid intersection between performance management and culture. While building a team for the first time, it is important to add people who are not only high performers but also fit the culture. 

“These are the people you want to just retain, incentivise and keep around in a way that they stay committed to the company's purpose. There may be people who don't perform and who don't fit the culture. These people just don't belong,” Rajinder explains. 

However, even great performers sometimes don't fit the culture. 

“I think those are the people that you have to think really hard about. I think people who are great performers and don’t fit the culture will perform for the short-term, but in the long-term, they will not be of value to the company,” he adds.

Some people, who don’t perform up to the expectations, turn out to be great cultural fits. The question that founders need to then ask – is there something about the role that they're currently in and the targets that they are driving towards? 

“It’s very easy for us to sit and say ‘hey this person fits the culture.’ It's also important to objectively measure performance. And if you don't have clear objectives and you can’t measure the outcomes on a regular basis, then I don't see how you can scale,” says Rajinder.

Listen to the whole podcast here.