Entrepreneurship 101: How to let go of employees?

Entrepreneurship 101 aims to share ideas, references, and suggestions that can help startup founders tread the entrepreneurial path smoothly.
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“An employee who does not fit costs more than money,” says Dr Merin Liza Jacob, Co-founder of Green And Beige

Layoffs are difficult. For employees, it can mean sudden loss of total income, instability, anxiety, and a blow to their self-esteem. For their colleagues, it can lead to mistrust towards their employer and a fear of losing their own jobs. 

Companies may decide to lay off employees not just because of their performance or a breach of contract, but also unprecedented factors like the death of a business, pivots, cost-cutting, recession, and events like the coronavirus pandemic. According to Asia-Pacific Employment and Social Outlook 2020, 81 million people lost their jobs in 2020 itself, owing to the disruptions caused by COVID-19. 

In India, 41 lakh young professionals lost their jobs between March and August 2020. 

At other times, employers, especially fledgling startups, may have no choice. A team member may be consistently underperforming or someone can no longer connect with the startup’s vision. 

“We have unfortunately been in positions where it became necessary to ask employees to leave. In our case, there have been instances where the complete business was pivoted and we decided to close an entire business line a few years back. In that case, we had no choice but to ask employees to leave,” says Anshul Rustaggi, Founder of Totality Corp. 

Similarly, Ujjawal K Panchal, Co-founder and CTO of MemeChat, had to lay off a few people, saying they “stopped being a good fit for the startup’s growth”. 

But layoffs are hard, even for the employers. After all, how do you come to terms with letting go, something so many of us has trouble with?

This holds true even more for letting go of highly-valued players of the organisation—employees who decide to move on for their personal growth, higher education, or because their goals no longer align with the company anymore. 

“I have built a small closely-knit team and have them work with each other to make it a more cost-efficient startup. Since our work is specialised, it significantly impacts me when a top-performing employee leaves us,” Ujjawal adds.   

The last resort

“Laying off employees should be an entrepreneur’s last resort,” says Lakshmi M Kodali, Founder and CEO of OptimHire, an HR tech company that helps companies hire mid and senior-level tech employees.

Most of the time, startup founders have the option to not let go of employees. Even the best-performing employees can have bad days. If and when an employee is underperforming, the company should start with a conversation. “Factors like personal challenges, hostile work environment, issues with the manager, stagnation, compensation, and work pressure usually lead to underperformance,” adds Lakshmi. 

The key is to communicate well, agrees Totality’s Anshul.  “It is difficult to keep a balance between being employee-centric and the demands of performance and delivering value,” he says. 

To make the process easier, when someone is underperforming, Totality Corp communicates the same to them during monthly and quarterly reviews. This helps the management to check if a particular employee is better suited for a different role.

Allow employees to explain themselves and see how the company can help them fix the problem. The said employee may be overwhelmed by the expectations at work, their pay may not be matching their role, or they may be feeling under-skilled or worse, stagnated. 

What do you do then?

Letting go of MVPs

You never want to lose your MVPs (Most Valuable Players). They are integral to your success.

Oftentimes, an employee may want to leave to work on their personal growth. Or they may have found a better opportunity. And owing to the growing understanding of work-life balance, lucrative incentives, and fine human resource management practices, just an increasing compensation is no longer enough to retain employees.

A report by HR Katha states that in 2021, the attrition rate in the Indian startup ecosystem was between 50 to 80 percent.

When a highly-valued employee decides to leave, there isn’t much a company can do.

Lakshmi says one of the best practices to avoid such a situation is to have regular conversations with the core team—at least every month. These should not be limited to work-related issues, but also to understand if people are satisfied with their work.

Ensure that they are compensated well, he adds, suggesting that startups should revise salaries every six months, owing to higher competition in the market. “For our tech team, we have revised the salaries between cycles as well to ensure they remain satisfied,” he says. 

If the situation still arises, try to convince them to stay by either offering a competitive salary, a relevant promotion or a role in a team of their choice. In cases where that doesn’t work either, founders should help them with a smooth transition and maintain a cordial relationship even after the exit. 

Recalling when OptimHire’s former CTO put down his papers to join a US-based firm at a 400 percent hike, which the startup could never match, Lakshmi convinced them to work on a part-time basis until he found the right replacement.

Moving forward

It is very important for companies to decide that every exit—initiated by the employer or employee—takes place in a holistic and unbiased fashion.

Especially in circumstances of underperformance, the conversation needs to be had in a calm and productive manner and can be best done by the manager who is most familiar with the employee’s work. 

Vikas Singhania, CEO of TradeSmart, says, “The team lead needs to show number-based results to portray the performance gap and share honest feedback.” 

In OptimHire, repeatedly underperforming employees are given enough time to look for opportunities while working in the company, earning full salaries. 

Additionally, entrepreneurs can help with recommendation letters, finding opportunities in their networks, write experience letters, and help polish their resumés. There is a huge demand for immediate joinees in the tech industry and being accommodating about the notice period can also help them find job opportunities sooner. 

Be flexible with your MVPs, suggests Lakshmi. Post-COVID-19, 70 percent of tech companies continue to work remotely while 30 percent work from offices. In such instances, founders should try to accommodate team members who wish to work from home and be flexible. 

Speaking about the industry trends, he adds that with the startup ecosystem raising record-breaking VC funding, companies are better positioned to upskill and retain their employees. Additionally, with more US and UK-based companies looking towards India in terms of hiring tech talent, it is even more important to know how to retain talent. 

Hire better

The easiest way to avoid losing employees is to hire the right people

“Most startup layoffs happen due to a mismatch between future business expectations and the reality of what plays out,” Anshul says. While skills are easier to match, judging an employee’s fit and mindset takes more time. 

For Totality Corp, interns or people who do a fellowship programme with it have proven to be a better fit in the long run than those who are hired quickly. “Currently, the market is really fast and employees get multiple offers. The demands of the current market dictate that we make hiring decisions much faster, and the chances of a wrong fit are definitely increasing,” he explains. 

Similarly, having a lean team helps as well. When a team size is small, the management can devote more time to training new employees. “Groom them, provide them a reason to grow and to grow with you, and align goals,” says Ujjawal, adding that he interviews 30 times of the candidates he hires—after sifting through 100 times the resumés. 

YourStory asked startup founders about a checklist they use to hire the best possible talent. Here’s what they had to say: 

  • Give extra weightage to candidates referred by existing employees. 
  • Do a background/reference check. 
  • Pay more attention to attitude than aptitude. Are they a right fit for your firm and its culture?
  • Do their goals align with the company? 
  • Do they have a reason to stay here and contribute?
  • Don't just look at which big firm they work for. Look for what they did there. Is there any evidence that they are self-managing and self-motivated? 
  • What has their growth trend been like? Can they adapt and grow as the startup grows? 
  • If and when they perform well, do you have the bandwidth and space for their growth ambitions?
  • What is the role you are hiring for? What will they be required to do that's not on their JD? 
  • Do they fit the role and will they be able to execute it effectively?

Hiring the right candidate is crucial. Anshul concludes, “A lot of times, lack of performance is as much a firm's failure for not providing the right environment, and conditions as it is the team members. So, every lack of performance is an inward journey for us to look at what we as a firm need to do better.” 

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(This story has been updated with a new feature image)

Edited by Saheli Sen Gupta