The Hard Thing About Hard Things, page 8
1. They should explain briefly what happened and that it is a company rather than a personal failure.
2. They should be clear that the employee is impacted and that the decision is nonnegotiable.
3. They should be fully prepared with all of the details about the benefits and support the company plans to provide.
STEP 5: ADDRESS THE ENTIRE COMPANY
Prior to executing the layoff, the CEO must address the company. The CEO must deliver the overall message that provides the proper context and air cover for the managers. If you do your job right, the managers will have a much easier time doing their jobs. Keep in mind what former Intuit CEO Bill Campbell told me—The message is for the people who are staying. The people who stay will care deeply about how you treat their colleagues. Many of the people whom you lay off will have closer relationships with the people who stay than you do, so treat them with the appropriate level of respect. Still, the company must move forward, so be careful not to apologize too much.
STEP 6: BE VISIBLE, BE PRESENT
After you make the speech telling your company that you will be letting many of them go, you will not feel like hanging out and talking to people. You will probably feel like going to a bar and drinking a fifth of tequila. Do not do this. Be present. Be visible. Be engaging. People want to see you. They want to see whether you care. The people whom you laid off will want to know if they still have a relationship with you and the company. Talk to people. Help them carry their things to their cars. Let them know that you appreciate their efforts.
PREPARING TO FIRE AN EXECUTIVE
When you recruit an executive, you paint a beautiful picture of her future in your company. You describe in great depth and in vibrant color how awesome it will be for her to accept your offer and how much better it will be than joining that other company. Then one day you realize you must fire her. Reconcile that, Ms. CEO.
It turns out that the actual act of firing an executive can be relatively easy compared with any other firing. Executives have experience being on the other side of the conversation and tend to be quite professional. Firing an executive correctly is a bit more complicated and extremely important. If you do not learn the right lessons, you will be doing it again soon.
Like so many things, the key to correctly firing an executive is preparation. Here is a four-step process that will treat the executive fairly and improve your company.
STEP 1: ROOT CAUSE ANALYSIS
While it’s possible to fire an executive for bad behavior, incompetence, or laziness, those cases are rare and relatively easy. Unfortunately, unless you have a horribly deficient hiring process, those are probably not the reasons why you got to this point. At this level, almost every company screens for the proper skill set, motivation, and track record. Yes, the reason that you have to fire your head of marketing is not because he sucks; it’s because you suck.
In other words, the wrong way to view an executive firing is as an executive failure; the correct way to view an executive firing is as an interview/integration process system failure. Therefore, the first step to properly firing an executive is figuring out why you hired the wrong person for your company.
You may have blown it for a variety of reasons:
You did a poor job defining the position in the first place. If you don’t know what you want, you will be unlikely to get it. Far too often, CEOs hire executives based on an abstract notion of what they think and feel the executive should be like. This error often leads to the executive not bringing the key, necessary qualities to the table.
You hired for lack of weakness rather than for strengths. This is especially common when you run a consensus-based hiring process. The group will often find the candidate’s weaknesses, but they won’t place a high enough value on the areas where you need the executive to be a world-class performer. As a result, you hire an executive with no sharp weaknesses, but who is mediocre where you need her to be great. If you don’t have world-class strengths where you need them, you won’t be a world-class company.
You hired for scale too soon. The most consistently wrong advice that venture capitalists and executive recruiters give CEOs is to hire someone “bigger” than required. “Think about the next three to five years and how you will be a large company” is how the bad advice usually sounds. It’s great to hire people who can run a large-scale organization if you have one. It’s also great to hire people who know how to grow an organization very fast if you are ready to grow your organization very fast. However, if you do not or you are not, then you need someone who can do the job for the next eighteen months. If you hire someone who will be great in eighteen months but will be poor for the next eighteen months, the company will reject her before she ever gets a chance to show her stuff. Your other employees will wonder: Why did we give her all those stock options when she’s not contributing anything? Those kinds of questions are impossible to recover from. It turns out that venture capitalists and executive recruiters are not stupid; they just learned the wrong lessons from previous failures. To learn the right lesson, see the special case of scaling and the special case of fast growth as explained below.
You hired for the generic position. There is no such thing as a great CEO, a great head of marketing, or a great head of sales. There is only a great head of sales for your company for the next twelve to twenty-four months. That position is not the same as the same position at Microsoft or Facebook. Don’t look for the candidate out of central casting. This is not a movie.
The executive had the wrong kind of ambition. In chapter 6, I will describe the difference between ambition for the company and ambition for oneself. If an executive has the wrong kind of ambition, then despite her skills, the company may reject her.
You failed to integrate the executive. Bringing a new person into your company in an important role is difficult. Other employees will be quick to judge, her expectations may be different from yours, and the job may be largely undefined. Be sure to review and improve your integration plan after you fire an executive.
The special case of scaling
A fairly common reason for firing an executive is that when the company quadruples in size, the executive no longer does the job effectively at the new size. The reason is that when a company multiplies in size, the management jobs become brand-new jobs. As a result, everybody needs to requalify for the new job, because the new job and the old job are not the same. Running a two-hundred-person global sales organization is not the same job as running a twenty-five-person local sales team. If you get lucky, the person you hired to run the twenty-five-person team will have learned how to run the two-hundred-person team. If not, you need to hire the right person for the new job. This is neither an executive failure nor a system failure; it is life in the big city. Do not attempt to avoid this phenomenon, as you will only make things worse.
The special case of fast growth
If you build a great product and the market wants it, you will find yourself needing to grow your company extremely quickly. Nothing will ensure your success like hiring the right executive who has grown an organization like yours very quickly and successfully before. Note that this is not the same as inheriting a very large organization or working your way up to running a very large organization. Make sure you hire the right kind of fast-growth executive. Also, do not hire this person if you are not ready to give them lots of budget to grow their organization; expect them to do what they do. The successful fast-growth executive is so important to building successful startups that recruiters and venture capitalists often advise CEOs to bring them in before the company is ready.
Once you identify the problem, then you create the basis for the next steps.
STEP 2: INFORMING THE BOARD
Informing the board is tricky and many issues can further complicate the task:
This is the fifth or sixth executive that you had to fire.
This is the third executive that you fired in this role.
The candidate was referred by a board member who recommended the executive as a superstar.
Realize that in any of these cases the board will be at least somewhat alarmed and there is nothing that you can do about that. But keep in mind that your choices are: (a) alarm the board or (b) enable an ineffective executive to remain in her position. While choice (a) is not great, it’s a heck of a lot better than choice (b). Leaving a failing leader in place will cause an entire department in your company to slowly rot. Let that happen and the board will be more than alarmed.
You should have three goals with the board:
Get their support and understanding for the difficult task that you will execute. You should start by making sure that they understand the root cause and your plan to remedy the situation. This will give them confidence in your ability to hire and manage outside executives in the future.
Get their input and approval for the separation package. This will be critical for the next step. Executive packages are larger than regular severance packages and rightly so. It takes about ten times longer for an executive to find a new job than it does for an individual contributor.
Preserve the reputation of the fired executive. The failure was very likely a team effort, and it’s best to portray it that way. You don’t make yourself look good by trashing someone who worked for you. A mature approach to this issue will help keep the board confident in your ability to be CEO. It’s also the fair and decent thing to do.
Finally, firing an executive turns out to be a piece of news that’s handled better with individual phone calls than in dramatic fashion during a board meeting. It takes a bit longer, but it’s well worth the effort. Individual conversations will be particularly important if one of the board members introduced the executive to the company. Once everyone agrees individually, you can finalize the details in a board meeting or call.
STEP 3: PREPARING FOR THE CONVERSATION
After you know what went wrong and have informed the board, you should tell the executive as quickly as possible. In preparation for that meeting, I recommend scripting or rehearsing what you plan to say so that you do not misspeak. The executive will remember the conversation for a very long time, so you need to get it right.
As part of your preparation, you should review any performance reviews or written performance conversations to understand any inconsistencies in your prior communication.
Three keys to getting it right:
1. Be clear on the reasons. You have thought about this long and hard; don’t equivocate or sugarcoat it. You owe it to them to be clear about what you think happened.
2. Use decisive language. Do not leave the discussion open-ended. This is not a performance review; it’s a firing. Use words and phrases like “I have decided” rather than “I think.”
3. Have the severance package approved and ready. Once the executive hears the news, she will stop caring about the company and its issues; she will be highly focused on herself and her family. Be ready to provide specific details of the severance package.
Finally, the executive will be keenly interested in how the news will be communicated to the company and to the outside world. It is best to let her decide. Bill Campbell once gave me a critical bit of advice when I was preparing to fire an executive. He said, “Ben, you cannot let him keep his job, but you absolutely can let him keep his respect.”
STEP 4: PREPARING THE COMPANY COMMUNICATION
After you have informed the executive, you must quickly update the company and your staff on the change. The correct order for informing the company is (1) the executive’s direct reports—because they will be most impacted; (2) the other members of your staff—because they will need to answer questions about it; and (3) the rest of the company. All of these communications should happen on the same day and preferably within a couple of hours. When disclosing the firing to the direct reports, make sure that you have a plan for whom they will report to in the meantime and what’s next (executive search, reorganization, internal promotion, or something else). Generally, it’s smart for the CEO to act in the executive role in the meanwhile. If you do act in the role, you must really act—staff meetings, one-on-ones, objective setting, etc. Doing so will provide excellent continuity for the team and greatly inform your thinking on whom to hire next.
As you did when you updated the board, keep the message positive and refrain from throwing the executive under the bus. The best employees in the organization will likely be the ones closest to the executive. If you trash her, you will put all her best employees on notice that they are next. Is that a message you want to send?
When you update the company, you might worry about employees misinterpreting the news and thinking the company is in trouble. Do not try to maneuver around such a reaction. When you expect your employees to act like adults, they generally do. If you treat them like children, then get ready for your company to turn into one big Barney episode.
IN THE END
Every CEO likes to say she runs a great company. It’s hard to tell whether the claim is true until the company or the CEO has to do something really difficult. Firing an executive is a good test.
DEMOTING A LOYAL FRIEND
When I started Loudcloud, I hired the best people I knew—people whom I respected, trusted, and liked. Like me, many of them did not have deep experience in the jobs that I gave them, but they worked night and day to learn, and they made great contributions to the company. Nevertheless, the day came when I needed to hire someone else, someone with more experience, to run the function that I had previously entrusted to my loyal friend. Damn. How do you do that?
SHOULD YOU DO IT AT ALL?
The first question that always comes to mind is “Do I really need to do this? Who could I possibly hire who will work this hard and bleed the company colors like this?” Sadly, if you’re asking the question, you very likely already know the answer. If you need to build a worldwide sales organization, your buddy who did the first few deals is almost certainly not the best choice. As hard as it may be, you need to take a Confucian approach. You must consider first all of the other employees and second your friend. The good of the individual must be sacrificed for the good of the whole.
HOW DO YOU BREAK THE NEWS?
Once you make the decision, breaking the news will not be easy. It’s important to consider two deep emotions your friend will feel:
Embarrassment Do not underestimate what a large factor this will be in his thinking. All of his friends, relatives, and colleagues know his current position. They know how hard he’s worked and how much he’s sacrificed for the company. How will he possibly explain to them that he will no longer be part of the executive team?
Betrayal Your friend will undoubtedly feel something like this: I’ve been there from the beginning, I’ve worked side by side with you. How could you do this? It’s not like you’re perfect in your job, either. How can you be so comfortable selling me out?
Those are some powerful emotions, so get ready for an intense discussion. Ironically, the key to an emotional discussion is to take the emotion out of it. To do that, you must be very clear in your mind about what you’ve decided and what you want to do.
The most important thing to decide is that you really want to do this. If you walk into a demotion discussion with an open decision, you will walk out with a mess: a mess of a situation and a mess of a relationship. As part of the decision, you must get comfortable with the thought that the employee may quit the company. Given the intense emotions he will feel, there is no guarantee that he will want to stay. If you cannot afford to lose him, you cannot make this change.
Finally, you must decide the best role for him in your company. The obvious thing is to have him continue under his new boss, but this may not be the best thing for him, his boss, or his career. Your loyal employee will continue to have lots of knowledge about your company, competition, customers, and market that his new boss lacks. On the one hand, this can be a good thing—he can help get the new boss up to speed. On the other hand, when mixed with the intense emotions of embarrassment and betrayal, you might end up with a sabotage cocktail.
Another problem with this approach is that from a career path perspective there is no way to paint a picture of him reporting to his new boss as anything but a demotion. An alternative, if appropriate, would be to move him to another area of the company where his skills, talent, and knowledge will help. This kind of move will give him a chance to develop a new set of skills and help the company while he’s doing it. For young employees, getting experience in different areas can be highly valuable.
Sadly, this option may not be a silver bullet. He might not want to work in another job; he might be hell-bent on keeping his current job, so prepare for that as well.
Once you’ve decided to hire someone above your friend and decided on the alternatives that you’d like to offer him, you can have the conversation. Keep in mind that you cannot let him keep his old job, but you can be fair and you can be honest. Some keys to doing that:
Use appropriate language. Make clear with your language that you’ve decided. As previously discussed, use phrases like “I have decided” rather than “I think” or “I’d like.” By doing this, you will avoid putting the employee in the awkward position of wondering whether he should lobby for his old job. You can’t tell him what he wants to hear, but you can be honest.
Admit reality. If you are a founder-CEO like I was, it probably won’t be lost on the employee that you are just as underskilled for your job as he is for his. Don’t dodge this fact. In fact, admit that if you were a more experienced CEO, you might be able to develop him into the role, but two people who don’t know what they are doing is a recipe for failure.
Acknowledge the contributions. If you want him to stay in the company, you should say that and make it crystal clear that you want to help him develop his career and contribute to the company. Let him know that you appreciate what he’s done and that your decision results from a forward-looking examination of what the company needs, not a review of his past performance. The best way to do this, if appropriate, is to couple the demotion with an increase in compensation. Doing so will let him know that he’s both appreciated and valued going forward.
2. They should be clear that the employee is impacted and that the decision is nonnegotiable.
3. They should be fully prepared with all of the details about the benefits and support the company plans to provide.
STEP 5: ADDRESS THE ENTIRE COMPANY
Prior to executing the layoff, the CEO must address the company. The CEO must deliver the overall message that provides the proper context and air cover for the managers. If you do your job right, the managers will have a much easier time doing their jobs. Keep in mind what former Intuit CEO Bill Campbell told me—The message is for the people who are staying. The people who stay will care deeply about how you treat their colleagues. Many of the people whom you lay off will have closer relationships with the people who stay than you do, so treat them with the appropriate level of respect. Still, the company must move forward, so be careful not to apologize too much.
STEP 6: BE VISIBLE, BE PRESENT
After you make the speech telling your company that you will be letting many of them go, you will not feel like hanging out and talking to people. You will probably feel like going to a bar and drinking a fifth of tequila. Do not do this. Be present. Be visible. Be engaging. People want to see you. They want to see whether you care. The people whom you laid off will want to know if they still have a relationship with you and the company. Talk to people. Help them carry their things to their cars. Let them know that you appreciate their efforts.
PREPARING TO FIRE AN EXECUTIVE
When you recruit an executive, you paint a beautiful picture of her future in your company. You describe in great depth and in vibrant color how awesome it will be for her to accept your offer and how much better it will be than joining that other company. Then one day you realize you must fire her. Reconcile that, Ms. CEO.
It turns out that the actual act of firing an executive can be relatively easy compared with any other firing. Executives have experience being on the other side of the conversation and tend to be quite professional. Firing an executive correctly is a bit more complicated and extremely important. If you do not learn the right lessons, you will be doing it again soon.
Like so many things, the key to correctly firing an executive is preparation. Here is a four-step process that will treat the executive fairly and improve your company.
STEP 1: ROOT CAUSE ANALYSIS
While it’s possible to fire an executive for bad behavior, incompetence, or laziness, those cases are rare and relatively easy. Unfortunately, unless you have a horribly deficient hiring process, those are probably not the reasons why you got to this point. At this level, almost every company screens for the proper skill set, motivation, and track record. Yes, the reason that you have to fire your head of marketing is not because he sucks; it’s because you suck.
In other words, the wrong way to view an executive firing is as an executive failure; the correct way to view an executive firing is as an interview/integration process system failure. Therefore, the first step to properly firing an executive is figuring out why you hired the wrong person for your company.
You may have blown it for a variety of reasons:
You did a poor job defining the position in the first place. If you don’t know what you want, you will be unlikely to get it. Far too often, CEOs hire executives based on an abstract notion of what they think and feel the executive should be like. This error often leads to the executive not bringing the key, necessary qualities to the table.
You hired for lack of weakness rather than for strengths. This is especially common when you run a consensus-based hiring process. The group will often find the candidate’s weaknesses, but they won’t place a high enough value on the areas where you need the executive to be a world-class performer. As a result, you hire an executive with no sharp weaknesses, but who is mediocre where you need her to be great. If you don’t have world-class strengths where you need them, you won’t be a world-class company.
You hired for scale too soon. The most consistently wrong advice that venture capitalists and executive recruiters give CEOs is to hire someone “bigger” than required. “Think about the next three to five years and how you will be a large company” is how the bad advice usually sounds. It’s great to hire people who can run a large-scale organization if you have one. It’s also great to hire people who know how to grow an organization very fast if you are ready to grow your organization very fast. However, if you do not or you are not, then you need someone who can do the job for the next eighteen months. If you hire someone who will be great in eighteen months but will be poor for the next eighteen months, the company will reject her before she ever gets a chance to show her stuff. Your other employees will wonder: Why did we give her all those stock options when she’s not contributing anything? Those kinds of questions are impossible to recover from. It turns out that venture capitalists and executive recruiters are not stupid; they just learned the wrong lessons from previous failures. To learn the right lesson, see the special case of scaling and the special case of fast growth as explained below.
You hired for the generic position. There is no such thing as a great CEO, a great head of marketing, or a great head of sales. There is only a great head of sales for your company for the next twelve to twenty-four months. That position is not the same as the same position at Microsoft or Facebook. Don’t look for the candidate out of central casting. This is not a movie.
The executive had the wrong kind of ambition. In chapter 6, I will describe the difference between ambition for the company and ambition for oneself. If an executive has the wrong kind of ambition, then despite her skills, the company may reject her.
You failed to integrate the executive. Bringing a new person into your company in an important role is difficult. Other employees will be quick to judge, her expectations may be different from yours, and the job may be largely undefined. Be sure to review and improve your integration plan after you fire an executive.
The special case of scaling
A fairly common reason for firing an executive is that when the company quadruples in size, the executive no longer does the job effectively at the new size. The reason is that when a company multiplies in size, the management jobs become brand-new jobs. As a result, everybody needs to requalify for the new job, because the new job and the old job are not the same. Running a two-hundred-person global sales organization is not the same job as running a twenty-five-person local sales team. If you get lucky, the person you hired to run the twenty-five-person team will have learned how to run the two-hundred-person team. If not, you need to hire the right person for the new job. This is neither an executive failure nor a system failure; it is life in the big city. Do not attempt to avoid this phenomenon, as you will only make things worse.
The special case of fast growth
If you build a great product and the market wants it, you will find yourself needing to grow your company extremely quickly. Nothing will ensure your success like hiring the right executive who has grown an organization like yours very quickly and successfully before. Note that this is not the same as inheriting a very large organization or working your way up to running a very large organization. Make sure you hire the right kind of fast-growth executive. Also, do not hire this person if you are not ready to give them lots of budget to grow their organization; expect them to do what they do. The successful fast-growth executive is so important to building successful startups that recruiters and venture capitalists often advise CEOs to bring them in before the company is ready.
Once you identify the problem, then you create the basis for the next steps.
STEP 2: INFORMING THE BOARD
Informing the board is tricky and many issues can further complicate the task:
This is the fifth or sixth executive that you had to fire.
This is the third executive that you fired in this role.
The candidate was referred by a board member who recommended the executive as a superstar.
Realize that in any of these cases the board will be at least somewhat alarmed and there is nothing that you can do about that. But keep in mind that your choices are: (a) alarm the board or (b) enable an ineffective executive to remain in her position. While choice (a) is not great, it’s a heck of a lot better than choice (b). Leaving a failing leader in place will cause an entire department in your company to slowly rot. Let that happen and the board will be more than alarmed.
You should have three goals with the board:
Get their support and understanding for the difficult task that you will execute. You should start by making sure that they understand the root cause and your plan to remedy the situation. This will give them confidence in your ability to hire and manage outside executives in the future.
Get their input and approval for the separation package. This will be critical for the next step. Executive packages are larger than regular severance packages and rightly so. It takes about ten times longer for an executive to find a new job than it does for an individual contributor.
Preserve the reputation of the fired executive. The failure was very likely a team effort, and it’s best to portray it that way. You don’t make yourself look good by trashing someone who worked for you. A mature approach to this issue will help keep the board confident in your ability to be CEO. It’s also the fair and decent thing to do.
Finally, firing an executive turns out to be a piece of news that’s handled better with individual phone calls than in dramatic fashion during a board meeting. It takes a bit longer, but it’s well worth the effort. Individual conversations will be particularly important if one of the board members introduced the executive to the company. Once everyone agrees individually, you can finalize the details in a board meeting or call.
STEP 3: PREPARING FOR THE CONVERSATION
After you know what went wrong and have informed the board, you should tell the executive as quickly as possible. In preparation for that meeting, I recommend scripting or rehearsing what you plan to say so that you do not misspeak. The executive will remember the conversation for a very long time, so you need to get it right.
As part of your preparation, you should review any performance reviews or written performance conversations to understand any inconsistencies in your prior communication.
Three keys to getting it right:
1. Be clear on the reasons. You have thought about this long and hard; don’t equivocate or sugarcoat it. You owe it to them to be clear about what you think happened.
2. Use decisive language. Do not leave the discussion open-ended. This is not a performance review; it’s a firing. Use words and phrases like “I have decided” rather than “I think.”
3. Have the severance package approved and ready. Once the executive hears the news, she will stop caring about the company and its issues; she will be highly focused on herself and her family. Be ready to provide specific details of the severance package.
Finally, the executive will be keenly interested in how the news will be communicated to the company and to the outside world. It is best to let her decide. Bill Campbell once gave me a critical bit of advice when I was preparing to fire an executive. He said, “Ben, you cannot let him keep his job, but you absolutely can let him keep his respect.”
STEP 4: PREPARING THE COMPANY COMMUNICATION
After you have informed the executive, you must quickly update the company and your staff on the change. The correct order for informing the company is (1) the executive’s direct reports—because they will be most impacted; (2) the other members of your staff—because they will need to answer questions about it; and (3) the rest of the company. All of these communications should happen on the same day and preferably within a couple of hours. When disclosing the firing to the direct reports, make sure that you have a plan for whom they will report to in the meantime and what’s next (executive search, reorganization, internal promotion, or something else). Generally, it’s smart for the CEO to act in the executive role in the meanwhile. If you do act in the role, you must really act—staff meetings, one-on-ones, objective setting, etc. Doing so will provide excellent continuity for the team and greatly inform your thinking on whom to hire next.
As you did when you updated the board, keep the message positive and refrain from throwing the executive under the bus. The best employees in the organization will likely be the ones closest to the executive. If you trash her, you will put all her best employees on notice that they are next. Is that a message you want to send?
When you update the company, you might worry about employees misinterpreting the news and thinking the company is in trouble. Do not try to maneuver around such a reaction. When you expect your employees to act like adults, they generally do. If you treat them like children, then get ready for your company to turn into one big Barney episode.
IN THE END
Every CEO likes to say she runs a great company. It’s hard to tell whether the claim is true until the company or the CEO has to do something really difficult. Firing an executive is a good test.
DEMOTING A LOYAL FRIEND
When I started Loudcloud, I hired the best people I knew—people whom I respected, trusted, and liked. Like me, many of them did not have deep experience in the jobs that I gave them, but they worked night and day to learn, and they made great contributions to the company. Nevertheless, the day came when I needed to hire someone else, someone with more experience, to run the function that I had previously entrusted to my loyal friend. Damn. How do you do that?
SHOULD YOU DO IT AT ALL?
The first question that always comes to mind is “Do I really need to do this? Who could I possibly hire who will work this hard and bleed the company colors like this?” Sadly, if you’re asking the question, you very likely already know the answer. If you need to build a worldwide sales organization, your buddy who did the first few deals is almost certainly not the best choice. As hard as it may be, you need to take a Confucian approach. You must consider first all of the other employees and second your friend. The good of the individual must be sacrificed for the good of the whole.
HOW DO YOU BREAK THE NEWS?
Once you make the decision, breaking the news will not be easy. It’s important to consider two deep emotions your friend will feel:
Embarrassment Do not underestimate what a large factor this will be in his thinking. All of his friends, relatives, and colleagues know his current position. They know how hard he’s worked and how much he’s sacrificed for the company. How will he possibly explain to them that he will no longer be part of the executive team?
Betrayal Your friend will undoubtedly feel something like this: I’ve been there from the beginning, I’ve worked side by side with you. How could you do this? It’s not like you’re perfect in your job, either. How can you be so comfortable selling me out?
Those are some powerful emotions, so get ready for an intense discussion. Ironically, the key to an emotional discussion is to take the emotion out of it. To do that, you must be very clear in your mind about what you’ve decided and what you want to do.
The most important thing to decide is that you really want to do this. If you walk into a demotion discussion with an open decision, you will walk out with a mess: a mess of a situation and a mess of a relationship. As part of the decision, you must get comfortable with the thought that the employee may quit the company. Given the intense emotions he will feel, there is no guarantee that he will want to stay. If you cannot afford to lose him, you cannot make this change.
Finally, you must decide the best role for him in your company. The obvious thing is to have him continue under his new boss, but this may not be the best thing for him, his boss, or his career. Your loyal employee will continue to have lots of knowledge about your company, competition, customers, and market that his new boss lacks. On the one hand, this can be a good thing—he can help get the new boss up to speed. On the other hand, when mixed with the intense emotions of embarrassment and betrayal, you might end up with a sabotage cocktail.
Another problem with this approach is that from a career path perspective there is no way to paint a picture of him reporting to his new boss as anything but a demotion. An alternative, if appropriate, would be to move him to another area of the company where his skills, talent, and knowledge will help. This kind of move will give him a chance to develop a new set of skills and help the company while he’s doing it. For young employees, getting experience in different areas can be highly valuable.
Sadly, this option may not be a silver bullet. He might not want to work in another job; he might be hell-bent on keeping his current job, so prepare for that as well.
Once you’ve decided to hire someone above your friend and decided on the alternatives that you’d like to offer him, you can have the conversation. Keep in mind that you cannot let him keep his old job, but you can be fair and you can be honest. Some keys to doing that:
Use appropriate language. Make clear with your language that you’ve decided. As previously discussed, use phrases like “I have decided” rather than “I think” or “I’d like.” By doing this, you will avoid putting the employee in the awkward position of wondering whether he should lobby for his old job. You can’t tell him what he wants to hear, but you can be honest.
Admit reality. If you are a founder-CEO like I was, it probably won’t be lost on the employee that you are just as underskilled for your job as he is for his. Don’t dodge this fact. In fact, admit that if you were a more experienced CEO, you might be able to develop him into the role, but two people who don’t know what they are doing is a recipe for failure.
Acknowledge the contributions. If you want him to stay in the company, you should say that and make it crystal clear that you want to help him develop his career and contribute to the company. Let him know that you appreciate what he’s done and that your decision results from a forward-looking examination of what the company needs, not a review of his past performance. The best way to do this, if appropriate, is to couple the demotion with an increase in compensation. Doing so will let him know that he’s both appreciated and valued going forward.
