The Peter Principle states that anything that works will be used in progressively more challenging applications until it fails. This means that great employees will be continuously promoted, until they are fired. If the Peter Principle isn't recognized, your organization quickly becomes unbalanced. Your business loses the best and brightest members of the team. It's a waste of time and resources, and a squander of valuable talent.

Prior to starting LexION Capital, I worked at various large investment banks, and before long I noticed a pattern: successful Financial Advisors were regularly promoted to manage all Financial Advisors in an office. The aggressive sales skills that set them up for success as Financial Advisors were best put to use when they got to operate as lone wolves. When they were in charge of others, I would watch time and again as the these same successful sellers ended up vacillating between micro-management and what could at best be called benign neglect. Like clockwork, these promotions either led to firings or fleeing the bank to resume work as a Financial Advisor elsewhere.

I've heard these stories from many fellow entrepreneurs. Folks who excel are promoted until at last they exceed their skill set. The second-to-last position is the pinnacle of their zone of excellence. In the final position, they are pushed into a zone of incompetence. This isn't necessarily about difficulty, but simply difference in required skill set. Every one of us has various innate strengths, and we can work in potentially multiple zones of excellence that arise from those strengths. But step outside those zones completely, and a high-performing employee is all but guaranteed to fail. Here are three ways to avoid this failure:

1. Manage to employee strengths.

Instead of a hierarchical promotion system, use a system of managing to each employee's strengths. Have people do more of what they're best at, and less of the work they are not naturally inclined to do. Increase the responsibilities within a person's role so that the role continuously grows with them, rather than simply tracking them into a whole new position in which they may not excel. By testing out additions to their role without completely dislocating them from their zone of excellence, potential Peter failure is nipped in the bud. It is much easier and faster to identify whatever strategic pruning is necessary to keep that person operating from a place of natural strength and peak performance.

2. Recognize no one can be great at all things--and get help.

Don't make the mistake of thinking that management skills are universal, or even that they can be universally learned. The best engineer on your team is not necessarily going to be a good manager of that team, despite their expertise and proficiency with the subject matter. Management requires an additional, completely different skill set. It's not one that can be acquired through automatic progression.

When the time comes, bring in others with vetted, demonstrated management experience to manage the growing team. For a startup that needs to stay nimble, that can take all sorts of forms. Maybe the answer is hiring a full-time manger or chief of staff. But maybe not. Perhaps it's finding a high-level consultant or expert to create playbooks and help keep projects on track and accounted for, while letting each full time team member continue to concentrate on the areas where they already shine. Consider providing alternative growth pipelines for high-performing specialists that don't entail moving into management, like a track to become team lead or senior specialist. They can be a point person, but not in charge of others.

3. Promote based on expectations in the new position, not as a reward for good work in the current role.

Promoting someone into a role they are not suited for is a blinking neon sign alerting you to an opportunity to create a better, leaner, more effective process. Going forward, be sure to strategically evaluate a person's abilities for the specific requirements of a potential role, rather than simply promoting them based on their excellence in their current position.

And rather than losing the talents of the ostensibly excellent employee you just promoted, the better response as a business owner may be to institute a de-facto demotion. Remove the last tier of their responsibilities and allow that person to resume flourishing at their highest level of achievement. Maybe you don't take the new title away (titles may be meaningless on paper, but they do mean a lot to people), but simply shift that person’s responsibilities back in line with their strengths and competencies.

They, and your business, will once again be set up for success.