Nathaniel Broughton is a partner at Plus2 Capital, an entrepreneurial private equity firm.
Young companies are notorious for "firing fast": in fact, startups fire 25 percent of their employees in their first year of existence. With all those bodies moving through the revolving door of your company, issues are bound to arise. It's also why startup founders are often reminded to put proper hiring policies, employee contracts and documentation practices in place from the get-go. In my experience, it certainly pays to ensure an attorney has reviewed your employee handbook.
I learned early on that company owners often spend most of their day dealing with problems, simply because companies are made up a diverse range of personality types that don’t always meld well together. While this reality can seem daunting for any first-time entrepreneur, here are some suggestions for how to gracefully handle your first “bad employee breakup.”
Picture this: you entice a rockstar developer away from a big tech company in your area. It took months to recruit him, and you commit to a hefty salary, generous benefits and full control over your product team. Eight weeks go by, and things aren't working out. You make the decision to fire Mr. Rockstar. On Friday afternoon, you sit him down and break the news. He leaves. You're relieved it's over, and head out to enjoy the weekend.
Come Monday, you receive an email from Mr. Rockstar’s attorney. It states that Mr. Rockstar believes he was improperly terminated, and demands restitution in the form of $15,000. One moment, you're confident these claims are outrageous and can be effectively ignored. The next, you're scared and uncertain about how to handle it. Even if you "hire slow" and build a culture that rivals Zappos, you may still deal with disgruntled employees. It's best to be prepared through legal protection as well as mental preparedness.
A few years ago, we had a salesperson join the company. Within two weeks, our CEO and our other salespeople knew this person was not a fit. We followed the startup mantra of "firing fast," documented everything and offered an employee contract enforcing both the company's rights and the employee's rights. California is an "at will" state, meaning you can effectively terminate an employee at any time for any reason. Nevertheless, the salesperson threatened legal action. It's amazing how quickly the tenor changes: despite a cordial final meeting and generous severance, the next week started with a legal letter and a list of claims against the company. I knew we were in the right, and protected, but it was still unnerving.
My first course of action was to talk to my partner, and together we called our attorney. No matter how many disgruntled employees or oddball lawsuits you’ve been privy to, your attorney and partner (if you have one) can help straighten out the situation. Beyond the nerves, the very distraction these situations engender is maddening and makes it difficult to focus on anything else.
In a startup that fights daily to stay alive, let alone grow, don’t let a similar situation eat up more than one week of your time.
Protect Yourself Before It’s Too Late
In today's world, legal protections are not all you have to consider. If the aforementioned Mr. Rockstar developer case falls in your lap, you also have to protect your code. This issue came up recently at a business event I attended in San Diego. Danny DeMichele, who owns Elevated Search, recently dealt with a key developer departure.
"If we lose someone — and this is rare, but it happens — we have to spend the night prior changing all of our passwords, server logins, and admin accounts with our partners," Danny told me. "It isn't fun. And you spend the next couple weeks looking over your shoulder with your sites."
Every business carries some liability with its digital assets, and while I don’t think it’s necessary to hire an outside firm to create a plan to be prepared, you should always keep and maintain a list of all of your company logins and passwords. I’d also suggest you expand the list to include notes on who in the company has access to each one, as well as where and how to change them. You should also keep multiple backups of any important websites or files stored in remote locations.
Keep Calm Under Pressure
Another entrepreneur at the event was dealing with a disgruntled former salesperson who was calling up key accounts and bad-mouthing the company. "We tried to get out ahead of things and tell our clients that this person has been let go, but it still creates a lot of confusion. It's difficult to transition those relationships, obviously," she said (she wished to remain anonymous for this article).
Your best option in dealing with the departure of a key salesperson is to manage the situation away from becoming combative. You can always try to ensure each client relationship is “held” by more than one person internally, but rarely do I see that put into practice. So begin the process early, whether that means communicating and documenting concerns over performance, or transitioning key customer relationships over to other internal points of contact.
While the process of handling a “bad employee breakup” is certainly complicated, what's important to take away is that problems like these are often inevitable. My recent conversations only further that point: it’s something we’ve all dealt with at one point or another.
With these examples in mind, take the time to play out some worst-case scenarios. Double-check your hiring process and documentation of employee performance: Can you take action now to protect your code in the instance of a disgruntled departure on your developer team? Can you re-arrange some key customer relationships to be less dependent on a single salesperson?
As Benjamin Franklin said, “An ounce of prevention is worth a pound of cure.” And if you're a first-time entrepreneur, every day is spent in a lightning storm. Handling an employee (disgruntled or otherwise) termination with grace will set a precedence of hiring culture at your company and ensure no bridge is burned on either end.