Secret to Success? Fire Every Quarter
Recently I was speaking with a friend who owns a small professional services business. We were discussing how he has a great workforce with employees who produce a lot more than one might expect.
Right now he has a team of about a dozen people. He remarked to me, “Once you have a team of roughly 12, every quarter find the person producing the least and fire them each quarter.”
At first, I was taken aback by this suggestion. Why would you want to always fire someone every quarter, even if everything is going well?
The truth is, you’re probably overestimating how well things are going and underestimating what your team’s potential is (or could be). In the last cohort you hired, whether it was three or 15 people, you could tell me exactly who performed above your expectations, who has done just fine, and who has turned out to be a disappointment.
It’s not that you intentionally hire poor performers: it’s that by definition, the scale for evaluation shifts once someone has been onboarded. You hired the top 10% out of your pool of candidates, but as soon as you’ve flushed away that bottom 90%, those new hires now have to be graded with and against your existing team. Aiming your focus at keeping the top 10% of the top 10% is how you get to the crème de la crème.
In my own experience, I bought out a company with 20 employees, and by the time I was finished streamlining the business I had only kept the best three or four. It wasn’t that the company was overstaffed by a factor of five—it was that the few original people I kept on were integral to the success of the business. Those that we let go weren’t providing significant value, and we were eventually able to replace them with people who did.
In spite of the ruthlessness running a small business requires, I frequently see managers balk at the idea of firing employees. I have never had issues parting ways with employees. I want every person to be able to do the best work possible. Jack Daly says,
The longest time in a manager’s life is the time between when you decide to part ways with an employee and take action to part ways with them.
Relationships are seldom out of balance: if there is an issue that one side feels, usually the other side feels it as well. If you’re not happy with the work your employee is doing, it’s almost always the case that they aren’t happy in the position they’re in either. My opinion is that it’s crueler to keep someone on who can do more and be happier somewhere else than it is to let them go. There will be discomfort on both sides at the separation, but in the long run, it ends up being better for everyone involved.
My friend’s rule isn’t hard and fast—I’ve heard other people discuss firing the entire bottom quarter of their staff every 3–6 months. And as much as an underperforming staff member costs you, paying out unemployment insurance to the equivalent of a quarter of your team or dealing with the headaches associated with frequent turnover isn’t cheap either. Morale is also put at risk if you blindly stick to one rule in disregard of the changing circumstances of your business.
Nevertheless, my friend’s hard-line tactic should get you asking yourself this question:
When was the last time you cleaned house?