Startup CEOs have a few key roles that they can’t delegate1. One of them is building a team that moves the company forward in the desired direction. Leaders often take inspiration from their prior work experiences in developing the practices they will use to build that team and culture - like 1:1 performance evaluations. In my view, this is likely a wasteful practice.
Years ago, I remember sitting down with one of my direct reports at Geonetric for his annual performance evaluation. After going over some of what was on the templated form we used, we were discussing one aspect of his performance that hadn’t been what it should have been. He stopped me midway through, and said “Um, I know. This happened a few months ago. We’ve already talked about it. What are we doing here?”
He was right, the performance evaluation was unnecessary if we were already having these healthy conversations along the way. I realize that we had already invested heavily in a culture where feedback happened in the moment, and the team had candid and honest conversations about most issues. Soon after, I vowed to never do a formal performance evaluation ever again. Many companies, big and small, are abandoning them as counterproductive.
Performance evaluation theater
Here’s why most performance evaluations are largely theater, and often counterproductive in high-performance startups.
Performance evaluations defer important conversations that should just happen. There’s no point in jotting down problems just to bring them up later. It becomes an excuse for managers to delay difficult conversations (are you avoiding a tough conversation?). Even worse: deferring it removes the immediate context for a productive discussion about solving or preventing the problem in the future.
Management feedback isn’t all that valuable anyway. Managers aren’t domain experts in most cases, so feedback is often abstract, general, and not particularly useful. I remember wracking my brain to come up with ‘examples’ that matched what I was trying to say, as if I was Santa watching employees closely all day, every day. In truth, I was busy on other things; the examples that surfaced were the select few that I happened to be aware of. Certainly, I wasn’t aware of many other examples - or counterexamples. This is demoralizing to employees - their performance evaluation is based on the select few examples of behavior that make their way through whatever gauntlet to your attention, instead of the totality of their work.
Individual performance evaluations reinforce … individual performance. Since their performance is evaluated independently, setting goals and measuring against them incentivizes employees to focus on their individual performance, even at the expense of team performance. Startups rely on high performance teams. They are dealing with complex, rapidly changing information in an uncertain environment, learning together what works and what doesn’t. If you’re really measuring performance, doing it at the individual level is probably a waste of time and optimizing exactly the wrong thing.
Individual performance evaluations put the focus on pleasing you. If the mechanism for feedback is 1:1 evaluations of their performance, employees will naturally spend time “managing up”, thinking about how their work, in isolation, will be perceived by you. Is that really what you want them to be spending time on? I’d rather the team focus on pleasing customers.
Managing individuals is exhausting for startup founders, belittling to adult professionals, and it slows down your speed of improvement. Consider the message you’re sending to employees: I’ll meet with you quarterly, so we can talk about your performance. A performance review is where a conversation about being better happens. It communicates that the responsibility for “better” is on you, as their manager, and that you will tell the employee, individually, when and how to be better.
What to do instead of performance evaluations
In a healthy startup culture, what you care about is whether the team wins. The way you communicate, the practices you put in place and reinforce demonstrate what’s truly important. You have to choose: will you build a culture in which you manage each individual, guiding them individually behind the scenes, like a puppeteer? Or, does your culture empower the team itself and trust them to be responsible for winning the game, for identifying obstacles to winning, and for removing them? The latter is a mind-blowingly different way to lead people, especially if you’re used to typical American management practices.
Luckily, startups are uniquely positioned to have the kind of teams and cultures that can execute this way. It’s precisely what makes working in a startup so exciting! Startups can move faster than bigger, entrenched competitors specifically because they have small, high-performance teams that are narrowly focused on solving very specific problems. They usually don’t have bureaucratic, hierarchical cultures that breed office politics and employee drama. Don’t throw this advantage away!
Here’s what we’ve observed in high-performance startup companies:
1:1 feedback from managers is given verbally, immediately, in a real, honest-to-goodness conversation. If you see something that needs a discussion, say something - right away! Verbal, immediate communication is more likely to spark a healthy conversation that actually changes behaviors. That’s the whole point of the feedback, right?
The best teams have healthy, regular, and candid retrospectives, together. Every few weeks, the team honestly assesses its performance against their team goals, celebrates its wins, and talks about how to be better, as a team. Note that this responsibility lies with the team itself, and is baked into how they work, every day. It’s not an after-the-fact meeting, or imposed by someone outside the team.
Peers can have honest and candid individual conversations with each other. A culture which puts the responsibility for difficult conversations primarily on managers is dysfunctional and slow. Individuals on high-performance teams approach each other regularly with candid and constructive criticism and praise instead of asking managers to deal with every problem.
Disconnect compensation from performance evaluations. If you expect honesty and candor, you must decouple compensation from individual performance evaluations. Obviously, if you don’t have individual performance evaluations, you can’t use them for compensation adjustments. Luckily, you have a wide array of options for how to build an effective and equitable compensation model, based on individual experience, skills, and team-based performance compensation approaches2.
Set goals at the team level. Individuals might have things they’re working on improving, but in most cases no single employee drives the business performance on their own. Keeping the big picture view in sight for your employees - the goals they’re all working together to accomplish - is critical for this to work. They have to understand the goals, know how to impact them, and be able to measure performance against them quickly3.
You can still have 1:1s. Your role as the founder/leader is to build the right team to lead the company forward. Of course you can, at any time, have a 1:1 conversation with any team member, about anything. But in a healthy team culture, these are less about performance appraisal and more about coaching them when they come across a problem and want a trusted perspective on how to improve.
Certainly, you need to find an approach that fits your values and the culture you want to create. If that includes traditional performance evaluations, that’s fine. But do them because you truly believe that they’re the best way to build and grow a high-performance team.
At ISA Ventures, we work with our founders to build cultures like these, because we believe they can be a massive competitive advantage and allow them to outperform their peers. If you’d like to learn more, reach out.
More reading:
Stop basing pay on performance reviews (Harvard Business Review)
Abolishing performance appraisals: why they backfire and what to do instead by Tom Coens and Mary Jenkins
This is a whole post on its own: Startup CEOs have several important roles they cannot delegate to anyone else: 1. Make sure the company has cash to operate. 2. Develop and communicate a vision for where the company needs to be. 3. Build the team that can execute on that vision. 4. Lead early sales to accelerate learning from customers until you’re ready to scale.
This is a complex topic I’ll revisit in a future post.
This is a complex topic I’ll revisit in a future post.