Fred Wilson observed that his most successful portfolio companies tended to turn their staff about three times during the life of the startup. He termed this "Three Turns", and believes that this is a vital part of keeping a startup fresh and healthy.
Whilst this may seem like a tough, difficult, or even inadvisable thing to do, we'll talk about why it's vitally important that startups do this - particularly given the limitations of human psychology
Tours of Duty Overview
In military terms, a tour of duty is a period of time spent in combat or in a hostile environment. Whilst it would be a stretch to compare startups to the military, it is nonetheless a useful concept to think about rotating employees through a startup and out again.
This is important for the following reasons: -
Startups grow rapidly, both in revenue and physical size
The 'perfect' employee at an early-stage startup will be very 'imperfect' at a mid- or late-stage startup
The rate at which even the most competent individual learns and develops is slower that the growth rate of a startup
Employees burn out in a tough startup environment
The key observation here is that the speed with which humans learn and adapt is fundamentally slower than the speed at which a startup evolves and grows. This creates a fundamental tension between the growing needs of the startup, and the capacity of existing employees to fulfill those needs. The only solution is to recognise this and plan accordingly
A successful startup will likely employee three distinct batches of employees
Speed of Human Learning
Research indicates that it takes a typical person 10,000hours of dedicated time to become an expert at a subject. Assuming that person is working 2000hours a year (50weeks x 40hrs/wk) then that's effectively 5 years of work time.
We can identify 7 distinct levels of management - from Individual Contributor, through to CEO. A driven, highly competent individual at a Fortune 500 company might step through all these stages in a 35 year career; spending 5 years in each, and therefore becoming expert and proficient at each stage of management.
However, a startup grows and develops far faster than this, and so an employee that may be an Individual Contributor initially, is managing employees a year later, and is expected to manage teams of employees a year after this.
Clearly this means that the employee is unable to become proficient at any of these stages - they spend nowhere near 2000hours in any - and so become doomed to perform well below expectations
The speed of growth of your Startup will far exceed the speed with which any employee could ever develop
Ramifications for Employees
This means that it is inevitable that the 'superstar' employee you hire when your startup has 10 employees, seems a lot more 'mediocre' when you have 30, and inevitably seems 'out-of-their-depth" when you're at 100 employees.
Conversely, that once-'superstar' employee has undoubtedly given a lot to your startup, built a host of process, systems, product etc., and is a strong part of the fabric. So how do you deal with this?
If you retain underperforming employees, then your culture will suffer and your company will fail
Your underperforming employee cannot be developed fast enough
You can either hire above the employee
Or phase the employee out graciously
It is highly unlikely that an employee will willingly accept someone being hired about them, and so in 95% of cases you have to phase the employee out of the organisation. Be especially careful of employees that agree to someone being hired above them, then spend their time undermining their new boss.
This subject is best broached as early as possible - potentially even at the point of hire - with clear expectations being set at each stage. I recommend the following: -
Hire employees with clear and realistic expectations (don't over-promise!)
Discuss how far you think an employee can develop, and what their likely limits are
Have frequent feedback conversations with employees to discuss their progress
Clearly highlight employee's limitations and development needs
Have the tough conversation when the employee is at their limit
This is a tough way of dealing with employees - it requires bravery, honesty and conviction - and there's no space to lie to employees to keep pushing them, or to clinch that next superstar employee that will save the company.
Conversely, it sets up your company and your corporate culture for honesty, clear feedback, and openness about difficult topics. A successful startup will inevitably turn their employees three times, and unless this foundation is set early, that will have a major, negative impact on morale.
Note: What if you just don't turn your employees? Then you end up with a company filled with stressed individuals who are incapable of delivering what is expected of them. And you fail
This means that you will have to phase employees out of your startup, and I recommend the following steps to do it as graciously as possible: -
Ensure that the employee is well rewarded. Consider accelerate vesting, or an equity bump. The cost to your startup will be more than offset by the goodwill it engenders
Help the employee with their next steps - offer intros, references, positive recommendations
Publicly celebrate the employee moving on and celebrate their positive impact on your startup
This is not an easy route, but it is a necessary evil when dealing with a rapidly growing startup
Ramifications for Founders
Almost all Founders will find themselves struggling with exactly the same issues of quasi-incompetence at most levels of management. Unfortunately there are times when this just has to occur, and Founders need to suck it up.
Rather than trying to become semi-competent at a number of different types of management, I recommend that Founders focus solely on the things that they alone are uniquely positioned to do: -
Sell the vision
These roles cannot be delegated to others, and are the core roles that a Founder needs to be great at from the very beginning of a startup. Conversely, management positions can eventually be filled with experienced managers from other startups or industry.
Founders must recruit great managers, delegate authority to them, trust their decision-making and skills, and empower them to act.
Where possible, Founders need to be aware of their own limitations, and find these managers. There is nothing worse than an overworked Founder attempting to be a second-rate manager, when there are plenty of others available that could do the job better.
You will inevitably end up 'turning' your employees three times on the route to success. Attempting to do anything other than this will likely lead to failure, and so it requires Founders to be honest and clear with their employees, and to take steps to graciously phase employees out of the organisation.
It also means that Founders must be aware of their own limitations, and focus on the roles that they alone can do, whilst increasingly delegating management to professional individuals that they have hired.