Should you enforce a non-compete clause for an employee you fired?

The CEO of a startup asks: “We just learned that our former VP Sales, who was terminated a few months ago, recently started working for our direct competitor. It is a violation of the 12 month non-compete clause in his employment contract. What would you recommend?”

My answer:

Whether or not you should enforce a non-compete depends on the circumstances under which the employee left and how strong the employee is. If he’s great and chose to leave your company voluntarily, demand that the non-compete be honored. If you fired him, don’t enforce the non-compete. It’s not worth the bad karma.

If you let him go, you don’t want to stand in the way of him getting another job. His best opportunities will always be in something closely related to his last job. For this reason, non-competes are often morally questionable, and in some jurisdictions they’re unenforceable.  Even if he has info about your company, the info will rapidly become dated and valueless.

Many companies play tougher than this, but I’ve personally found that helping ex-employees to be successful is a better way to be. People will leave your company for many reasons; you want them to feel positively about it whenever possible. You want people to be proud that they are alumni of your company, and to view their time with you as an enabler for their subsequent career success.

So consider sending him an email congratulating him on the new job, letting him know you are not planning to enforce the non-compete clause, and wishing him luck. Maybe even send him a small gift.

How would you answer?

Notes:
(1) Cf. “help them transition out of the role by providing a reference, reaching out to your network” in Four principles for how to fire someone correctly.
(2) Remember that If you fired a senior executive, you should identify from this list what went wrong.

Don’t fire people on a Friday

Edited excerpt from Firing Someone for the First Time: Top Entrepreneurs Share Their Wisdom by Jessica Stillman:

Ethan Appleby, founder and CEO of Vango, recommends that you keep the conversation really short. Don’t talk too much, just get right to the point. Let them ask questions, but keep emotions out of it. And don’t do it on Friday, so you can see if the morale of the team is OK, and people can get their questions answered.

Notes:
(1) Cf. Four principles for how to fire someone correctly.
(2) See also: Exit interviews.

Four principles for how to fire someone correctly

Edited excerpt from How To Fire An Employee — The Right Way by Mitchell Harper:

Nothing slows down a startup like bad hiring — except when you keep those bad hires around for longer than you should. The key to firing lies in 4 principles:

1. The employee should see it coming – they should know in advance that being let go is a real possibility if they don’t improve.

2. They should be given a chance to improve — they need to know exactly what you expect of them and should agree to meet that one key, measurable goal within a specific time period.

3. Their ego should never be damaged — help them transition out of the role by providing a reference, reaching out to your network and providing 1-4 weeks of severance; most people can find a new job, but they have to break the bad news to their partner, kids and friends.

4. Never lie to your other employees about why the person was fired — be brief, but make it clear they were fired for performance reasons. This helps set a culture based on performance, not politics or tenure.

Notes:
(1) Re. “Nothing slows down a startup like keeping bad hires around for longer than you should” — see Five bad excuses to avoid firing poor performers, and why you should “expose the pain”.
(2) Re. “help them transition out of the role by providing a reference and reaching out to your network” — I’m not sure how you can do this if you fired them for poor performance. Advice, anyone?
(3) Re. “Their ego should never be damaged” — listening to their feedback helps; see Exit interviews.

Would you fire this person?

A CEO friend called me yesterday with the following question:

“A senior manager in my organization has strong domain knowledge and is in some ways highly effective. But he demotivates his team members, for example by taking tasks from them because he says he can do them better. I also personally find him hard to work with: he tries to stop me from handling key negotiations where I have a better relationship with the other party, and fails to deliver on my requests. My options are: fire the manager, split his role into two and put him in a newly defined role where he doesn’t manage people, or try to work with him to improve. Which should I choose?”

What would you advise?

I tried to help the CEO make her decision by sharing my experience with this sort of situation generally. Here’s what I learned running Seeking Alpha:

  • The happiness of the team really matters. Sometimes you need to fire strong people because they are not pleasant to work with.
  • Don’t redefine a job description because of the incumbent’s deficiencies. When you eventually hire the right person, you’ll be surprised that you can in fact have everything, particularly if you give smart people time to learn.
  • Shunting people around from role to role rarely works. CEOs sometimes do it because they can’t bring themselves to fire someone. But if you can’t bring yourself to fire, you’ll end up not being able to hire.
  • Demoting people rarely works. Even if they are initially relieved at no longer having to do something they aren’t good at, in the medium term the demotion saps their self esteem and they leave.
  • As CEO, make sure you like working with your senior managers. If you’re unhappy, your company will feel it.
  • Good interpersonal skills are intrinsic to a manager’s job.
  • If you decide to keep the manager, make sure you have clear metrics for him. That way you’ll get out of subjective evaluation of his skills.

Notes:
(i) Cf. The best thing you can do for your team.
(ii) Cf. Laszlo Bock’s eight steps to being a good manager.
(iii) Cf. Managers and metrics.
(iv) Cf. Five bad excuses to avoid firing poor performers, and why you should “expose the pain”.

Five bad excuses to avoid firing poor performers, and why you should “expose the pain”

Edited excerpt from Fire Faster: Five Excuses Startup CEOs Give For Not Getting Rid of Low Performers by Hunter Walk:

There are a consistent set of false rationales I hear from founders as to why they haven’t addressed a low performing team member. Here they are. Avoid them.

1. We’ve got so much to do and they’re contributing something.
2. The team really likes them and I don’t want to risk our culture.
3. It’s my fault and a better CEO would coach them up.
4. I’m so busy and want to do this right so….
5. Will send the wrong signal to my investors because means we made a bad hire.

But remember, don’t fire someone just because they disappointed you once. Unless someone has behaved unethically or otherwise misrepresented their skills, they should be given feedback regarding their underperformance plus the opportunity to articulate to you that they understand and can correct quickly.

Notes:
(1) By far the most common excuse, in my experience, is “We’ve got so much to do and they’re contributing something.” A stronger variant of this is “I can’t fire them, because I need someone to do what they’re doing and I don’t yet have a replacement”.
(2) There are two reasons why you need to reject this excuse. First, at the process level, slow firing of under-performers means it takes longer to build a great team. Leaving a position filled, even with an under-performer, removes the pressure to hire the right person. If you don’t expose the pain, you’ll forget (or ignore) that it’s there.
(3) The second reason to fire someone before you’ve found a replacement is team morale. People resent filling in for under-performers. Constantly filling in for under-performers makes people feel they’re on a mediocre team and they are being taken advantage of. But people are usually happy to do extra work when a position is unfilled. A must-read on this: The best thing you can do for your team.

If you fired a senior executive, identify from this list what went wrong

From The Hard Thing About Hard Things by Ben Horowitz:

The correct way to view an executive firing is as an interview/integration process system failure. Therefore, the first step is figuring out why you hired the wrong person. You may have blown it for a variety of reasons:

1. You did a poor job of defining the position in the first place. CEOs often hire based on an abstract notion of what they think and feel the executive should be like. This error often leads to the executive not bringing the key, necessary qualities to the table.

2. You hired for lack of weakness rather than for strengths. You hire an executive with no sharp weaknesses, but who is mediocre where you need her to be great.

3. You hired for scale too soon. The most consistently wrong advice that VCs and executive recruiters give CEOs is to hire someone “bigger” than required. But if you hire someone who will be great in 18 months but will be poor for the next 18 months, the company will reject her before she ever gets a chance to show her stuff.

4. You hired for the generic position. There is no such thing as a great executive. There is only a great executive for your company for the next 12-24 months.

5. The executive had the wrong kind of ambition. The wrong kind of ambition is ambition for the executive’s personal success regardless of the company’s outcome.

6. You failed to integrate the executive. Be sure to review and improve your integration plan after you fire an executive.

The special case of scaling: When a company multiplies in size, the management jobs become brand new jobs. If you get lucky, the person you hired to run the 25 person team will have learned how to run the 200 person team. If not, you need to hire the right person for the new job. This is neither an executive failure nor a system failure.

Notes:
(1) Three of the causes of failure Ben lists are obvious — inadequate job definition, wrong kind of ambition, and integration failure. But three of them run counter to explicit or implicit advice frequently given to CEOs, and are therefore important to think about — hiring for lack of weakness, hiring for scale too soon, and hiring for the generic position.
(2) Case in point: I experienced exactly this — “The most consistently wrong advice that VCs and executive recruiters give CEOs is to hire someone “bigger” than required…the company will reject her before she ever gets a chance to show her stuff”.
(3) Cf. How to hire senior executives for your startup.

Keeping someone in a job not suited to them is worse than firing them

From Principles, by Ray Dalio:

Know that it is much worse to keep someone in a job who is not suited for it than it is to fire someone. Don’t collect people. Firing people is not a big deal—certainly nowhere near as big a deal as keeping badly performing people, because keeping a person in a job they are not suited for is terrible both for the person (because it prevents personal evolution) and our community (because we all bear the consequences and it erodes meritocracy).

Consider the enormous costs of not firing someone unsuited for a job: the costs of bad performance over a long time; the negative effect on the environment; the time and effort wasted trying to train the person; and the greater pain of separation involved with someone who’s been here awhile (say, five years or more) compared with someone let go after just a year.

Notes:
(1) In other words, your job as a manager is to build a successful company. You don’t fire people because there’s something wrong with them — a one-sided consideration. You fire them because it’s not working, and there’s no prospect that it’s going to work — which is bad for the company and bad for the employee.
(2) “It prevents personal evolution”. Namely — every moment you keep someone in a job where they’re not going to succeed does them a disservice. You’re holding them back from finding a job in which they’ll be successful. And prolonging their lack of success saps their self-confidence.
(3) We’ve fired many talented people from Seeking Alpha because “it’s not going to work”, and many of them have gone on to be outstandingly successful in other companies. Far from viewing that as a failure, I view it as a huge success — we pushed them to find the job that really worked for them.
(4) Great companies have great alumni.
(5) Thank you Guy Cohen for tip.

Exit interviews

Employees are often more candid in an exit interview than at any other time. But exit interviews can be a mix of valuable feedback, frustration and accusations. So managers are liable to get defensive, or to draw incorrect conclusions from hearing only one side of the story.

Fred Wilson therefore thinks the CEO should always do the exit interview, and makes the following suggestions: (1) ascertain the cause of departure beforehand, (2) make the exit interview a conversation about both the good and the bad, and (3) don’t take everything you’re told as gospel.

Two thoughts:

  1. Whenever I’ve also sent an email to a departing employee thanking them, wishing them luck and asking them as a favor to reply with their advice to me as CEO, the feedback has been invaluable. It’s less emotional and more considered than feedback from an exit interview. And for me, reading and considering an email is easier than listening well.
  2. Fred’s statement that “I have learned more doing exit interviews than most other management techniques” highlights the challenge of getting candid feedback before it’s too late. But you can get valuable feedback before it’s too late if you ask the right questions.