I often remind entrepreneurs that a company is not a family. This can be a hard fact to accept, especially since many startups seem like a family during the early days. Everyone knows each other, hangs out, and spends more time with co-workers than their actual biological families. And there are real benefits to feeling like a family in terms of dedication and cohesion.

But when the illusion of family is shattered—and make no mistake, it is an illusion, even for family-owned and operated firms—those benefits are replaced with a host of problems, including a sense of betrayal. That’s why it’s better to avoid creating the illusion to begin with.

A company is not a family, even if your startup may seem like one in the early days. Tweet This Quote

I mention this fact because the illusion that your company is a family makes it especially challenging to tell someone that their job has outgrown them. Think back to your own family when you were growing up. Did you ever make plans to demote your Mom and replace her with a new hire? It’s unthinkable. And even if you did work with Dad to carry out such a plan, we have a very different word for it: Divorce. Yet as your company grows, this kind of conversation is inevitable.

It’s not that your early employees are incapable of growth, or are somehow “inferior” to the later hires you can bring in (though it is possible). Rather, it’s a question of fit. For example, I know that I am an early-stage guy. I can tolerate better than most the uncertainty and ambiguity of trying to build a company (and possibly a market) from scratch. Once a company is successful, and the challenge becomes how to best spend a $100 million marketing budget, I’d recommend finding someone who specializes in that phase of a company’s life.

The illusion that your company is a family makes it especially challenging to tell someone their job has outgrown them. Tweet This Quote

The fact that a job has outgrown someone is neither necessarily their fault nor a bad thing. After all, most founders would rather face the challenge of effectively spending a $100 million marketing budget than figuring out how to make payroll with a single-digit bank balance.

But even if it’s right and natural to change people’s roles as the company grows, it’s not easy. We’re talking about real human beings, not Vulcans, and being told that you’re no longer capable of doing the job can hurt. I’ve had plenty of experience with having this conversation, on both sides of the table. Here’s what I’ve learned about navigating these treacherous waters:

1. Get started early.

One great way to make these conversations less awkward is to set expectations correctly to begin with. Far too many startups hand out fancy titles because founders think titles are cheaper than dollars or shares. They are, but they cause problems later on. If you make someone VP Engineering of a 1-person engineering department, it’s hard for them to accept the “demotion” to being an Engineering Manager of a 5-person team within a 20-person department, even though the job with the lesser title clearly carries more responsibilities. Avoid fancy titles.

Even if it’s right and natural to change people’s roles as the company grows, it’s not easy. Tweet This Quote

You should also make sure that you’re honest with people up front. “As we grow, we may need to bring in people who are a better fit. At some point, that may even mean replacing me as CEO. But it’s okay, because we’re getting compensated with equity for the risks we’re taking.” If you’re honest up front, the conversation won’t come as a surprise or betrayal.

2. Be as transparent as possible.

Sometimes, a company will avoid letting its people know that it’s planning to bring in an executive at a higher level than the current employees. I guess the company is afraid that letting people know will affect morale or cause some of them to look for other jobs. It’s certainly easier for the CEO in the short run to avoid those awkward conversations.

Far too many startups hand out fancy titles because founders think that titles are cheaper than dollars or shares. Tweet This Quote

Yet it’s way worse for both the current employees and the future executive. The employees have to deal with a shocking bombshell; the executive has to deal with managing a team of people she didn’t pick, and who now might not want her there. The decision to move someone to a new role should not come as a surprise to anyone.

3. Give people a chance to grow.

How can you know if your employees are capable of growth without letting them try? I’m not asking you to be stupid or reckless; the U.S. Navy doesn’t promote newly enlisted seamen to captain nuclear submarines. But you have to be willing to give people a chance to fail. If you only allow people to do what you know they can do, you have no one to blame but yourself if they fail to grow. And all other things being equal, promoting from within has been shown to be far better for business performance than bringing in outsiders.

Also, if you’re not happy with someone’s work or professionalism, tell them about it! People are capable of change and growth, but they need to know what you need from them.

You have to be willing to give people a chance to fail. Tweet This Quote

4. Treat people with respect.

Even if you need to shift someone into a new role, or even to let them go, you should still treat that person with respect. Fully acknowledge past contributions, and do your best to retain a productive relationship, even if it has to be a corporate alumni relationship. After all, the person you’re bringing in to replace your employee is smart enough to remember how you treated their predecessor. And if you’re considering becoming the queen’s paramour, it’s probably a good idea to investigate what happened to her previous lovers. If they’re sitting in her cabinet, you probably want to accept her proposal; if they’re mysteriously missing, that also tells you something!

It’s never easy to tell someone that their job has outgrown them. But if you’ve been a generous, transparent, respectful boss, they’ll be a lot more likely to stay a productive employee or friendly ex-employee.

About the author

Chris Yeh

Chris Yeh

Chris is the VP Marketing for PBworks, partner at Wasabi Ventures, and an avid startup investor and advisor. He is also a co-author of The Alliance and serial tech entrepreneur in Silicon Valley.