For many entrepreneurs, firing an employee is the hardest part about being the boss. Here’s how you can lay people off in a way that respects the needs of both the company and the employee.

I still remember the first time I had to fire someone.

I still remember the first time I had to fire someone. It was the year 2000, and the Dot Com bubble was bursting with a vengeance. My startup’s revenues, which had been continually up and to the right had suddenly turned downward, as had our cash balance. Pretty soon, it was apparent that we’d need to cut our cost structure. By a lot.

As the founder and head of marketing, I had four people directly reporting to me, and another couple in my department. Our plan called for me to lay them all off. At the time, I was 25 years old.

I wanted to think of myself as a tough captain of industry, not a guy who felt like crying at the prospect of disassembling the team I’d spent so much time and energy building.

I managed to get through the day, but I can’t claim that I did a good job with the layoffs. In my prior work at D. E. Shaw & Co., I had never had to lay anyone off, though I had once boasted to my wife that I wouldn’t hesitate to let someone go if I thought it was necessary. I wanted to think of myself as a tough captain of industry, not a guy who felt like crying at the prospect of disassembling the team I’d spent so much time and energy building.

Since then, for better and worse, I’ve had numerous experiences with layoffs, both as an investor and a manager. And while it’s never easy, I think I’ve done it enough to be able to offer some useful advice on how to fire people.

In the tips I present, I’m going to focus on the challenges with laying off good employees due to challenging business circumstances; laying off bad employees for non-performance or malfeasance is an HR issue, not a management issue. All I’ll say is that when it comes to these bad eggs, the sooner the better.

1. Build a caring relationship with your people

This is the one thing I did right at my first startup. My people knew that I cared about them as well as the company, and that I wouldn’t lay people off unless I thought it was the only way for the company to survive. I’m embarrassed to admit that several of my laid off employees had to console me, and reassure me that they would be fine. It’s never easy to be fired, but it’s a lot easier to take coming from someone you care for and respect.

2. Meet face-to-face

Call me old fashioned, but I believe that a manager should face the employee she’s letting go. There’s a reason AOL CEO Tim Armstrong took so much flak for firing an employee on an all-company conference call. If the employee is normally remote, go to meet him, or call him into the office.

3. Start the meeting by announcing the layoff

Now when I need to lay someone off, the first thing I say when we sit down is, “I’m sorry, but we have to let you go.” Because you’re nervous, you may feel the need to issue a preamble, but all that does is waste time and make your soon-to-be ex-employee nervous as well. Get straight to the point, make it clear that the decision is final, and move as quickly as possible into the next steps.

4. Explain what happened, and explain what you and the company will do for him

I believe you owe your people an explanation, even if it’s as simple as, “We’re running out of money, and this is the only way to stretch out our runway.” Once you’ve provided an explanation, focus on laying out the concrete things you can still do for him. On a corporate level, this includes things like severance, instructions on exercising stock options, and COBRA for healthcare coverage; on a personal level, this includes things like offering to serve as a reference or to make introductions. Encourage the ex-employee to take notes; he’s probably feeling a bit shocked, and taking notes will help prevent misunderstandings.

5. Exchange contact information so you can stay in touch

In today’s world of social media, your ex-employees can be as important as your employees for your reputation. Whom do you think potential candidates will reach out to for their candid assessment? Therefore, it behooves you to stay in touch and on friendly terms with the employees you’ve had to lay off. Collect their contact information, as well as their social media coordinates. You may even want to create an “alumni” group on LinkedIn so that you have a mechanism for keeping them up to date on developments with the company. After all, they may still be shareholders.

Very few employees work their entire careers for a single company. If you start a company, and it’s at all successful, you’ll eventually have to fire people. But if you fire people the right way, you can maintain a relationship that will last and keep adding value, even after the employment relationship has ended.

An Unreasonable Challenge:

I’m not going to ask you to fire someone this month. But I am going to ask you to think about how you go about doing so. If you don’t have a set of policies and procedures in place, start working on them now. It’s a lot easier to decide what to do when you have plenty of time to mull over the options, rather than being forced to make tough calls with a ticking clock.

If you fire people the right way, you can maintain a relationship that will keep adding value.  Tweet This Quote

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.