How to build a startup performance management strategy

How should startups measure performance? 

Are quarterly performance reviews still relevant? Are tools like Netflix’s “keeper test” the right move? Should you set up some form of performance monitoring dashboard?

The answer to all these questions is the same:

It depends. 

They can all sink or swim depending on your company’s performance philosophy and the resulting strategy.

In this article, we lay out:

• The steps to plan and build a startup performance management strategy 
• How to monitor, review, and reward your employees
• How to align your performance philosophy to your business needs 

Performance management beyond reviews

It’s not enough to know who on your team is productive and who isn’t. While scheduled performance reviews and quarterly sit-downs are important tools to get employees the continuous feedback they need, performance management isn’t solely about top-down measurement and realignment. You need to zoom out and build a strategy for how you’ll ensure a high-performance organization.

Your performance management strategy should answer two critical questions:

1. How do we build a culture that promotes high-performing, thriving teams?
2. How do we create engagement and inspire our people to want to perform to the highest level?

Your first step is to invest time and effort ruminating on these two questions and ironing out your performance philosophy. Only then can you jump into specific performance management tactics. 

Developing a performance philosophy 

To define what performance means to your organization and how you’ll structure your company to align with that why, consider these questions:

How do you define what a high performer is, and how does performance align with the company culture you’re building?

You’ll need to get crystal clear on what attributes are consistent within top performance, how they integrate into your company values, and how performance plays into the overall culture you are aiming for.

What will your organizational structure look like?

Your organizational design should reflect your culture and goals and enable your definition of high performance. Will yours be fast and flat? Or will there be many management layers? The former is more agile, while the latter provides more opportunities for advancement yet brings the risk of slower movement.

What does your hiring plan look like? 

You’ll need a startup hiring plan in place, prioritizing the roles that will move the needle. But you also need to decide how you’ll assess candidates for performance capabilities and indicators.

Talent density is a hot topic right now. Is your goal to maximize talent density and, therefore, only hire the best? If so, will you be super competitive on compensation, and how so? How else will comp align with your performance philosophy?

What kind of support and development will you provide?

You might choose only to hire the best so you can invest little in ongoing development in the early stages. Or you might take the opposite approach, hiring up-and-comers who demonstrate potential and spend more on training and professional development.

Once you’ve decided, ask yourself, what learning opportunities will managers and individual contributors (ICs) receive, and to what end?

What implications does this have for how you expect employee performance to grow over time?

What is your performance philosophy?

There are no wrong answers here.

The point is to align at the executive level on what performance means to your company so you can calibrate your actions against that strategy.

For example, Netflix has always assessed performance at the individual level. Managers and ICs are encouraged to use the famous keeper test, and leaders regularly let go of low performers.

On the other hand, Patagonia is a mission-oriented business with a more team-focused culture and definition of performance.

Both are successful companies in their niche (Netflix topped $33B in revenue in 2023, while Patagonia recorded a peak figure of $209M in the same year) because they developed a clear, strategic performance philosophy, and aligned performance management tactics against it.

Ultimately, the goal is to improve and facilitate performance to get the most out of your people. But how, exactly?

How to manage performance effectively in a startup environment 

Let’s dive into the nitty-gritty of how to drive performance and build systems and frameworks that help you align with your company goals and recalibrate along the way. 

One useful framework for understanding how to manage and improve employee performance is the “employee lifetime value.”

Understanding employee lifetime value (ELTV) 

ELTV, coined by Maia Josebachvili, head of strategy and operations at Stripe, takes the SaaS metric for measuring customer lifetime value and applies it to the People domain.

It measures the value an employee provides during their tenure and is simple to calculate:

ELTV = Average tenure x (MRR/head)

ELTV can’t be calculated at the individual level (it’s an average across the whole organization). However, it's still a helpful metric for understanding how performance grows over time and provides a great framework for improvement.

Pando, a career progression tool, also applies ELTV to help companies develop high performers, increase ramp time, and retain talent.

There are four key levers for growing ELTV:

1. Speed up onboarding. Get new hires fully contributing faster by setting clear role expectations, creating effective user-led onboarding sequences, and using interactive content to improve knowledge retention.
2. Create a structured growth path. This should align individual goals with business performance objectives and help new hires see how far they can get within the company.
3. Provide development plans. Help employees grow over time with ongoing development opportunities and frequent check-ins to align individual objectives. 
4. Increase retention. Improve average tenure by developing a positive workplace culture and providing progression opportunities through levels and progressive compensation.

Clear role expectations and alignment are a must to ramp people up faster. Developing career frameworks and well-defined levels allows you to create that clarity and transparency and get new employees into a high-performing state as soon as possible.

Levels and career frameworks 

Levels are a great way to provide advancement and recognize individual performance improvements without endless promotions and seniority grades. 

Instead of the only step being into a different role (such as SDR to AE) or management (from SDR to SDR management), levels give ICs an understanding of where they are in their development trajectory within the same role.

You can implement as many levels as you like, though McKinsey identified during the pandemic that adding more levels improves the feeling of growth in ICs. But it’s not just about giving people titles.

To give sufficient context to distinguish one level from another, each one should include:

• A description, such as “has the fundamentals of their role down and broadening their scope.”
• The business impact, for example, “works in collaboration with teammates with guidance from their manager to achieve results within the team.”
• The behaviors you expect of someone at this level, like “solves straightforward problems using prescribed guidelines.”
• Progression guidelines, such as “Volunteers for assignments outside of their core role.”

Want a deeper dive? Get our free guide: Build & Rollout Career Ladders & Levels.

Levels should be general for everybody at the company. However, you’ll need to define competencies specifically for each role. Include these in the levels on an individual basis so managers can calibrate where an employee is doing well and what the gaps are. The intersection of levels and competencies creates a career framework for each individual.

To define good performance and understand when an employee is ready to move to the next level, you’ll need to have goals and assessment metrics.

Goal setting and alignment 

Expectations on ICs and managers should be aligned with organizational goals and be mapped to appropriate timeframes, depending on the seniority level of the role and how it contributes to organizational success.

Here’s a good framework for cascading role-specific strategic goals based on high-level organizational objectives.

Once you have well-defined goals for each level, you can develop objectives and key results (OKRs) for each so you can track performance against these goals. 

Next, it’s time to ensure you have systems in place to provide feedback to each employee and help them grow.

Feedback loops 

Feedback loops—the mechanisms you put in place to deliver feedback, such as team meetings—are critical for helping employees understand how they are performing in relation to expectations.

Performance reviews should provide clarity to feedback that’s already been delivered rather than introducing new information. 

Make feedback easy by providing templates and frameworks, such as this one:

Weekly 1:1 feedback to individuals is essential for setting and checking in on goal flags and offering support for the following week.

Monthly reviews should include a retroactive analysis of the month just gone (with manager feedback), a goals check and rest, and a log of achievements for the period.

Each quarter, the monthly check-in should be replaced with a quarterly sit-down to dive into:

• Lookback/outlook: Reflection on performance over the previous quarter plus planning for the next
• Development focus: Review of the areas where the individual can grow and develop
• Career sync: Check-in and alignment with long-term growth goals

Finally, a semiannual performance review should examine both what employees achieved and how they did it. This allows you to assess whether employees met their goals while staying aligned with company values and culture.

Employees who meet or exceed those goals should be rewarded for their efforts. So, as part of your performance management strategy, you must consider how. 

Rewards and employee recognition 

Success doesn’t always have to translate to financial compensation. 

Some other creative ways to recognize success and reward high-performers, especially if you don’t have the budget to increase compensation, include:

• Flexible hours or modified schedules
• Public employee recognition 
• Further learning and development opportunities

Focus on progression over promotion to reduce title obsession. This ties back into the use of levels to promote seniority and pay progression without a title change.

If you’re unsure what will connect best with your employees, consider running a workshop, empowering them to tell you their wants.

Resources for success 

Once your performance management strategy is defined, consider how you can make the process more effective. Provide your team leaders with resources, tools, and templates to help them manage performance easily. 

Here are a few examples of resources to invest time into:

Base your performance management strategy on your performance philosophy 

Performance management should start with creating a culture of high performance aligned with your performance philosophy. Your strategy and actions (levels, constructive feedback loops, rewards) will follow. 

This prevents performance management from becoming a disciplinary exercise and creates a culture where your employees are motivated to perform and want to thrive.

At SignalFire, we have a range of in-house experts on recruiting, HR policy, performance management, and more plus our own Beacon AI talent engine to help set our portfolio companies up for success. 

Want to learn more about driving performance in your startup? Follow me, Heather Doshay.