4 overlooked reasons why new employees fail in top positions in SMEs

If there is one thing I would like to see change in 2015, it would be failure of newly hired employees at managerial levels in SMEs. As I recollect multiple instances that I witnessed in 2014, I can’t help but think of conditions that were common across these failures.

New Hire PictureIf you are planning to entrust management of your business to new employee/s or you are planning take up an assignment in a SME in a managerial role, then I hope you lookout for these conditions.

Before I begin, I would like to clarify that for all the cases that I am discussing here, due diligence of past performance was carried out. Also, clear goals were set before the assignments started.

1) People previously performing the roles were business owners themselves

As a business owner, you might have unknowingly planted seeds of failure even before you select the new employee.

I say so because:

1. As an owner, the mistakes you did in the role were forgiven. Or, rather there wasn’t anyone to hold those mistakes against you. This might lead you to overestimate your capabilities.

2. Like most business owners, you might have underpaid yourself for the work you did in this role.

Both of these reasons will unconsciously set an incorrect expectation of performance from a new person.

Take-away: Start paying yourself at least the minimum market rate for all the work you do.

You can defer the payout if you can’t afford paying market rates to yourself. But, do account for the costs.

When you replace yourself with an employee, you will automatically have a realistic expectation from them. Secondly, you will ‘feel’ liable for your performance if you are paying yourself. Additionally, this also gives you a correct idea of what your product or solutions should be really priced.

2) Prospective employee is from a well established/corporate company

Corporate background is not necessarily the cause of failure. But, many times it leads to following conditions which do increase the probability of failure

a) Corporate salaries are higher than what SMEs can comfortably sustain

This year, we had two clients who hired seemingly ‘well performing’ people from corporate companies. Because of their past salaries, their new salaries were on the edge of what our clients could afford. In fact, these salaries couldn’t be sustained beyond 3 to 4 months without the employee delivering ‘expected’ value.

These employees took more time to adjust to the new environment while the owners clamoured for promised performance. In the end, both employees had to be let go.

Such a short leash is often a problem because new employee simply doesn’t have enough time to acclimatize to new environment, let alone demonstrate results of their initiatives.

Take-away: Till the time employee has proven himself, stick to compensation your company can comfortably afford. You can offer to make up the difference after 6 – 9 months when they have proven their value.

Many ‘seemingly fit’ employees will not join your company. This is fine. I have consistently seen that for people, who actually do end up delivering results in SMEs, compensation is not the primary motivation. The important thing for such people is that you be fair with them.

b) Setting borders to work

In SMEs, an entrepreneurial mindset is must for success in a managerial role. This often translates to ‘going above & beyond’ your job description to get the work done.

Many people coming from corporate background are used to set boundaries to work. This is sustainable in larger companies where even senior people are focused only on a certain aspect of business.

The problem arises when people move to smaller companies and continue to work in this fashion. The problem is magnified further if the owners/founders are working more hours or taking lesser pay.

If the new employees don’t show initiative to work hard at least till the time they have proved themselves, it starts their relationship with existing leadership on a wrong foot. This might seem like common sense, but I am surprised at the number of times I see this happen.

Take-away: To some extent, it is possible to find out about this beforehand by asking in detail about previous initiatives, motivations to join your company & what the person really wants to accomplish in their career. Also, speaking with other people with whom the person has worked previously will give an idea. That being said, the best way to find out is working with the person yourself. A way to accomplish this can be via a consulting project or in a client-supplier relationship.

3) Lack of hands-on experience in the core business of the organization

One of our clients hired a new employee who displayed a deep understanding of their business during the interview. Once he joined, this person started delegating work ‘like a boss’. While the owners initially appreciated this quality, they quickly found out that when the time came to get his hands dirty, this person was unable to do any tasks himself. The employees reporting to this person also found this out and then started using this fact to their advantage.

With-in no time, this person was at mercy of other people in the organization. When I discussed this with the new employee, I understood that he did just fine in his previous organization (a bigger corporate where he had set of managers report to him).

Unfortunately for this person, my client (like most other SMEs) had a team of people who had a deep hand-on experience in their areas. These people stopped respecting this person once they found that he couldn’t do work independently. Ultimately, the new employee had to leave.

Take-away: In SMEs, hand-on knowledge in core business areas is required for a person in a managerial role to be respected. In rare circumstances, you might need to hire a person, who doesn’t have hand-on experience, for their specialized skills or for their unique perspective of the market. In such cases, you must communicate clearly to the rest of the team the value that this person brings on board. Additionally, you should provide opportunities for the person to gain practical experience.

4) A different set of values between the new employee & current leadership

The values in question are not the indispensable ones such as integrity or good work ethic but the more sublime ones such as thriftiness.

Let’s take example of thriftiness & go a bit in detail. Most SME business owners are typically not vocal about thriftiness. However, they feel a pinch every time money is spent on items they perceive as optional. This is mostly because while growing the business they made every effort to avoid unnecessary expenses. At the same time, a new employee (not having experienced cash-crunch situations) is used to spending much freely.

At the beginning, the differences in such values feel like a splinter in the mind. However, the real danger arises when these irritate enough that you starting finding other faults in the person. From that point, the work-relationship quickly goes downhill.

Take-away: Working together is the only way to know differences in sublime values. The other option is to communicate openly. However, this is a thin line to walk on especially during the initial periods.


The point I want to make in the article is this: As a business founder/owner, it is very tempting to make a hire decision when you meet someone who satisfies basic criteria to run your business. This is especially true, when you meet people who work for your competitors or bigger/corporate rivals. However, I have seen that ignoring these finer points when making a decision almost always causes a heart burn later.

Being cognizant of these points will at the very least will help you avoid unconscious bias and at the best help you select & settle down an employee who is the best fit for your company.

What has been your experience with introducing new people in managerial positions in your organization? What practices have contributed to the success? I am interested in hearing your experience. Please write to me using the comments section below.


Note 1:

The article, ‘4 overlooked reasons why new employees fail in top positions in SMEs’, is written based on my professional experience at Pinnacle and other companies.

Pinnacle specializes in working with the management of family-owned companies to craft & implement People Management Strategies & Performance Management solutions to accomplish their business vision & goals.


  • Dear Deepakbhai,

    Good,you have hit the nail on the head !!. Problem is how to get over when market is bad and the cash flows show no signs of looking up. How to Internalize the External Factors ??



    Bharat RautDecember 30, 2014

Leave a Reply