How to Demote a Loyal Friend

One of the most painful but necessary tasks in a growing startup is demoting a loyal, early employee who has been outgrown by their role. As the company scales, the skills required to lead a function (e.g., sales, marketing) change dramatically. The person who was perfect for the job at 10 employees may not be the right person at 100.

If you find yourself in this situation, you must act for the good of the company. Delaying the decision is unfair to the employee, their team, and the business as a whole.

Preparing for the Conversation:

This is a conversation fraught with emotion. The key is to be prepared and to remove your own emotion from the decision-making process.

Be Certain: You must be 100% certain in your decision. If you enter the conversation with any ambiguity, it will turn into a negotiation and end in a mess. Be prepared for the employee to quit—if you cannot afford to lose them, you cannot make the change.
Anticipate Their Emotions: The employee will feel two primary emotions:
- Embarrassment: How will they explain this to their friends, family, and colleagues?
- Betrayal: "I've been here from the beginning, I've sacrificed so much. How could you do this to me?"
Define Their New Role: Don't just demote them to report to their replacement. This can create a toxic "sabotage cocktail." If possible, find a new, valuable role in another part of the company where they can succeed and develop new skills.

Having the Conversation:

Your goal is not to remove the sting—that's impossible. Your goal is to be honest, clear, and fair.

Use Decisive Language: Use phrases like "I have decided," not "I think." This makes it clear that the decision is final and not up for debate.
Admit Your Own Shortcomings: Acknowledge that you are also learning on the job. You can say, "If I were a more experienced CEO, perhaps I could have coached you into this role. But having two of us learning on the job in this critical function is a recipe for failure."
Acknowledge Their Contributions: Make it clear that this decision is about the company's future needs, not a judgment on their past performance. Show them they are still valued.
Increase Their Compensation: The most powerful way to demonstrate their value is to give them a raise along with the new role. This signals that you are invested in their future with the company and helps counteract the feeling of being punished.

This will be one of the hardest conversations you have as a leader. Handle it with clarity, honesty, and respect.

Tags: #leadership #management #demotion #HR #communication #hard-things #scaling