Performance Management for Small Businesses: The Complete Guide

Performance management can be a daunting task, especially when you’re new to it.

As a new or small business, ensuring that your employees are motivated, aligned with your goals, and performing at their best is crucial. But the path to building effective performance management processes isn’t easy or straightforward, and knowing where to start is probably the biggest obstacle of all.

We know this at Charlie because we've struggled to come up with the right performance management processes ourselves. As a fellow small business, we’ve had to rework and rethink what we do many times over the years, but we’re now confident that we’ve found the sweet spot — performance management processes that benefit both our business and our team.

That said, performance management isn’t a fixed thing. As your team grows and evolves, you want to be regularly reviewing what you’re doing to make sure it’s still effective. This is one of the many reasons many small businesses use performance management software — advances in the technology automatically update your own processes.

This is a comprehensive guide to performance management for small business. It will give you practical and effective strategies for building your performance management processes from the ground up.

Here you’ll find everything we’ve learnt about performance management at Charlie, from nailing one-to-one meetings to successfully tackling underperformance.

So, let’s get started.

What is performance management for small business?

Performance management is the process of setting clear expectations, regularly assessing employee performance and providing feedback and support to help your team reach their full potential.

As part of the performance management process, you will also aim to reward team members that go above and beyond (with a promotion, development opportunities, or a pay rise), and address under-performance.

As a small business, you want to focus on performance management from the beginning so it’s built into your foundations. People and their performance are so important — what they do (and don’t do) makes a huge difference!

We’ve learned that throughout the years, understanding that most of what we do impacts our team members too – it didn’t take us long at Charlie to notice that the more structure we put into our performance reviews, the more people stayed and wanted to improve.

At the beginning, I was losing motivation as the months went by, but as soon as managers started being more involved in my development, I could see the effects it had on my mind straight away. Charlie Team Member

Why is performance management for small business important?

Business success depends on people, and that’s even more true for small businesses. At Charlie, we’d never have gotten to where we are today if we didn’t have our people by our side, whether that’s in terms of product development or marketing. But how do these brilliant minds come together and work effectively?

Let’s see – when you have just a handful of employees, the performance of each one of them singularly has a massive impact on your overall business performance. The purpose of performance management is to drive business success by maximising individual performance.

As your business grows, you want to continue to nurture and maximise individual performance and develop a high-performance culture. This puts you in a strong position for overcoming all sorts of challenges.

Performance management also enables you to:

Align with your business goals: connecting the dots between individual and team objectives with your overall goals for the business helps your employees to better understand how they contribute to the success and growth of the company.
Set clear standards: performance management helps establish expectations for your employees, ensuring everyone is on the same page. When your team has clear objectives and goals, they have a sense of direction and purpose.
Address underperformance: by regularly monitoring and assessing performance, you can identify and address performance issues. This improves productivity and ensures that everyone is contributing to the success of the business.
Recognise talent and promote development: effective performance management enables you to identify your team members’ strengths and areas for improvement, and offer targeted training to help them reach their full potential.
Develop a culture of open feedback: regular check-ins and evaluations normalise talking about performance and encourage transparency.
Boost employee engagement: performance management is likely to increase engagement levels as it provides a way for your team to ask for help, share their thoughts, and be recognised for what they do well.

What is the performance management process?

What is the performance management process and does it differ at all for small businesses?

At Charlie, we think of performance management as a collection of processes all aimed at improving your team’s impact — so it’s essential in a small business setting. The problem is that a lot of small business owners don’t know where to start.

At the core of performance management is the performance review. Performance reviews provide regular opportunities for managers to evaluate and feedback on the achievements, attitude and productivity of their employees.

But in order to get performance reviews right, you need to nail a whole load of other processes first:

Performance goals/objectives
360-degree feedback
Employee self-evaluation
One-to-one performance meetings

Let’s look at these in a little more depth to see how they collectively deliver a comprehensive performance management process.

Setting performance goals for your small business team

When creating performance objectives for your team, I always recommend starting from your overall goals as a business. What is your overarching goal for this year?

From here, you can start to think about what each team and member will need to contribute to enable you to achieve this overall goal — it should be clear what each employee needs to accomplish.

But it’s actually a great idea to make goal setting a collaborative exercise! The more you involve your team in setting their own objectives, the more they will feel invested in them.

However you decide to set your performance goals, you need to ensure they have set but realistic deadlines. At Charlie, we use OKRs (Objectives and Key Results), which are ‘smaller’ objectives that teams or individuals use as stepping stones towards their main, long-term organisational goal. We also measure success through KPIs (Key Performance Indicators).

Running effective one-to-one performance management meetings

Review meetings are a core element of the performance management process.

To ensure they are as meaningful and useful as possible, I recommend taking the following steps:

Ask direct reports to answer specific self-assessment review questions a week before the review meeting
Have line managers submit feedback to their direct reports a few days before the review meeting
Ensure both parties attend the meeting having read each other's feedback, as the discussion can then be about drawing any conclusions or learnings from them.

This is how we run performance reviews at Charlie, so we’ve taken this format and built them as a feature in our HR software so other small businesses can benefit.

If you’d like to see how it works (and how easy it is!), why not take a free trial?

Performance management meetings should acknowledge individual achievements and remove any obstacles for development and growth. To learn more, take a look at our appraisal template.

Collecting 360 feedback from across your small business

Traditionally, the performance review process is a one-way street: a manager assesses their direct report. However, this approach is pretty limited. Managers don’t often get to see ‘the complete employee’, so they may be unaware of certain competencies or behaviours.

360 performance reviews provide a more comprehensive assessment of each team member, as managers and employees collect feedback from their peers. With 360 feedback, you build a better picture of individual performance and can spot hidden strengths or areas for development.

Find inspiration on how to introduce peer feedback at your small business with our free 360 review template.

This is also something you can do directly in our software – loop in team members to give feedback on each other, and have a complete performance review set up in no time.

Performance management follow-up: rewarding high-performers and supporting anyone falling behind

A big part of performance management for small business is deciding how you’ll follow up on all the performance-related feedback…

You need to come up with an action plan to reward good performance, and support anyone who’s at risk of slipping behind.

It’s also good to remember that rewarding your top performers is essential for maintaining their motivation. Without incentives, their enthusiasm for contributing to your business success will dwindle. And some might feel they don’t have any reason to stay around at all.

So, how do you go about promoting good people into new roles? If your business is very new or very small, there may not be space for another manager. This is a common puzzle, but the solution is often quite simple.

At Charlie for example, we’ve successfully promoted high performers into specialist positions. Think about the sort of roles that could benefit the business as well as the individual in question, and don’t just assume that moving to a manager role is the only form of promotion — not everybody wants to be a manager, after all. (And remember what we said at the beginning about tying everything back to your overarching business objectives.)

To do this, you can also have a look at our career progression framework if you’re not sure what that means.

And on the flip side, failing to address underperformance can also have negative consequences, especially in a small team dynamic. It can de-motivate your other employees and allow the problem to escalate — and you really don’t want to end up in a position where the only solution is dismissal.

If a team member can’t get back on track despite your feedback and support, I’d recommend putting them on a ‘Performance Improvement Plan’. This is a detailed and time-bound set of targets designed to help you set clear expectations with and for your employee. It offers them one last opportunity to show that they can effectively contribute to your company goals.

Performance management best practices

Creating performance management processes for your small business is a steep learning curve. And you’re probably going to make mistakes at some point.

But mistakes are important, because you learn from them. Which is what we’ve done at Charlie.

To help you avoid some classic pitfalls, here are my two main pieces of advice when it comes to performance management for small business:

1 - Think of performance management as an employee engagement tool, not a surveillance system

Performance management should foster an environment of constructive feedback and recognition, not fear and dread. But how do you do that?

Normalise sharing feedback across your team and ensure that top performers are fairly and publicly rewarded.

Do this, and you’ll foster an environment that champions and supports a high-performing and motivated team.

2 - Ditch the annual reviews

In traditional performance management, assessments and reviews are limited to annual appraisals. This doesn’t work.

Make your check-ins much more frequent, as continuous performance management allows your team to share feedback in real time, enabling quick course correction and improvement.

For example, you could have an informal meeting once a month and reviews two or three times a year.

The role of Learning and Development in performance management

Last but not least, investing in learning and development opportunities for your people is crucial for driving performance management for small businesses and achieving long-term success.

But this doesn’t mean you have to spend huge sums of cash on courses and conferences for your team — as a small business, that’s something you’re unlikely to be able to do anyway.

Instead, why not introduce Personal Development Plans (PDPs) to empower every member of your team to define their preferred areas of learning and growth. With clear learning objectives, it will be much easier for your employees to find opportunities to develop new skills and knowledge.

Performance management software for small business

Performance management software is a digital tool that streamlines and automates the evaluation of your team’s performance. It gives you one centralised platform for setting goals, tracking progress, conducting performance reviews, collating 360 feedback, and analysing performance data.

And Charlie is performance management software built specifically to meet the performance management needs of startups and small companies.

“I’m blown away by how useful Charlie’s Reviews has been. It’s enabled some really high-quality conversations within our team that I know just wouldn't have happened otherwise.” Chris Wallis, CEO and co-founder at Intruder

Thousands of UK small businesses use Charlie to automate their performance management because it’s:

Trackable - you can follow progress from an integrated dashboard without having to get directly involved.
Customisable - you can tailor the review process depending on reviewer and reviewee
Templated - you don’t have to come up with questions yourself
Easy to set up

With Charlie, you set up performance reviews in no time. All you need to do is choose the date of the review, and the software sends out automatic reminders to managers and team members asking for their feedback.

The system also generates reports and analytics, so you can make sense of the data and spot areas for improvement.