How to run your first performance review at a small business

If your company has never done formal reviews, the first round feels heavy. It does not have to be. A short, honest review done on time is worth more than a polished process you never finish.

Decide what the review is for

Before you write anything, settle the purpose. For most small companies the answer is: give each person a clear, written view of how they are doing, and agree what comes next. That is it. Do not use the first cycle to also set pay, rank people or build a promotion ladder. Those are worth doing, and each one adds weeks and arguments. Do them later, once people trust the basic process.

Be explicit about pay. If raises are separate from the review, say so. If they are connected, say how. People will assume the worst if you say nothing.

Pick the period and the people

Cover the last six months, or the last year if you must. Include everyone who has been there at least three months. For newer people, a short check-in is kinder than a review.

Decide who reviews whom. In most small companies that means each person's direct manager. If the owner manages fifteen people directly, consider promoting a couple of team leads for the purpose of the review, or the owner will spend three weeks on it.

Choose a small set of questions

Four to six questions is plenty. Use the same ones for everyone, so you are comparing like with like. We have a ready set in our performance review template. The core of it is:

• What went well this period?
• What goals were met or missed, and why?
• What would make the biggest difference next period?
• Where do they want to grow?

If you add ratings, keep to a 1 to 5 scale, define each number in a sentence, and tell managers that 3 means "meets what the role needs".

Announce it with a timeline

Send one message that says what is happening, why, and when. Include dates for each step. A workable schedule for a team of twenty looks like this.

1. Week 1. Announce. Everyone writes a self review (about 30 to 45 minutes).
2. Week 2. Managers write their reviews, reading the self review first.
3. Week 3. Review conversations. Written reviews are shared with each employee shortly before.
4. Week 4. Goals for next period are set and written down.

Train managers briefly

A first-time manager's biggest risks are vagueness and surprise. Give them three rules. Use examples from the actual work. Do not put anything in the review the person has not heard before. Write about what the person did, not what kind of person they are.

Offer to read a draft or two before they go out. It takes an hour and catches most problems.

Consider peer feedback, carefully

Peer reviews help when a manager does not see someone's day-to-day work, such as a developer who mostly works with other developers. They also add effort and risk. For your first cycle, skip them or limit them to two or three peers for each person, with three short questions. Never show the employee who said what. If a theme appears across several peers, you can summarize it.

Hold the conversation

Give the written review to the employee a short time before you meet. Open by asking how they read it. Listen first. Then spend most of the meeting on the future.

• One or two goals for the next period, in their words as much as possible.
• One growth area and a specific step toward it.
• What they need from you.

If the review contains bad news, say it plainly in the first few minutes and then stay. Do not hide it in the middle of a long list of positives. People can tell.

Write down what you agreed

Close the meeting by summarizing the goals and next steps, and put them somewhere both of you can see them. Check in on them in your regular 1:1s. If you do not have those yet, read our guide on how often managers should hold 1:1s.

Afterward

Ask the team what was useful and what was a waste of time. Cut the second list for next time. Keep the records. When you do pay and promotion decisions later, you will be glad you can look back at what was actually said.

The most common mistake is to over-design the first round and then run out of time. The second most common is to hold the conversations and never write the goals down. Avoid both and you are ahead of most companies your size.