How should performance management evolve as a startup grows

Performance management should evolve alongside your startup’s growth, shifting from lightweight practices in the earliest days to structured, scalable processes as headcount and revenue increase.

At the pre-seed stage, it’s about defining values, feedback, and habits.
By Series C, it becomes about scaling structured systems for expectations, reviews, and compensation.

In between, each funding stage brings new challenges and requires different performance practices to keep teams aligned, motivated, and performing at their best.

Why is performance management important for startups?

In fast-changing times, a startup’s growth depends on how quickly its people can adapt, learn, and stay aligned. Performance management provides the structure for that. It ensures everyone understands priorities, receives timely feedback, and can adjust as the company evolves.

According to McKinsey, companies that invest in people-centered performance management achieve around 30% higher revenue growth and experience five percentage points lower attrition than their peers.

Similarly, a16z warns of “management debt,” the compounding problem startups face when they delay establishing feedback loops and clear performance systems early. They emphasize that clarity and consistent feedback from leadership are not HR formalities but essential growth infrastructure.

How does performance management evolve across startup stages?

Performance management evolves from informal, culture-driven habits in the earliest stages to structured, scalable systems as the company grows.

At each funding stage, the focus shifts: from defining values and feedback rituals to building formal goals, reviews, and compensation frameworks that sustain performance at scale.

Pre-Seed (2–5 employees, no revenue)

At the earliest stage, performance management is about setting the foundation for your culture.

The small founding team defines what “good performance” means through daily actions, communication, and shared decision-making.

Instead of structured systems, focus on clarity, trust, and early feedback habits that shape long-term alignment.

Challenges

• Founders need to build culture intentionally from day one.
• Early hires define the company’s DNA.
• Everyone is stretched across multiple roles.

Performance practices

• Define values and principles that guide decision-making.
• Normalize feedback early. Research shows employees who receive frequent feedback are three times more engaged than those who receive feedback only once a year.
• Hold regular 1-1 meetings to align expectations and build trust.
• Create feedback rituals that shape team culture early.

At the pre-seed stage, performance management starts with the founders themselves. The way founders seek and handle feedback shapes the entire company’s learning culture. As First Round Review puts it, a company can’t scale faster than its founders’ ability to grow. Normalizing feedback early, especially from peers and employees, sets the tone for transparency and adaptability long before formal systems exist.

Summary: At this stage, performance culture is founder-led. Document values, encourage candor, and make 1-1s sacred.

Seed (5–15 employees, < €1M revenue)

As the first hires join, founders move from “doing everything” to defining structure and leadership norms.

This is where performance management begins to take shape through simple goals, frequent feedback, and a rhythm of communication that keeps everyone aligned while searching for product–market fit.

Challenges

• Founders, CEO and CTO carry most of the leadership load.
• The culture is cemented by the first 10–15 hires.
• Focus on finding product–market fit.

Performance practices

• Set company-level goals that reflect strategy.
• Introduce personal goals for the first time.
• Establish early rituals, such as regular feedback and consistent 1-1s.

a16z points out that the moment founders hire their first managers, “management debt” begins to accumulate. Establishing clear expectations and feedback systems early prevents misalignment and wasted cycles later on.

Summary: This is the right time to start aligning daily work to company goals. Goal-setting introduces clarity that helps employees know where they’re headed.

Series A (10–50+ employees, €1–10M revenue)

When teams start forming and founders no longer manage everyone directly, performance management becomes essential for alignment.

Clear goals, feedback structures, and expectations help new managers lead effectively while keeping the company’s culture consistent through growth.

Challenges

• You’re scaling the organization after product–market fit.
• Team structure emerges, but team leads are new to managing.
• Misalignment risks increase.

Performance practices

• Support first-time managers through coaching, tools, and feedback frameworks.
• Make the first people function hire.
• Adopt structured company goals like OKRs.
• Align personal goals systematically with company objectives.
• Introduce continuous feedback to avoid bottlenecks.
• Begin documenting performance expectations.
• Pilot lightweight performance reviews.

According to Y Combinator, founders should begin thinking about HR and performance systems earlier than they expect. YC recommends bringing in a dedicated people or HR role around 20–30 employees or just after Series A to prevent cultural drift as hiring accelerates.

Summary: Series A is the inflection point. Without structure, small issues in clarity and alignment compound quickly. A clear expectations framework helps managers coach effectively.

Series B (25–150 employees, €10–50M revenue)

By Series B, leadership depth and cultural consistency determine how smoothly you scale.

You’ll likely have multiple teams, managers, and new layers of communication, making structured, fair, and repeatable processes for performance critical to sustaining momentum.

Challenges

• Hiring accelerates, making culture harder to maintain.
• Leaders must manage larger teams.
• Pay fairness becomes more visible.

Performance practices

• Implement OKRs and personal goals company-wide.
• Run systematic 1-1s and feedback loops.
• Define seniority levels and talent bars.
• Launch structured reviews (annual, bi-annual, or quarterly).
• Introduce calibration of reviews to ensure fairness.
• Start systematic compensation frameworks.

Index Ventures notes that fairness and transparency in equity and reward systems become critical at this stage. Linking performance management to compensation and promotion frameworks builds trust and improves retention as organizational complexity grows.

Summary: At Series B, performance management becomes about consistency and fairness. Calibration and compensation systems prevent bias and help maintain trust during rapid growth.

Series C (150–500+ employees, €50M+ revenue)

At this stage, performance management must operate at scale while preserving agility.

You’re now competing for top talent, expanding internationally, and managing multiple layers of leadership—all requiring transparency, fairness, and data-driven insights.

Challenges

• Competing with larger players for talent.
• Sustaining culture across multiple layers of management.
• Integrating performance with compensation.

Performance practices

• Mature OKR framework across the company.
• Performance reviews fully institutionalized.
• Calibration embedded across functions.
• Compensation tied to performance with clear transparency.

Index Ventures emphasizes that transparent performance systems are key competitive differentiators at this stage. Companies that invest in fairness and accountability through data-driven people systems attract and retain higher-quality talent while maintaining cultural integrity.

Summary: At Series C, performance management is no longer optional. It’s strategic, supporting talent density, competitiveness, and growth at scale.

How other companies have implemented performance management at different stages?

Looking at how other startups evolved their performance practices helps illustrate what “good” looks like in real-world contexts.

Here are three examples of companies that scaled performance management differently, depending on their growth stage and needs.

• Synthflow (70 people) doubled headcount rapidly while building structured processes. They built lightweight, AI-powered frameworks that scaled trust and performance without adding bureaucracy.
• Din Psykolog (20 people) used continuous feedback to grow a strong culture of learning, embedding performance practices into daily work, not just reviews.
• Faculty (400 people) replaced rigid annual cycles with a flexible, automated, year-round approach, making feedback part of workflows and reducing manager burden.

What to read next

• From performance management to performance enablement → A deep dive into why modern companies move from reviews to continuous growth models.
• Best performance management solutions for 20–100 employees → A comparison of leading software tools for growing teams and scaling people processes effectively.

Frequently asked questions

1. When should startups introduce formal performance reviews?
Usually around Series A, once you have several teams and managers. Before that, focus on feedback, 1-1s, and goal clarity.

2. How do early-stage startups create a feedback culture?
Start by modeling it at the founder level. Ask for feedback publicly, give it consistently, and make it actionable rather than evaluative.

3. How do performance reviews change as the company scales?
They shift from informal feedback loops to structured cycles with clear rubrics, calibration, and links to compensation.

4. What’s the main difference between performance management and performance enablement?
Management focuses on evaluating the past, while performance enablement focuses on equipping employees with the tools, context, and feedback to succeed continuously.