How to Manage an Underperforming Employee in a Small Business (When She Used to Be Your Boss)

Yes, you can and should raise it, even though she used to be your boss. The fair path is a private, specific conversation about what the role needs, followed by written expectations, a real period to improve with support, and regular check-ins. The history makes it feel personal. The process keeps it fair.

This question comes up often with owners who have no HR team. You hired someone experienced, perhaps someone who once managed you, and the work is not landing. Now you feel awkward, guilty or a bit intimidated. So you put it off.

This article walks through how to manage an underperforming employee in an Australian small business when the history makes it harder. You will get a way to prepare, a sample opening line, a follow-up structure, and a clear view of when outside help is worth it. We are the Conflict Services panel, and our starting point is simple: conflict is not a bad word. It is usually information that something needs attention.

Key Takeaways

• Raise the issue early and privately. Silence does more damage than an awkward conversation.
• Prepare first: write down specific gaps, real examples and what good looks like.
• Name the history out loud in the conversation. Pretending it is not there makes it louder.
• Listen for causes such as unclear expectations, workload, role fit or personal circumstances before you decide anything.
• Follow up in writing with expectations, support offered and review dates, then give a real chance to improve.
• If you keep freezing, get outside help before the conversation, not after it goes badly.

Summary Table

Should you raise performance with a senior employee who used to be your boss?

Yes. An underperforming employee in a small business needs to hear it from you, whatever her history with you. Staying silent is not kindness. It lets the gap widen, and she loses the chance to fix it. Raise it early, privately and specifically, and focus on what the role needs rather than on her.

Most workplace conflict starts small, with an issue everyone decides to manage around. By the time it surfaces, people are reacting to the silence, the delay and the sense of unfairness as much as to the original problem. Calm, clear and early is usually better than perfect and too late.

It also helps to be honest about what kind of problem this is. Not every matter needs the same process. A performance gap is mostly a management decision, supported by good preparation. It is not a mediation, because mediation is voluntary and forward-looking between people in conflict, and you are the person responsible for the role. If friction between her and other staff develops later, that is a different question with a different answer.

Why does the reversed history make this harder?

The old order of authority is still running in your head. You may defer to her experience, fear seeming ungrateful for what she once gave you, and worry she will read feedback as payback. These feelings are normal. They are also the main reason the conversation keeps getting delayed.

Three things tend to be at work.

Deference. She spent years setting standards for you. Setting them for her feels like crossing a line. But you now own the outcomes of the business, and the role she holds needs to deliver them.

Fear of seeming ungrateful. If she gave you your start, you may feel you owe her patience. You can be grateful and still hold a standard. Those two things do not compete.

Her experience. A senior person may have deep knowledge and still be a poor fit for how this business runs. Experience and performance in this particular role are not the same thing.

Her side matters too. She may find the reversal awkward and may not feel able to ask what you expect. She may be guessing. A quiet silence from you can look like approval.

So name the history out loud. One honest sentence does more than hours of careful tiptoeing. It tells her you see the awkwardness, that you respect her, and that you are going to be straight with her anyway. Do not use the history as a weapon either. Avoid comparisons like "when you ran things, you would have done X". Keep the conversation about the role as it is today.

How do you get clear before you talk?

Write down the specific gaps before you speak. List what the role needs, where her work falls short, a few dated examples, and what good would look like. Then separate performance from personality, so you discuss outputs and behaviours rather than her style, age or seniority.

A one-page note is enough. Use this structure:

• What the role needs. Three to five outcomes, in plain terms. For example, quotes issued within an agreed turnaround, or a weekly report that needs no rework.
• What is happening instead. Specific, dated examples. "The supplier schedule was late on the 4th and again on the 18th" beats "she is disorganised".
• What good looks like. A description she could check herself against.
• What you have already said. Be honest. If you have never told her, the first conversation is about expectations, not failure.
• Your own part. Did you ever write the expectations down? Did she get the tools and information she needed?

Then run the personality test. Take each point and ask: could someone else observe this? "She is negative in meetings" is a personality judgement. "She ended two team planning sessions by declining to take actions" is a behaviour. If you can only describe it as a feeling, keep working until you can describe what actually happened.

Imagine a 30-person design firm where the owner has hired her former manager as studio lead. The owner feels the studio lead is "slow and resistant". After writing it down, the real list is short: three client proofs sent late, and a handover process nobody ever defined. That is a very different conversation from "you are not keeping up". Preparation does not soften the message. It makes it accurate.

If you want a second set of eyes on your notes, hourly HR guidance is built for this. More on that below. Our related article, How to Give Difficult Feedback as a New Manager, covers the delivery side in more depth.

How do you run the performance conversation?

Open by saying what you need from the role, give two or three specific examples, then stop and listen. Ask what is getting in the way. Close by agreeing next steps together. Keep it private, unhurried and away from other business, and do not try to settle everything in one sitting.

Start in the middle. Skip the long wind-up and the history lesson, and get to the actual issue in the first minute or two. Long preambles make people brace.

Here is a sample opening line you can adapt:

"I want to talk about how the role is going. I'd like to be straight with you about a few things I'm seeing, and I want to hear your view. I also know this is an odd conversation given you used to be my manager, and I'd rather say that out loud than pretend it isn't there."

Then give your examples. Keep each to a sentence or two, and tie each back to what the role needs.

Listen for causes

After you have spoken, ask an open question and let the silence sit. Typical answers fall into four groups:

• Unclear expectations. She did not know the standard, or thought it was different. This is common when a senior hire joined without a written role description.
• Workload. The role has grown, or the work is spread across too many priorities.
• Role fit. Her strengths are real but sit somewhere other than this job.
• Personal circumstances. Something outside work is affecting her. Listen, offer reasonable flexibility where you can, and do not probe for details she does not volunteer.

What you hear changes the next step. Unclear expectations call for written clarity. Workload calls for a priority conversation. Role fit may call for a different conversation entirely, about the shape of the job.

Agree next steps

Finish with something concrete: what you will do, what she will do, and when you will meet again. Do not announce a verdict in the room. Do not over-apologise either. You can be warm and clear in the same breath.

How do you put it in writing and give a real chance?

Send a short follow-up email the same day. Summarise what you discussed, the expectations agreed, the support you will provide and the review dates. Then give her a genuine chance to improve. The aim is a clear path back to good performance, not a paper trail built for failure.

Written performance expectations in a small business do not need legal language. They need to be short, specific and kind. A good follow-up email covers:

• What we discussed. One or two lines, in neutral words.
• What the role needs. The three to five outcomes from your preparation.
• What good looks like. Observable, checkable measures.
• Support I will provide. Training, tools, clearer priorities, regular time with you, or removing other tasks.
• Check-in dates. Weekly or fortnightly, depending on the role, plus a longer review point.
• An invitation. Ask her to reply with anything she sees differently.

That last point matters. If she disagrees with your summary, you want to know now, not at the review.

A real chance means the support is actually delivered. If you promised a weekly 20-minute check-in and cancelled three of the four, the review is not fair. Put the dates in your diary before you send the email. At each check-in, say plainly what has improved and what has not. No surprises at the end.

If the gap does not close, the next step is a management decision, and that is where legal questions can arise about process, notice or entitlements. Conflict Services is not a law firm and gives no legal advice, so those questions belong with a lawyer. The Fair Work Ombudsman also publishes general guidance on managing underperformance, linked in the references below.

When does outside help make sense?

Outside help makes sense when you keep freezing, cannot plan the conversation, or are not sure what kind of problem you have. You can't be neutral about your own people, and they know it. An outside person has no history with her and no stake in how the conversation lands.

Be clear about what each option does. HR guidance and coaching support you, the decision-maker. They are not neutral between you and her. A neutral mediator is a different role, and it only makes sense if relationship friction develops and both people choose to take part. Our "Choose the right process" approach runs from a management decision, to HR guidance, conflict coaching, mediation and independent investigation. For a performance gap, the first three usually do the work.

Hourly HR guidance, no retainer

If you mainly need a plan, HR guidance by the hour is the practical choice. It is $290 ex GST an hour, with no retainer and no lock-in contract. Use it to plan the conversation, test your examples, and draft the written expectations before you send them. Many owners need only a short session or two.

Conflict coaching for leaders

If the real problem is that you keep freezing, preparation alone will not fix it. Conflict coaching for leaders is $1,290 ex GST for four one-hour sessions and a plan. It is for owners who know what needs saying and keep avoiding saying it, especially to someone with a history over them. You practise the conversation, work out where you shrink, and leave with a plan.

The triage call

If you are unsure where to start, book the triage call. It is $290 ex GST for 45 minutes with Shiv Martin, a nationally accredited mediator, plus a short email of written next-step recommendations. There is no obligation. We help you sort whether this is a management decision, HR guidance, coaching or something else, and match it to the right person rather than to whoever is free.

The cost of prices above is our own standard pricing, ex GST. All of it runs by video anywhere in Australia.

Next step: book hourly HR guidance, with no retainer, to prepare the conversation and the written plan before you sit down with her.

What does waiting actually cost? A hypothetical

The performance gap is rarely the most expensive part. The delay is. When owners wait, the first conversation stops being about the work and becomes about why nobody said anything sooner.

Imagine a 25-person services business. The owner hires her former manager as operations lead. Within weeks, deadlines slip. The owner does not raise it. Instead, they quietly take on the reporting themselves, then the supplier calls, then the rostering. Months pass. The team notices who is really doing what. The operations lead senses something is off but is never told what.

When the owner finally speaks, it comes out as a long list. She hears it as sudden and unfair. Her first response is not about the work. It is: "Why didn't anyone tell me?" She has a point. The owner is now managing a conversation about delay and fairness on top of the performance issue.

This is illustrative, not a client case. But the pattern is the one we see described again and again in workplace conflict: people react to the silence as much as to the original problem.

Our view is that the guilt has it backwards. Telling her early, specifically and kindly is the respectful option. It treats her as a capable adult who can hear honest feedback. Silence treats her as someone too fragile or too senior to be told the truth. If you are going to feel awkward, feel awkward in a conversation, not across six months of avoidance.

References

• Fair Work Ombudsman, Managing underperformance best practice guide
• Conflict Services, HR guidance by the hour
• Conflict Services, Conflict coaching for leaders