What to Do with an Underperforming Employee: A Step-by-Step Guide for Business Owners

An underperforming employee is one of the most draining situations a business owner faces. You don’t want to overreact and damage a relationship you’ve built. But you also know that if you leave it too long, it stops being one person’s problem and becomes the team’s.

Everyone has off days. That’s normal. But when a bad week becomes a bad month, and the pattern keeps repeating, it’s time to stop hoping it resolves itself and start addressing it directly.

The good news is that managing poor performance at work doesn’t have to be a painful guessing game. When you approach it with the right structure, conversation scripts, and a clear improvement plan, you can handle it confidently and often turn the situation around entirely.

This guide gives you exactly that: what underperformance really looks like, why it happens, the impact it has on your business, and a practical six-step framework with ready-to-use scripts for each critical conversation.

What is Underperformance at Work?

Underperformance isn’t always obvious at first. It rarely looks like someone simply refusing to do their job. More often, it shows up as a consistent pattern of small gaps that quietly compound over time.

Common signs include:

• Repeated missed deadlines
• Work that consistently falls below the expected standard
• Frequent errors that others have to correct
• Lack of initiative or disengagement from team goals
• Poor communication that creates bottlenecks for the wider team

It is also worth noting that not all underperformance is a people problem. If expectations were never clearly defined in the first place, what looks like underperformance may actually be a leadership gap. Before drawing any conclusions, it’s worth asking whether the standard was ever clearly communicated.

What Causes Employees to Underperform?

Most leaders assume underperformance is a motivation problem. In reality, it is usually more structural than that. Identifying the real root cause is the most important step toward fixing it.

1. Lack of Clarity

If expectations are not clearly defined, people fill the gaps with assumptions. They guess what success looks like, what the priorities are, and how their role fits. This leads to inconsistent delivery, not because they don’t care, but because they are working without a clear target.

2. Skill Gaps

Sometimes a role demands skills, speed, or experience beyond what the person currently has. This may show up as a struggle with technical execution, difficulty keeping up with the pace, or being in a position that doesn’t match their natural strengths. Without targeted support or training, performance will not improve, regardless of how many conversations are had.

3. Broken Systems

Even a strong employee will struggle inside a weak system. Unclear processes, poor communication flows, and a lack of structure can all create underperformance that has nothing to do with the individual. In this case, the problem is the environment, not the person.

4. Low Engagement or Motivation

This is typically the last cause, not the first; though it’s often assumed to be the reason. Low motivation usually results from feeling undervalued, having no visible path for growth, or losing alignment with the team’s direction. At this stage, performance drops because commitment has already dropped.

The Impact of an Underperforming Employee on Your Business

One underperforming team member does not just affect their own results. It affects your team’s standards. And standards, once lowered, spread quickly.

Left unaddressed, poor performance can:

• Slow down overall team productivity and create extra work for everyone else
• Build resentment among high performers who pick up the slack
• Lower team morale and undermine a culture of accountability
• Pull you into constant firefighting as the business owner
• Put client satisfaction and business outcomes at risk
• Drain your energy and freedom, the very things you built your business to protect

Addressing it early is not just better for the business. It is also fairer to the individual, who deserves the chance to understand what’s expected and to improve.

How to Deal with an Underperforming Employee: The D.A.I.D. Framework

At EntreResults, we guide our coaching clients through a practical framework called D.A.I.D.: Diagnose, Address, Improve, and Decide. It removes guesswork and emotion from the process while balancing fairness with the need to protect your business.

Here is how it works across six clear steps.

Step 1: Diagnose the Real Problem

Before any conversation happens, get specific. Vague feelings about someone’s performance lead to vague conversations that change nothing.

Ask yourself:

• What exactly is not being delivered?
• How often does it happen?
• What should the standard be, and was it ever clearly communicated?
• Is this a pattern or a one-off situation?

This is not about building a case against someone. It is about getting clear enough that your conversation is fair, specific, and productive. The more concrete your examples, the more useful the discussion will be.

Step 2: Understand the Root Cause Through a One-on-One Conversation

Once you have your facts, have a calm, private conversation. Approach it with curiosity rather than judgment. Your goal here is to understand, not to confront.

Many cases of poor performance at work come from miscommunication, missing support, or personal challenges that have gone unspoken. Listening first prevents assumptions and opens the door to real solutions.

Conversation Script: The Discovery Conversation

Set the tone:

“I wanted to check in with you privately because I care about how things are going for you on the team. This isn’t a formal review; I just want to understand things from your side.”

Ask open questions:

“I’ve noticed [specific example]. Can you help me understand what’s been getting in the way?”

“Do you feel you have the clarity, tools, and support you need to do this role well?”

“Is there anything happening outside of work that’s affecting your capacity right now?”

Close with intention:

“I appreciate you being open with me. I want to find a way forward that works for both of us, so let’s set up a follow-up to talk about next steps.”

Step 3: Reset Expectations Clearly

After the discovery conversation, you need to be direct about what good performance looks like in their specific role. Ambiguity is one of the biggest drivers of underperformance in small teams. This step removes it.

Use simple, measurable terms. “Improve your communication” is not a standard. “Send a project update every Friday by 2 PM” is. Explain why these standards matter for the team and the business; people are more likely to meet expectations when they understand the reason behind them.

Conversation Script: Resetting Expectations

Be specific and direct:

“I want to make sure we’re both completely clear on what this role needs to deliver. Let me walk you through exactly what I’m looking for.”

State the standard clearly:

“For [specific responsibility], the expectation is [clear, measurable outcome]. That’s what success looks like in this role.”

Explain the why:

“The reason this matters is [business or team impact]. When this doesn’t happen, it creates [specific consequence] for the rest of the team.”

Confirm understanding:

“Does this make sense? Is there anything about these expectations that feels unclear or unrealistic to you right now?”

Step 4: Create a Focused Performance Improvement Plan (PIP)

A Performance Improvement Plan is not a punishment document. Used correctly, it is a structured coaching tool that gives the employee a clear path to improve while protecting your business if things do not change.

Work together on a short 30 to 60-day plan. A good PIP includes:

• Clear, achievable goals tied to the performance gap
• Specific actions the employee will take
• Support and resources you will provide, such as training, mentoring, or adjusted workload
• Regular check-in dates so progress can be tracked
• Clear criteria for what success looks like at the end of the period

Co-creating the plan with the employee rather than handing it down increases their buy-in and accountability. It signals that you are invested in their success, not just managing them out.

Step 5: Provide Regular Feedback and Monitor Progress

The PIP only works if you follow through on the check-ins. Timely, specific feedback is what keeps improvement on track. Celebrate what’s improving, and address what still needs work, clearly and early.

At the same time, step back enough to let the employee take ownership. Your goal is to build self-reliance, not create a situation where they are dependent on your daily input to perform. Consistent check-ins give you visibility without micromanagement.

A simple check-in structure that works well:

• What has gone well this week?
• What has been challenging?
• What do you need from me to stay on track?

Step 6: Make a Decision Based on Results

After the agreed timeframe, evaluate honestly. This is not about feelings or effort alone — it is about results against the standards you set together.

If there is genuine effort and visible, measurable improvement, continue supporting them with a lighter check-in cadence and additional growth opportunities.

If little or no progress has occurred despite clear expectations, adequate support, and sufficient time, it may be time to part ways. Doing so with dignity and fairness is often better for everyone involved, including the individual, than allowing a situation to drag on and damage the wider team.

Conversation Script: The Decision Conversation

If improvement has happened:

“I want to acknowledge the real progress you’ve made over the past [30/60] days. The improvement in [specific area] has been visible, and it’s made a real difference. Let’s talk about how we keep building on this.”

If improvement has not happened:

“I want to be honest with you because I respect you. Over the past [30/60] days, we set out clear expectations, and I’ve done my best to provide the support we agreed on. Unfortunately, the results haven’t moved in the way we both needed them to.”

“This is a hard conversation, but I think the most respectful thing I can do is be direct: I don’t think this role is the right fit, and continuing in this way isn’t fair to you or to the team. I’d like to talk through what the transition looks like and how we can make it as smooth as possible for you.”

Final Thoughts on Managing Poor Performance at Work

Underperformance does not fix itself. Left unaddressed, it spreads into your team’s culture and standards. But handled with clarity and structure, it becomes one of the highest-leverage leadership actions you can take as a business owner.

When you follow a clear process, you either get real improvement, a team member who rises to the standard, or you get the clarity needed to make a decision and move forward. Both outcomes strengthen your business and protect your team.

The D.A.I.D. framework gives you the structure. The conversation scripts give you the words. And the PIP template gives you the tool to make it all concrete.

If you’re dealing with this situation right now and want hands-on support, our leadership and team coaching programs at EntreResults are built for exactly this. We work with small business owners who are ready to build stronger, more self-reliant teams without burning out in the process.

Visit www.entreresults.com to get started or reach out to our team directly. Let’s create the clarity and momentum your business deserves.

Rodger Taylor shares his proven framework for turning networking from transactional prospecting into a strategic business development tool. Click below to learn more.

Also Read

• How to Manage a Small Team: 6 Proven Strategies for Business Owners
• Managing People Effectively: Reprimanding A Team Member
• Two Ways to Build a Winning Personal or Business Team
• Why You Need Another Team Leader In Your Business
• Hiring the Right People: A Strong Foundation for Your Team