I recently wrote a post about why I didn’t think early-stage startups should have COOs. I expected it to be controversial and it was.
In bringing up the issue I wasn’t “hating on COOs” – I’m just challenging you to think about whether your CEO + COO structure really provides the right amount of clarity in your organization.
I usually judge people’s reactions not by the comments section of my post (where people are a little bit more polite so you get selective bias) but by the private emails I get. I’d say about 80% of the experienced entrepreneurs & VCs I know privately agreed with me. Naturally some didn’t.
The “I don’t agree” arguments included:
- “I run multiple businesses so I need COOs.” [that's my paraphrasing] … OK, I get that. But you’re not a great candidate to be funded by VCs then. We tend to want to work with people who are focused on just one company. Yes, I know there are some high-profile exceptions to this rule. I find them strange.
- “ I really think that the CEO is driving strategy while the COO is running the company” … Oh, my. What a luxury in a startup to have the number one person in the business get to focus on just strategy? Another email said it best, “Turns out our partnership isn’t as ideal as I thought … [I] do all of the work while he does all of the thinking.”
- “I need somebody to run operations.” This is the most understandable to me if well defined. I never said you shouldn’t have a VP of Operations. I think people understand this title to mean more somebody who handles operational issues rather than somebody who is more like a “chief of staff” as a COO often is. One great solution I see is to hire an outstanding CFO who runs both. This person can do budgeting, forecasting, strategic planning, legal, HR, office moves, etc. But they aren’t the COO.
- “We’re all equal co-founders and we don’t care about titles.” Still, I’ll bet that functionally you divide areas of competence like sales & marketing, product, engineering, biz dev, etc. Functional roles provide more clarity around roles and responsibilities. I usually encourage people to think about titles like, “Founder & CTO” or “Founder & VP Marketing.”
- “I need a COO to focus on the business while I focus on M&A and strategic discussions.” The company that wrote me this told me they were doing $4 million in sales. Look, if you’re doing $4 million in sales and you’re doing anything other than totally fortuitous M&A you’ve got a real issue. I know it’s much sexier to race around talking about buying up companies than it is tweaking your business operations to accelerate revenue, reduce churn and grow faster. But it will not help your business grow faster. What will it do?
1. Focus the most senior person in the company’s time away from critical decision making on daily business
2. Dilute your cash, equity or both
3. Create hassles for post-merger integration of technology or teams
4. Lead to bad blood on your existing team. “Why have I worked my ass off evenings and weekends for 2 years and this guy comes in and get’s paid $500,000 and gets 10% of the company while I have 0.5%?
In summary, tons of early-stage M&A is driven by only one thing: CEO ego. I avoid it like the plague.
(Cross-posted @ Both Sides of the Table)