One of my pet peeves as a mentor is seeing teams composed of a CEO, COO, and CTO – that’s the “company”! Where oh where is marketing and sales, I ask these founders? (They usually assume marketing and sales are like frosting, something you apply after you bake the cake to make it a bit more appetizing.)
But CEOs of high growth companies may actually need to hire themselves a COO. How do they know when? The article 5 Signs You’re Ready to Hire a COO by Todd Klein, sub-titled Bringing on a COO is a decision that can transform your business on Inc. is unfortunately not an article I can agree with.
Here are Todd Klein’s five signs, with my comments appended:
1. Instead of spending time growing revenues, transforming operations, or pushing product boundaries further, you’re resolving disputes among your functional direct reports.
In my experience it’s not that as CEO you are spending time resolving disputes among your functional direct reports that drives the decision to bring on a COO. In fact if you are spending time resolving disputes amongst your senior management team that is a sign of a dysfunctional senior management team and adding a COO will only exacerbate the problem. Rather, the time to bring on a COO is when the CEO is does not have the reach to play Mr./Ms. Outside AND Mr./Ms. Inside at the same time. This typically happens when the company is on a high growth path and the CEO has to spend the bulk of their time outside the company: talking to investors, analysts, key customers, and the media and thus doesn’t have enough time to manage internal functions like finance and administration, customer support, and manufacturing.
Your COO needs to put away their ego, as they will be Mr./Ms. Inside, focusing on the internal operations of the company – making the trains run on time, as the saying goes. If your COO is getting media attention then something is probably not right with the allocation of responsibilities between the COO and CEO.
2. You start noticing the flow of actionable, transformative ideas from your team is slowing down.
No doubt this is a problem. Is hiring a COO the answer? Again, I’d say no. A highly functional senior management team should be able to evaluate, compare, and prioritize initiatives and make sure there’s follow through on the right ones. As I’ve written elsewhere, if this is a problem make sure each task has a DRI – Directly Responsible Individual, and enforce this principle throughout your organization, especially in the senior management team. Hiring a COO to be traffic manager is not the answer to this problem.
3. Your business is expanding faster than the forecasting discipline required to optimize it, preventing you from accessing a more demanding tear [sic] of financiers, suppliers, and customers.
What you need is not a COO but a stronger CFO/VP of Finance and Administration to handle forecasting and the interface with suppliers, and a strong customer support organization to handle the interface with customers. It’s the job of the CEO to handle financiers, be they bankers or venture capitalists, or large shareholders.
4. You continue to produce a multitude of great ideas, but neither you nor your team has the bandwidth to follow up on them.
This is a good problem to have! But again I’m going to refer to the management principle of Steve Jobs, who took inordinate pride in the number of ideas he said “no” to. Focus and execution is the name of the game. If you actually have a new idea that can get through the gauntlet of the senior management team then it should be allocated resources accordingly. The money you would be spending on a COO should go to the functional area that needs resources to incubate a great new idea.
5. Increased business complexity and a faster pace exacerbates communication asymmetries.
I believe that the majority of problems a company faces internally can get traced to communication problems. But adding a COO only increases the nodes in the communication network, increasing the odds of message distortion or failure to transmit.
If you do indeed need a COO because the company is outgrowing the CEO’s ability to handle both internal and external responsibilities make sure you have your communication channels and rules of the road firmly established. otherwise you may see more, not less “communication asymmetries.”
In summary, COO’s are expensive. They add management overhead to the organization and without very clear responsibilities they may step on the toes of both the CEO and their direct reports. COO’s are not the answer to problems in the senior management team. They are only needed when the company is growing quickly across multiple metrics: headcount, markets, products, sales, and revenues. CEOs should resist the idea of bringing on a CEO until and unless they have very clear duties and objectives for this person and have buy-in from both their Board and their senior management team that the time for hiring a COO is now.
In one sentence the job of the COO is to free up time for the CEO, primarily by management of internal functions like finance and administration, manufacturing, and customer support and to add expertise and experience to strengthen the senior management team.
Don’t believe everything your read, even if it’s in Inc., or for that matter, in this blog!