Does A COO Play An Important Role In A Startup Company?

I had an article published this week in VentureBeat where I talked about the role of the COO in an early stage software company.

It’s a pervasive belief that early stage tech companies have no use for a chief operating officer (COO).

There are many drivers to that perception, most general of which are: (1) the CEO believes he/she needs to “be inanimate with the business” and all elements of the operation; (2) tactics and implementation should not be separated and should all roll up to the CEO; (3) early stage companies are too small to have a COO; and (4) most unfortunately, the perception that recruiting a COO would be a disclosure of failure by the CEO.

I have had a stint in the COO role myself, and during that period I had direct experience with the very best and worst of the COO role. I’ve also observed the role in one of our portfolio companies where it was very effective.

While I can sympathize with the arguments in opposition to recruiting a COO, I do think the role can be hugely advantageous — and even necessary — in particular situations. In other words, the role of the COO should not be dismissed offhand mainly because a business is too early for it or the CEO’s ego is impeding progress .

I was not too long ago referred to a good guide on the topic, titled Riding Shotgun – The Role of the COO, by Nathan Bennett and Stephen Miles. In it, the authors reveal a list of impetuses behind the COO position:

1. To offer day-to-day leadership in an operationally rigorous company
2. To guide a certain strategic imperative implemented by management, such as a turnaround, important organizational adjustment, or planned rapid expansion
3. To provide mentorship to a young or new CEO (often a founder)
4. To equalize or enhance the strong points of a CEO
5. To teach the business to the heir apparent to the current CEO
6. To retain executive expertise that other firms may be pursuing

When employing a COO makes sense

A lot of early stage firms are established by young and new CEOs. This is the dynamics of early stage businesses, where a founder uses the weight of the entrepreneurial spirit and technical expertise to start up a venture. At the point of the startup, operational knowledge is mostly irrelevant; to do well as a startup, the creator often leverages the inexperience by being entirely unencumbered by the past. This makes it possible for the founder to settle in and adjust to a really dynamic and changing market surroundings.

But as soon as the business goes beyond the startup phase where the product, consumer and distribution model have been pinpointed, operational expertise starts to become more crucial. At this instance, the CEO needs to commence the search for a functionally knowledgeable senior management team. Hiring, motivating, challenging and keeping such managers all involve substantial operational experience. This is where the founding CEO begins to falter, but it’s also when a COO role makes the most sense.

A COO’s value is created to be complimentary to the CEO. The truth is that any CEO, no matter how knowledgeable, will be unable to possibly cover the complex factors of handling all the functions of a technology business. And why even try? It’s much better to divide and conquer. By hiring a COO, the CEO can concentrate on the aspects of the position that he/she really excels at and loves the most.

Certainly, these areas of interest may vary per CEO. For instance, they may be far more technical than operational, preferring to concentrate on product strategy and management (ala Steve Jobs). Therefore, the COO can assume responsibility for the rest of the operation, concentrating on sales, marketing, support and operations. Then again, the CEO could also be more of an “outside” visionary, preferring to establish the strategy and be the spokesperson while evangelizing with potential customers, buyers, analysts and bankers (ala Larry Ellison). This is when the COO can take over the actual implementation of the strategy.

By thinking of it as a yin-yang division of obligations, the CEO-COO relationship can certainly make 1+1=3 a reality.

Knowing the risks

Of course, there are likewise specific risks involved with employing a COO. First is the misalignment of the roles and a lack of trust bringing about division and disharmony. To guarantee the success of the COO role, the CEO needs to cooperate with the board of directors to produce the appropriate set of expectations, responsibilities and the required qualifications:

Establishment of trust — This is the absolute most crucial aspect of a successful CEO-COO relationship. Trust (in this case) begins with the CEO truly coming to terms with the requirement for a COO and having clarity as to why. The CEO must then convey that, with humility, to the prospective COO.

Finding the chemistry — After trust, there needs to be chemistry. The CEO and COO must have mutual respect; they need to recognize and recognize the skills that each brings, and be absolutely open with each other. Basically, they need to get along well and enjoy working together.

Defining the role — Next, the role of the COO needs to be defined with extreme clarity. This comes back to the need for the role, and the mutual appreciation of it by the board, the CEO, the senior management team, and the prospective COO. I’ve personally discovered capable executive recruiters to be very beneficial in helping the CEO build the role with clarity. The recruiter tends to bring an objective view as well as the view of prospects.

Defining the rules of engagement — In the final stages of recruiting a COO, I recommend that the CEO and COO get together and map out on a whiteboard the particular roles each will take. How is that unique from the previous definition? Well, it is dependent on the capabilities of the final candidate. The previous definition refers to the ideal role based on the need (or deficiency) of the CEO. Here, the role needs to be further refined based mostly on the competencies of the prospect. This is where the yin and yang are united into one circle. Part of that is the definition of the rules of engagement for managing and communicating internally with the senior team and the rest of the employees.

Firas Raouf is a mentor to our OpenView Portfolio, an engaged board member and plays an active role in investments.

Related articles

• Even start-ups need a COO (venturebeat.com)
• Square COO Keith Rabois on creating an affinity brand for payments (venturebeat.com)
• Research in Motion: One of its Three COOs on Leave, Earnings Later (blogs.wsj.com)

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