There comes the time where you as the CEO need to step back from operative work and become more strategic. Bringing in a COO can support that step.
But how do you know when it’s time to hire a COO? Read in this blog post what the best time is to bring this position in.
What will a COO do for a startup?
Let’s first have a look at what a COO does.
The classical definition of the COO is to be the second in command after the CEO. While the CEO defines the strategic direction and makes the big decisions, the COOs responsibility is to execute these decisions.
The role manages the day-to-day execution of the tasks that contribute to strategic goals.
In the past 50 years however, this role has changed to be much more individual per company. There are COOs that just focus in manufacturing, others oversee everything except sales.
The bottom line is: What is part of the COO’s responsibility and what isn’t might change from company to company.
But without a doubt, having a COO in your startup will help to build a stable operational basis for future growth.
COO OR OPERATIONS MANAGER
The term operations manager is often used to describe the same position, especially in smaller companies. Check out our blog post on the difference between the two profiles here.
Now that we have an idea what the COO does, let’s look at when to hire one.
What’s your plan
The first thing we recommend clients when thinking about bringing in a COO is to examine what their vision for their own role is in the company.
If you plan on staying that super involved CEO that’s engaged with all different parts of the company, then bringing on a COO is not the best idea.
And in fact, there has been a trend in the past years that the spectrum of functions that the CEO oversees directly has constantly been increasing.
(Harvard Business Review)
However, for many of our clients, the CEO and founder plans to get out of operations.
Motives for this vary. Some just want to work more strategically. Others want to exit the company at a point or intend to hand over management to just hold it as an asset.
Whatever the reason: If you as the CEO want to get out of the operations but still need someone to manage the functional leaders in your company, then a COO might be right for you.
The structure of your business
If your business operates in a dynamic or complex environment, and you have many interdependent functions, a COO is a good idea.
Think about the opposite. If your environment is very static, processes don’t change much, there are no exceptions and there’s not much interdependence between the tasks, then you might as well just standardize heavily. And you’ll probably will be fine with a strong functional leadership team.
In a more complex environment, there’s the constant need for problem-solving, conflict resolution and improvement.
You can’t standardize that, so you need managerial attention on the day-to-day. If you as the CEO don’t want to do that, then somebody else has to. The COO.
WHAT’S THE SCOPE OF WORK FOR THE COO?
That depends a lot on what you need. If you want to get rid of specific tasks, then give them away to the COO. Oftentimes, the COO manages all administrative and finance functions.
You can also assign the responsibilities for the actual value creation to the COO. That could be overseeing service delivery or manufacturing and distribution of your product.
You can also make them responsible for marketing and sales.
The only thing that’s out of scope by default is strategy. For the rest, tailor it to what makes sense for you and your company.
Does it make sense financially?
Consider the two financial core metrics when thinking about the COO, cashflow and ROI.
CASHFLOW
The equation is pretty simple. If you want to hire a Chief Operating Officer, the cashflow your business generates needs to be enough to cover the cost related to that position.
ROI
Think through the actual return on investment of bringing in a COO. If they improve quality or delivery by X % it might be worth the investment.
If they free your time up for business development, and you’re able to generate X thousand dollars worth of opportunities, it will be worth the investment.
Is the role simply necessary to grow further and delivery at a decent quality? Then it’s worth it.
The bottom line is: There’s no hard math here. But think through how the COO is justified from a financial perspective.
That justification becomes easier and easier with increased leverage. And that leverage is revenue. The more revenue you have, the bigger the impact that the COOs improvements will have.
Are the operative initiatives piling up?
Another common reason why our clients are looking for a COO is that they need someone to oversee and manage operational improvement.
Often times the founder or CEO is very aware of what needs to be improved in the day-to-day. But a lack of priority prevents them from taking the topics on and executing. There’s other stuff that’s more important.
Adding a COO who’s responsible for improving operations will give these topics enough managerial attention and execution power.
Your people beg you to be more available
A phenomenon we often see with our clients before they decide to bring in a COO: Their peope are very unhappy with the
- availability of the CEO
- the speed of response times
- the attention their topics are getting.
If this sounds like your team, that it might be time to add some operational leadership support to the team.
Combining the factors
Based on these considerations, bringing in a COO makes sense when:
- You want to focus on other tasks on the company or on things outside of the company
- The value creation in your business is dynamic and complex, roles are interdependent and there’s the constant need for problem-solving.
- Your business generates enough cashflow to accommodate this added leadership positions. (FYI: median base salaries in the US range from 108,0000 USD for an operations manager to around 150,000 USD for a COO).
- Your team is craving for a more available leader.
- There’s a positive ROI to bringing on this role.
- Added bonus: You have some operational initiatives that just wait to be executed.
Hope these thoughts help to determine whether you need a COO.
Feel free to reach out if you want to know more about how and when should you hire a COO for your startup.