What Kind of Startup Needs a Chief Operating Officer?
When CEO Jack Dorsey introduced Keith Rabois as Square’s first chief operating officer, he asked Rabois to give a speech about what he’d be doing.
The problem was, he didn’t quite know.
“It wasn’t really clear what a COO does at a 20-employee company,” Rabois later recalled.
At that point, Square was a fledgling startup with fewer than a thousand customers. Perhaps a little too young, in Rabois’ estimation, for a COO to join.
Although Rabois eventually helped scale Square from two dozen employees to over 400 in just a couple years’ time, his initial attitude sparks a question: When is the right time for a startup to hire a COO?
Unfortunately, there’s no one-size-fits-all answer. The move depends on several variables, including the size and stage of the company and, more importantly, the capabilities of its team and the complexity of the business.
However, there are a few indicators that now might be a good time for a startup to hire a COO.
1. Growth or Change Is Coming
It’s not always the case that a startup needs to appoint a chief operating officer right out of the gate. In fact, that’s pretty rare.
“In a seed deal, you normally do not see a COO,” Jason Heltzer, managing partner at Origin Ventures, told Built In. “In series A, if I think about it, I’d say maybe it’s 50 percent of the time — maybe a little bit more.”
The COO title shouldn’t be issued immediately — or arbitrarily. There should be a reason for the hire.
“It’s situational,” Matt Bieber, chief operating officer at JCSI, told Built In.
Typically, a COO is sought out because there’s a specific impetus for the startup to do so — a strategic hurdle on the horizon that requires a particular skill set to clear.
Kicking the company into hypergrowth could lead to bottlenecks, which a COO may be brought in to prevent.
Often, that hurdle is either planned rapid growth or a change in strategy. And the company needs someone to help manage it.
“It’s going from X dollars in revenue to Y dollars in revenue, and that increase leads to strains on the organization. It leads to a lot of complexities,” Bieber said. “So if you’re on that trajectory, you might look to bring on a COO to complement the CEO on that journey.”
Kicking the company into hypergrowth could lead to bottlenecks in any number of areas — operations, finance, legal, human resources, information technology, facilities management — that a COO may be brought in to prevent.
“It’s a proactive maneuver,” Bieber added.
A change in strategy is another reason a startup may hire a COO. The business could be preparing to pivot from brick-and-mortar to digital, or wanting to expand into new markets. An executive-level plan-implementer could help see the initiative through.
For example, it’s said that Microsoft hired Kevin Turner to be its COO just as it turned its eye toward becoming a global company. Microsoft wanted someone to ensure that plan unfolded smoothly.
2. The Business Is Complex
One of the conditions where a COO might be particularly useful for a startup is if its business is inherently complex.
For example, the company Tovala — which is in the portfolio of Origin Ventures, where Hetlzer works — is a hardware business, software business and food production business. And it’s “very hard [for the CEO] to make sure he’s on top of all those details,” Heltzer said. “So that business hired a COO really early.”
Tovala is a meal-delivery service that also sells a specially made smart oven in which customers cook the food. The number of moving parts involved in a multifaceted business like this exceeds that of ventures that (for example) create and license B2B software. It’s difficult for many CEOs to reasonably tend to all of the details of all the departments involved in making an intricate business run.
In cases where there are logistical, hardware and software issues bound up with the core of the business, an extra set of hands might be beneficial sooner rather than later.
3. The CEO Is Outward-Focused
The average person might be able to name a few CEOs — probably Bill Gates, Jeff Bezos, Mark Zuckerberg, Elon Musk and Tim Cook. But how many COOs could that same person name? Maybe one or two.
That’s because, these days, many “CEOs are asked to be public figures,” according to the Harvard Business Review.
Chief executives — of consumer product companies, especially — are often expected to travel, do interviews, give speeches, fundraise, testify in front of Congress and more. That hardly leaves them much bandwidth to pore over the day-to-day details of their businesses.
In such instances, the COO is typically instituted to be the right-hand, second-in-command individual who counterbalances the CEO’s external-facing activities with an internal, operationally intensive focus.
“CEOs are asked to be public figures.”
“There are lots of different personalities and styles of CEOs, and there are certain businesses, [often B2C], where you need a CEO who is an evangelist, who is maybe a subject matter expert, who has to be in front of the press, who is fundraising,” Heltzer, the VC, said. “And in those cases, having a COO who is operating the business and making sure that ‘the trains are running on time’ can be a really critical role.”
If a startup requires the CEO to be more of an outward-focused jetsetter, who sets the big-picture vision and evangelizes the value proposition of the product to both the media and the masses, it may be useful to bring in a COO at an earlier stage than other companies. That way, an exec is available to dive into the details.
Why a COO and Not a VP of Growth or Ops?
There’s no consensus on whether a company needs to have a COO. In fact, a 2010 report revealed that only 42 percent of Fortune 500 companies did.
Mark Suster, an entrepreneur-turned-venture-capitalist, said that early stage startups shouldn’t bother with one. Instead, he argues, the CEO should operate the business and delegate more discrete tasks to VPs (at which point, a COO role becomes superfluous).
What distinguishes a COO from a VP of Growth or VP of Operations, though, is “the breadth of responsibilities,” Heltzer said. It may very well be the case that the startup has a very focused need, like a logistical challenge to solve, or bringing sales and marketing closer together — cases in which hiring a VP might make more sense.
But for startups who need an executive-level individual to work across several departments and oversee larger swaths of the business, a COO might be the preferred move.
It All Depends
Neither the number of employees it has, nor the round of funding it’s in, will help provide a tidy timeline for when a company should hire its first COO. It depends entirely on the conditions the business finds itself in.
“Maybe we could think about a different way,” Heltzer suggested. “At what point can a CEO no longer be into all of the details of the business? And when does it break because the lieutenants aren’t into the details?” That’s when the company needs to think about hiring a chief operator.
Turns out, like any other leadership position, the best time to hire a COO is when you need one.