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The Myth of the Startup COO

July 17, 2013

Brad Svrluga

Two-HeadedMonster

Startup CEO & COO? An impractical two-headed monster

I just read a terrific post from Ben Horowitz that he wrote a couple weeks back about the fallacy of Shared Command in companies. I couldn’t agree more with his points about the essential nature of a singular decision-maker in start-ups, especially. There are so many challenges that every startup faces – adding ambiguous reporting and authority structures to the mix never helps.

While there will always be examples of powerful exceptions, if you’re looking for models of what’s likely to happen with shared leadership, surely Blackberry/RIM is far more instructive than Workday.

An argument against shared command structures is not new territory, of course. Yet we still frequently see startups who try to manage via co-CEOs. When I see that, I always dig in hard as to why this pair thinks they’ll be different. To this day I still have not invested in co-CEOs. I have, however, twice invested in teams where the transition from co- to a singular CEO evolved through the financing process. One of them has been a smashing success, the other was unsuccessful.

The failing of the second case is a great exemplar of a related challenge in startupland – the myth of the startup COO. In this instance, the co-CEOs changed to a CEO and a COO. But nothing functionally changed – they were sharing command.

When I meet an early-stage startup – say a company with fewer than 15-20 people – with a COO, it’s always a pink, if not a red flag. If there’s both a CEO and a President, that’s even worse.

In a real, grownup company, Chief Operating Officer is a title given to someone who sits between the CEO and some substantial portion of the functional areas of the company. At a tech company, you might see all the non Tech/Product functions report to a COO. Sometimes it’s everything other than Sales. In other cases, though less commonly, it’s all of the functional areas. Whatever the structure, the role is a result of the scale and complexity of the company, and it is intended to free the CEO from having too many direct reports.

When I see a COO at an 8 person start-up, it’s generally a title given to a co-founder who isn’t quite sure what they’re good at or what functions they are going to own. And 19 times out of 20, it’s a title that doesn’t make any sense.

Lord knows the CEO of an 8 person company doesn’t need to be insulated from managing his direct reports. If that founder/CEO isn’t intimately involved with and aware of every element of the company then he’s probably not doing his job. As that CEO, if you think you’re going to attract top notch functional heads into an early stage company and have them not report directly to you, you’re kidding yourself. Any high caliber VP Product or VP Sales or VP anything at an early-stage company wants to report to the CEO. I’ve seen companies with premature COOs get this feedback directly when they’ve tried to recruit senior executive talent beneath one of these pseudo-COO’s. It just doesn’t work.

So why do startups repeatedly end up with this structure? The most common underlying reason, in my experience, is it’s a title to give the non-technical, non-CEO co-founder.

Imagine this scenario: Sally and Bob are a pair of brilliant, 32 year old McKinsey consultants. Their friend Steve is a coder extraordinaire. Together these three have come up with a world-beating startup idea, and they’re all quitting their jobs to build the business.

Sally and Bob could just as easily be Goldman i-bankers, freshly minted Stanford MBAs, Associates at big VC firms, or a variety of other things. The point is they are very smart and creative, great at thinking about businesses and markets, but they possess few real, hard skills that are required in building startups.

For Sally, that’s not going to be a problem, because for one reason or another it was decided that she would be the CEO. Steve is all set, too – he’s clearly our CTO. So what is Bob going to do? Head of Product? No experience. VP Sales? No experience. CFO? We hardly need one of those yet.

Lacking any clear role and title, the founding team makes the rational choice to call Bob COO. It’s a big, fancy, ambiguous title. And in the early days it’s going to seem like a logical title as Bob’s going to be a utility player – some biz dev, some sales, some product, some finance. And he’s going to a terrific job at it because he’s super smart, a hustler, and a fast learner.

Fast forward a bit and the team has launched a product, it’s getting a bunch of traction, and it’s time to really build out the team. Suddenly, Bob is in a tricky spot. As Sally hires a VP Sales, a VP Marketing, and whatever other functional heads she needs, Bob’s portfolio is going to get whittled away, bit-by-bit. His McKinsey background doesn’t qualify him for any of these roles, and instead of focusing early, studying, and getting good at one of the, he clung to his generalist COO title too long.

I’ve seen this scenario play itself out several ways from this point. Sometimes Bob clings to the title and everything he once owned. When that happens, Bob is eventually pushed out of the company as those new rockstar functional heads insist to Sally that he’s getting in the way and they can’t work with him.

In other instances I’ve seen Bob suddenly decide he’s going to go deep and learn and own one of these roles. But at this point it’s too late. The company needs a star running sales, not a guy 18 months removed from his MBA who’s never carried a sales bag in his life. So Bob flails for awhile, but things are starting to move too fast for him to get it figured out, and he fails.

The COO role that Bob clung to, that made him feel great for so long because he had a fancy title, ultimately was his undoing. He fails at the point where the company needs much more than his utility role, yet isn’t big enough for a COO, and Bob’s not skilled enough to be anything but.

The painfully ironic thing here is that Sally is doing just great, despite coming to the table with no more relevant skills than Bob did when they co-founded the company. But that’s OK – CEO is a general management role. It’s about strategy and vision, hiring great people, and raising money. And those are all things that blindingly smart ex-McKinsey types can frequently do quite well.

So how to avoid Bob’s fate?

When I meet a founding team like Sally, Bob & Steve, I push very hard on just what Bob is going to do. And I tell him I don’t buy that the COO thing works.

In my mind, there’s only one reliable path for him to take, and that is to check your ego at the door, hustle like hell at playing the generalist early-days utility role, and simultaneously pick one specific functional area to learn and study and prepare to own. With some time, if he gets focused early enough, he’s got a shot at growing into a role leading that function. And if he doesn’t grow all the way there, he’s at least going to learn enough that when a VP is hired over his head, if Bob is humble and practical, the VP will want to keep him around as a contributor on that team.

Sure, there will be exceptions to all of this. I’ve seen a couple, but they’re definitively exceptions.

If you’re the non-CEO, generalist co-founder, I encourage you to get realistic early and structure your role in the company for success. Betting on being the exception is all too likely to lead you to instead being the rule – an unfortunate separation from your company before it reaches the promised land. And wouldn’t you rather be on the ship in a smaller role when it gets there than have been cast off a hundred miles out to sea?

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2 Comments

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  1. July 30, 2013

    Totally agree – if the co-founder can’t lead one of the key departments, it’s an issue. In your experience, do you try and push the “COO” into one of the roles (Sales, Mktg, etc.)? Or is it simply a deal breaker?

    And is your major issue more about a 10-person company having a COO as opposed to a 3-person company?

    I would also bet “COO”, more times than not, is just a “sexy title grab”.

    • July 31, 2013

      I think 3 or 10 people companies are too small for a COO.

      As for pushing, I don’t do it if it’s not natural. But I do try to force the conversation to get to an understanding of if the COO actually has some real skillsets that are going to be relevant as the company scales vs. hiding their generalist nature behind a generalist title.

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