What’s with the COO?

Having hired COOs and having held the role in two different companies, I thought I should write about the job and what it means to me.

Some companies don’t have a COO and instead, break operations into various groups all reporting up to the CEO. That can work just fine, depending on the company, industry and structure. As we say over and over, there is no one way to run a company, and the structure can be very different, as long as there isn’t a bottleneck, or some big gap that leaves the company vulnerable.

De-risking the Company

While in the role, I have one over-arching theme. That theme is to keep all potential risks to the organization at a minimum, while creating the most efficient path to growth. I place heavy emphasis on reducing risk while thinking of our company’s effectiveness and efficiency as a component to keeping that risk to a minimum. I’m constantly asking the question, “What if…?” and then working on an answer in combination with staying ahead of the needs of the company. I think about topics such as, cash reserves, growth plans, employee quality, overall productivity, and competitive threats. I think about office space, how much will we need and by when, and where or even if. There are a lot of companies who never get their feet under them when considering office space, and ultimately waste a lot of money with limited options.

In the absence of a COO, I know of some companies that because of groupthink have massive, expensive build-outs with weak cash reserves and often this happens when there isn’t a COO involved making the decisions to reduce overall risks. I’m never in favor of that ideology and prefer to find subleases or spaces where we don’t have to move walls. It would be different if the company had strong cash reserves and could afford the perfect space, but most can’t. In a group decision, there can be lots of finger pointing without the group taking responsibility for the decision that otherwise would have been the COO.

I think about the business climate and would avoid a city like Seattle because of the political and tax climate in favor of the Seattle Eastside or some other location. Again, this is a call the COO would recommend to the CEO. I think about the quality of life of our employees, and the distance they commute. I like to run an annual check on average commute distance and see if there is a way to reduce the time. I think about finding and retaining top talent and what that means to the employees. This is where constant focus on building a great place to work matters.

Keeping the Trains Running on Time

Because of my prior CEO experience, and after talking to a lot of other CEO/COOs about their relationship, I’ve learned that many end up in conflicts over priorities. I know that at times, my own COO and I disagreed about priorities, and I think that’s normal. There should be debate. This is where the Board of Directors can be of huge help. Often the CEO may have a grand vision that the COO considers to be a stretch beyond the company’s capabilities. I know in our case, I wanted to go farther, faster, and our COO was worried about constraints on the system around running out of money. In part, I think it’s the COO’s responsibility to solve that problem with the CEO. In our case, the COO got it done on time and we moved forward again. It’s largely up to the COO to maintain operational progress and make sure the organization hits its milestones.

The COO is not at all there to wrestle with the CEO over the direction of the company, or the bigger picture, should the CEO have something in mind. Ideally, the CEO and the board work out the strategic direction, then hand off the mechanics to get there to the COO and then let them run with it. It’s the CEO’s responsibility to make sure the COO has a clear mandate and to support the work of the COO.

I knew a CEO in the services space who didn’t seem to care one bit about the challenges saddled with the COO. Of course, he lost that COO, and they can be just as difficult to replace as a good CEO. They never replaced the COO and the company has become even more vulnerable with a long chain of bad decisions that will ultimately show their head.

It’s often harder to find a good COO because the role is so heavily experienced-based and a good, high quality COO will come with a deep field of resources to tap for just about any challenge the company faces. When I see a startup assign the role to someone with limited operational experience, I think they don’t have a clue or a good understanding of the role or what it does to build a company. I don’t believe Microsoft would have achieved its rapid growth without Jon Shirley as COO. He was the adult in the room with the experience to architect their operational growth.

There have been some VCs that think that a COO is always needless in any company, and that’s a bit naive. Typically those who hold that opinion have no direct experience running a company or even know what it will take to architect growth. You can work without one in some companies effectively, but not in all cases. Sure, you can eliminate the role everywhere, but for what result? Keep in mind someone still has to do the job, or you have even more people reporting to the CEO when they need to remain focused on the strategic needs of the organization. Yes, you can run a company without a COO. Is it optimum? Not always.

There are some companies in the Seattle area that are wildly profitable and they brag about their flat organization structure as a virtue. They run without a COO. They couldn’t possibly know what efficient management looks like! Think about it for a moment. What reference point are they using? If you’re satisfied with profits as is, great, but having a good organization in place will likely create even greater efficiencies, if managed right. This doesn’t mean bureaucracy either. Believe me, these so-called “flat” organizations have their share of politics too. You see it in their Glassdoor scores and the passionate yet negative employee comments.

Of course, I lean heavily towards hiring a COO, but only if the need exists and only if someone with experience is brought in to achieve a specific objective. It’s otherwise not going to give you the desired results and could cause even more problems. If you’re looking for a COO, look for a good one with consistent proven experience. This is not a role where you settle for who’s cheapest.

One last point, and it’s an important one. I meet COOs who come in two flavors. One is more like a GM and makes sure the trains run on time. The company is stable, and growing only slightly, year over year. They are cheaper and easier to find. The other is a growth COO, who has experience moving a company from one goal to the next and a track record for doing it efficiently. They are two very different animals and the second of the two run in very short supply and are much harder to find. Don’t expect a COO who’s good at maintaining a company, suddenly transform into a growth COO. They are two very different skills. Meanwhile, growth COOs will not likely be interested in a flat company that is satisfied with slow growth. Don’t confuse the two.

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