Thursday, January 21, 2021

COO

When is it the right time to bring in a COO?

For startups at a specific stage of growth and at a certain headcount, it's critical to hire a COO to help scale the organization depending on the CEO's management style. In The Hard Thing About Hard Things, Ben Horowitz goes over 1s and 2s. 

Type 1 CEOs focus more on expanding on new ideas. 
  • Elon Musk of Tesla, SpaceX
Type 2 CEOs focus more on operationalizing the business and keeping things running smoothly.
  • Tim Cook of Apple
Obviously, the above CEOs are the extremes of examples because they are currently not early-stage CEOs; however, I wanted to paint a clear picture of their mode of operation. Most early-stage startup founders can be effective within an organizational structure from 1 to 25 people. The reason for this is because the organization chart is simple and the product you're building and selling is simple. 

What does simple mean? 
  • Your first 10 customers absolutely love using your product because it solves a very distinct problem they have
  • Your early customers are from the US
  • Your engineers are high-level ICs and don't need managers (yet) or don't want to be managers (yet)
  • Life is simple when you're just executing: as YC's motto goes, building something people want
At this scale, you'll have engineering, design, sales & marketing, customer success, operations (HR). Everything feels smooth because the environment isn't complex.

Once you get to a point where you have multiple products in global markets with varying compliance requirements and your most talented people are annoyed with patterns of miscommunication, that's when inexperienced founders need to actualize the need for a COO.

Examples of these problems could include
  • ICs being confused about who to report to
  • ICs being confused about how to level up within the organization
  • ICs being confused as to whether they can impact certain decisions being made at the leadership level
  • How do we acquire world-class talent? WHO do we need now? WHO do we need in 3-6 months?
  • How do we win deals and operationalize those win conditions?

Many inexperienced early-stage startup founders believe they can solve it themselves.  Some CEOs believe being a world-class operator is easy so they'll just trip and stumble along and take the necessary time to get it right (highly recommend against this if you're venture-backed). Some CEOs believe that bringing in an operator isn't worth the cost. Some CEOs believe that bringing in an operator will have a negative impact on the company culture because they'll introduce processes that inevitably slow down all your engineers.

There are many reasons why a CEO chooses to not hire an operator. The list could go on and on.

In my opinion, not getting an operations executive basically lets the organizational problems outlined above fester. Operational executives are key to scaling because they focus on your organization's foundations which include business process design and intra-company communications. Like many examples in everyday life, you should not be building on top of a weak foundation. In addition to helping companies scale to the next stage (A ➡B ➡ C ➡ MOON), COOs can help with hiring the right people with the right ambition at the right time. At the end of the day, it's about output optimization and the stability of the business.

Just my observations.

Jaime

Definitions:
  • IC: Individual Contributor. Can be an engineer, or designer, or engineer who contributes to the company objectives and does not have direct reports.