Mar 7 2008

I Don’t Believe in COO’s

I was at a board meeting recently and the notion of potentially hiring a COO came up.  I blurted out "I don’t believe in COO’s."  An interesting conversation ensued, including someone pointing out that I’d recently supported hiring a COO at another company I’m an investor in (never underestimate the contradictory nature of a VC’s brain.)

I’ve modified my statement to be "I don’t believe in COO’s 98% of the time for companies smaller than 200 people.

In almost all cases, you only have a two level executive hierarchy – CEO and VPs.  The VPs are often creatively titled (SVP, EVP, CxO, something else) – but they are the direct reports to the CEO and have meaningful span of control over the business.  Many of these VPs would report to a COO if one existed, and this is generally a bad idea in a very young company (again – with a 2% exception.)

There are two situations that are common that I think are silly:

  1. The sales guy (VP Sales) wants to be the COO.
  2. The finance guy (VP Finance) wants to be the COO.

Somewhere along the way there was an infomercial that said "if you are a VP and you want to advance in your career, become a COO."  I’ve never understood this and it just confuses things.  There’s a logical progression here – the VP Sales wants to be VP Sales and Marketing, the VP Sales, Marketing, and Business Development, then SVP of Sales and Marketing, then COO.  Huh?

Same drill with the VP of Finance.  There’s a logical path to be CFO.  Then the CFO wants all HR, legal, and IT.  Then the CFO argues "hey – I’m running operations – I should be COO."

Neither of these has ever made sense to me.  The VP Sales path is particularly confusing since most great VP Sales suck at managing operations (which is ostensibly what a COO does.)  I struggle less with the CFO situation – although by the time a company needs a CFO rather than a VP Finance (usually 100-ish employees), the CFO is going to be slammed with dealing with managing the normal "CFO-ness" of the universe, including dealing with investors; subsequently taking over "operations" usually makes no sense.

The 2% exception holds.  In really young companies when the two senior execs "split up the business", a CEO / COO relationship can apply.  I’ve even had one co-CEO situation work beautifully (ServiceMagic) even though every time I thought about it I was sure it wouldn’t work long term (I was wrong.) 

Overall, titles don’t (and shouldn’t) matter much in an early stage company, other than for helping people on the outside of the company understand who does what to whom.  In my experience, the idea of a COO almost always muddies the water.