Further Thoughts on Startup Operations

Posted on Sep 17, 2011 | 43 comments

Further Thoughts on Startup Operations

I recently wrote a post about why I didn’t think early-stage startups should have COOs. I expected it to be controversial and it was.

To be clear, I said that most companies I see pitching have COOs & I don’t have a rule against it. I’ve had several COOs at companies in which I’ve invested.

In bringing up the issue I wasn’t “hating on COOs” – I’m just challenging you to think about whether your CEO + COO structure really provides the right amount of clarity  in your organization.

I usually judge people’s reactions not by the comments section of my post (where people are a little bit more polite so you get selective bias) but by the private emails I get. I’d say about 80% of the experienced entrepreneurs & VCs I know privately agreed with me. Naturally some didn’t.

The “I don’t agree” arguments included:

  • “I run multiple businesses so I need COOs.” [that’s my paraphrasing] … OK, I get that. But you’re not a great candidate to be funded by VCs then. We tend to want to work with people who are focused on just one company. Yes, I know there are some high-profile exceptions to this rule. I find them strange.
  • ” I really think that the CEO is driving strategy while the COO is running the company” … Oh, my. What a luxury in a startup to have the number one person in the business get to focus on just strategy? Another email said it best, “Turns out our partnership isn’t as ideal as I thought … [I] do all of the work while he does all of the thinking.”
  • “I need somebody to run operations.” This is the most understandable to me if well defined. I never said you shouldn’t have a VP of Operations. I think people understand this title to mean more somebody who handles operational issues rather than somebody who is more like a “chief of staff” as a COO often is. One great solution I see is to hire an outstanding CFO who runs both. This person can do budgeting, forecasting, strategic planning, legal, HR, office moves, etc. But they aren’t the COO.
  • “We’re all equal co-founders and we don’t care about titles.” Still, I’ll bet that functionally you divide areas of competence like sales & marketing, product, engineering, biz dev, etc. Functional roles provide more clarity around roles and responsibilities. I usually encourage people to think about titles like, “Founder & CTO” or “Founder & VP Marketing.”
[and my favorite]
  • “I need a COO to focus on the business while I focus on M&A and strategic discussions.”  The company that wrote me this told me they were doing $4 million in sales. Look, if you’re doing $4 million in sales and you’re doing anything other than totally fortuitous M&A you’ve got a real issue. I know it’s much sexier to race around talking about buying up companies than it is tweaking your business operations to accelerate revenue, reduce churn and grow faster. But it will not help your business grow faster. What will it do?

1. Focus the most senior person in the company’s time away from critical decision making on daily business
2. Dilute your cash, equity or both
3. Create hassles for post-merger integration of technology or teams
4. Lead to bad blood on your existing team. “Why have I worked my ass off evenings and weekends for 2 years and this guy comes in and get’s paid $500,000 and gets 10% of the company while I have 0.5%?

In summary, tons of early-stage M&A is driven by only one thing: CEO ego. I avoid it like the plague.

  • http://www.HaveMyShift.com Drew Gilliam

    I think it’s delusional that any CEO could make sound ‘strategic’ decisions without having a deep knowledge of the important metrics and goings-on of the business. There are probably however some rare cases where the CEO and whomever is next in line for managing operations can ‘act as one’ in terms of knowing every aspect of the business. Reading ‘Onward’ by Howard Schultz recently is a great example of a CEO that knows the details like the back of his hand and uses them to make amazing strategic decisions. Any suggestions for CEO + COO pairings that can do the job right to study?

  • http://twitter.com/leoalmighty Leo Chen

    I agree with your views Mark and I think some readers who disagreed may have missed the point. At my last startup, my co-founder was the CEO and I took the COO role. Mostly because that seemed like the title that should be handed out to a co-founder after CEO. In the end, I don’t think my title matched my duties and it was more for ego/aesthetics. In practice, my partner took the lead on biz dev & fundraising while I focused on product, engineering, HR, etc. We still discussed strategy, BD, product, and all other critical business decisions together. When it came to execution, we divided our duties based on our pre-agreed upon roles but filled in for each other when needed. We were a small 4 person team so maybe the slightly larger startups have more in terms of operations.

    Regardless of semantics (COO or VP Ops), I think the point of your post is that early stage startup founders should be prepared to wear multiple hats, thinking critically about their business goals and not let titles dictate/limit their responsibilities. Just my 2 cents. :)

  • http://www.ceros.com Paul Fifield

    This is the only post you have written that i didnt immediately agree with.  Firstly I think perhaps there is a slight general  misunderstanding on the generally accepted role of a COO.  But aside from that, I am a CEO (in your second favorite country the UK!) and have a COO that i hired, but he has a significant finance role (so the apposite of what you suggest).  The way I saw it is that in the early years where there isnt huge revenue, finance is not that complex (I also have pretty decent finance skills too so that helps).  However operations can get complex and time consuming very quickly especially in B2B SaaS, particularly when you want to create the most efficient operational structure possible to make the anticipated scaling of the business as pain free as you can.  We use and fully integrate Zuora, Salesforce, Zendesk, Google Apps, Marketo (for marketing automation) and are evaluating other on demand services in calculating commissions, chatter, radian 6 etc.  And Steve (our rock star COO) also looks after HR and legal in addition to managing our external accountants who do our monthly bookkeeping and management accounts and helps me with forecasting. 

    So in summary a COO with CFO responsibilities (and we are definitely not doing any M&A!)

  • http://byJess.net Jess Bachman

    I bet a CEO removed from the operations role leads to a lot of those dangerous ‘gut decisions’ when strategy is concerned.

  • Adel Hafiz

    Great example. The real CEO should have knowledge of the important metrics. Similar CEO is Tony Hsieh “delivering happiness”.

  • http://blog.ideatransplant.com Jan Schultink

    “Tons of early-stage M&A is driven by only one thing: CEO ego”.  I think you can scrap the “early-stage” bit from this quote and still get a true statement, sadly…

  • http://www.alearningaday.com Rohan Rajiv

    (Good book that!) :)

  • http://mattreport.com Matt Medeiros

    “Oh, my. What a luxury in a startup to have the number one person in the business get to focus on just strategy?”

    Wouldn’t THAT be nirvana. 

    I have a COO in my startup, but we’re not looking for investment for that company. We’re building a product that EVENTUALLY will become a company on it’s own but is still in infancy stages. 

    In our core business (rev generator) there’s always that head butting of CEO (my father) and COO (my cousin). Sales/Vision vs. BeanCounting/Conservative. COO in our example isn’t what a “normal” company probably has. He does a lot of analytics of our costs and counting dollars out to contractors. Putting systems in place in order to get financial and pipeline snapshots  at any given time etc.

    “In summary, tons of early-stage M&A is driven by only one thing: CEO ego. I avoid it like the plague.”

    What if it were opposite and CEO was driven by experience and motivation?

  • http://twitter.com/davidsmuts David Smuts

    I thought your commentary on the role of COO was spot on Mark. You referenced this to start ups specifically rather than larger companies. I have a mate in Silicon Valley who is “COO” of a start-up but COO in name only. He actually is head of sales. They decided on COO as a means of providing him with some sort of “status” as one of the founders. And that is so often what you see in start-ups: COO given to a founding partner but often without delineated responsibilities. End result is confusion within the team as to who does what and inevitable misunderstandings and disagreements as you pointed out. 

    And you’re 100% correctamundo about the need for a CEO to be both strategic and operational in a start-up. Personally, I wouldn’t invest in one who wasn’t both.  

  • Anonymous

    “Turns out our partnership isn’t as ideal as I thought … [I] do all of the work while he does all of the thinking.” – To me this is the death of a startup (or even some teams where the manager drives the team to stay up all night while he goes home at 5pm).  I always think you have to lead from the front – staying up all night with the team during product launches, shouldering visibly part of the work, or if you really can’t do the work but the team needs to, then stay up anyways with the team and make sure they are well stocked with pizza – snooze under your desk so that they can always wake you for a question.

  • Anonymous

    For those that aren’t sure if Mark is right, don’t just take his word for it. Jason Cohen agrees with him:

  • Shuki

    100pct agree, IMHO startups should specify the person and role, not the title. I.e. Jon smith, sales. Jack black, operations etc.
    Great post as always Mark

  • http://www.metamorphblog.com Matt Mireles

    Seems like you’re conflating two seperate issues/questions here:
    1) Co-Founders not really dividing their labor and decision making process properly––ie one founder is CEO & the other is COO, with a real lack of clarity inside the company around who actually is responsible for what. This is an issue fundamentally about the founders relate to each other and the corporate hierarchy.
    2) What exactly is the role of the Founder/CEO in a startup? To what extent should they be in the weeds of the business and focused on operations, versus slightly above it all and focused more on vision & direction?

    Mark, I’m with you on #1 100%. Dividing labor and making each founder responsible for a specific domain is a must. On #2, I’m not so sure. Personally, I’ve found myself a bit more in the weeds than I’d like as of late. My biggest breakthroughs in terms of how I think of the company & where we’re going have happened when I stepped back a bit, took my head out of the weeds, and either got out of the building & talked to customers or sat on the beach and read an important book. I’ve never done this before. An experienced COO might be just what the doctor ordered. I dunno, still thinking about it. Haven’t pulled the trigger on that one just yet.

    Ultimately, however my own situation turns out, I think you’re wrong to suggest that there’s one canonical way to skin the cat. As a CEO, my responsible is to the shareholders and for the ultimate success of the company––no more, no less. There are no hard & fast rules as to how you get there, just common foibles and different practices that work for different people. It sounds like you were a very hands-on CEO and that worked for you & your personality. But the reality is that not everyone is you nor are they going to succeed by trying to be you. 

    If hiring an experienced COO is what it takes to achieve success for a company & the founders, then so be it.

    The danger I see in your suggestion is that the founders who’d probably benefit from hiring a strong operations person would take your advice at face value and continue to shoehorn themselves into a role that they’re not ready for or particularly good at––and fail as a result. I’ve seen it happen with at least one founder and now ex-CEO friend. Bad news.

    In summary….Delegation = Good. Playing to your strengths = Good. Trying to be someone you’re not = Bad.

  • http://haploid.com/ David Hansen

    I am not going to dispute the majority of this article;  I primarily agree with you.  But perhaps for reasons of “ego”, I am compelled to take issue with this claim:

    “In summary, tons of early-stage M&A is driven by only one thing: CEO ego. I avoid it like the plague.”

    Speaking as co-founder of a startup that has acquired a number of companies, albeit primarily for access to domain names, I can assure you that early-stage M&A is not driven solely by “CEO ego”, and is in fact often strategically valuable.

  • David Levine

    Just one point on the CEO focused on M&A – the proverbial cart before the horse!

    CEO needs to focus on building the best product with the best team and Turing it into the business. When the company gets there it’ll be a great M&A target but not before.

    Build it and they will come!

  • http://analytikainc.com/blog/ John R. Sedivy

    Great comment, especially your summary statement. This is pretty much how my business has played out. When I started as an entrepreneur I would focus way too much time on activities I didn’t enjoy and wasn’t necessarily good at. Fortunately in fairly short order I discovered that for everything I disliked doing, there was someone who absolutely loved doing it and had a shared vision. Not to say it’s all fun and games, but in general much of it comes down to the quality of the team and your trust in them.

  • Dave W Baldwin

    — “Turns out our partnership isn’t as ideal as I thought … [I] do all of the work while he does all of the thinking.”  —

    Love it!

  • http://analytikainc.com/blog/ John R. Sedivy

    “Turns out our partnership isn’t as ideal as I thought … [I] do all of the work while he does all of the thinking.”

    I guess it depends on how you define work. Much of the work in a startup is thinking through things, even before there is any “work” to be done.  Activity does not necessarily equal productivity or value creation. Work smarter not harder :)

  • http://analytikainc.com/blog/ John R. Sedivy

     Enjoyed Onward as well, especially the discussion on metrics and how the “comps” for preceding years were an indicator of a problem in the business. Although there was a mention in the book that he wished he had paid more attention to operations during the scaling of the business as he was unprepared for some of the challenges that occurred.

    My guess is that there are probably more instances of management teams “acting as one” than we now realize. Although I can’t think of a pair (or more) off the top of my head, I would be very interested in this as well.

    One thing I do recall in reading some of Richard Branson’s work is that he seemed more team and partnership focused and didn’t really seem to convey that he knew all the nuts and bolts in the business. Actually, I believe at one point he specifically said that the business wouldn’t be what it is today and it would have failed if he had to focus on the operations as opposed to having talented leaders carry out his vision.

  • http://www.justanentrrepreneur.com Philip Sugar

    I’m usually in total agreement with you but I disagree here.  Now if we’re talking about hiring a super expensive senior guy I agree.  Just like I think hiring some VP of sales that is making a $250k base at a startup is stupid, same for a super expensive CFO.

    However, if this is some excuse for the CEO not to know about every aspect of the business, I agree. The CEO better know the numbers better than anybody else, better know the development timeframe by heart, AND go out of the office and understand the market as well.
    However it comes down to my favorite word sales.

    The CEO should be outside the office talking to new customers, potential customers, possible partners, etc.  She should go on all the sales calls and be a true road warrior and evangelist.

    That means she is going to be out of the office a ton and is not going to be able to control support, operations, etc.  The buck has to stop somewhere and that should be with a COO, who controls and delivers on the vision and sales that the CEO outlines with an iron fist.  She has to be the backstop that demands accountability.

    I suppose one could say who cares about titles but people need to realize they report up through the COO to the CEO, and that would be my point, having a squishy co-title job is crap.  Saying we have one capitan and the commanding officer is smart.

    Again a startup hiring the COO from a Fortune 1000 company and paying that kind of dollars is stupid, but having a team-mate that takes operations, and one that faces outside is smart.

  • http://twitter.com/christophe971 Christophe Maximin

    Am I correct to assume you forgot one word here?

    “if you’re doing $4 million in sales and you’re ***not*** doing anything other than totally fortuitous M&A you’ve got a real issue.”

    Great post as always!

  • http://twitter.com/DanielSBowen Dan Bowen

    I’m not sure what I’ve enjoyed the most, the original article, this follow-up or all the comments.  A since passed, and very successful business friend of mine eventually changed his title to “CIEIO” in an effort to mitigate the ego issue.  In my first business we took that a little too far, had three equal partners…a COO (me), a CTO (wrote our code), and a CFO (because we needed to give him a title but he had never read a financial in his life)…did I mention we didn’t have a CEO? Oh the trials and tribulations of learning this game as you go…it’s no wonder it took me 5 years to learn what the term “exit strategy” was and another 5 to actually exit successfully.  Doing things differently now and yet the title thing almost comes as a natural reaction to building a new business, perhaps the pat on the back for joining the team…ugh, we are a society after all that thrives on teen-like desire for peer recognition.  Just getting started reading your stuff Mr. Suster and I already feel like I owe you a bottle of Glenmorangie.

  • http://bothsidesofthetable.com msuster

    Thanks, great point. With Howard, I suspect he knows the details because he built the business from the ground up. And as a huge international business it’s understandable that a COO or similar would be a good idea. Very different case than a startup company.

  • http://bothsidesofthetable.com msuster

    Branson is more like a VC or incubator. He starts many businesses but don’t run them. He promotes them. Many of his business interests are run as totally separate businesses so I don’t think this example really holds.

  • http://bothsidesofthetable.com msuster

    Thanks, Leo. Really appreciated your additions. Hope you’re well out in China.

  • http://bothsidesofthetable.com msuster

    I, too, had a rock star at my first startup who did exactly the roles you mention. His title was CFO. He just handled legal, HR, office moves, etc. There was no confusion in the company. People didn’t wonder if they should be reporting to him. He was the CFO. Who did operational tasks in addition to finance. And as you grow (we got up to 120 people) structure matters.

  • http://bothsidesofthetable.com msuster

    As Drew said above, how can you really do strategy when you don’t have a handle on the details?

  • http://bothsidesofthetable.com msuster

    True, that.

  • http://bothsidesofthetable.com msuster

    “What if it were opposite and CEO was driven by experience and motivation?” … then they probably wouldn’t be rolling up other companies. At least not if they were a startup company.”

  • http://bothsidesofthetable.com msuster

    Your mate could easily have status with Founder & VP Sales.

  • http://bothsidesofthetable.com msuster

    Exactly. Which is why tech startups are normally a young person’s sport and many of us become coaches.

  • http://bothsidesofthetable.com msuster

    We’ll have to agree to disagree. My post is clearly subjective: not right, not wrong. Now let me parse your comments a bit.

    1. Getting out of the weeds by sitting on the beach, reading, talking to customers. That’s all goodness. I never said don’t get out of the weeds.
    2. If you’re not good at BOTH leading and managing then perhaps you’re not cut out to be the CEO. Most people aren’t. [I’m not saying YOU aren’t, just responding to the situation.] The idea that you’re just there to be responsible for the shareholders is a mistake. You’re responsible to build a successful company – the rest takes care of itself. 

    Matt, when people discover they aren’t great CEOs, hiring a COO just masks the problem. For these people it’s best to hand over the reigns and play a functional role themselves. If it’s tactical stuff one is not good at: finance, legal, HR management – then have a Finance Director or CFO who handles this. But they still need to be managed.

  • http://bothsidesofthetable.com msuster

    I could understand buying assets (e.g. a small company to get its domain names). But for a startup to start acquiring companies for:
    – product features
    – customer base
    – revenue
    – geographic coverage
    – talent

    … is often a misadventure. In my experience anyways.

  • http://bothsidesofthetable.com msuster

    Really? Work smarter by being a strategic thinker rather than run your business? Then who is the person who’s going to:

    – Talk to customers
    – Build products
    – Recruit staff
    – Negotiate office space
    – Set up web hosting solutions
    – Communicate with the market
    – Design pricing strategies
    – Create a budget
    – Set up a general ledger, open a bank account, file taxes, pay bills
    – Do company legal docs
    – Set up an employee stock option plan
    – Find business partners
    – A/B test features
    – Initiate SEO.

    I’m not sure what startups you’re talking about. But every one that I’ve seen is overwhelmed by stuff that needs to get done. It doesn’t happen by itself. Or while you’re CEO is busy strategizing.

  • http://bothsidesofthetable.com msuster

    I don’t think we’re as far apart as you might think. That said, there are many activities that required travel:
    – raising money
    – attending conference
    – sales
    – biz dev
    – etc.

    But a CEO has to have a fair number of hours in the office, too. And having a COO the “minds the shop” is not likely to produce great results. Staff don’t want a COO – they want a CEO. I see it all the time. It leads to low morale when the CEO is off schmoozing all the time while the COO is at home minding the store.

  • http://bothsidesofthetable.com msuster

    I’m sure I could have written it more clearly, but the point is … if you’re doing any other kind of M&A *other than* fortuitous M&A then you’ve got a real issue.

  • http://bothsidesofthetable.com msuster

    Thank you, Dan. I really appreciated reading your story. It resonates. I see it all the time. And not tough to talk me into Glenmorangie as things go …

  • https://profiles.google.com/christophemaximin Christophe Maximin

    Oh, got it. I totally missed the point, thanks!

  • http://www.justanentrrepreneur.com Philip Sugar

    No I don’t think we are far apart.  Probably more semantics than anything else.  We left out recruiting.  The CEO should be in the shop 2/3rds of the time.  That still leaves 1/3rd out.  I totally agree with your conference ho post.  I also agree with people that scoff at somebody that has “vision” without knowing the business is laughable. 

    However somebody fills that 1/3rd void, somebody is the number two.  I think in your world its the CFO.  My problem with that is unless they are technical you now have finance running things.  Even as a Wharton grad I think that is a really bad idea.

  • http://twitter.com/robgarciasj Rob Garcia

    honestly, same can be said about any role. If it’s key to startup’s success, it should have a person dedicated to it.

  • http://www.victusspiritus.com/ Mark Essel

    Really appreciated this quote Mark:
    ““I need somebody to run operations.” This is the most
    understandable to me if well defined. I never said you shouldn’t have a
    VP of Operations. I think people understand this title to mean more
    somebody who handles operational issues rather than somebody who is more
    like a “chief of staff” as a COO often is. One great solution I see is
    to hire an outstanding CFO who runs both. This person can do budgeting,
    forecasting, strategic planning, legal, HR, office moves, etc. But they
    aren’t the COO.”

    As to the Founder and CTO titles I think this is part of growing up that startups go through. The transition from generalized do everything founders to specialization and key go to people for specific areas where they are the expert and authority.

  • http://danielflopes.com/ Daniel Lopes

    What about a CEO that is also the CTO?

    In my organization, we are 3 leading it (some call it Joint-CEO’s) but no one has CEO in the title, only the title of the specific department they are responsible for.
    In my case: CTO.
    Should someone be called the CEO? Should all the 3 have CEO in our titles?

  • http://www.HaveMyShift.com Drew Gilliam

    Just bought Tony’s book, love it thanks for the recommend!