There are many situations where the combination of a CEO and a COO in a company is the appropriate leadership structure. This is typically true in large organizations. It can also be true in special situations (such as a turnaround) where the two top executives have complimentary set of skills both necessary for rescuing a troubled company. It is almost never appropriate for a sub $20M/year Company to require a COO.
In my coaching practice, I’ve run into several situations where a client CEO asks, wonders or thinks about the need of getting a COO into their company. While my current coaching clients include Executives at companies with annual revenues larger than $400M, the COO question comes up with some of my clients running much smaller companies in the sub $20M / year category.
In these situations, the Entrepreneur CEO (also usually the founder and owner) has done an admirable job of growing their company to the low to mid single digits of revenues, a feat accomplished only by a very small percentage of companies. Keep in mind that only 4% of companies grow to more than $1M of annual revenues. As such, these Entrepreneur CEOs are amongst the top 4% of leaders in tenacity, creativity, drive, resilience and dedication to name just a few of their admirable qualities. The thought about bringing on a COO typically starts a period of time after their business has flattened out in revenues and declined in profits or has peaked up to certain point and stared shrinking in both revenue and profit.
With the thought of bringing in a COO swirling in his mind, I guide the CEO through a series of conversations to help them step back and take a new look at the fundamentals of their business and their own priorities and capabilities.
Back to the Fundamentals
In reexamining the business fundamentals, we use a tool called the Business Model Canvas, which was initially proposed by Alexander Osterwalder. It is not uncommon for leaders to lose sight of some of the basic business fundamentals such as
- The customer segments
- The value proposition of their business
- Their sales channel
- Various revenue streams
- Cost structure
to name a few.
Spending the necessary time to think about and construct your Business Model Canvas with your team will often results in new and powerful actionable insights about how to optimize various aspects of their business to improve its performance. It can also re-energize you and your organization and provide you with an important set of information to either validate or debunk your focus on bringing a COO into your leadership team.
Re-examine Your Priorities and Capabilities
The second important step is to examine your own priorities and capabilities. In term of your priorities, you will want to reflect on and answer a few important questions, including:
- A re-examination of the Why of your business and your own Why. Why does the business exist and why are you doing what you are doing.
- Identifying your strengths and weaknesses. What are you good at and what do you struggle to do well.
- Re-examination of how balanced your life is. You can use the Wheel of Life tool to assess this.
- Your exit strategy and time frame. How long do you plan to continue running the business. What do you intend to do with the business after you stop running it. It is surprising how few people actually think through this carefully if at all.
With this re-examination of these important topics in addition to insights from your Business Model Canvas, you will be able to make a better and more informed decision on the COO issue.
If you determine that you ought to bring a COO, you will be much better equipped to identify the key experiences, skills and capabilities of the candidates you will consider. You will also be much clearer on the range of responsibilities you would want the COO to handle and properly redefine your own role and most importantly be willing, ready and able to truly delegate many of your responsibilities. I see far too may situations where the Owner gets a COO only to continue to hold on to all of their previous work and micro-managing the new COO on top leading to disastrous consequences.
If you determine that you do not need a COO after all, focus on empowering your core team to do more of what they are capable of doing and learn to delegate the things you struggle doing and do more of what you are good at.
Bringing a COO is a serious decision that is rarely appropriate for any sub $20M/year company and must be considered carefully and done properly if at all.