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Do You Need a Chief Operating Officer?

Answer these four questions to determine if your startup really needs a full-time COO.
November 1, 2004
URL: http://www.entrepreneur.com/article/73392

Do you dream of the day when you can hand over the day-to-day operations of your business to someone else? If the stereotypes are correct, most entrepreneurs love starting companies but hate managing the details of business operations.

For start-ups, homebased business or small businesses with just a handful of employees, the prospect of hiring a full-time COO might seem out of reach-both financially and practically.

In practice, I've found that hiring a COO makes sense for some entrepreneurs but is a waste of money for others. Before you decide to proceed, you should ask yourself a few questions about your business and your personality to determine if hiring a COO makes sense.

1. What will the COO do to leverage your time? At my company, the COO (what we call vice president of corporate development) is in charge of managing business relationships with key suppliers and ensuring that our products and services meet standards of quality and cost effectiveness. He frees up my time so I can focus on investor relations, business planning, media outreach, and major sales and marketing efforts. How would having a COO help you?

The job description of a COO varies by company, but in almost all cases, it doesn't include sales, marketing or external public relations duties. Typically, the responsibilities of the head of operations are comprised of quality control, order fulfillment, employee/HR matters, and managing internal systems and business processes.

If you have a service business or a homebased professional services practice, hiring a COO probably doesn't make sense if your clients are purchasing your expertise-a COO is unlikely to offer you genuine leverage. For example, you may be busy and know that you need someone to free up some of your time, but a smarter way to get that time might be to hire an assistant rather than a COO.

On the other hand, if your company sells a product, a COO is more likely to be able to help you by managing order fulfillment so you can spend more time on sales and marketing. Typically, startups won't reach this point until there's a proven demand for their products and growth is constrained by sales resources.

2. How detail-oriented are you? Almost everyone hates tedious work, so don't make the mistake of assuming that you're not detail-oriented just because you're an entrepreneur and prefer big picture thinking to operations. Also, don't make the mistake of thinking you're not good at business operations just because you're good at sales. You can be good at both. If you're truly not detail oriented, however, hiring someone who is might be exactly what you need.

3. Can you effectively delegate business operations and the decision-making associated with this? Many entrepreneurs are faced with a conundrum when it comes to hiring top-level staff: They dislike business operations but are also unwilling to delegate that part of their job because they aren't used to not being in control of those operational tasks. Before hiring a COO, ask yourself if you'll be able to delegate business operations and put in place a monitoring system to ensure that operational standards meet your expectations.

Also, keep in mind that it's very easy to underestimate the amount of time it's going to take to train and manage a new head of operations. If the main reason you're hiring a COO is to give yourself more time to focus on other matters, remember that this benefit may not be achieved for several months after training is completed.

Read moreon paying employees during the startup stage.

4. Can you afford to hire a COO? Can you afford not to hire a COO? Hiring an experienced, full-time COO may cost you more than you pay yourself. Are you willing to make the financial sacrifice? Can you realistically forecast additional revenues you'll gain from the decision? Put another way, will hiring the COO free up enough of your time that you can focus on generating additional sales or raising capital for the company? Or will product quality improve as a result of the new hire that will in turn improve client retention and repeat business? Maybe you'll be better able to control costs because someone new will be accountable to do so?

Until you can answer these questions for yourself, it would be unwise to invest the time to recruit, hire and train a full-time COO for your startup. Instead, you might want to consider hiring one on a part-time basis-perhaps a stay-at-home mom or dad with relevant work experience or a retired executive-to test whether your decision makes economical sense.