Ep. 447 - The COO Conundrum: Alternatives That Might Just Work Better - Second in Command: The Chief Behind the Chief with Cameron Herold

Summary

Second in Command: The Chief Behind the Chief
Episode: Ep. 447 - The COO Conundrum: Alternatives That Might Just Work Better
Release Date: February 6, 2025
Host: Cameron Herold
Guest: [Unknown COO Guest]

Introduction

In Episode 447 of the Second in Command podcast, host Cameron Herold engages with an experienced COO guest to explore the critical decision-making process behind hiring a Chief Operating Officer (COO). Titled "The COO Conundrum: Alternatives That Might Just Work Better," this episode delves into the factors that determine the necessity of a COO, the potential alternatives, and the return on investment (ROI) associated with such a pivotal hire.

Do You Really Need a COO?

The episode kicks off with the guest questioning the conventional push to hire a COO. He emphasizes the importance of evaluating whether a COO is genuinely necessary or if other roles could better serve the company’s immediate needs.

"Don’t hire a COO if you don’t need one. The right COO in the right situation is transformative, but if they're not necessary, then they represent needless expense, disruption, and commitment."
— Unknown COO Guest [02:10]

The guest shares a personal anecdote about joining 1-800-GOT-JUNK with CEO Brian, highlighting how the addition of a COO provided significant leverage and contributed to the company's scalable growth over two decades.

Alternatives to Hiring a COO

Before committing to a full-time COO, the guest suggests considering less intensive and more cost-effective alternatives:

1. Executive Assistant (EA)

For leaders whose primary need is to delegate tasks and manage time more effectively, hiring an Executive Assistant can be a practical first step.

"First, try an EA. It sometimes drives me crazy when people say, 'I need a COO.' No, what they need is someone who actually has time to do stuff."
— Unknown COO Guest [03:45]

The guest advises conducting an activity inventory to identify tasks that an EA can handle, thereby freeing up the executive’s time without the significant investment of a COO.

2. Functional Heads

If the challenges are specific to certain domains, hiring heads of those particular functions (e.g., Head of Finance, VP of Technology) can address the issues without the need for a COO.

"Hire a head of finance who may get the CFO title if you only need help with finance."
— Unknown COO Guest [05:20]

This approach ensures specialized expertise is brought into the management team, maintaining focus and efficiency within each department.

3. Fractional COO

For companies that may not yet require a full-time COO, engaging a fractional COO offers flexibility and expertise without the long-term commitment.

"A fractional COO can be really useful for small or medium-sized companies that don't need or can't afford a full-time COO."
— Unknown COO Guest [06:50]

Fractional COOs typically work with multiple companies, providing strategic guidance and helping to scale operations as needed.

When to Hire a COO

Determining the right time to bring on a COO involves a thorough assessment of the company's operational demands and growth trajectory. The guest outlines key indicators that signify the need for a COO:

Multiple Overflowing Buckets: When the activity inventory shows an overwhelming number of tasks that need coordination.
Increased Efficiency Needs: If there's a clear demand for enhancing operational efficiency across the organization.
Desire to Grow Economic Value: When the company aims to expand its economic footprint or profitability significantly.

The guest underscores the importance of ensuring that the COO's role will generate value exceeding their cost, recommending that each employee, including the COO, should return a minimum of 2x their salary, preferably 4x.

"Do you want to increase sale value as you build toward an exit, for instance, or are you aiming to free up your own time?"
— Unknown COO Guest [07:45]

Assessing ROI and Value Addition

A critical discussion revolves around the ROI of hiring a COO. The guest advises leaders to meticulously evaluate whether a COO will contribute more value than their salary and how their role aligns with the company's long-term objectives.

Efficiency Gains: Streamlining operations to boost productivity.
Employee and Customer Satisfaction: Enhancing workplace culture and customer experiences.
Economic Growth: Expanding the company's market presence and profitability.

The guest also highlights the intangible benefits a COO can bring, such as freeing up the CEO’s time to focus on strategic initiatives, which can indirectly lead to increased profitability and growth.

Potential Costs and Organizational Impact

Hiring a COO is not without its challenges. The guest warns of potential organizational upheaval, including:

Disruption: Introducing a COO can create ripples within the organization, especially if strong departmental heads are already in place.
Resentment and Pushback: Existing leaders may feel threatened or sidelined, leading to tensions or even resignations.
Long-Term Commitment: Unlike consultants, COOs represent a long-term investment, making it crucial to ensure alignment with the company's vision and culture.

"Hiring a second command is not like onboarding a management team role that slips in almost unnoticed."
— Unknown COO Guest [08:30]

Conclusion and Key Takeaways

The episode concludes with a comprehensive guide on making informed decisions regarding the integration of a COO into an organization. Key takeaways include:

Evaluate Necessity: Before hiring a COO, consider whether an Executive Assistant or functional heads could address immediate needs.
Consider Fractional Options: For flexibility and cost-effectiveness, a fractional COO can provide strategic support without the full-time commitment.
Assess ROI Carefully: Ensure that the value added by a COO justifies their cost, both in direct financial terms and in intangible benefits.
Prepare for Organizational Change: Understand and plan for the potential disruptions a COO might bring to maintain organizational harmony.

By carefully considering these factors, leaders can make strategic decisions that align with their company’s growth and operational efficiency goals.

Notable Quotes

"Don't hire a COO if you don't need one. The right COO in the right situation is transformative, but if they're not necessary, then they represent needless expense, disruption and commitment."
— Unknown COO Guest [02:10]
"First, try an EA. It sometimes drives me crazy when people say, 'I need a COO.' No, what they need is someone who actually has time to do stuff."
— Unknown COO Guest [03:45]
"A fractional COO can be really useful for small or medium-sized companies that don't need or can't afford a full-time COO."
— Unknown COO Guest [06:50]
"Do you want to increase sale value as you build toward an exit, for instance, or are you aiming to free up your own time?"
— Unknown COO Guest [07:45]
"Hiring a second command is not like onboarding a management team role that slips in almost unnoticed."
— Unknown COO Guest [08:30]

About the Host

Cameron Herold, the founder of the COO Alliance, brings a wealth of experience as a top business consultant, best-selling author, and speaker. Through the COO Alliance, he provides COOs with unparalleled professional development opportunities, reinforcing his mission to empower second-in-command leaders across the globe.

For more insights and best practices from industry-leading COOs, visit COOAlliance.com.

Transcript

Cameron Herold (0:06)

Welcome to the Second in Command podcast, produced by the COO alliance and brought to you by its founder, Cameron Herold. In the second in command podcast, we talk to top COOs who share the insights, strategies and tactics that made them the chief behind the Chief. And now, here's your host, Cameron Herold.

Unknown COO Guest (0:30)

This episode of the Second Command Command podcast, we're going to do a deep dive on whether or not you need a coo. Why do you need that second in command? What leverage is it going to bring into your company? Is it something that you actually should be doing now or maybe should you have done it earlier? And how do you actually decide if you bring one in and what the real ROI is going to be? Or as I call it, what's the coi? What's the cost of inaction of not bringing a COO into the company? I can tell you for sure. When Brian, who is the CEO of 1-800-got- junk, brought me into his company back 20 odd years ago, we got massive leverage and that's where a lot of the scale comes from. So today we're going to talk about if you need a coo. And how do you know? We'll see you on the inside. I like making money and I like saving money. So let's start by saving you 250,000 with a simple piece of advice. Don't hire a COO if you don't need one. The right COO in the right situation is transformative, but if they're not necessary, then they represent needless expense, disruption and commitment. You'd be better to keep your money. Try an EA first. First up, if all you're really trying to do is get shit done and free up time, try hiring an executive assistant. It sometimes drives me crazy when people say, I need a coo. No, what they need is someone who actually has time to do stuff. In which case they should try an EA who comes a lot cheaper than a coo. They need someone to get a lot of their tasks off their plate. You may have come across the old business saying that I first heard from my friend Jack Daly. If you don't have an assistant, you are one. If you wake up in the morning going, ugh. And you don't want to face the day and you constantly say to yourself, I just need some help. It's time to go look for it. Still, the wrong person can be worse than no one. So plan carefully. Go back to the activity inventory and identify the administrative tasks that you can delegate to an ea. See how much that gets off your plate before considering the next level. If you still have higher level responsibilities to offload, you may very well need a second in command, but you're going to have to pay them well, so make sure they'll be working on the areas of the business that you're not good at or that drain you of energy. Hire the right heads. You might also not need a COO if what you're really after is a functional head or heads to bring in expertise to specific domains. If you're having issues with oversight of a particular area or just need one domain off your plate, consider the makeup of your management team before you bring in a second in command. A COO can help coordinate the team, but is not a substitute for the department head. If you only need help with finance, hire a head of finance who may get the CFO title. If you're lagging on the technical stuff, hire a VP of Technology or a cto. Get people who will stick to running their own functional area. A COO doesn't necessarily have deep expertise in one domain, but strength in a number of areas. Even if they're particularly good with finance, say, or marketing or legal, that expertise will likely take a back seat to people. Strategy planning, dealing with other departments, and working with different leadership styles Use the activity inventory to identify the tasks, projects, or responsibilities you need to hire for. It may be that they point to a specific function or functions. That's a sign that you don't need a second in command yet just a very strong VP of it, finance, marketing, or sales. It's much cheaper and easier to find a person like that. Plus it's also easier to exit them from the organization when they've done their job. The time to hire a COO is when your activity inventory leaves you with multiple overflowing buckets of tasks. That's when you need strong coordinating leadership to help orchestrate them all. Hiring a COO is a much greater commitment than hiring a functional head, and you need to get it right. Cut back your core. If you're thinking about hiring a COO because you can't keep visibility across all your projects, you could always flip this problem. Perhaps rather than hiring a COO to handle all the projects you can't, you should consider whether you have too many core projects. You might be better off scaling back. Take some time to figure out whether your core projects are truly core. Remember, of course, that if you do hire a coo, they might come in and quickly identify that you have too many projects in the mix. If that happens, they'll offer suggestions to streamline with an eye toward working on the critical few projects versus the important Many Go Fractional Another possibility to consider before hiring a full time COO is hiring a fractional coo. This is comparatively recent development that has rapidly established its own core niche because it's so useful to so many businesses. A fractional COO is usually a former senior exec who has chosen to work for multiple companies rather than just one. A company usually hires them to coach an executive team to lead a core project or do whatever is required but doesn't need them on a day to day basis. Many COOs get started this way before they become permanent somewhere, if they ever do. A fractional COO can be really useful for small or medium sized companies that don't need or can't afford a full time coo. It allows them to scale up without paying a full time salary. It frees up their teams to execute while making sure that there's a clear path. With the right systems and operations to bring growth. The companies can leverage all the benefits of a full time COO in the specific areas needed and continue to look after the rest of the business themselves. Working with a fractional COO also gives a CEO a chance to analyze how they might eventually work with a full time COO when the time is right and it gives them a taste of the contribution the right COO could make to their business. In fact, when I started coaching CEOs back in 2007, I called my company Back Pocket COO. The idea being that I was in their back pocket and they could pull me out for advice and coaching when they needed me. The concept works as I had three companies in my first year paying me $120,000 each to be their fractional COO. It's something I no longer do, but I loved it at the time. A higher Must add value. You've hired an ea, you've got strong leaders for all your functions. You've made sure your core projects are all adding value. You've tried working with a fractional COO and your activity inventory is still telling you that you need to hire a second in command. The next step is to hire a coo, right? Not necessarily. Hiring a COO is such a huge step that it's worth pausing to ask yourself that last Can I afford to make this hire? The answer works on different levels, including the bottom line. Will this hire pay for itself? There's no point in hiring a COO unless they will add more value than the cost of their salary. As a rule of thumb. You should be looking for every employee to return a minimum of 2x and preferably 4x on their pay because you'll need that increase in gross margin that the company makes to pay for them and break even. A COO is no different, though. Their value goes beyond the dollar amount, which makes it essential for you to be clear on your objective. There are four main reasons to bring in a COO 1 to increase efficiency 2 make employees or customers happier 3 to grow the economic value of the company or 4 to grow profitability. Any advance a COO makes in those areas adds to the COO's value. Do you want to increase sale value as you build toward an exit, for instance, or are you aiming to free up your own time? If it's the latter, the COO might not directly drive more profitability, but you could take 50 hours a week off your plate, so you could spend 10 more elsewhere. If you can afford it, it can be worthwhile to forego some profit to gain a significant amount of time. A COO is for the long term, as we'll see later. Bringing in a COO can add a potential cost in terms of organizational upheaval. Ask yourself whether that's a price worth paying for to make the hire. You're dropping a giant boulder into the pond of your organization. It's bound to create ripples. Hiring a second command is not like onboarding a management team role that slips in almost unnoticed. If you already have strong departmental heads with good domain expertise, then the COO's arrival can easily put people's noses out of the joint. Be prepared for resentment, pushback and even resignations. The third potential cost you need to be able to afford is commitment. Hiring a COO is a decision with a long term impact. If you're just looking for a way out of a short term crisis, a consultant will likely be a better fix as well as easier to hire and let go, and won't come with any of the close personal relationship dynamics that will come with a COO.