by Elad Gil
It does require a diagnosis of your organization. Also, what are the key risks to the business? What are the most important two or three things? You want the things that are one, two, or three to report to the CEO. Fundamentally, what makes or breaks the company should probably be reporting to the CEO. Because ultimately the CEO is responsible and accountable for everything. So if you do the rank prioritization of what gets you from point A to super successful, what are the two or three key levers? You want those two or three levers pretty close to your span of control.
“The people who are thriving—at any level, junior to senior—tend to have people approaching their desk all the time.”
—Keith Rabois
Elad: What do you think is the right number of reports? Obviously it’s contextual and it varies by the skillset and all the rest. I’m just curious roughly what you think is a ballpark.
Keith: The traditional advice derives from High Output Management—you know, Andy Grove in 1982—which is at most seven. Or five. Five or seven. The reason why is that you want to do a certain number of 1:1s at a weekly pace, and you want to do about one a day. So that means five or seven or something like that. I think if you can get down to three to five, that’s ideal. If you have to go four to seven, that’s definitely possible to scale. So anywhere in those ranges can work.
Elad: I feel like a lot of the executive teams I see these days have a dozen people reporting into the CEO.
Keith: That’s crazy. That’s totally crazy. That being said, you may have to deal with that for a period of time as you’re recruiting someone to unify some functions.
For example, there was a point in time at Square where I had somewhere between 11 and 13. And, you know, Jack was furious with me about it. My board was furious with me about it. And I was totally aware that it was not a sustainable situation. But rather than artificially unify things, I wanted to find people that would start bringing together some of those direct reports. And I eventually did. But I figured rather than make a mistake and have someone report to someone where they wouldn’t be able to create value, I would deal with it on a temporary basis. But I would urgently be recruiting.
So, I think you can have periods of time—measured in months, not years—where you violate the rules. But that becomes your number-one priority: to stop violating those rules.
Elad: I think the biggest fear that founders have when consolidating their teams is flight risk. They think that if they layer somebody or somebody else comes in, employees will leave. What do you view as the best ways to mitigate that? Do you view that as a real issue, or is it okay if that person ends up leaving?
Keith: It is a definite concern, and I think it is the biggest reason a lot of founders procrastinate. The standard I was taught, which I subscribe to, is you only want to layer someone if the person above them is clearly superior.
One of the techniques if you have too many direct reports is to move somebody to report to another person that’s already in the organization. The problem is, unless there’s a clear separation between them, it just doesn’t work. It’s not fair, and it will create flight risk. But if there is a clear separation, where the performance is differentiated enough—looking at both the way you measure it and how other people perceive the two executives—then I think that can be a smart move. And then you don’t have the organ-transplant issue of bringing in a new executive. So that’s possible, but there has to be a significant delta in performance. If it’s even a debatable delta in performance, it’s not a good idea to ask somebody to report to someone else.
If you’re going to hire someone externally, I think generally the way to retain people who are performing and who you really want to retain is to hire someone that they can learn from. And if that’s true, a lot of well-motivated people will stay. Where they don’t perceive that they can learn from the new executive, it may be better for them, psychologically or professionally, to go somewhere else and get on a steep learning curve again. So it does depend. But I don’t think it’s a reason to avoid hiring.
At the end of the day, if one of those 11 or 12 executives is so valuable to you, you can do a couple things. One is to put them on a mentoring path and try to teach them how to accelerate their growth so that they can handle the larger function. But it depends on the company’s velocity whether that’s possible. It also requires you to have a network of mentors that you can throw at this problem, and you can’t do it with multiple executives at the same time. So if I had a high-potential VP of finance and I really wanted to groom him to be CFO, it’s possible to do that rather than layering him behind the CFO. But it takes a lot of energy. I can’t do that with my director of product, my director of engineering, and my VP of finance at the same time.
Elad: How should the CEO run their own team meeting?
Keith: That’s a great question, because I think everybody gets frustrated by this topic at some point. One of the lessons I’ve learned is the executive team meeting is not necessarily just for the CEO. It’s actually often more important and more valuable to the executives that participate in the meeting. They get to be on a stage with their peers. They get to understand what’s going on laterally in the organization so they can make smarter and better decisions.
The meeting may not be particularly insightful to you, because you’re doing 1:1s with all these executives and functional organizations. You may know everything that comes up in this meeting, and you probably should. But it’s the debate or dialogue or the lateral sharing of information that makes that meeting constructive.
I think a lot of CEOs get frustrated because the meeting isn’t adding value to them. But they forget that it’s adding value to the three or four or five other people there. And if you can make your executives more successful with an hour of your time or two hours of your time, that’s totally worth doing. It’s a classic high-leverage activity.
Elad: What do you think is a great agenda?
“The way to retain people who are performing and who you really want to retain is to hire someone that they can learn from.”
—Keith Rabois
Keith: I think limiting it to about three topics. There’s information sharing, but then there’s discussion and debate topics that are actionable. And I think people’s attention span sort of wanes if you have too many debates at the same time.
Some organizations allocate a full day to this, and they go very deep. I’m not sure that’s a great idea. It does depend upon how tightly aligned your organization needs to be to function well. I tend to think one to three hours is more than sufficient, especially if you have tools in place—metrics tools, KPIs, dashboards—so that everybody really understands the business before they’ve even shown up to the meeting.
In that case, I tend to prefer circulating notes the night before. They can be bullet point-style, using the three Ps—plans, progress, problems—and shared in advance, so that people’s brains are chewing on what’s going on. And then there’s a couple discussion topics that affect the organization, or where the CEO wants broader input because he or she doesn’t actually know what the right answer is.
Elad: The other thing I’ve noticed is that early on in the life of a company, a lot of topics exist in the one executive team meeting. And then later they start to get split out. There’s a rev force and metrics meeting that runs separately, which includes a subset of the executives. Plus there’s a broader team to talk about progress in the business, which may differ from some of those strategic topics in the executive team meeting.
Keith: Yeah, sometimes you separate out strategic topics that are going to be controversial, or topics that don’t necessarily have right answers but are a question of trade-offs. That’s different from an operating review, which is: What are our current KPIs? How well are we doing? What’s the rate of progress? What are the different things we should be doing? Sometimes you’ll have the first meeting run by the CEO and the second meeting run by the COO or equivalent officer.
This inte
rview has been edited and condensed for clarity.
Do you need a COO?
Ten years ago, if you were the founder of a high-growth company it was reasonably likely that your investors would want to bring in “adult supervision” as CEO to run your company. This has shifted, in recent years, to a slate of COO hires, following the example set by Facebook with the successful run of Sheryl Sandberg. It is now much more likely for a breakout high-growth company to hire a COO to support the company founders, rather than a CEO to replace them.32
Box, Facebook, Stripe, Square, Twitter, and Yelp are all companies that chose at one time or another to hire a COO as a complement to the founders, rather than replace the CEO with a “gray-haired professional operator.”33
Why a COO?
Hiring a COO is not about adding a title to your org chart, but rather finding the background and experience you are looking for. Optimally, you want someone who will come in to complement, operationalize, and execute your vision as a founder. Many technical or product-focused founders want to (and should) remain focused on the product and overall market strategy. In parallel, the COO would build out and manage areas that the founders lack interest or experience in, or simply don’t have the bandwidth to oversee.
The responsibilities of a COO, for example, might include:
1. Adding executive bandwidth. The COO can serve as a business partner for technical or product-focused founders.
2. Scaling the company. High-growth companies have special needs around scaling and implementing simple processes (e.g., recruiting infrastructure, corporate governance, etc.).
3. Building out the executive team and organizational scaffold. COOs are often responsible for executives and teams in areas founders don’t understand well (e.g., finance, accounting, and sales). They can help in screening and hiring executives for product, engineering, and marketing as well.
4. Taking on the areas founders don’t have time for, are poorly suited for, or don’t want to focus on. Typically, a COO takes on responsibility for ongoing management of the “business side” (corporate development/M&A, business development, sales, HR, recruiting, etc.), while the founders continue to focus on product, design, and engineering (e.g., Mark Zuckerberg’s focus on product at Facebook). There are some counterexamples of this too where the CEO wants to be sales focused and hires in a product-centric COO.
5. Shaping the culture for the next phase of the company’s life. Sheryl Sandberg has impacted how Facebook is run across the entire organization by, for example, bringing a culture of people development and managerial excellence.
Why not a COO?
All growing companies need to build out their executive teams, as well as the ability and expertise to scale. That can be done by hiring or promoting a set of people who, in sum, complement the founders and allow the company to grow rapidly and effectively. It is not necessary that one of these team members have the COO title. For example, prior to Polyvore’s acquisition by Yahoo!, the company’s CFO owned multiple areas beyond traditional finance.
Additionally, the COO title sets a very high bar for who you hire for the role.34 You can’t really hire above the COO later like you could with a VP, which means losing some flexibility in your future organizational evolution as the company goes from, say, 100 to 5,000 people. If the COO is out of her depth, she often won’t accept a demotion to VP and will leave instead.35
How Do You Choose A COO?
For COO, you optimally want someone strong enough to be CEO of a company, or at least someone with solid general management or key functional experience. Sheryl Sandberg interviewed for other CEO roles before accepting COO of Facebook. Similarly, Box’s COO, Dan Levin, was a CEO or president of two companies and a GM at Intuit before joining Box. You want someone so excited by your company’s vision and opportunity that she is willing to give up some of the perceived upside of being a general manager or CEO elsewhere to join your company.
Additional criteria to look for are:
1. Maturity and lack of ego. Look for a seasoned executive who is willing to suppress her own ego to partner with, and execute, a founder’s vision.
2. Chemistry with founders & CEO. If the COO cannot mind-meld with the company founders, conflicts and a bad ending to the relationship are on their way.
3. Past experience scaling a company or organization. Managing a 1,000-person team is very different from growing something from 20 to 1,000 people. Look for someone who has dealt with hypergrowth or rapid growth in the past if you need help scaling quickly (versus just building out functions). Claire Hughes Johnson scaled operations and business teams at Google before doing so at Stripe.
4. Entrepreneurial mindset. Optimally, you want someone who has both operated at scale and worked in a startup environment (or scaled something from scratch at a larger company).
5. Functional expertise. A COO hire should have previously run a reasonable subset of the functions you want her to own initially at your company.
6. Ability to hire. This person will be building out a chunk of your company’s organizational skeleton. You need someone who can hire well and manage executives herself.
7. Someone you can learn from. As a first-time founder or manager, you want a COO who can teach you about management or other areas. Bill Gates famously said that he often hired senior executives so that he could learn from them.
8. Process focus. The optimal COO candidate can bring lightweight processes or best practices from other companies, and be smart about how to craft new ones for your company.
Finally, when hiring a COO, you should have a clear sense of what responsibilities you want to keep as founder (e.g., design, product, marketing, engineering) and what you are willing to truly delegate (e.g., business development, sales, corporate development, finance, HR, operations, etc.). Without that clarity, you may be setting yourself up for failure from the start. You should also remember that a COO does not necessarily need to run everything you don’t. For example, at Microsoft, Gates ran product, Steve Ballmer ran sales, and Bob Herbold as COO ran finance, HR, marketing, PR, and other areas.36
I don’t think every company needs a COO; a well-rounded executive or leadership team may allow you to do without one. However, if you do decide that you need the management chops and experience of a COO-caliber candidate, proceed with the hiring process carefully and deliberately.37
“You want someone who will come in to complement, operationalize, and execute your vision as a founder.”
—Elad Gil
* * *
32 If a company is not a true breakout, it might be hard to hire a COO of the same caliber that you could get in a CEO—i.e., there are still great executives out there holding out for a CEO role that would not be willing to do anything else.
33 Other interesting early examples include Microsoft, where Bill Gates in the 1980s had seasoned “presidents” working for him, and Oracle, where Larry Ellison has gone through various COOs over the years. Gates, of course, only brought in venture money after Microsoft was profitable, so he had sufficient control of the company to not worry about being replaced.
34 Some companies will first hire someone with the “general manager” title and then convert him to COO later. This allows them to ensure that hire’s fit and capabilities prior to committing to him as COO.
35 Of course, another option is to replace yourself as CEO instead. Reid Hoffman wrote a great piece about this topic; see the link on eladgil.com. [http://www.reidhoffman.org/if-why-and-how-founders-should-hire-a-professional-ceo/]
36 See “The Secrets of Working With Bill Gates.” Link on eladgil.com. [https://www.americanexpress.com/us/small-business/openforum/articles/the-secrets-of-working-with-bill-gates/]
37 Thanks to Aaron Levie, Jess Lee, and Keith Rabois for reviewing and providing feedback on the original version of this post on eladgil.com. [http://blog.eladgil.com/2013/02/should-you-hire-coo.html]
HIRING A COO
An interview with
&nbs
p; Aaron Levie
Aaron Levie is Chief Executive Officer, cofounder and chairman at Box, which he launched in 2005 with CFO and cofounder Dylan Smith. He is the visionary behind the Box product and platform strategy. Aaron is sought out by many founders on topics of scaling. Aaron attended the University of Southern California from 2003 to 2005 before leaving to found Box.
I spoke with Aaron Levie about the COO question—that is, whether (and when) to add a chief operating officer to your executive roster. Five years after Aaron and Dylan founded Box, they brought on Dan Levin as COO, in 2010, so I was eager to ask him more about that transition.
Levie’s a big proponent of adding to the leadership team, so I asked him to weigh in on the merits of hiring a COO and share a little bit about how the decision played out at Box.
Elad Gil:
You were the driving force behind hiring a COO for Box back in 2010. Why did you decide to do it on your end? Do founders need to reframe how they think about the COO question?
Aaron Levie:
A lot of times, at the board level, a conversation will start with, “Do we have the right CEO?” And especially for early founders, you ask yourself that question. “Am I going to be a good CEO? Am I going to be able to scale the company?” But when you ask that kind of question, you end up defining what a CEO is in unnecessarily strict terms. Whereas, actually, the most important job of a CEO is just to make sure that the company succeeds. So if there’s a whole chunk of work that you’re not good at, you don’t personally have to be good at it to be a good CEO. You have to make sure the company is good at it to be a good CEO.
