The articles in this series “CEO Means Chief Everything Officer” and “They are Not You” focus on the unique role of a CEO in a startup or smaller company. At some point, every CEO in a growing organization realizes that they need help. They have known it for some time but were too busy to stop and think about it and then take action. Now overwhelmed, they have finally decided to act and find someone to help carry their load. But the question is “who” and “what”.
There is a natural tendency for all of us to hire someone who mimics us: having the same background, skill sets, and even the same personality traits. We consciously or subconsciously think of this person as our clone that can relieve us of some of the daily tasks that seem to never end. The best approach, however, is to hire our opposite! Finding a person that compliments and does not duplicate our skill set is key. Of course, if your intention is to hire your replacement, then mimicking your skill set may be appropriate. This article focuses on “hiring number two” to help you grow the company (or stay alive!).
Many outside investors highly and, perhaps, forcibly, “suggest” that you hire a world-class Sales VP. I disagree. In most circumstances, hiring a person that will replace you and maintain direct customer contact is a mistake. Giving up direct customer contact will isolate you from firsthand customer and market knowledge. In the early days, when you are still optimizing your product or service offering, direct prospect and customer feedback is critical. You simply cannot afford to receive filtered data. On the other hand, once your business is up and running and you have satisfied (repeat) customers, hiring a sales professional to manage on-going relationships and a direct or indirect sales team is appropriate and required. However, this situation is not the subject of this article. It is focused on hiring your number two.
Often, the choice comes down to deciding to hire a Chief Financial Officer (CFO) or a Chief Operations Officer (COO) or someone that can fill both roles. The terms CFO and COO was used as placeholders only. Based on the size of the company, the titles might be Director or VP of Finance or Director or VP of Operations. Further defining the financial role, the person in question must perform well above that of a bookkeeper, accounts receivable/payable specialists, or office manager. The financial role in question will be expected to manage and forecast all aspects of the business with their focus on the future and not just reporting the past. Similarly, the Operations person in question will be responsible for and have the authority to manage the entire customer fulfillment process from order reception thru customer acceptance and support.
From my perspective, hiring one person for both roles is a mistake. A combo COO/CFO will simply have conflicting goals that are discussed below. Stepping back for a moment and thinking about you, the CEO, it is important to understand that you have one precious, limited resource. It is your time. Think of every hour as a silver bullet; once fired, it is gone forever. You need to carefully choose when to fire each one and in what direction. Your hiring goal should be to find someone who has their own silver bullets that can aim at different targets than you do.
Taking the silver bullet analogy one step farther, the center of your target needs to be on top line revenue growth as previously discussed. Think of all other activities as crosswinds that deflect your silver bullets from hitting that bullseye. Most of those crosswinds are associated with the daily interrupt driven issues that seem to come up on a moment’s notice that “demand” your immediate attention. When was the last time you had an entire day that followed the plan that you had established the day before? Seemingly, those unplanned tasks “can’t wait” while the time that you planned to work on more strategic activities always can.
To help to alleviate this problem, hiring a Chief Operating Officer may be the best approach. Their job description is quite simple: They are tasked with keeping the trains running on time. You, on the other hand, need to set the destination. There is a significant difference. Both are critical, but both require very different skill sets and focus. If you continue to do both as your organization grows, you will end up off-track.
As a gross generalization, it is important to differentiate the role of a CFO for large, public companies and the role in smaller, probably private, companies. The roles and responsibilities of a large company CFO, other than keeping Wall Street Analysts happy and CEOs out of jail, is to report results and, based on other inputs, forecast the future. Think of them as focused on looking in the rearview mirror as opposed to watching the road ahead. Small company CFOs need to primarily keep their eyes on the road ahead, looking for obstacles or potential hazards that could cause abrupt crashes. They need to perform this function while sitting in the passenger seat with either the CEO or COO is behind the wheel.
The smaller company CFO must act as an involved, but objective, observer that is not afraid to offer suggestions and to help keep the company driving on the road to the final destination. At all costs, they need to maintain their objectivity and operate independently. Asking them to drive the organization along a predetermined path AND objectively decide to question the path or change it is very hard.
You, as the CEO, are probably very optimistic with a clear vision of where you want to go. As you look to the horizon, you may miss the potholes or landmines that are right in front of you. A COO, on the other hand, may have their head down, staring at the ground directly ahead of them and not see the detour sign or the stopped vehicle until it is too late to stop or swerve to avoid the pending disaster. A CFO, with their involved but somewhat removed vantage point, can act as the warning alarm to help both in their highly focused roles.
In terms of qualifications, CFOs have similar skill sets that can easily be applied to similar businesses that they have been involved with in the past. Some of the factors include working in similar size private companies with similar growth trajectories, and with similar product or service-oriented offerings. Assuming these basic characteristics are the same, they can usually pick up the required mechanics and activities quickly. This is not so for COOs. To be effective, they need to know the business and its nuisances. Business school does not teach them; these lessons come from skinned knees. Their daily activities will involve keeping the pulse of the organization, watching for telltale signs of concern, and, of course, dealing with the daily issues that will occur. Think of them as part Emergency Room doctor and part General Practitioner. Their first job is to keep the patient alive and then only after that worry about the patient’s less critical alignments and their long-term health and well-being.
There are two other very important factors that need to be considered. First, will you really (really) be able to let go of either function? The company has been your baby and will continue to be so. Will you be able to have and show trust in others as they take on some of your tasks? Not only will you have to show trust, but you will have to demonstrate it to everyone in the organization. Just because you have given the new person some responsibilities, does not mean that others in the organization will automatically accept them and go to them instead of you. You will have to consciously re-direct others to the new person even when you know exactly what to do. Of course, the new person will stumble and make mistakes. As long as they are not potentially fatal, let them occur. You must show trust.
The second factor is the impact that adding either position will have on the rest of the company. No matter how obvious and logical it is, when a new high-level executive is “inserted” into the organization, others will feel demoted. A new boss or a new person that is working directly for the CEO makes people feel that they have lost access or in some way, their role has been diminished. The new person will be held to a different standard. Others are likely to look for the worst. If so, they will seldom be disappointed. Factions within the organization can quickly form. This is especially true if a COO is brought in and others felt that there was already a strong person that they viewed as “number two”. Loyalties between the old and new person can split an organization quickly.
Each circumstance will, of course, be different. However, there is an excellent temporary step which can be taken that may be useful for quite a long time that can provide the best of both worlds. It involves hiring a part-time or fractional CFO and a fulltime COO. The part-time CFO arrangement is possible because a CFO’s job rarely must be performed in real-time. They do not have to be crisis managers. In fact, one of their greatest attributes is to have the time and luxury to think about the implications of what is happening now and what is likely to happen in the future. Their job is, first and foremost, to help you avoid future issues. Secondly, they need to look to the past to understand the likely trajectories of the business. They should be forecasters first and historians second.
The other factor that makes the hiring of a part-time or fractional CFO practical is the large pool of available talent. There are companies that specialize in this activity in most major cities. Although less than optimal, a remotely located CFO can also fulfill this role. The downside is the inability to have regularly scheduled face-to-face, in-person meetings. Video conferencing can be used but nothing truly replaces direct, in-person interaction when needed. Another, even better source are individuals that have decided to exit the full-time workforce. Retired CFOs and “stay-at-home” moms who have past CFO or senior financial services can easily fill this role. Usually, these individuals work at greatly reduced rates considering their wealth of experience. It is likely, someone in your professional or personal network knows someone who could fulfill this role. The standardized business practices that these individuals are accustom to will allow them to get up to speed quickly.
The very nature of the role of a COO or a similarly titled person involves knowing the details of the business and the ability to make on-the-spot assessments and decisions. Not only will they be tasked to keep the trains running on time, they must also ensure that the train is not side-tracked or involved in a head-on collision. They need to be the “here and now” person while you, the CEO, and your CFO can continue to look to the future.