When Should a Business Owner Hire a COO? Key Indicators and Considerations
Running a successful business involves juggling numerous responsibilities, making crucial decisions, and ensuring the smooth functioning of various departments. As a business owner, there comes a point where you may feel overwhelmed with the increasing demands and realize the need for additional leadership. This is when the role of a Chief Operating Officer (COO) becomes indispensable. In this article, we will explore key indicators and considerations to help business owners determine when it is the right time to hire a COO.
Expanding Operational Complexity
One significant indicator that a business is ready for a COO is when operational complexity reaches a point where it exceeds the capacity of the owner. As a business grows, processes become more intricate, and overseeing all aspects becomes increasingly challenging. A COO brings expertise in managing operations, streamlining processes, and optimizing efficiency, allowing the owner to focus on strategic initiatives.
Strained Decision-Making Capacity
When decision-making becomes a bottleneck due to an overwhelming workload, it is an indication that a COO may be needed. A COO can share the responsibility of making critical decisions, provide valuable input, and execute them effectively. This enables the business owner to leverage the COO’s expertise, gain different perspectives, and alleviate the burden of being the sole decision-maker.
Scaling the Business
As a business grows, it requires a strong foundation to support expansion. Hiring a COO can be a strategic move to ensure scalability. A COO brings experience in scaling operations, implementing systems, and managing growth. They can establish robust processes, build competent teams, and oversee day-to-day operations, allowing the business owner to focus on strategic planning, partnerships, and overall business development.
Bridging Skill Gaps
Business owners often possess a unique skill set that contributes to the success of their ventures. However, they may lack expertise in certain areas critical for sustained growth. A COO can complement the owner’s skills by bringing specific proficiencies, such as finance, operations, marketing, or technology. By bridging skill gaps, a COO enhances the overall capability of the leadership team and facilitates a well-rounded approach to business management.
Building a Strong Management Team
A key responsibility of a business owner is to build a capable and empowered management team. Hiring a COO demonstrates the owner’s commitment to fostering talent and delegating responsibilities. A competent COO can attract, mentor, and develop high-performing managers, creating a robust management structure that empowers employees and ensures the smooth functioning of the organization.
Considerations for Hiring a COO
Before bringing a COO on board, business owners should consider the following factors:
- Alignment of Vision and Values: Ensure that the COO shares your business’s vision, values, and long-term objectives. A shared strategic outlook will help drive the organization towards common goals.
- Financial Viability: Evaluate the financial feasibility of hiring a COO. Consider factors such as the potential return on investment, the impact on the company’s bottom line, and the COO’s salary expectations.
- Organizational Readiness: Assess whether the existing structure and culture of your organization can accommodate a COO effectively. Prepare the groundwork by clearly defining roles, responsibilities, and reporting lines.
- Hiring Process: Thoroughly vet candidates to ensure they possess the necessary experience, qualifications, and cultural fit. Leverage professional networks, seek recommendations, and conduct comprehensive interviews to find the right individual for the role.
Conclusion
Knowing when to hire a COO is a critical decision for business owners. By recognizing the indicators of operational complexity, strained decision-making, scaling needs, skill gaps, and the desire to build a strong management team, business owners can effectively gauge when a COO can bring substantial value to their organization. Furthermore, considering the alignment of vision and values, financial viability, organizational readiness, and conducting a diligent hiring process ensures a successful integration of a COO into the leadership team. By leveraging the expertise and experience of a COO, business owners can drive growth, enhance operational efficiency, and take their ventures to new heights.
Video Transcript
When Should a Business Owner Hire a COO, or a Chief Operating Officer, or Somebody to Actually Run the Business?
As a general rule, I see that for most businesses, after about 10 employees are hired. However, there are some businesses where the COO is the first employee hired.
Here is the difference: if you are going to have time to run your business as a business owner, then it makes sense for you to hire the first few employees, work out the kinks, set up the processes, and learn as you grow about how to structure, optimize, and refine your business. However, typically when you get to about 10 employees, you are spending so much time managing the people that you realize you don’t have time for the important aspects involved in growing the company. That might be setting up strategic relationships with referral sources or outside partners, winning big clients or customers, or setting up new distribution channels that can double or triple your sales. Those are the kind of duties that you, as a business owner, should focus on, and you can’t do that when you are managing 10 employees because a good manager has weekly check-ins, at least with each employee. They are holding them accountable, helping them overcome challenges, roadblocks, and problems. They are in tune with what is happening at the front lines of the job. That is just very difficult to do. So, if you are a business owner who is able to manage the people initially, then typically you are going to hire a COO or a manager at about 10 employees.
But then there is the other type of business owner: the type who doesn’t want to be in the business or can’t run the business on a day-to-day basis. In those cases, instead of hiring an assistant or an entry-level person as the fourth or fifth hire, it is better to hire someone to run the business immediately. Ideally, this person should be someone you trust, have known for a while, and who has a proven track record in running businesses.
Ultimately, you will have to make a decision. Sometimes you may not have someone with a proven track record in your type of business, whom you have known and trusted for a while. In such cases, you have to determine which is more important, and trust may take precedence, especially if the person will have access to financials. When you have a lot at risk, there are individuals who engage in insider fraud or become dishonest and commit theft from their own company. So, I put a premium on trust.
However, there are also business owners who are willing to hire someone who has proven themselves, even if they haven’t known them for a long time. The argument for this approach is that if the person has repeatedly proven their capabilities and has a track record of honesty, they are more likely to continue being honest. They have demonstrated their ability to get the job done and grow companies, without having to learn how to overcome hurdles for the first time. If your business allows you to hire someone who is experienced and has a proven track record, that is fantastic. However, many new businesses are engaged in something new, creative, or innovative that has never been done before. In those cases, business owners often need to make numerous decisions about pivoting, designing software code, or responding to market changes as they grow. Therefore, in such cases, the business owner is frequently involved in the company.
Summary
When should a business owner hire somebody to run the company for the business owner? If you don’t want to be involved in the company, then you hire them first and that person can hire the people who will work for them. And in that case, you hire somebody ideally who is known by you, trusted by you, and has a proven track record in this area. If you plan to stay involved in the business, typically, you hire somebody to run the business or at least a division of the business after about 10 employees, give or take three. By the way, if that is you and you are at that point, there is a book I highly recommend called Traction: Get A Grip On Your Business by Gino Wickman. That book is the Bible for business owners at about 10 employees who want to get to a hundred employees, or at least get beyond 10. It gives you, at a real simple level, the key pieces that you are going to need to grow beyond 10 employees. If you are starting to feel frustrated or overwhelmed or like you are just strapped to the business, Traction EOS is a book that can help take you to the next level. I would recommend reading that before you hire the person to run your business or the person to oversee a lot of your employees because Traction EOS gives you a framework to organize your company to scale.
Conclusion
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