Tuesday, February 5, 2013

Should You Hire A COO?

10 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 more recently with a slate of COO hirings following the example set by Facebook with the successful run of Sheryl Sandberg.

Box, Facebook, Foursquare[1], Stripe, Square, Twitter[2] and Yelp are all companies that chose to hire a COO as a complement to the founders, rather than replace the CEO with a "grey haired professional operator"[3].

Why A COO?
A COO is not about the title, but rather 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 bandwidth, interest or experience in.  E.g.:
  • Add executive bandwidth and a business partner for technical or product focused founders.  
  • Scaling the company.  High growth companies have special needs around scaling and implementing simple processes (e.g. recruiting infrastructure, corporate governance, etc).
  • Build out executive team and organizational scaffold.  Hire executives or teams for areas founders don't understand well e.g. finance, accounting, and sales.  Help in screening and hiring executives for product, engineering, marketing as well.
  • Take on the areas founders don't have time for, are poorly suited for, or don't want to focus on.  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.
  • Shape 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 an executive team and the ability and expertise to scale.  This can be done via hiring or promoting a set of people who in their sum complement the founders and allow the company to scale rapidly and effectively.  It is not necessary that one of these team members have the "COO" title.  For example, at Polyvore the CFO owns multiple areas beyond traditional finance.

Additionally, the COO title sets a very high bar for the person.  You can't really hire above them later like you could with a VP, taking flexibility out of future organizational evolution and changes as the company goes from e.g. 100 to 5000 people.  If the COO is out of their depth they often won't accept demotion to VP and will leave instead.

Another option raised by Reid Hoffman is to replace yourself as CEO instead.

How Do You Choose A COO?
For COO you optimally want someone strong enough to be CEO of a company or with solid general management or key functional experience.  For example Sheryl Sandberg interviewed for other CEO roles before accepting COO of Facebook.  Similarly, Box's COO Dan Levin was a CEO or President of 2 companies and a GM at Intuit before joining Box. You want someone so excited by your company's vision and opportunity that they are willing to give up some of the perceived upside of being a general manager or CEO elsewhere to join your company.  

Criteria to look for are:
  • Seasoned executive willing to suppress their own ego to partner with, and execute, a founder's vision.
  • Chemistry with founders.
  • Past experience scaling a company or organization.
  • Entrepreneurial.  Optimally, you want someone who has both operated at scale, as well as has startup experience (or scaled something from scratch at a larger company).
  • Functional expertise.  They should have previously run (at another company) a reasonable subset of the functions you want them to own initially at your company.
  • Ability to hire.  They will be building out a chunk of your company's organizational skeleton.  You need someone who can hire well and manage executives themselves.
  • Someone you can learn from.  Optimally as a first time founder or manager the COO can teach you about management or other areas.
  • Process focus.  Bring lightweight processes or best practices from other companies, and be smart about how to tailor the necessary ones for use by your company.  Sheryl Sandberg did this in many ways at FB.
When hiring the COO, you should have a clear sense of what you want to keep as founder (e.g. design, product, marketing, engineering) and what you are willing to truly delegate (e.g. BD, sales, Corporate Development, finance, HR, operations, etc.).  Otherwise you may not set the situation up for success to being with.

I don't think every company needs a COO.  Rather, a well rounded executive or leadership team allows you to do without one.  However, if you do decide to hire a COO the criteria above may be of use.

Thanks to Aaron Levie[4], Jess Lee, and Keith Rabois for reviewing and providing feedback for this post.

[1] The original title for the Foursquare COOs was "general manager".
[2] Twitter has recently re-added the COO role after a period without one.  The original COO, Dick Costolo was promoted from COO to CEO.
[3] 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.
[4] Extra thanks to Aaron for tons of helpful comments and ideas which I shamelessly ripped off for this post; e.g. the first part of note [3] above.

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Friday, February 1, 2013

How To Hire Great Business Development People

Great business development (BD) people are hard to find.  You may meet a smart, charismatic, articulate BD person who can't get anything done.  Or a highly networked deal person who leaks value when they miss all the details of a deal and structure terrible terms.   It can be hard to differentiate between what a deal person accomplished versus what they take credit for in terms of a product's success.

So what should you look for in a business person?

Great Business Development People
The best BD people have the following traits:
  • Smart / raw horse power.  Smart, creative, and think well on their feet.
  • Articulate / good communicator.  Needs to communicate well with both internal teams (engineers, PMs, lawyers, execs) as well as the customer or partner (which may include their legal, engineering, and deal people).
  • Creative / fearless in deal terms.  Push the envelope on what is possible and are willing to make a crazy ask from the partner or client.  You never know what someone will give away until you ask.
  • Get shit done.  Have a history of closing multiple complex deals with creative or aggressive terms.  One person who worked for me at Twitter closed 3-4 partnerships while a part time intern working remotely during their school year.
  • Structured / can run a deal process.  Structure is under rated in deal people.  You want someone great at shepherding all internal and external stakeholders through the various phases of a deal (ideation, pitching, negotiating, structuring, closing, implementing)[2].  You want people mining a list of prospects, aggressively framing a negotiation, and setting up internal prep meetings before calling external parties.  Unstructured deal people create churn internally due to a lack of consensus on external gives or lack of planning for a negotiation.  
  • Detail-oriented.  Reid Hoffman once told me he expected his deal people to read every word of every contract including all the legal language.  This allows you to catch all sorts of gotchas that are otherwise buried in unexpected ways and to think through the implications of what the contract says.
  • Part-lawyer.  Pick up and grok key legal nuances, even without a legal background.
  • Good culture fit / put the company first.  Like all employees, you want your business people to put the company first.  There are all sorts of ways business people may benefit themselves rather then the company (more below)
  • Work well with others across the organization.
  • Pragmatic & keep big picture in mind.  Figure out what is important, optimize for it (80:20 rule), and get the deal done.  Don't optimize for little things that don't matter, except as a negotiation tactic.  Similarly, some deals should not get done.  Great deal people will take a step back and decide whether to walk away, or not try to force a deal to happen if it shouldn't.  Some of the best "deals" are the ones that don't happen.
  • Understand partner and market needs.  Understand what the partner really wants (versus claims they want), as well as trends in the marketplace that may impact both their company's, as well as the partner's, leverage and needs.
  • Have stamina.  Deals can take a long time and a lot of back and forth.  Bad deal people give up towards the very end to "just close the deal" and may leak enormous amounts of value that they didn't need to give up.
  • Relentless.  Sometimes you need to keep knocking at a door over and over until someone finally answers.
  • Moral compass.  Like all employees, you want people who will do the right thing even if it is uncomfortable or against self interest to do so.

Bad Business Development People
Bad business development people may exhibit the following:
  • Great at selling, bad on follow-through.  Some BD people are charming, fun to talk to, and really smart.  Unfortunately, they have terrible follow-through and can't seem to get anything closed.  They may be full of incorrect excuses on why they had to give on a major term that is important to your company.  The only way to screen these people out is reference checks as they are great at selling, poor on substance.  Raw charisma is drastically over rated by technical founders.  Dont be fooled just because someone is friendly and charming.
  • Disorganized / unstructured.  Flying by the seat of their pants, not sending follow ups, or poor internal communication leading to needless meetings or internal churn often results.
  • Leak value.  Often over-think what is "fair" for the other side.  Make too many assumptions about what is important to the other side and just give a lot of terms away.  Or, they just want to close the deal at all costs versus thinking through what is actually good for the company they work for.
  • Don't think like an owner.  Bad deal people don't think like a business owner.  They treat the company's money or resources as not a big deal to use and will give away extra value in a negotiation because it "doesn't matter, its within 20%" or the like.
  • Don't think the details matter.  See above.
  • Outsource too much.  Bad deal people become too dependent on other company function (e.g. not understanding a legal term that comes up over and over because "thats legal's problem").  Sometimes terms important to the business are buried or hidden as legalese or "technical specs".  A great deal person will ferret these out.
  • Optimize for themselves and their network versus the company.  As gate keepers to external parties, some business people may use this point of leverage to benefit themselves.  They may build relationships at the expense of the company by being too easy on a deal so that the partner likes them. Or they are constantly networking at external boondoggles and on panels to build their own reputation, rather then working [1]
  • Cowboy mentality.  Some deal people go off and strike a deal, or mention terms that you can't back away from to an external party, without any internal discussion or approval.  They may act defensive when questioned about this and feel they are "getting it done".
  • Emotional.  Deals have a lot of ups and downs - you need an even keel.
  • Spin things internally.  Deal people need to be able to "turn it off" when it comes to sales.  You need to hire people who won't BS or spin internally even if it is sometimes their job to do it externally.

How To Screen For a Great Business Development Person
  • History of deals.  What deals have they themselves negotiated?   How complex were the terms?  What is an ask they received that no one else at the company believed they would get?  What is a clever deal hack they pulled off?  What impact did the deal actually have on the company?
  • References. Deal people often have lots of friends as their job is outwardly focused and they can be very charismatic.  They may give you a long list of meaningless references (e.g. friends of theirs at their current company, who actually don't know much about their work but think they are a "great person").   Get references from people who worked with them directly on deals.  Back channel more information on them.  Ask about the specific deals they worked on, how relentless and creative they were, and the tangible impact the deal had on the company.  Did the terms end up working out or backfiring?  Were there edge cases they did not think about that came back to bite?  Did they champion a radical position that paid off big?
  • Follow-through.  How is their follow-through during the interview process?  How structured are they?  What approach do they take in negotiating comp?
  • Culture fit.  What are they optimizing for?  Title?  Equity?  Future growth?  Something else?  How do they fit in your culture?  Business people will be different from technical or product people in a number of ways, but they should still hold to your core cultural values.
A Great Deal Person Is Not Usually A Great Partner Manager
Don't expect the people who are great at thinking of and executing deals to be great partner managers (post deal management).  You will need to find both types of people eventually for your team.

Thanks to Marc Leibowitz Clara ShihKim Malone Scott for feedback, ideas, and commenting on versions of this post.

[1] Some external speaking or networking events may be useful to your company, but the business person should chose the small handful of events that really matter, and have specific goals as to why they are doing them.  Rather then just claiming "all exposure is good exposure".
[2] Thanks for Marc Leibowitz for spelling out the various stages as well as other ideas.

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