Aug 15, 2011

Is COO the new CEO?

There are a lot of articles on startup Founder/CEO’s, but very few on startup COO’s. Ben Horowitz had an interesting post last week on the challenges of founders who pitch his firm, “one as the CEO and the other as President.” Later in a company’s life, however, such a model may work well, when the President or COO is an experienced operating executive.

The Classic Wisdom
The classic wisdom, espoused by some legendary venture capitalists was, “I never fired a CEO too soon.” But more recently the industry has adopted a new mantra, which is to keep the founder in the company – quite often as CEO – and bring in experienced management underneath him or her in the form of a COO or President.

Some of today’s highest profile companies, including Facebook, Groupon, and Zynga have all adopted the CEO/COO model. Consider Tim Cook at Apple, Sheryl Sandberg at Facebook, Margo Georgiadis at Groupon, and most recently, John Schappert at Zynga.

The benefits of the hybrid model are clear: companies maintain the leadership and product vision of their founding entrepreneurs, while gaining the operating experience of seasoned executives. The latter helps companies in terms of organizational scaling, sales, and, of course, perception on Wall Street.

What’s Changed
Three things have changed in the industry to cause investors and companies to pursue the CEO/COO model more aggressively.

First, the market once again recognizes that product is core to a company’s success. Nowhere is this more obvious than at once-beleaguered Apple, now the world’s most valuable company. Great products come from entrepreneurs who search out huge markets and then match them with product vision and execution.

What’s more, with viral so critical to today’s customer acquisition efforts, product vision is even more paramount. Experienced finance, sales, and even marketing executives may simply not bring the viral product knowledge necessary to virally infuse a company’s customer acquisition efforts.

Second, founders are more educated on venture capital and startups than they ever have been before. Detailed information is available on blogs like Venture Hacks and in books such as Venture Deals, not to mention from experienced angel investors.

Third, there are former and current founders/entrepreneurs in the institutional investor landscape. From Mike Maples to Reid Hoffman, from Ben Horowitz and Marc Andreesen to Mark Suster, having former startup founders as institutional investors is having an impact on the venture backed company landscape.

Today’s Startup CEO
Of course, all the companies I cited above have two things in common: they are consumer facing and successful. Does the same model work for companies that are struggling? What about for SaaS/enterprise companies? The examples are harder to find, that’s for sure.

Many of today’s successful startup CEO’s are product/market visionaries and great early organization builders. They can leave the later scaled-up operating challenges to those who enjoy the job, all while holding onto the CEO title and role.

Whether the hybrid model works for companies that are struggling or for SaaS/enterprise companies is less obvious. Being a startup CEO is no easier than in the past. But what it means to be a successful startup CEO has clearly evolved.

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