Is a Fractional CxO Right for Your Business?

Is a Fractional CxO Right for Your Business?

In our client discussions we often get the question,

“When is the right time to hire a chief ___officer (CxO)?”  

Usually, we get the call when they are already deep in issues. It happens easily. If you are a founder, you know your strengths, you are the idea person; You are the visionary or you are the technical person. This might be your first go at running your own business, you may be in denial.

Either way, the simplistic answer to your question is: “BEFORE you actually need one.”

Here are a few signs that it is time to reach out and get CxO. In this case, we have framed it around the need for a chief operating officer (COO)

Signs that you need a COO:

• You are spending too much time working in your business and not on your business.

• You are feeling constantly overwhelmed and struggling daily in your company.

• You know you need to strengthen and solidify your leadership team.

• Your company needs to grow significantly in scale operations.

There are many vantage points, but we subscribe to the school of thought that a COO — especially your first one — should come from outside your company. Insiders are typically part of the problems you are facing. A phenomenon called confirmational bias. They seldom have the required knowledge, skills, or experience to make the leap and doing so is a stretch.

So, what is the COO Position?

A COO is quite different than any other employee in your company.

Typically, the leader of a company is a visionary. As the visionary, you operate best when you are thinking long-term, generating big ideas, expanding on the company culture, and cultivating strategic relationships. Without a COO, you become mired in the day-to-day operations, which can cause your business to stagnate, wither and eventually die. This is especially critical in start-ups.

Top 5 Issue

In a recent article in CrunchBase, they reported that only 1 in 3 start-ups went on to raise a Series A or later funding round.

So why does this happen? Well, there is a myriad of reasons as you can see from the graphic below. Money or funding tops the list. But not the right team is in the top five reasons right behind directional issues such as no business plan and losing focus (strategic impact), which can all be improved with a COO or CxO executive.

Send in the Wing(man)

A COO is your team’s most valuable player! As your integrator and executor, the COO brings your entire company together to deliver products and services effectively and efficiently. Using the Top Gun analogy- they are your Wing(man).

The COO is the quintessential "agent of change." They define needed changes, lead the change effort, manage the change, and help you celebrate change success.

Your COO can be your closest partner, coach, and mentor. Your confidant. Let us be straight, it is lonely at the top and with all the things that you have on your plate as the founder/CEO, The COO is trusted to seamlessly run your company when you are not there. They may even be your successor in the future. As a coach and mentor, your COO not only supports your personal and professional business development but that of the entire company.

How do you find your First COO?

When you need a COO, you are looking for someone typically with years of experience and education — much more than most companies can afford for their first COO.

A COO is much more than a highly paid ops manager. However, companies typically make one or all these three mistakes when they need a COO:

Mistake #1. Instead of hiring the C-suite executive they need, they seek a director or vice president of operations. This saves them an executive salary, benefits, bonuses, and rewards. People hired in this role are expected to operate at the position of a COO without the title, but normally cannot. I will be upfront, if you have gotten to the seed round phase and have brought in institutional investors with major investor rights, they have negotiated some say in who you bring on. More of a reason you need to do this before, you hit your seed round.

Mistake #2. They lowball the salary of their new COO position. This forces them to hire someone capable of being a director or vice president of operations but who will fail to meet the expectations of a COO. As a key contributor, think long-term. Do not be penny-wise and dollar foolish. Offer equity, a scaled salary. There are creative ways around this.

Mistake #3. The company treats the COO position as if it were any other position within the company. Thus, the hiring process, benefits, bonuses, and perks all mirror those of most other employees. The COO is part of your leadership team. Often, companies misassemble leadership teams and a democratization of decisions happens. That is great if it works for you, but often you need a true afterguard to help make the tough decisions. You will want to socialize them and get input, but those decisions will usually come from your leadership team (with input).

Why Does this play out like this?

Companies (of all sizes) make these mistakes are because of two things. One, they cannot afford the true talent they need. Two, they do not understand the inherent differences between this position and every other position in their company. Now do not get me wrong, I am not advocating for a vertical structure, this can be accomplished in a flat structure as well. For our Start-up clients, we often recommend a ‘Swiss-army knife’ type person that brings other skills to the table.

The first COO is one of the most critical positions to get right. Hiring the wrong COO can cause your company to significantly struggle or outright fail.

 Why consider A Fractional COO?

If you cannot afford the likes of what your company needs, then how do you move forward? You cannot keep struggling in your visionary role while being the full-time integrator.

A fractional COO is a business professional with many years of experience who is willing to work in a temporary capacity, part-time, for an hourly rate that would typically amount to the same as hiring someone full-time. However, you can bring on talent with experience as a business owner, business consultant or former full-time COO without all the costs. Fractional COOs might get paid the same as a full-time COO, but they bring to your company much more depth. In addition, there are many other benefits to contracting with a fractional COO.

Here are some of the benefits from our point-of-view:

• Typically, a fractional COO collaborates remotely with your company. This saves you from creating a separate executive office.

• Fractional COOs do not require an elaborate executive hiring process — thus, you do not have to build separate HR processes for just one position.

• Being a 1099 contract employee, the fractional COO does not require executive benefits, bonuses, or rewards.

• A fractional COO creates a try-it-before-you-buy-it experience, allowing you to kick the tires and determine what you need from a full-time COO.

• The fractional COO is there to work themselves out of a job — they focus on building your company so you can truly afford a full-time COO in the future, and they can even help you find and hire their replacement.

• If the fractional COO does not work out, let them go — firing an executive can be a grueling situation fraught with cost and legal dangers, but letting a contract employee go is easy.

When it comes to hiring your first COO, do not wait. What you put off may end up hurting you. Consider whether a fractional COO is right for your business. Contact one of our advisors to discuss how we might be able to assist either as a fractional CxO or for a longer engagement.

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