Do you know when you should hire a COO? Do you know when you should be incentivizing them with equity or stock options? In today’s episode, Cameron will examine these questions and provide insight on the right time method for hiring a second in command. He’ll offer thoughts on when you should look at hiring a CFO, and whether or not a fractional CFO is a viable option.
In This Episode You’ll Learn:
- The right time to hire a second in command.
- The value of having a CFO in your business.
- Why it’s not necessary to offer equity to get good employees.
Get Cameron’s latest book: The Second in Command – Unleash the Power of Your COO
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Do you know when it’s the right time to hire a COO? Do you know when to incentivize them with equity or stock options? In this episode, you’re going to hear my thoughts about both. Many CEOs mess up in hiring a second in command. Often, CEOs hire too early or too late. I had to talk a CEO off a cliff when their potential COO insanely was asking for 20% equity in their company. You’re going to be sharing this episode with friends for sure.
In most businesses, when they start out, the owner, the founders, and the CEO are everybody else too. How do you know when you actually need to engage or get a COO?
The question of when you need a COO comes down to whether you, as a leader, are starting to get overwhelmed in a lot of the higher-impact areas of the business. The higher kind of decision-making areas and the areas that might need a more seasoned strategic or senior person to be able to execute is one question. The second one is, do you have enough stuff on your plate that you need a second in command or could you get an executive assistant first?
I’ve always said if you don’t have an executive assistant, you are one. You need first to get all the administrative work off your plate that might buy you 6 months to 12 months before you need a true second in command. The next part of that is, do you need a COO, VP of operations, director of operations, general manager, or an operations manager?
You might need a person as a second command to help you with stuff, but it might not necessarily require the COO title or the COO compensation pay. The bigger the title we give, that often can lead people towards higher expectations and higher comp packages. Your head of finance could be a director of finance, VP of finance, finance manager, or CFO. The same with each of the functional areas.
Be very careful with giving out titles that are too senior too early and be very costly. If you give out the COO title too soon, the VP of operations doesn’t have a role they can jump into. It’s always nice to give them something to chase. Make sure that the compensation expectations are very clear. If you only want to pay $140,000 a year, that is not a COO. That’s probably more like a director of operations or, at best, a lower-paid VP of operations. Be careful with the title creep.
To follow up on that, when do you bring in a fractional CFO?
I believe that in all companies, when you get north of $1 million or $2 million, you can’t afford a $200,000 CFO. You need to have someone other than your accountant looking at your business and your financials to ask you some questions to give you some advice, but often to ask you questions to help you figure out the business or look at the business in a different way to help you optimize for more gross margin or more net profit.
If you can pay that fractional CFO to look at your books and look at your financials on a monthly basis and spend maybe a couple of hours to give you some strategic questions, they might even be able to give you advice that can be very powerful. You might be able to get somebody to bounce ideas around with to get them to ask some questions as well.
You say dollar value. What if it’s the number of accountants you’re managing? We’re dealing with accountants in three different countries.
You’ve got a team of accountants that are working for you?
We’ve got separate outsourced accountants, one in the US, one in Israel, and one in India. We’re trying to manage three different sets of taxes, three different sets of end-of-years, and three different sets of annual reports. Israel reporting is two years after the year is done. India is done from April through March, due in September. US is January through December, due in April. As a CEO, it’s driving me nuts.
You’re at the stage where you need a fractional CFO to help oversee that or you need to simplify the business to get away from the complexity. If getting away from the complexity isn’t an option, then you need to start bringing in that fractional CFO to oversee that. You can often get your accountant or accounting firm to help you find and hire a CFO or fractional CFO. You may not have the bandwidth internally or the deep understanding of that business area to make a decision on who to hire as a fractional CFO, but that’s how I would approach it. If you need some fractional CFOs, I’ve got a couple of good firms that have some great fractional CFOs. If you want to drop me an email, I’ll put my email in the chat. I’m happy to introduce you, and I’ve introduced them to firms for years.
Did you hear? That’s right. I wrote another book. This book isn’t just another book for me. It’s actually for you, the visionary CEO that is looking to grow and scale their business. This book is called The Second in Command: Unleash the Power of Your COO. As a founder and CEO, you’re used to making all the decisions, but the business you have isn’t the one you envision. We’ve all been there. The thing is, you know what you need. You need a COO, someone who can help you build the company you don’t know how to build on your own.
The Second in Command is your go-to guidebook when you’re ready to scale up. I go through all the details in every aspect of the process, from knowing when you need to hire a COO to identifying and hiring the right candidate, successfully onboarding and working with them and so much more. Go to CameronHerold.com/newbook to get your copy. The Second in Command reveals the benefits COOs bring to companies and explores the many ways a COO mastermind or a COO forum can help grow the COO’s skills. You’ll meet the types of COOs and understand the role each type plays, discover how to bring on a COO into your company with the least disruption and avoid common problems before they arrive. There’s no need to go it alone. We’re in this together now. Back to the show.
Cameron, nice to meet you. This is the first time here for me and nice to meet you all. I want to ask the question. I’m the CEO of SnapSoft Limited, which is a Hungarian software development agency of 70 people. I’m looking forward to hiring my first COO. As I don’t have a COO, I’m doing the CEO job now, so what I would like to achieve is that hire him or her by the end of the year.
My question would be that I would like to manage this from my network. That’s my first point. Everybody’s asking for equity, which is not a problem for me. I’m just quite curious about it. Is the standard that you could hire a CEO for equity, investing, or something like that, or would I be able to manage this for a pure salary? What would you recommend regarding that? I know that it is Hungary and it’s a different ballgame.
I’ve coached companies in 26 countries. I’ve also done paid speaking events on every single continent, including Antarctica. I’m very comfortable with working with clients around the world. You do not have to give out equity to get good employees. Gen Y has gotten very good at asking and Gen X and Baby Boomers have got bad at saying no. We need to get better at saying, “No, I’m going to pay you fairly. I’m going to take care of you. I’m going to create a good company and a good culture.” You don’t have to give out equity.
Many years ago, prior to the rise of the first dot-com area, from 1997 to 2000, to get equity in the company, you had to buy it on a stock market. For most employees now, there’s never going to be an equity payout. There’s never going to be a transaction, and there’s not going to have enough that’s going to be meaningful. What I try to do is pay people very fairly for the work that I’m getting them to do. I try to build a company that can’t just give out equity. I try to build a company that has good gross margins, a good company culture and can pay people fairly. I’m more of the mindset of don’t give out equity unless you desperately need to.
I appreciate that.
When I left 1-800-GOT-JUNK? many years ago, Brian replaced me with the former president of Starbucks US. She came in for no equity for a solid remuneration package and no real long-term bonuses, but she got to build the second-best company in Canada. She thought it was a cute little company. She was a former president of Starbucks US and she came in for no equity. You don’t have to give out equity, but you have to build a damn good culture. You have to build an amazing place to work.