If you're a startup founder, you might be wondering when you should bring aboard your very first CEO.
Another thing you might be pondering is:
“How much should a COO equity grant be?”
As it turns out, a non-founder COO/CFO recruited early into a startup will usually get options for between 1% and 5% of the company with a one-year cliff and a 48-month vesting schedule.
Besides COO equity compensation, we'll cover other stuff in this article, including:
- What a COO does
- Do you need a COO?
- How much money a COO in a startup makes
What does a COO do?
COOs, or chief operating officers, are usually the second-highest-ranking executive in a startup, typically in charge of day-to-day operations to ensure continuous process improvement.
The CEO determines which direction the organization will go and what its long-term objectives will be. The COO executes those goals by breaking them down into everyday tactical decisions.
The COO role is often the last step on an executive’s career trajectory before becoming a CEO. Every COO has wildly varying responsibilities because every organization and industry isn't the same. However, the COO is usually the CEO’s right-hand person.
COOs work closely with CEOs to make critical corporate decisions. They also work with other top executives, including the CFO and CIO, to ensure all departments support the organization's goals as defined by the board of directors.
A COO’s role is to make the big vision of the CEO happen. That means being responsible for coming up with the procedures and processes to bring the CEO’s vision to life.
Some companies function in a way where the CEO isn’t involved in the day-to-day operations. This leaves the CEO to be a creative visionary, while the COO handles the nuts-and-bolts side of things.
The COO reports to the CEO, but everyone else is supervised by the COO.
COOs in a startup context
Just like more mature companies, there’s no single job description for a COO in a startup.
Each founder's needs are so different from the next. The challenges their businesses face are even more dissimilar.
Founders seek COOs for many reasons. Some of them use a COO to complement the skills the founders lack. This helps them maintain focus.
Each decision a founder makes must have as significant an impact as possible. When founders lose focus, they can dilute their effectiveness, which diminishes their impact.
When this diffusion of focus starts to happen more often, it’s time to bring in some help in the form of a COO.
Do you need a COO?
It’s not usually the case that a founder needs to hire a COO in the early stages of a startup. It’s extremely rare.
You don't usually see COOs in seed-funded ventures. In Series A, it happens about 50% of the time.
A COO shouldn’t be hired at the outset unless there’s a compelling reason for doing so. As a founder, you might bring in a COO if the workload is so overwhelming, you’re in dire need of assistance.
Obstacles to overcome
One of the reasons COOs are brought on board is if there’s an obstacle for which the company needs a specific skill set to overcome. Often, that obstacle is planned rapid growth. If the company grows too fast, it could bite off more than it could chew. That growth could lead to logistical problems.
Going from one amount of revenue to a vastly increased amount could put a severe strain on the company. A founder or CEO on that journey might bring in a COO to add complementary skills that’ll make things easier.
This could help grow the company at a more sustainable rate or provide strategic insights that significantly reduce the logistical logjam.
A change of strategy
A founder might bring in a COO if the business is changing its strategy. For example, pivoting from brick-and-mortar to digital.
A skilled implementation expert (like most COOs are) could see the project through so that it’s a resounding success.
If your startup is complex
You might want to bring in a COO early if your startup is intrinsically complex. For example, Tovala is a software, hardware, and food production business all rolled into one.
It's challenging for the CEO to stay on top of everything, so the CEO brought in a COO. When your business is this complicated, it pays to bring in a right-hand person sooner rather than later.
If public obligations eat up all your CEO’s time
These days, startup CEOs are more public-facing than they've ever been.
They’re expected to give speeches, engage in fund-raising, testify in congressional hearings, and a lot more. That doesn’t leave them much time to do much else.
If the CEO is hard-pressed for time, this person might look for a COO to take over operations so the CEO can get more things done.
In the end, neither the number of employees a startup has nor the funding round it finds itself in can definitively determine when the company should onboard its first COO.
Like any other leadership role, the best time to bring on a COO is when you need one.
How much does a COO of a startup make?
How much a COO of a startup gets paid depends on many factors. If your COO is an employee of a bootstrapped four-person startup, it could be as low as $50K.
However, if your company has raised $15 million in venture capital, that figure could be well over $200K. The average COO of a startup gets paid anywhere from $140K to $200K plus equity and bonuses.
How much the individual receives depends on what stage the organization is in and the person’s experience level.
For example, a COO could receive a $110,000 base salary, a 20 to 30% bonus for hitting specific milestones, and some equity. Exceptional COO candidates who can build the team, sub for the CEO when needed, and have what it takes to sit in the CEO's chair one day will receive the most compensation.
How does an equity grant work?
If your COO is doing a good job, you’ll want to reward that person with an equity grant.
Because cash is scarce in startups, founders look for ways to compensate their employees without using this scant resource. One excellent way to do this is by awarding equity grants to team members.
There are two types of equity grants: restricted stock units (RSUs) and stock options. RSUs are shares of a particular stock. Stock options allow the employee to buy stock at a fixed price.
If a company’s value is volatile, stock options could pay off handsomely in the end. However, there’s a lot of risk with stock options. No matter which type of equity grant a company offers, a team member must first earn it by remaining employed by the startup for a prescribed period.
This is called a vesting period. Usually, there’s an initial employment period before anything vests at all. After that, equity typically vests monthly until the employee has earned the total amount.
How much equity does a COO/CFO get?
COO's tend to get a little more than CFOs. However, at the very early stage of a startup, the same person could do both jobs.
A non-founder COO/CFO recruited early into a startup will usually get options between 1% and 5% of the company with a one-year cliff and a 48-month vesting schedule.
The higher percentage is usually for someone who can bring capital to the venture or is instrumental in raising it.
The best way to hire a COO
If you’re a founder wearing multiple hats, you might not have enough time to do the recruiting you’ll need to do drive growth for your team.