Why Your Business Can’t Scale Without the Right COO & CFO

0:00That was a big deal when people were investing in ESG funds and now that seems to be on the wane a little bit. So the other thing is, is that like the executive suite itself, you have this wide variety of perspectives. You've got NVIDIA with 60 direct reports to the CEO, which probably shouldn't all be considered the executive team. but then you've got people that basically say it's just me and I don't want any reports. So I don't know. It's kind of interesting. And I thought it'd be cool to talk about. So I'm going to give you a couple of things. Basically, it's my question is, how is the modern C-suite, the whole executive board, basically?

0:50hey everybody welcome to another episode of business launch podcast with me roland fraser and my wonderful co-host ryan dice who is uh basically going through some sort of drilling activity or construction i believe right yeah it's my favorite like right right when we decided to start they you know somebody's like you know what i want to do let's i'm going to run a circular saw roundabout now. Um, so that's what we're doing. Yeah. So if you, are you like under a medical clinic or something is, you know, what clearly the production studio, I'm just doing it so I can sound, you know, more manly, more masculine.

1:26I'm trying to bring in, you know, a more masculine soundtrack. Tool time edition of business lunch. I like it. Yeah. Yeah. Speaking of tools, um, I was thinking about, or changes in remodels. I was thinking about, uh, something that was kind of interesting, which is how the C-suite has changed. Fortune magazine ran an article called how the C-suite has changed over the last, since 2015, over the last 10 years. I think that really, especially over the last five years, because we went through kind of boom time to pandemic, to everything shutting down, to crazy pandemic boom time, to slow down, to potential recession, it's been kind of interesting.

2:10And there've been some really cool and not so cool trends. There's been DEI, diversity, equity, and inclusion, which they had chief DEI officers for a while. And then that seems to be out of vogue now. And they had ESG, which was, I think, environmental, social, and governance. And that was a big deal and people were investing in ESG funds. And now that seems to be on the wane a little bit. So the other thing is, is that like the executive suite itself, you have this wide variety of perspectives. You've got, um, uh, Nvidia with 60 direct reports to the, uh, CEO, which probably shouldn't all be considered the executive team, but then you've got, uh, people that basically say it's just me and I don't want any reports.

2:58So I don't know. It's, it's kind of interesting. Um, and I thought it'd be cool to talk about. So I'm going to give you a couple of things. Basically, it's my question is, how is the modern C-suite, the whole executive board basically adapting to the complexities of this crazy roller coaster of change of businesses that we're on? And a couple of little stats. And before we get into it, it said C-suites at Fortune 500 companies grew 23 % on average between 2018 and 2023 from 6.7 executives to 8.2. So the boards are expanding. Skills required for established C-suite positions have increased more than 20 % between that same period.

3:41And I thought that was interesting because we'll see that one of the trends is a lot of C-suite players are being asked to take on what were traditionally roles of other C-suite players, even though there's more people there. So I thought that was kind of interesting. More that they're getting cross trained, I guess, around other things. And then 82 % of chief information security officers, which is a relatively new C-suite position, now interact directly with CEOs, which kind of shows you the importance of security. And we know lots of people now, our law firm friend Grant, their office handles multiple hostage situations where hackers come in and take over and request Bitcoin.

4:26So that's a big deal. 80 % of those chief information security officers participate in board meetings. So the first thing is, it seems like this is expanding as a result more of complexity, more than just we're getting more bureaucratic. And I wanted to kind of see if you had any thoughts like in the people that you've talked to, you've got chief sustainability officer, that chief information security officer, chief growth officer versus or chief revenue officer versus like head of sales and, you know, and head of marketing and things like that, CMO, CSO. So the first thing would just be because these are trends that are kind of now funneling down to midsize businesses that we tend to work with.

5:12And I wanted to see what you thought about that. Why are CEOs creating more of these direct reports? And how can we take what we're hearing from these bigger, more advanced companies and apply it to our world? So that's my big spiel. And then I have questions and thoughts, but what's your thinking on all of that? I'm always suspect of any time roles are created for, I guess, political and social reasons. And it seems like that happens a lot. And that can be external forces, but also internal. So we've seen a lot of roles created because it was just happening. And I think, and I'm not even saying that there's, sorry, what was that?

5:58DEI, sustainability and ESG people for sure. And I'm not saying that there's necessarily even anything wrong with having these roles, but I think a lot of these could very well be outside consultants and they don't necessarily need to be direct reports into the CEO. I mean, many of these should just be a function of HR, which is likely a function of maybe ops, maybe a different C-level position. And they're elevated to a C-level role, not because they actually need to be a direct report into the CEO, but more for status, significance, more as a signal of, ooh, look, we're saying that this is really, really important.

6:43And anytime I see that, yeah, it just makes me nervous. And then I guess if you're a big public company, maybe you feel like it's something that you have to do, but what you said is totally true. This trickles down and we see it trickle down to first midsize companies and then to even very, very small businesses. I mean, I know some companies that have under 100 employees, but yeah, they had some of these roles within the company. Six-figure people that were occupying some of these roles. And a tendency, I think, to put these names that they see in bigger companies on positions that really shouldn't have those names on them, right?

7:25Yeah, and so I think it's the external things to appease external forces. But I think what can be, in many cases, almost more dangerous, and you see it happen more often, are when roles are created at the C-level or at the executive level to appease internal team members. And I think that's what's happened with a lot of these combined roles. And so the chief growth officer, very often I've seen at a lot of companies, they have a chief growth officer or a head of growth as well as a head of marketing. And oftentimes the reason that they're doing that is because you kind of had two people that both wanted to get a promotion and the CEO didn't want to lose one of them, but they felt like it.

8:10So it's like, oh, you can both be president kind of thing. And this gets really, really, really dangerous. Same very often with the chief revenue officer. Now, I do think that there are times where it makes sense to have a unified sales and marketing direct report. I actually think, and I've gone back and forth on this. I now believe that this is not a good idea. Having tried it in a lot of different ways, I do think having separate marketing, separate sales, both reporting into the general manager, CEO, whatever it is, is actually really, really important as opposed to that singular, because one of them is always gonna win and you need that healthy conflict.

8:46So often though, that's done to appease an individual, not because it's the right thing for the company. And so that's just what I see happening over and over and over again. These are not, these decisions aren't being made because of the right thing for the company. They're being made to either appease outside political forces or to appease internal political forces. Yeah, I couldn't agree more. I'm curious as to what your thoughts are, because I do believe the roles have gotten kind of muddled, like the chief revenue officer and chief marketing officer and those kinds of positions, they seem to be the same thing.

9:21So, and I haven't seen any good like description. I believe revenue would be a broader role than marketing, but it doesn't seem like you would have both of those people on the executive board. And I almost, excuse me, with with the, I mean, marketing is important. Um, but does it really belong on the executive board? Like is, is the executive board? Cause the, the, the old school way, the, you know, the way that I learned in business school a thousand years ago was basically CEO, uh, and then CFO handles all financial stuff. COO handles all operational stuff. Those are basically the main reports, you might have, um, those are the direct, what they call line reports.

10:08And then there might be staff reports, um, that would be reporting to the CEO like legal or, um, you know, HR or something like that, but that was kind of it. And it seems like the, that span of control has grown, uh, to include a lot more people that maybe shouldn't be sitting in those meetings. And I'm kind of curious, I think about, you know, different boards that we have and sit on and things like that, executive boards, not boards of directors. And they seem like they're kind of crowded to me lately. And it seems like that they go on forever about issues that probably shouldn't be addressed in those kinds of meetings, that they could be addressed in interdepartmental meetings, not necessarily you need the whole team because the whole team doesn't care about how the head of sales is coordinating with the HR person, you know, to hire more people or the accounting person is trying to work out the budget with the, you know, the chief revenue officer.

11:08That's not stuff really to me that should go on there, but I'm kind of curious as to what your experience and opinion is on that. Yeah, I actually think that marketing and sales should be direct reports into the, into the CEO because there's such critical functions. I mean, if the cash register isn't ringing, then nothing is happening. And I used to believe that, OK, have a VP of marketing and a VP of sales both reporting into. And this is all at scale, right? So this is when you have many hundreds of employees. You really shouldn't have a C-level position until you have hundreds of employees.

11:42Because the way this works, you have individual contributors reporting into managers, reporting into directors, reporting into VPs. And then, you know, that's where kind of the C-level is going to show up at that level or above. And assuming that all these folks have seven folks reporting into them, do the math. It's hundreds of people before you really need a C-level. So first rule is don't give people the C-level title too soon in the life cycle of a business. So let's say when we're at this point where it makes sense to have a chief revenue officer, when we've tried it, the problem is that one is always going to win.

12:18And if you have a business that does have a significant sales function, there are times when sales is struggling and marketing is doing its job and sales needs to be called out on. And there are times when the leads do, in fact, suck and sales is doing its job. and it, but it's so nuanced. And if you don't have both of those people in the same room in a high trust type relationship where they can kind of call each other out, then I've just found that it doesn't work very well. So that's, I like that. And I like that dynamic happening at that level. My feeling is think about the customer journey.

12:57I want, if somebody's touching those aspects of the customer journey, I want the people who own those pieces of the customer journey, direct reporting into the CEO. So marketing, sales, ops, if they're going to be owning the fulfillment piece. And then yes, of course, certainly the head of finance, head of finance and accounting like that. That's it. But I don't think it should be more than about five people. Definitely no more than seven. I cannot come up with a scenario where it's where it should be more than seven. Yeah, it's just hard to have a meeting, you know, and have productive discussion that doesn't go on forever.

13:32So one of the interesting things is that, you know, the question is, is the CFO becoming the new COO? And this is kind of interesting because there's a growing trend of executives that take on both titles. So like Chief Financial and Operating Officer at Salesforce, for example, which is interesting because I wonder if the study that said that it's grown from like six point something to eight point something people also contemplates that maybe some of those people are the same people in just two different roles. And I thought it was kind of interesting that the de facto number two right now in the executive structure is the COO, excuse me, is the CFO.

14:18And traditionally it's been the COO and they're asking CFOs to take on more operational responsibility. And in recruiting now, the top recruiting firms for CFOs are saying that they're being asked to have one of the critical skills be strategy. And I've noticed that like with a couple of CFOs that we've hired recently in different portfolio companies, that, that, that, that strategy is much, much more present than it's ever been. They're much less just a numbers person. And they've got, they sit above typically an FP &A, what is it? Financial planning and analysis or something like that, forecasting planning analysis, and a comptroller that is the more accountant person.

15:00So that makes sense to me. But I thought it was interesting for them to be kind of considered the number two, because they need to know a lot about operations to be a good CFO. But operations needs to know a lot about finance to be a good COO. So I just thought that was kind of interesting. What are your thoughts on that? Yeah, I think the question is, is it easier to teach a finance person strategy or a strategy person finance? And I think the answer is it's probably easier to teach a finance person strategy. And that's why we're seeing this dynamic take place. And so as the COO role has become more about strategy, which what the COO role in a lot of companies was, is it was more on the production side of the business.

15:50So when companies were more about manufacturing, like when we made stuff in America still, and businesses were about manufacturing, the COO was going to be in charge of a lot of the manufacturing side. So they were going to be there in charge of procurement and all those pieces. So they were really in charge of the product. Well, now what we have are businesses where the product function has gotten to be a lot more specialized. So if it's a software company, then you're going to have probably a chief product officer who's over product, which means the COO is in many cases, not touching the product or the service or any aspect of the customer experience.

16:27So COOs have gotten more and more away from the product and fulfillment and delivery, and they've kind of become more mini CEOs. But the CEOs don't want to completely give up their title. So I think the COO has kind of got caught in the middle. And that's why you're starting to see them sort of get consumed a little bit by the CFO. And I think that makes a lot of sense. And we've seen it at entrepreneurial companies for a long time. I mean, if you go back to what was talked about in Traction with Gino Wickman, where he said, OK, you should have a visionary at the top and then an integrator. and the visionary just has that one report that's the integrator.

17:08I mean, that integrator was effectively the COO role. I, for what it's worth, kind of hate that structure. I think that's a stupid structure. We can talk about why. But that's what you have there is the COO role, essentially taking on the CEO role. That works at entrepreneurial companies where the founder entrepreneur is happy to kind of give up. They're happy to take a step back. You take it, hot potato. You take it. It's yours. But at these larger companies, at mid-sized companies and large companies where you have professionalized CEOs, they're not going to give up that seat. So that's where I think the Venn diagram is overlapping.

17:50And I think the CEOs are getting pushed out. And I think it is easier to teach you. Certainly as strategy is becoming more frameworkized, it is becoming more systemized. I think it's easier to teach a finance person strategy. I think especially like if I was looking at anything, the roles that seem like they could be combined are that, uh, that chief revenue officer that, that has separate sales and marketing departments that they run, but unifies them because that person is basically mediating between the, you know, your leads suck and, you know, your sales techniques suck, uh, that, that always goes on with those people and can, as long as they're doing that, I'm sorry, as long as they're doing that.

18:37So as a CEO, I would want to make sure that I've got a chief revenue officer that is mediating and isn't showing favoritism. Very often they come up through one of those channels. And so they show favoritism to one of those channels. And, and would you, I would assume that that would also subsume the chief growth officer role as well. I don't think that's a thing. Okay. So the chief growth, yeah, that, that came out of a, when, when growth hacking and digital marketing and all that. Yeah. When it was separate from marketing and you basically had marketing that was way more of the traditional brand PR strategy, and then you had digital, then there was this separation.

19:20Really all marketing is now digital. they largely have come together. Again, I think in certain traditional companies that have a more of a traditional brand or PR component, then maybe the CMO and marketing is just that. They're the ones that make sure that everybody's got a pen with the company logo on it. And that, by God, you're using the right corporate colors on all those posters and ads that you're running. But I wouldn't call that marketing, right? So that's, I mean, you're just a chief design officer, I guess. But if we're, if you're, if we're talking real marketing, I don't think that you need a growth quote unquote growth person.

19:56Well, your revenue, your chief revenue officer should be doing all of that, right? They should be overseeing marketing, overseeing sales and growth opportunities, whatever they may be, whether it's packed growth or strategic relationships or all, all those are people under them who should be reporting to them. So you have that unified, let's get more business mindset. And then I like that person. And then combining the finance and operational role, those chief roles, is kind of cool because I think they naturally overlap. And you really want somebody that knows the numbers helping with finance.

20:34Now we're going to do in a different episode, a breakdown of, of Nike's$70 billion thing. And they brought in a tech executive, um, to, uh, to run Nike and it didn't go so well. But, um, but the, the danger I think would be that if you've got operations and finance overlapped or unified under one, you've definitely saved some money and you could probably buy a way nicer person. Like you could take two, 200 ,000 salaries and get the 400 K person. And that would be most likely a way better investment, you know? And I think that's driving some of this, but, um, but then having that person, uh, in charge of operations, I think that you probably put more over like the, the brand integrity stuff needs to stay over with the chief revenue officer and they're in charge of that.

21:29And that way you're not getting, you know, being counted out of, uh, well, we should do some brand stories that that's going to cost too much to, you know, to do or, or, or loss of the focus on product because we're focused on the cost savings, which is a natural thing. I think that, uh, a finance based person would be looking at more than we need to invest in, you know, radical marketing strategies and more ways to get, you know, to capture more shit, more market share. So I think if you've got that, those three roles of growth revenue sales, excuse me, growth revenue marketing under chief revenue officer, and you've got chief financial officer and chief operating officer under one, but then you need a head of ops or somebody under the CFO that is going to be dealing with manufacturing because it's got its own stuff or all kinds of staff people.

22:24Now, the other interesting thing is that head of HR reports in most of the companies I've seen recently to the CFO. And the CFOs have no real training in HR, but they're overseeing the HR people. They've kind of moved from a staff function advising the CEO down under to under the CFO, which is kind of interesting. and um but that basically leaves you kind of two main people reporting to the ceo which is different than some of the other episodes we've done where we talk about 60 reports and you know and everybody reports with i forget what elon musk's you know show up and manage hit and run kind of thing is um like those are crazy successful companies but they're run by very big individuals So I guess that like, if you're a super human, have no life going to put everything in, then maybe a giant flat organization with all these reports is good.

23:26And if not, and you're trying to be, get like high quality people that are working with you that are competent and not have too many people reporting, then you consolidate these. And then how many reports do you have under this scenario to the CEO, do you think, besides these two kind of combined unified things? If it's me, I would want somebody who is uniquely charged with the getting of the customers, at least one. I would want somebody who is uniquely charged with the fulfilling and the making of the happiness of the customers. And I would want somebody who is uniquely charged with the keeping of the money.

24:04All for the CEO? all of those direct reporting into the CEO, because how that, that to me is the life cycle of the business, right? If you think about it, what do we do? We make stuff, we sell stuff, right. And, and, and we figure out a way to turn those two activities into profit. So if those are the core functions of business, I need to know that there's at least one person who owns those three core functions. And so at a bare minimum, I want that. Now, if it's me for a while, I really would want to have a marketing person and a salesperson. If we have a big sales function at the business. Those two functions, both direct reporting into me because marketing now has gotten to be so broad.

24:43Like you said, it is brand and brand now I think matters more than ever. It's, it, it actually, I think brand matters more now than it did 10 years ago. Brand, brand has, is coming back around again, but so does all the direct response stuff. Like all the digital stuff matters, but so does PR and so does comms. So they still own all of that. So that whole big function is still all under marketing. That's a lot of stuff for somebody to own it. And they got to make sure that they're generating the top of funnel activities to keep sales fed. Yeah. Who's the fulfillment person though? Who's that person that's reporting to the CEO?

25:21That's where it's going to depend on the business. So, I mean, it could be if it's a technology company or software company, it might be a, you know, a chief product officer or a, you know, VP of engineering or something like that. So, I mean, I would definitely want somebody who owns the product, owns the customer experience, direct reporting, and very often it's brand managers. And so that's when you see these companies that are really, really big. They've got the brand manager who kind of owns that customer experience at like CPG companies. Let's say you've got basically one to three or four brands that are somewhat related to each other.

25:55You probably don't have separate brand managers for all of those. you might have a head of product, although that's not something that I see a lot in a lot of companies. I'm not saying it shouldn't be there, but it definitely, like, if I look at who's in charge with being sure that the stuff gets done and gets to the customer, that seems to be one of the weakest points in almost every company I come into contact with. Which is exactly why I'm suggesting it should be there. I mean, we're adding these made up roles very often that have no, they don't touch the customer experience at all. And we're forgetting about the customer experience.

26:34And it's because it used to be the COO. And in many cases, it still is the COO. But if you're talking about a software business, SaaS company, it usually is a chief product officer. It could be a brand manager. For us, it's going to be a head of programs at many of our service-based companies. So this is where I think it's important, you know, and you do have in a lot of cases, the CEO says that they're uniquely responsible to that, but that's tough because they've got a company to run. So I don't buy that, but it was a big trend for a while to say, Ooh, I'm a product centric CEO. Um, that's, but, but you also have a company to run.

27:12So I think that's tough. So that is the one where I would absolutely, that is a C level role or a VP level role or a head of role that I think that every single CEO should have reporting to them? Who is somebody who's uniquely charged with making sure that our customers are happy and successful with our products and services? I love it. It also leads to the next topic I wanted to talk about, which is the rise of the chief commercial officer. So this is that person that you're talking about. So So you've got all of these chief commercial officer or chief distribution officer. One of the Fortune 500s, Zotus, I don't know how to say it, appointed their first ever chief commercial officer in November.

27:56And this is basically blurring the lines between marketing, sales, and finally, customer experience. And that this is the person who is going to be the customer advocate that's going to basically unify the product fulfillment and customer experience. So product in what is it? How do we make it better? How do we improve it? What are the new ones we should have? How do we deliver it and get it into the hands of the customer and or the service to make them have what they bought? And then how do we ensure that the experience was positive? And I think that's a chief commercial officer sounds kind of vague, but it's of all the things that I've heard, you know, from diversity and sustainability and ESG and everything else.