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Venture has lots of rules of thumb, short summaries of received wisdom passed down. One of the most common is “never do a COO search”. I heard it when I joined the business, I ve lived it when I tried to do COO searches and failed, and I have passed it on. Upon reflection I think the rule is wrong, or more accurately, it is mainly right, but it oversimplifies at the expense of producing a very occasional but very expensive wrong answer.

The wisdom in the rule is clear. Most times when a board, especially a venture backed or even outside investor dominated board, is doing a COO search, they are doing it because they are dissatisfied with the CEO’s performance and are either unable or afraid to change the CEO. Hire a COO is the compromise choice. The search is hard because the candidate who will solve the board’s dissatisfaction is someone capable of being a CEO themselves. For these candidates, the choice between being a number two sandwiched between a CEO who does not want them and a board who does not want the CEO, is a no win situation. If they are any good, they will be sitting on CEO offers at the same time, which they will invariably take instead of the poisoned chalice on offer. The result is nasty adverse selection, the good candidates don’t want your job, and the ones who take it may not be any good. Far better, so the venture wisdom goes, to man up and replace the CEO, which is what you really need to do.

Any yet. As the New York Times points out, it seems to be working for the Facebook investors . In my portfolio I have some deals where the CEO/COO combo has been a home run. Zonelabs, a company we invested in in 2003 was run by a CEO Gregor Freud, and a COO Irfan Salim until it was sold to Checkpoint for $ 300 million. In our current portfolio, the CEO Aaron Levie, recently hired a COO, Dan Levin and I could not be more happy with the company’s performance. When I ran the rule of thumb by Aaron at Box, he responded with a cogent list of highly successful companies where the CEO/COO combo was working well.

Oddly enough I still think the rule is usually correct. What all the exceptions have in common is a few things. First in all the successful cases, the decision to hire a clear number two was driven by the CEO, not imposed by the Board. CEO’s who can do this, are comfortable in their position, and in what they do well as a CEO, comfortable enough to ask for help where they need it. The usual situation is when a CEO has a clear technical and business vision for where the company can go, but does not have either the experience or the inclination to handle the managerial part of the CEO’s role. If all the CEO has is the technical vision, then perhaps hiring a CEO and becoming the CTO is the right option, but when the CEO has both the product vision and the clarity around business strategy, then a CEO/COO can work.

Second the opportunity involved has to be big enough for the COO to prefer it over a CEO role at a smaller less exciting company. The reality is that top class executives can easily get a CEO job, the trick is getting a CEO job at a winner company. The opportunity to be the number two executive at a world class company can be more rewarding and more remunerative than being top dog at another ho hum venture backed deal. There is enough winnings both financial and psychic, for two leaders to share. This will not be true in a smaller or less faster growing company.

Finally, my observation is that the two executives have to continually work at it. It involves constantly checking in with each other to ensure that there is clarity between the executives and with the rest of the team, as to who is doing what. This need for constant communication is why an outside board imposed solution fails over time. You can pretend to your board that “you will get along” but you cannot fool each other day in and day out. This is why many of the best combos emerge from existing trusted relationships and are not filled by a simple executive search process.

CEO/COO combos sometimes work, and as I said at the start, assuming they never do can be an expensive mistake. Even if they work in a small percentage of deals, it will be the best deals; and the combo can turbo charge the return in precisely those deals that in any venture fund, dominate the outcomes.

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