Like it or not, as your business grows it will need to become more structured and professional. But what should that structure be - and who are the professionals?
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In the last two months alone I have had conversations with three different CEOs that have all started with a question along the lines of “my Board has asked me whether I have too many direct reports, what do you think?”. It is something that many company founders and first time CEOs seem to struggle with as they navigate various phases of growth, but as with many good questions, unfortunately there is no simple answer.
Naturally, most company founders believe their business is unique, but in reality there is plenty to learn from the teams who have already navigated the path to success.
Having worked with and learned from some of Europe and the US’s most disruptive technology businesses over the last 15 years, I have compiled some information and advice that has proved successful for their organisational structures.
What is “normal”?
The reality is that it is very difficult to pick out a set formula, and the clients we work with have a massive range of direct report numbers, from as few as 3 direct reports to as many as 10 – good luck with that!
I recently read a report that suggested that the average number of direct reports had doubled since the mid-1980s, but the average across our major tech clients is 6 direct reports, although the distribution across 4 to 7 direct reports is pretty flat.
"Companies may struggle to attract top people if the role does not have a direct reporting relationship with the CEO"
When looking what functions report into the CEO, the roles are actually fairly consistent, covering the key areas you would find in most businesses: Product, Technology, Go-to-Market, Finance and Ops. However, there are notable exceptions, and these tend to fall into 3 categories:
(a) other founders, where historical quirks and loyalty tend to leave other founders reporting direct to the CEO for longer than would otherwise be the case.
(b) Strategic necessity, where other functions are strategic to the business, for example People or perhaps Legal in an IP rich business.
(c) Other business activities, where the company has developed an unrelated business this will tend to have a GM in its own right who would report to the CEO.
As CEO, your reports should always complement your own skill set
What role should a COO play?
In executive teams with smaller numbers of direct reports, the COO tends to cover a broader range of functions. This will usually complement the relative strengths of the CEO, where for example, a commercial COO might support a product oriented CEO.
This kind of CEO/COO partnership proves extremely successful for many of our leading technology clients, allowing them to manage the enormous range of strategic challenges and moving parts that high growth businesses disrupting markets will inevitably have to navigate.
On a personal note, Renovata Partners is like many professional services businesses that are typically built by a nucleus of partners who share the load versus one uber leader, and this approach also allows the strategic, executional and emotional challenges of building a business to be shared in a way that is very similar to the CEO/COO partnership.
How do you get the balance between Senior vs Junior reports right?
The seniority of the team around the CEO has a big impact on the type and number of direct reports. Typically, the junior members of a team tend to manage much narrower parts of a function, which therefore means you need more people to cover a single function.
This only compounds a CEO’s challenge in two respects – first the need to manage more direct reports, and secondly, the difficulties of managing a team who need more individual support because they have less experience.
On a closely related point, senior candidates will want to report to the CEO, and our experience of recruiting for senior management positions is that companies may struggle to attract top people if the role does not have a direct reporting relationship.
How do new CEOs make their mark?
New CEOs tend to broaden their span of control when they first step into the role. The reason behind this seems to be the desire of the incoming CEO to get their heads and hands around all areas of the business before deciding which functions are strategic and which are more straightforward.
Once established in the role, the number of reports a CEO feels should be direct then tend to gradually reduce. While this trend makes sense in a more mature business, high growth disruptive businesses are in a constant state of flux which may be why it is more difficult to reduce the number of direct reports, and emphasises the important role a COO can play in high growth markets.
Crucially, the three key points to be taken away by any CEO determining what organisational structure would work best for them are:
Take time to understand the business, and work out what the key strategic levers are
Surround yourself with senior functional experts who can provide deep leadership where it matters most
Find a COO Partner to help share the burden of navigating the challenges ahead.