The case for Early Ops
The case for Early Ops
What may seem like waste of resources may actually be a saving grace.
An early stage founder’s job is never done. Whereas mature organizations have multiple departments and executives focused on specific areas of the business, early stage founders have themselves and some early team members.
Whatever their background, founders often find themselves stretching as they try to evolve an idea into a business. You may be an engineer but all of the sudden you find yourself conducting user research, reviewing employment contracts, and if you’re lucky…making sales. There is no shortage of business-in-a-box solutions and the proliferation of SaaS tools across capabilities has greatly reduced the barriers to accomplishing some key business tasks.1 However I’m going to make the argument that hiring ops personnel early is one of the greatest accelerators for a startup business.
A few disclaimers first:
When I refer to “Ops” I am generally referring to Business Operations, itself a nebulous term. To bring some clarity, I like Shopify’s definition: Business operations is a broad term that describes everything that happens within a company to keep it running and earning money.
When I say “early” I’m not necessarily suggesting it be employee 2 or 3. Rather I’d argue it’s after you’ve achieved Product-Market fit and you’re ready to start scaling.
In the early stages, every single dollar is precious, and with increased focus on profitability and sustainable economics, this is certainly truer today (and hopefully for a while) than in 2020–21. So why deploy precious resources, in this case cash and options, to an early ops hire?
My fundamental thesis is that there are three discrete types of activities that are typically poor uses of a founder’s time:
(1) Repeatable and predictable activities that sustain the functioning of the business.
(2) Reevaluation of core processes that allow the business to scale.
(3) Identification, analysis, and action on the fundamental drivers of the business.
(1) Repeatable and predictable business activities.
Often described (correctly) as admin and overhead these are tasks like sending out employment contracts, managing the option pool, applying and keeping current on relevant business licenses, filing taxes, etc. On the 2x2 of urgency and importance,2 these will almost always be in the bottom left quadrant, however ignoring these could lead to regulatory issues, fines, and delays. Yes it’s true that there are more and more service options to outsource these tasks,3 but even those relationships need to be managed.
I’m sensitive to the advice from some that a founder, especially at the early stage, should understand every square inch of their business, and I agree, but there’s a difference between understanding and personally owning, with the latter not really scaling. It’s also hard to argue that a founder’s best time will ever be spent making sure franchise taxes are paid.
(2) Reevaluation of core practices.
Noted VC Keith Rabois is a proponent of hiring Ops early. When he joined Square at ~20 people:
Rabois developed a simple metaphor for the role of a COO at an early-stage company: an emergency room doctor. Just like in the ER, there’s always something broken at a start-up, it’s incessantly chaotic. There can be issues that seem to be just a cold, but they can actually be fatal if you don’t address and fix them early on. Also, there can be other kinds of issues that seem to be serious, but in actuality they’re just everyday colds and they’ll clear up on their own.4
When a startup is growing, there is always something that’s breaking. This could be because it was set up as an MVP, or by someone who didn’t know what the future would hold, or by someone who’s no longer with the company. While I really like Keith’s metaphor of the ER doctor, my admittedly more bland categorization of “Reevaluation of core processes” is meant to be a bit broader. Ideally this is someone who can look at the business, identify what is blocking growth or value-creation, and spend the time to understand what the needs are (today and in the 12–18 mo future) and what the solution is.
Unlike items (1) and (3) this is an area where experience isn’t necessarily required…but it definitely helps.5 Think of these almost as mini-consulting engagements that can set up the business for scale. Especially in cases where the need is cross-functional or doesn’t fall neatly into a specific function,6 a single resource that can devote the time to not just diagnosing and addressing but setting up to further scale, removes a blocker today and in the future.
(3) Identification, analysis, and action on the fundamental drivers of the business.
Bobby Pinero, CEO of Equals and former early operator at Intercom has written extensively on this topic. While death by dashboard is a real thing,7 setting up reliable reporting on business drivers leads to better decisions, enables spot analysis, and reduces time spent during diligence and other fundraising activities. The task here is not just creating dashboards, it may involve putting together the data infrastructure that connects all the disparate sources so the business can report on it’s key metrics.
As Bobby notes, in the early days this work often goes hand-in-hand with finance as the drivers tie directly to the financial outcomes (for SaaS companies, sometimes just trying to get a handle on ARR can feel like a Sisyphean task).
Having a dedicated owner who can marry the financial and business data, and prepare action-oriented reporting is the first step in creating the vaunted data-driven organization, and again, an effort that is probably not worthy of a founder’s ongoing time or not necessarily in their sweet spot of activities that they are uniquely good at and give them energy.
Ok, that sounds like a lot, and I again acknowledge that some will say that the above are fundamental elements of the founder journey…maybe so. But I would challenge that by asking any founder at that 20–70 FTE level what it would be worth to them if all of the above were things they just didn’t need to give a second thought about. Metrics are clear, regulatory risks are non-existent, different areas of the business are getting upgraded and fortified one-by-one, and it’s all being done with clear eye towards sustainability and profitability.
I think that’s a deal most founders would probably take allowing them to focus their energy on some combination of their areas of expertise and/or what gives them energy.
It’s admittedly not always clear from the start that early ops is a good investment, but most founders who’ve taken the plunge with the right profile,8 would make the deal again in a heartbeat.
I can’t open LinkedIn without finding someone sharing their preferred SW stack.
Which I recently learned is know as the Eisenhower Method. Go Ike!
And to be clear, many of them should be outsourced. Unless operating in a highly regulated industry, a company typically does not need an in-house legal function until much later in it’s life cycle.
There’s a lot I don’t agree with Keith Rabois on but I found this article particularly insightful.
As an old guy, I know I’m letting my bias show here.
Pricing and packaging? Marketing attribution and efficiency? Unit economics expansion? Cross-functional communication guidelines and cadences? Compensation and benefit philosophies?
Cut to analysts nodding their heads.
This is probably the subject of its own separate post.