Help! Does a solopreneur with an online business need a COO?

Help, please!

I'm in the middle of a discussion with a LOT at stake if I advise my client incorrectly.

Let me explain . . .

I'm working with a client who is almost ready to launch a business that is essentially an online service.

The business is largely built around this client (she's a definite personality!) and the training she offers that consists of live webinars, as well as recorded audio and video support available to her clients through her website.

She's been approached by someone who's offered to be her Chief Operating Officer.

I'm concerned about the terms being offered: 10% of gross revenues and 10% equity that he can demand be cashed out at any time, within 30 days notice. Given that this person is not willing to put any money into the business (so far programming costs are about $70K and not over yet!) and he isn't giving up his other job (as my client did) I am dubious.

But . . . my real question is this: Does such a small firm -- basically the owner and some 1099 vendors -- even need a Chief Operating Officer in the first place?

I'd love to have some thoughtful input from my fellow biznikers on this one!

Thank you in advance.

Bill

Converting competence into compensation

8 Bizniks have posted replies

Posted by Roberta MacLaren, Gresham, Oregon | Oct 02, 2008

Bill, I just ran across your question, I am surprised that no one has offered an opinion.

My first reaction to your question is, no. This is the beauty of being an Indi-professional or solopreneur. You are the business until you truly need to expand. Then it should be on your own terms.

I am no lawyer, just a marketing nut, but I certainly wouldn't want such terms without an initial investment. Maybe a title such as Operations Manager, besides, how can you be Chief without anyone to manage?

This is a red flag for me.

I hope this helps, but maybe a lawyer would be the person to ask.
Posted by Bill Doerr, Kensington, Connecticut | Oct 02, 2008

Roberta --

Thank you . . . for your response. I agree it seemed odd no one else responded. You're a leader! ;-)

You confirm my own thinking on this matter. And your point about not having anyone to manage is, well pretty darned obvious, isn't it.

As for the 'investment' not being an investment of capital but rather expertise applied for a specific outcome, that's a call the client will have to make.

My only suggestion is that any agreement she makes should define specific metrics to evaluate this person's performance so that the value provided if not in money but in moneysworth aligns with the expectations of both parties for the compensation to be derived.

Good thinking Roberta! Thank you for posting.

Best,

Bill

Converting competence into compensation
Posted by Dennis Dilday, Everett, Washington | Oct 03, 2008

I agree, NO. Why not farm out what she doesn't do herself instead of getting into something that could help her be a failed business statistic down the road.

If this person has so much offer, he could package it for her and contract it.

DD

Activator Methods Chiropractic Technic in Everett, WA
Posted by Barry Hurd, Seattle, Washington | Oct 03, 2008

I'm concerned about the terms being offered: 10% of gross revenues and 10% equity that he can demand be cashed out at any time, within 30 days notice.

I would be very concerned with the 10% being cashed out after 30 days... what kind of COO signs on with the expectation he can bail with 30 days notice and no equity investment???

Even if such a clause was put in, I would tie it to a 12, 18, or 24 month work agreement associated to the ownership. I would also put any equity ownership on a six month or longer transaction plan, else the company risk losing operating budget at the wrong time.
Posted by Bill Doerr, Kensington, Connecticut | Oct 03, 2008

Dennis and Barry --

Thank you both for your comments.

You're reflecting my own sentiments on the matter.

I'll be sharing what you've said with my client and I assure you that you've added a great deal of cogent and coherent thinking in what you've shared that will definitely inure to this client's benefit.

Thank you both very, very much!

Any 'issues' you're grappling with that I can offer you my input to address? If so, please ask. Always glad to return the favor.

Bill

Converting competence into compensation
Posted by Flip Books, Entertainment & Events, Washington | Oct 18, 2008

Bill, i have professional partnering lawyers if needed. They have given me a few suggestions that I will pass on. the idea of sweat equity is equal to investment money if they follow through. What I suggest is stage the payout according to performance. More sales higher levels of earnings. There are also two conversations to have. One is equity and the other is sales. Put both these on a performance level and she will be safer. Another way is to make a short term contract that is only for six months. I hope this gives you some ideas.
Posted by Lori Moore, Greenville, South Carolina | Oct 21, 2008

I have actually worked twice under a sweat equity agreement. Myself being the one sweating. However, to this proposal, I would say a big absolutely not!

For all of the reasons mentioned, and more. This is a disaster in the making. Your client would do well to contract out help if and when she is in a position of needing it. One of the better points of starting and growing your own business, is that YOU are the COO.
Posted by Bill Doerr, Kensington, Connecticut | Oct 22, 2008

Louis and Lori --

I've been out of town for a week. Thank you for your response to this issue.

I suggested the sweat equity factor, aka "money or moneysworth" is a legitimate form of capital investment -- just as barter is a form of currency.

Lori, your comment about a 'disaster' in the making is talking to my own sensibilities on this matter.

In Michael Gerber's E-Myth program he points out that leadership is so key to every aspect of your business and it invariably means you can't abdicate your responsibility to make the decisions to someone else. Good advice.

Thank you both again . . . right on advice!

Converting competence into compensation