HR professionals VC’s and search firms may have their own take on this but here is a perspective of someone who has had to live with this challenge and the consequences.
The easy answer to how many VP’s is ‘the fewer the better’. But what is the optimum line up for the company? The right number depends in part on stage of development of the company as well as the skill set, availability and needs of the CEO. I would suggest that the size of the executive team should be small and not exceed 5 to 10% of the total headcount of companies under 100 people - i.e. maximum 3 in a company of 30 people and fewer than 5 (CEO +4) in a company of 100.
The question you have to ask is this - what positions in the organization ‘really’ require a senior officer of the company to manage them from a seniority, span-of-control or from an external perspective. A VP Sales or Business Development may be introduced early more from a relationship with large customers perspective than span of control over sales. This is generally not true of other positions (with the possible exception of a Chief Technology Officer in a market where you MUST have one).
Too many VP’s introduce unneeded expense, high level politics and process in a small company and makes it look out of touch, wasteful and bloated to the market and investors. A CEO should only let go of direct control of a department when he/she has other pressing priorities and is losing control over that function or when a VP can deliver much more value in something that is critical to the survival or growth of the firm. In short, resist the urge to off-load yourself until you must. There can be many pressures to appoint VP’s before they are critically needed and having too many or poorly placed VP’s is not an easy position to back out of. A few CEO’s have been caught waiting too long and allowing a function to get into real trouble but in my experience moving too early is more often the case.
Startups are generally not an ideal hatching ground for new VP’s. Therefore it is usually better to go outside and find someone who can tell you what the job is better than you know it yourself. Insiders who have grown up in the company typically underestimate the entire job and see it as a progressive increase in responsibilities over what they had previously (not many could write the full job description for the VP position). Clearly some startups have been successful in graduating from the garage to world class operators in their space but bringing along the first few employees as the executive team is really the exception with lots of painful lesson learned along the way.
Where to start - Depends on what the CEO needs:
VP Finance - CFO
After a controller is in place a VP Finance or even a CFO (possibly part-time) is ideal if there is to be significant and ongoing financing activities in a complex round of financing or Mergers and Acquisitions environment. A sharp CFO is a great addition to the team, calms the nerves of investors and eases any due diligence activities. This person also adds to the valuation of the company on several fronts during investment rounds or M&A. Firstly they add to the value of the TEAM the buyer/investor is looking at and additionally, as the right hand to the CEO, can help in the creative fine tuning of a credible valuation presentation, future earnings projections, etc. A good VP Finance or CFO is a great sounding board and keeps you honest.
It is a given but integrity in this position is paramount, followed by finding simple and cost effective administrative solutions for the company so that G&A is always at or near best-in-class.
VP R&D - CTO
After and R&D or Engineering manager is in place a VP of R&D might be required as the team grows in complexity (multiple technologies or product cycles or subcontracting components) or is dispersed or outsourced. Sometimes this position can be initially combined with VP Customer Support and sometimes QA. If you are in a market space where your customers are highly technical then a Chief Technology Officer might be the right choice even before a VP R&D but both in a small company is often not justified.
I find hiring this position to be difficult and I try to separate the pros from the also-rans by asking how they measure productivity in R&D/Engineering. I still have not heard the perfect answer.
VP Sales - VP Sales & Marketing - VP Business Development
VP Sales/Business Development as stated earlier might be introduced early to relate to large customers and help the sales people call at the right level. Often this position is initially a VP Sales & Marketing when Marketing is primarily sales support but as the company grows and Marketing becomes broadened into real Product Management, Pricing, Positioning etc. then Sales VP’s who are often very short term focused tend not to have unbiased leadership in these areas. One issue I find in VP’s of Business Development is the definition of the role. Do everyone a favour and make sure this position is well understood/documented and has tangible metrics as definitions abound.
Again a key question here is around operational effectiveness - how do we know we are getting the maximum yield out of our sales efforts against best-in-class yields for this business. Beyond the numbers I have always relied on the accuracy of forecasting in sales to understand if the manager ‘understands’ their business and has some control over it.
VP Manufacturing and QA
Clearly driven by the volume and complexity of your operations and is an early addition if manufacturing is a critical element of your business especially if certifications such as ISO are required. QA is often initially grouped with Manufacturing as most modern manufacturing operations put QA at the center of their planning and operations. Later QA may be a separate function.
Other positions such as HR, Customer Service (sometimes grouped with R&D), IT (sometimes grouped with Finance), or International VP’s and any other relevant positions are usually span of control and complexity driven or in the case of an International VP may be needed as a focal point and executive presence of the company in a remote geography.
Some Do’s and Don’ts
Do Not:
Do not use a VP title as a carrot for good employees if it is not in the best long term interests of the company or in their best interests. You need to imagine the ideal candidate in the job and by all means look inside to see if you have a Best in Class person for the job. This person needs to be able to do the job out of the gate or be coached into it quickly. You may seriously damage the career of a valued employee by promoting them to a position that they could not maintain in the industry at large. If their career takes them elsewhere for any reason they may be hard pressed to be accepted into a similar position putting their resume and the rest of their career in jeopardy.
Do not reward or appease founders with VP titles. As above they need to earn this position by showing capability at this level or be coached in the short term into the full job.
Do not reward investors or their delegates with VP titles. I don’t have to tell you the myriad or reasons for this.
Lastly, you are in charge and responsible for your choices. The choice and growth plan for your executive team is one of the most critical decisions you will make.
As always, your comments are welcomed !!!