COO or managing director: which to hire first

Most owners who decide to step back make one senior appointment first and a second one later. The first is usually either a chief operating officer or a managing director. Which one is right depends on where the owner's time goes today and how soon they want to hand over overall control.

What each role takes off the owner

A COO takes over the running of operations: delivery, production, scheduling, purchasing, quality and the people who do that work. The owner stays as managing director or CEO and keeps the commercial relationships, the strategy and overall responsibility for the P&L.

A managing director takes over the whole business, including the P&L, the senior team and, over time, the key customer relationships. The owner moves to chair, non-executive director or shareholder.

So the question to answer first is which part of the job the owner wants to give up now, and which part they want to keep for the next few years.

When a COO should come first

A COO is usually the better first hire when:

• The owner's week goes on operational problems, while the customer relationships and new business still depend on them personally.
• The owner wants to remain in charge for several more years and has no plans to sell soon.
• There is no strong operations manager in place, so operations would be the first thing to fail if the owner stepped back.
• The owner wants to test whether they can delegate before handing over the top job.

A COO appointment is also lower risk for an owner who has never shared authority before. The owner keeps the final say, and the business learns to run with decisions made by someone else.

When an MD should come first

An MD is usually the better first hire when:

• The owner wants to hand over overall leadership within one or two years.
• Operations already run well under an experienced manager, and the owner's load is commercial decisions, pricing and the senior team.
• A sale is planned in the next two to three years, and buyers will want to see a leader other than the owner in charge.
• The owner's health or personal circumstances mean the timetable cannot be extended.

If a sale is the aim, the timing matters. A buyer gives credit for an MD who has run the business through at least a full year of trading. Hiring a COO first and an MD later can push the sale back by a year or more.

The COO who expects to become MD

A common sequence is to hire a COO now with the intention that they become MD when the owner steps back further. It can work well, because the successor learns the business before taking the top job and the owner sees them perform first.

If that is the plan, say so in the brief, and set out the conditions and the rough timescale. Candidates who want to become an MD will ask, and those who join on a vague promise tend to leave when it does not happen. If the owner has no intention of stepping back, do not imply that they will. Hiring a COO with the MD role dangled, then not handing it over, is one of the most common reasons these appointments fail.

When the owner should report to the new MD

Some owners enjoy the operational or technical side of their business and dislike the commercial and administrative load that comes with running it. In that case the right structure can be an external MD with the owner reporting to them, in an operations, technical or business development role.

This is common in engineering businesses, where the founder is often the strongest technical mind in the company and wants to stay close to the work. It only works if the owner accepts the reporting line in practice, including being overruled. Agree how decisions are made before the MD starts, and agree what happens if the arrangement is not working after a year.

Mistakes to avoid

• Giving an MD the title without the authority. If every significant decision still goes to the owner, the MD has the role of a COO with the expectations of a CEO, and good candidates will not stay.
• Expecting strategic leadership from a COO. A strong operator may not want to set strategy or manage the board, and should not be judged against a brief they were not hired for.
• Hiring for the size the business is today. Someone who runs a £5m business well may not be the person to take it to £20m. Brief for the business you expect to have in three years.
• Skipping the conversation with the existing team. A long-serving operations manager who expected the COO job may leave. Decide in advance how to handle internal candidates, and tell them before the external search becomes public.

Both appointments are usually run as a confidential retained search, because the strongest candidates are in senior roles elsewhere and are not looking at job adverts. Our succession recruitment page describes the four appointments that take an owner out of the day-to-day and how the search runs. If the MD route is the right one, hiring a managing director so you can step back covers the brief, the package and the handover.