Why you shouldn't give yourself the CEO title...yet

How important is a Chief Executive Officer (CEO) in a start up? Not very if the construction start up is a trade contractor. Before you go nuts….. 

Very few, if any, young trade contractors have a CEO when they are founded. Having someone with the CEO title does not mean the contractor has a CEO.  

The concept that a CEO is not initially important may take a little time to get your mind around. If it wasn’t for my work with startups over the last decade, I would have said the CEO was very important to a startup contractor.  

The key to beginning to accept the concept lies in the context. The context is a startup or young contractor and understanding the world mostly references Fortune 500 or well-funded start up when discussing CEOs.  

In companies with a fully developed C-Suite, a CEO’s job is to: 

• Report to the Board of Directors on what is going on inside the business and get their guidance on challenges. 

• Set goals and a clear execution plan for the business. 

• Manage the rest of the C-Suite to make sure they are working together to execute the CEO’s goals. 

• Decide on major investments and allocation of capital.  

Fortune 500 companies have a fully developed C-Suite with a CEO, COO, CFO along with a CIO, CTO or CMO depending on industry. Well-funded startups can begin with a fully developed C-Suite too. 

Because Fortune 500 Companies and well-funded startups begin with a fully developed C-Suite, a CEO’s days are filled with meetings — whether that is with team members, the Board or other stakeholders like large customers. CEOs aren’t working on products, delivering services or paying bills. Founders that love their trade need to make note that a typical CEO’s day is filled with meetings. Meetings with topics that are very far from physical construction activities.  

Every stakeholder is the CEO’s boss, because the CEO’s is accountable to every stakeholder in some fashion. A CEO cannot achieve established economic goals without buy-in from stakeholders such as bonding companies, banks and other leaders.  

A day of meetings is not possible until a certain scale is achieved. For a boot strapped startup contractor there is no time or extra resources to manage beyond what is necessary to execute the contractor’s scope of work.  

Founders of startup contractors wear many hats because there simply is not enough bodies or capital to fill all the needed positions in general, and the C-Suite specifically. 

A Founder’s real job is executing high value and hard to fill roles like estimator and managing the execution of the contractor’s scope of work until other team members with the required skills can be hired or developed. Founders must do what others cannot or will not do in the early startup years.  

Let’s look at the key activities below and who handles executing these activities for a boot strapped startup contractor.  

Formation and Initial Step Up are all performed by the owner. None of these are Chief Executive Officer (CEO) responsibilities.  

• Choosing a name with a preferred Dot Com domain.  

• Crafting the legal corporate documents and setting up the required tax numbers.  

• Choosing a bank and an insurance agent or company.  

• Purchase the insurance needed for the contractor’s scope of work.  

• Picking the first advisors such as a corporate attorney, and accounting firm. 

Receiving bids, submitting bids, and executing contracts are usually all performed by the owner. None of these are CEO responsibilities. Contracts can be signed by the owner.  

Building the labor team necessary to execute contracted scope of work is usually performed by the owner as the COO.  

Building the team necessary to execute the business of contracted scope of work is usually performed by the owner and a bookkeeper or office manager. Rarely are these activities given the required priority, skills or resources because the owner’s focus and time is spent estimating and managing projects. These activities cannot be fully delegated, but often are to a bookkeeper or an office manager that does not have the experience or skills needed to consistently execute the business of a trade. They can be delegated to an experienced business manager. Bookkeepers and office managers have experience in managing construction business systems once they are built. Someone must build them first. Future posts will take a deeper dive into the experience and skills needed to build construction business systems in future posts.  

If the information above tracks for you, an estimator, COO and business manager are all more important than a CEO to a startup trade contractor.  

The mistake owners of startup contractors make is they spend too much time and energy focusing on becoming a CEO that is not needed and begin delegating COO and estimating responsibilities too early. Way too early.  

Delegating the estimating responsibilities is the most troubling. Rarely can a startup contractor recruit and pay an experienced estimator. Until an experienced estimator can be recruited and is affordable, estimating should be the last responsibility an owner delegates as they owner transition into a full time CEO role.  

Owners can keep estimating and operational responsibilities with revenue approaching $10,000,000 per year and above.  

The owner-estimator can be supported by an assistant estimator. Being supported by an assistant estimator is a great way to train an estimator.

Because very few trade contractors are able and willing to train estimators, many times trade contractors over pay estimators or hire weak estimators because one is “needed”.  

Neglecting or delegating estimating too early comes with great risks. Owners should be intentional hiring or training the first non-owner estimator.  

Consider the three skills needed to consistently scale a trade contractor.  

• Good at a trade | Primary responsibility of the COO 

• Good at the business of a trade | Primary responsibility of the CFO 

• Being able to manage the cross functional activities that require a trade and the business of a trade to be in sync | Primary responsibility of the CEO. 

If these three skills are needed to consistently scale a trade contractor, why isn’t a CEO important to a start up? Because managing cross functional activities requires little to no management in a construction startup.

Most communications in a construction startup happen one on one, or in occasional short, small group meetings. One on one communication and small group meetings are very efficient when team members are juggling multiple positions.

As company scales and team members become more focused and specialized communication becomes less efficient, gaps in responsibilities develop, and the team begins to fragment, especially between the field and the back office. Keeping communication efficient, finding and addressing gaps in responsibilities, and managing cross functional activities to prevent the team from fragmenting becomes a full-time job for the CEO at scale.  

Most owners find the COO role comfortable. So comfortable in fact, they never stop being the COO even when they believe they are the CEO. Thus, the contractor has a CEO in title only. Owners cannot allow a COO promoted to CEO to still focus on being COO and neglect managing the cross functional activities.  

Contractors with a COO as the CEO cannot sustain consistent scaling, nor will the contractor achieve Full Economic Value.  

Externally, titles are effective at communicating someone’s role. Internally, titles are ineffective, and likely create confusion and long term challenges within a construction startup.  

Ineffective | Startups seldom, if ever, have all the necessary skills and bandwidth to fill every position. Without the necessary bandwidth, team members will have responsibilities associated with many different titles. A single title may unintentionally prioritize the responsibilities traditionally associated with the title leading to other responsibilities being neglected.  

Confusion | Picking a single title creates two immediate internal challenges for a construction startup. Other team members may not respond well to another team member managing responsibilities traditionally outside the other team member’s title, and the team member may begin neglecting responsibilities traditionally outside their title.  

Long Term Challenges | Titles being ineffective and confusing internally are aggravating, the long-term challenges that can be created can lead to loss of valued relationships or talented team members. Many times, businesses are started with beliefs about titles that are incorrect due to lack of experience. Lack of experience can lead to titles being given to people whose skills do match the responsibilities of the title. Allowing the person to continue working with a title that does not match their skills will become a barrier to scaling. It is very hard to take away a title from a team member without causing the person embarrassment. Embarrassment that will likely cause the team member to leaving with hard to replace skills. These challenges can be avoided by using titles that convey the right authority but are broad and vague as it relates to responsibilities. Titles such as founder and business manager. 

An owner can use the title of Founder until the contractor reaches $10,000,000 to maybe as much as $20,000,000 in annual revenue on most trades. Founder conveys authority externally and is vague enough not to create internal challenges. This allows the Founder time to learn to manage cross-functional activities required of a CEO. If there is more than one Founder, Co-Founder titles can be used by all the owners until someone becomes the clear candidate for the CEO position.  

A founder supported by an experienced business manager allows the founder to focus on high value activities like bidding and building a team able to consistently execute the contractor’s scope of work. Someone from this team needs to be able to grow into managing the contractor’s operations (COO) while the founder is growing into managing the contractor’s cross-functional activities (CEO).  

Business managers can be hired. Startups rarely can hire a COO that is qualified without financially seeding a future competitor.  

Closing Notes: 

Purpose | The purpose of a contractor is to consistently execute a scope of work within plans, specifications, and industry tolerances.  

Startup | Initially cross-functional activities can be addressed in one on one or small group meetings that become less efficient as the contractor scales.  

Burn Out | Very few founders can manage their trade and the business of trade without burning out. Burned out founders struggle with consistent sustainable execution.  

Sustained Scaling | Team members, SOPs and systems need to be nurtured and managed by the CEO to support cross functional activities via established goals and leadership.  

Culture | Establishing culture is usually a CEO function that needs to be defined from day one. A contractor’s culture needs to be understood and applicable to every team member’s responsibility from a laborer to the owner. A startup contractor needs to focus on building a culture of execution by focusing on executing scope of work to meet client expectations. Future posts will take a deeper dive into building and nurturing a culture of execution within a contractor.