In the startup arena, limited resources combined with dwindling capital can make it challenging to gain a competitive edge. Startup founders must be strategic in their budgeting efforts because the tightening financial markets have made it increasingly difficult to obtain the funding needed to expand and scale business operations and staff. A part-time fractional C-suite executive can provide your startup with leadership, expertise, and strategy at a fraction of the cost of hiring the same executive as a full-time employee.
What is a fractional executive?
According to Forbes, fractional hiring is today what freelance work was 20 years ago. A fractional executive is a high-level professional who works part-time or on a project basis for a company, typically in C-suite roles such as CEO, CFO, COO, CMO, or CTO.
Fractional executives are hired by startups, small businesses, and companies in transition or growth stages who need access to specialized expertise but don’t require or can’t afford a full-time executive. Fractional executives work remotely or on-site, providing strategic leadership, guidance, and implementation advisory support for a specific business area.
Startups should consider hiring fractional executives based on their specific needs and resources, but there are many factors to consider. We’ll dig into those here.
Benefits of Hiring Fractional Executives
In the same vein as the value an experienced freelancer can provide to a startup without the commitment of a full-time salary, benefits, etc., a fractional executive can offer you the full scope of their expertise and industry relationships without the price tag of a full-time C-level executive. Several benefits come with this strategy.
- Cost savings: The average C-suite executive makes $330,000-$622,000/year before adding bonuses. Many startups can’t afford this expense. The cost of a fractional executive ranges between 19 to 31 percent of a full-time employee, offering a much more cost-effective solution. This allows startups to access the skills and expertise of experienced executives without incurring the high costs of hiring a full-time executive as an employee.
- Access to specialized skills and experience: Whatever point your startup finds itself in, you can likely find a fractional executive who can provide insight into your specific industry, funding stage, operational track, or whatever executive outlook you hope to acquire. Fractional executives can often offer a fresh perspective on business challenges and opportunities. They can bring new ideas and approaches to the table based on their previous experiences and relationships established while working with other companies.
- Flexibility to scale up or down as needed: When you work with a fractional executive, you can access their expertise at whatever cadence works at any given time. You might find that you only need their input for a specific growth phase and can move on from it with no hard feelings. They might also align perfectly with your long-term strategy and can easily increase their involvement or hire them full-time.
- Reduced risk and commitment compared to full-time hires: Expanding your C-suite is a risk no matter what stage you are at in your growth. This means that your firm can benefit from the fractional executive’s expertise without committing to a long-term employment contract, which can be particularly beneficial in the early stages of growth when you don’t have a steady stream of revenue. During times of economic uncertainty, there is a significant benefit to “auditioning” a C-suite executive in a fractional role and seeing how their specific expertise can impact your operations, finances, etc.
Considerations of Hiring Fractional Executives
While there is much to gain for early-stage startups hiring fractional executives, some things worth considering could make for a not-so-great outcome. The concept is still in its early stages, and you won’t find one strict way of introducing this role to your close nit startup team, so the following are some considerations to be aware of.
- Potential communication and coordination issues: Because this role will most likely be remote, and you won’t have the consistent access you would for a full-time employee, you may run into communication hurdles at the start. To minimize this, try to determine as many logistics as possible at the beginning and set clear expectations for everyone around the following:
- What days and hours will the individual be “online” and available to the team?
- Who on the team will have access to them?
- What are the agreed-upon specific engagement goals, deliverables, and outcomes?
- How often and when should check-ins be conducted to avoid burnout?
- Potential lack of alignment with company culture and values: Although you won’t be integrating this individual into your culture full-time, it’s still critical that they align with your company’s ethos and value system. The fractional executive will significantly impact your trajectory, and making sure they take you in the direction you want to go will depend on whether they are aligned. Your interview process with a fractional executive should include any of the standard “culture fit” questions you would ask a potential full-time employee.
- Potential difficulty in integrating with the rest of the team: Ensuring your fractional executive integrates into your culture is essential to mutual success, especially for remote teams. Ad hoc decisions and rapidly shifting priorities are common in the startup environment. A part-time executive hire may not always be top of mind to include in those conversations. To assist with this, make sure you introduce your fractional executive hire to your entire team in a formal way, announcing them as you would any other full-time employee. You can decide with your fractional executive whether the whole team can message or communicate with them as they would a full-time C-level. Once settled, share this with the team so those who have or won’t have access directly will know the parameters you agree to. You can also organize new meetings or include them in regular team calls or meetings where they can be consistently visible and contribute.
Factors to Consider When Deciding Whether to Hire Fractional Executives
If you are on the fence about introducing a fractional executive into your startup environment, there are a few factors you can consider to help you make the decision:
- Stage and goals of the startup: Are you definitely in a position that requires executive leadership? Are there decisions you need help making that require specific executive-level experience of someone who has been there many times?
- Resources and budget available: Be aware of your needs vs. your resources. Typically series A-funded companies, or those planning for first-round funding, find value in fractional leadership hires who can bring resources, credibility, and industry connections to help secure the financing.
- Company culture and values: Do everything you can to keep your morale high and your business needs met. Don’t compromise your company’s reputation to accommodate the needs of a primadonna fractional executive candidate. They are likely not the best fit for you or your company.
- Existing team dynamics and capabilities: Try and balance your existing team dynamic with what makes the most financial sense. In other words, be conscious not to have too many cooks in the kitchen with similar expertise, as this will confuse roles and responsibilities. The fractional executive should genuinely fill a gap in a specific area of expertise and/or experience that does not exist on the team today.
- Availability and quality of fractional executives in the market: When the time comes, ensure you have the complete picture of the level of expertise available to you and at what cost. There are a lot of C-Suite executives in transition in the market, and some may make for a good temporary fractional or dedicated interim leader. But, TRUE fractional executive consultants have decided they ONLY want to do project work and are not looking for their next full-time job. Hiring an executive in transition could put you at risk if they keep their job search open and decide to leave you mid-project to accept a full-time job elsewhere. Be sure to be clear about your willingness to consider them for full-time employment or not, what the timing is, and what your expectation would be for giving notice and transitioning work should they leave your engagement before the contracted end date.
Need help finding a fractional executive? Hiring a fractional executive can be a smart and strategic move for startups and small businesses that need access to specialized expertise and leadership but don’t require or can’t afford a full-time executive. Before deciding whether to hire a fractional executive, it’s important to consider your startup team’s specific needs and resources, the market conditions for that particular role, and the compatibility of the fractional executive with the company culture and team dynamics. Doing so will maximize the potential benefits of hiring a fractional executive and effectively achieve your long-term goals.
Are you looking to gain part-time, on-demand access to experienced leaders at a fraction of their full cost? Are you seeking specific help to strategically guide your leadership team’s key business decisions to minimize costly mistakes? Learn more about TalentRise’s services here.
This blog was authored by Carl Kutsmode.