Exploring The Rise Of Fractional Executives

Inspired by some chats I’ve had recently with executive-level talent, I want to dive into a recent trend I’ve been receiving questions about from portfolio companies/founders, candidates, and other recruiting friends in the industry - the rise of the Fractional Executive.

In response to the surging trend of remote work, the concept of bringing in fractional executives seems to have taken off quite a bit since the pandemic started (at least, I hadn’t received many requests before then!). And now, as early-stage companies preserve runway and look to reduce burn, many are looking to augment their internal skillsets by bringing in highly-specialized senior talent to get them to the next level.

Let’s delve into some pros, cons, incentive structures, and questions to ask during interviews to see if bringing in a Fractional CxO makes sense for you and your company or, if you’re an executive reading this, whether you think doing fractional executive work yourself is the next step you want to take in your career.

Defining the Fractional Executive

A fractional executive is someone, typically at the C-suite level (though I have seen this sort of role apply to ‘Heads of Sales’ and ‘Heads of Marketing’ v. Chief Sales Officers and CMOs), brought into a company on a part-time or consulting basis to provide guidance, decision-making, and operational support.

A question I’ve been asked, and an impetus for writing this article, that I want to define here, is “what’s the difference between a Fractional Executive and a consultant?”. The major, major difference is that a fractional executive should be viewed as an extension of your existing team (and thus should be incentivized as such - we will discuss this shortly) while a consultant operates separately from your company - think someone from Deloitte, McKinsey, etc. - with a different incentive structure and oftentimes different (personal) goals.

As you’re thinking through how to supplement your internal team and weighing whether to bring in someone full-time, as a consultant, or as a fractional executive, let’s examine some pros and cons to going down the fractional executive path.

The Case For The Fractional Executive

I’ll post the spoiler early - there are two key reasons for bringing in a fractional executive over making a full-time hire for the same position - cost and speed.

Using data from salary.com (and not going to dispute how accurate this information is in this article), let’s look at some executive-level roles and their median compensation range:

• CFO - Median comp: $590,300

• COO - Median comp: $674,500

• CMO - Median comp: $508,900

• CRO - Median comp: $367,018

• CHRO - Median comp: $483,830

• CTO - Median comp: $369,100

What does this tell us? Using a Fractional COO as an example, this site tells us that a fractional COO typically costs ~$10,000-20,000 per month (which I think is a bit on the high side; but they also show different numbers for median COO salary). Regardless, this tells us that hiring a fractional executive is roughly 20-30% the cost of a full-time hire. That’s huge when it comes to preserving runway as an early-stage company.

As written here, hiring fractional executives is a cost-effective way to “access the skills and expertise of experienced executives without incurring the high costs of hiring a full-time executive as an employee”.

The second reason for hiring a fractional executive is simple - speed.

A fractional executive can serve multiple purposes, but a key one is filling a gap for some period of time while a permanent search takes place. The recent a16z First Principles of Executive Hiring article states that “the average executive search takes 130 days”. If aligned properly, the fractional executive could not only assist in the search for a new candidate but also eventually become the full-time replacement - a nice try-before-you-buy arrangement for both the company and the fractional employee - and a way to cut down on the amount of time spent searching for a full-time executive.

If you’re an early-stage company, the hurdles you’re facing now likely won’t be the same ones you’ll still have in 6-12-18 months. For teams early in their development lifecycle, and those led by first-time founders or more junior members, having a fractional executive who can quickly scale up (or scale down, if necessary) is a worthwhile investment.

For example, one of our portfolio companies was looking for a Fractional Go-To-Market leader while they looked to raise their Series A. They needed someone who had exhibited go-to-market skills with API-based products, had worked on marketing developer products, and could be both strategic in developing a GTM plan but also be boots-on-the-ground during this transition time. Rather than bring in a full-time GTM leader, they sought someone for a short contract and were successfully able to raise a future round aided not only by this person’s expertise in that niche area but also through personal connections made from this leader - yet another added benefit of bringing in senior leadership at an early stage.

The Case Against Fractional Executives

There are several arguments why a fractional executive doesn’t make sense for an organization with the primary reason being that it can potentially be disruptive to the team. I personally believe a lot of these potential issues can be solved with clear communication and a clear outline from the onset - which we can discuss re: interview questions and how to incentivize people - but to synthesize a few arguments against fractional executives, they primarily revolve around lack of influence and continuity.

Both of these arguments make solid points - because these fractional executives are not permanent employees and therefore not necessarily as respected as someone internally (and are thus not necessarily a positive cultural-value-add and, at best, a neutral cultural-value-add), they may not be able to garner the respect and authority as a full-time leader, thus hurting the fractional executive’s ability to influence change, which is the singular reason they are coming into the organization. This can be mitigated by making sure all employees are aligning prior to beginning the search and ensuring that employees understand the rationale for bringing in this fractional executive.

Likewise, lack of continuity is the other potential disruptor. Especially at an early-stage company where volatility with markets and products may be the norm, keeping the employee-base relatively stable can assuage a lot of concerns employees may have around the company’s future. The lack of continuity, which I see as bringing in a fractional executive, then perhaps not having one, then looking for a full-time person creates a start-stop motion that could be disruptive if not handled properly. Again, this can be addressed through proper communication, but ideally there is some plan in place to either make the role permanent (and/or addressing what milestones need to be hit to bring the fractional executive in full-time) or have a search being conducted concurrently with bringing in the fractional hire.

The lack of continuity also can affect the ability to build relationships. Fractional executives, especially those working remotely, may not have the opportunity to foster relationships with the teams they’re working with, which affects both employee morale and overall efficacy. Any internal tension can be confusing and, once again, an argument for why defining and maintaining a strong company culture is of the utmost importance.

Lastly, please consider what sort of executive you want to bring in to a fractional role. I personally would not recommend having a fractional CEO, CTO, or engineering leader (you need that person to be a full-time hire). If you need senior-level engineering support but can’t afford a full-time hire, that’s where you can consider consultancy shops or part-time employees over fractional executives. I’ll address the other pitfall you want to avoid in the next section around how to assess a potential fractional executive.

Incentives and Assessments - The How and Who

If you’ve read this far (or skipped ahead to this section, I won’t judge!) and have determined that a fractional executive is worth your while, or if you’re an executive looking to gain an edge on your competition going into interviews, we need to determine two key things:

1. How to incentivize this person

2. How to evaluate who to bring in

GigX has insight for fractional executives around how to structure their fees but the most common structure I see if some sort of retainer model (either a set amount per month) or a small retainer combined with an hourly rate (which probably makes the most sense IMO). The hourly rate ensures tangible work is happening and allows you to track progress and see how long X takes to complete.

On the other hand, if you’re an early-stage company and aren’t looking to shell out significant money for this role, it’s imperative to start the conversation around some sort of equity or profit-sharing plan for roles such as marketing, sales, etc. I personally like this plan because it creates more of an incentive for success (though I fully understand that you can’t pay bills with equity!) and may help align for longer-term goals.

The next piece is evaluating who to bring in and getting aligned on work structure and tasks. There are four key things I like to hone in on when evaluating fractional executives:

1. Is this fractional executive work your primary role? How many other engagements do you have?

2. How hands-on are you? Do you have a reference to the last project you worked on?

3. How do you best like to communicate (i.e. text/phone/Telegram/email)? When are you best available for me and the team?

4. What deliverables can we expect from you?

I can discuss the rationale behind asking all of these questions, but I’ll let you interpret for yourself at this time. The main thing to dig into is how dedicated this person is to your company’s success and whether they’ll be the ones doing the work versus paying a significant retainer, or shelling out equity, for someone who is only going to be another “strategist” and not someone who executes.

Conclusion

The rise of fractional executives offers a cost-effective and flexible solution for companies seeking specialized senior talent. By carefully considering the pros and cons, determining incentives before the search even begins, and evaluating candidates thoroughly, this can be a fantastic way to bring top talent into burgeoning companies seeking an injection of expertise and expertise that they may not otherwise have access to at their stage.

Does this structure work for you? I would love to hear from those who have hired fractional executives and, similarly, fractional executives who have had strong arrangements with companies that have led to success.

Additional Resources/Further Reading/Inspiration (not cited in the article):

Above Board (2022, May 25). Fractional Executive Definition: What is a Fractional Executive? Retrieved from https://blog.aboveboard.com/fractional-executive-definition

Baruah, Sandeep (2023, March 28). Embracing the Fractional CXO Revolution. Retrieved from https://www.linkedin.com/pulse/embracing-fractional-cxo-revolution-sandeep-baruah/

Cocuzzo, Rich (2021, February 2). How Should You Structure Your Fees as a Fractional Executive? Retrieved from https://www.gigx.com/blog/how-should-you-structure-your-fees-as-a-fractional-executive#p1

Jannery, Beth (2023, February 1). How C-Suites Can Leverage the New Wave of Fractional Leaders. Retrieved from https://www.forbes.com/sites/forbesbusinesscouncil/2023/02/01/how-c-suites-can-leverage-the-new-wave-of-fractional-leaders/?sh=7b24b48328ae

Kabir, Mashruf (2023, June 5). How Fractional Executives Meet Revenue Targets During Recessions. Retrieved from https://salesandmarketing.com/how-fractional-executives-meet-revenue-targets-during-recess

Mitchell, Ber (2021, December 28). The Benefits of Hiring a Fractional CMO and How to Choose One. Retrieved from https://www.forbes.com/sites/forbescommunicationscouncil/2021/12/28/the-benefits-of-hiring-a-fractional-cmo-and-how-to-choose-one/?sh=4303e59fc157

NiRo Ventures. (n.d.). The Pros and Cons of Fractional vs. Full-Time Hires. Retrieved from https://niroventures.com/the-pros-and-cons-of-fractional-vs-full-time-hires

O'Shaughnessey, Sean (2023, March 29). Fractional Executives: A Cost-Effective Solution for Small- and Mid-Sized Businesses. Retrieved from https://www.linkedin.com/pulse/fractional-executives-cost-effective-solution-small-o-shaughnessey/