The fractional executive is the shiny new term for 2023. Every CEO seems to be talking about it, but is it really a useful tactic or just noise?
Given my exposure to several in-house and fractional CXOs and the startups that hire them, I’ll share my insights from the market today.
What is a Fractional Executive?
A fractional executive (often called FCXO) is a C-suite employee who provides strategic insights and leadership skills to a startup on a part-time or contractual basis. In order to provide a complete picture, let’s dive into the pros and cons. I’ll use a CMO in the points below for the example.
Recession-friendly – What you don’t need during an uncertain economy is promising expensive compensation packages, dental benefits and a 6-figure salary to a full-time CMO with 20 years of experience. Having them available as fractional, allows you to cut 90% of your cost by hiring them on a monthly basis.
Scale with your own needs, not theirs – One of cloud computing’s biggest impacts on Silicon Valley was that CEOs only needed to switch them on when they needed it. This meant drastic reductions in capital expenditure, and much more predictable operating expenses. Bringing on a fractional CMO carries similar benefits. Get them to commit more hours when designing your marketing strategy, training your staff and getting marketing campaigns off the ground. And tone down their hours when your team can use the breathing room .
Interim leader for rainy days – There’s been multiple cases where CMOs can leave a startup or be OOO for reasons beyond their control e.g., maternity leave, long-term disability, etc.
During such times, having a CMO available on-demand, who already knows your martech stack, marketing strategy and team, can be the difference between your startup stagnating versus pushing the needle towards higher revenue.
Limited availability – Some fractional CMOs may be unskilled at balancing multiple clients, despite their decade of experience in being a marketing leader. As such, they may not be available when you need them the most. Plus, their divided attention could potentially slow down decision-making or project execution for you depending on their necessary involvement.
Lack of company culture immersion – Having only four to 16 hours a week with your team, they may not have the opportunity to fully immerse themselves in your team’s culture. This may lead to strategies / ways of thinking that do not align well with the company’s brand or values, but are generally remediated fairly easily.
As you can tell, hiring a fractional executive lets you tap into top-tier talent without many of the downsides that you would face bringing on an in-house, full-time employee. That being said, just as hiring a part-time employee, you are tasked with setting clear expectations so that their time (although divided amongst other clients) is well spent on the objectives that matter the most to your startup.
How can they make your startup recession-proof?
Bringing an outside perspective that is not biased towards politics within the higher levels of your organization is likely to (a) bring a fresh set of perspectives (b) encourage/make it more natural for your team to think of lean solutions that benefit your bottom line and (c) help other mid-level managers get their voices heard. These are real use cases based on interviews I’ve had with several CMOs.
The keyword to remember here is cashflow. With the cost-saving advantages mentioned above, a well-seasoned fractional executive is able to leverage their learnings across 20+ clients to ask the tough questions:
- What roles can we merge, so we have less employees doing more work effectively?
- What existing tools, people or resources can we use to 10x our productivity?
- How can we drastically increase the quality of our work to justify an increase in the cost of our services?
- Are there excess/useless costs that we can cut aggressively? E.g., B2B SaaS subscriptions, ineffective sponsorships, daily free team lunches, etc.
- Are there ways we can upsell or cross-sell our existing customers?
And all of these reduce your startup’s exposure to the downstream impacts of a recession.
Making the Most of Fractional Executive Hires
The shinier the object and the bigger its promises, the more caution you should carry. Having spoken to organizations who have hired FCXOs, here are the actionable steps you should take to lower your chances of failure with such hires:
Be extremely explicit. You’re not just hiring part-time tech support, this person will be your co-pilot leading your startup’s initiatives in X department. You need to be explicitly clear on items like the following:
- Objectives and results you are aiming for e.g., increasing retention, training the marketing team on X, etc.
- The tactical items you need them engaged on e.g., Hubspot CRM, email marketing for audience X, etc.
- The max hours you need them engaged per week
- Expectations for communication e.g., Slack, 24-hour business day response times, etc.
Ensure alignment. This is not an intern you’re hiring – it’s an executive. And just because they’re working part-time, does not mean you can have a relaxed onboarding process.
Do note that this is a two-way street. Meaning, your FCXO should be aligned with the 4 points made above and explain their risks, concerns and assumptions during your engagement with them. Often, this is smoothened out by having a person/team as the middleman managing the relationship like I do for clients at HireCMO.
Measure, learn and adjust. Both you and your FCXO are responsible for tracking their impact within your startup via KPIs or through other qualitative means. You must establish a defensible way to do this, so that other C-suite executives and your Board are able to measure the impact of paying 4-5 figures a month for your FCXO – this is critical in the long-run and should not be overlooked.
And if the results do not measure up to your expectations, be ready to learn and adjust your numbers to be more reasonable moving forward. This ongoing feedback loop will ensure you’re maximizing their value to your team.