fractional executives

The war for talent is real. Feedback from the hundreds of CEOs that have participated in AFN’s CEO Roundtables confirms that companies must be creative to source and retain top talent. Even before Covid-19 emerged, leveraging fractional senior talent had become an essential tactic in building successful companies. The current pandemic has accelerated this trend as remote work and distributed teams have become far more accepted. Leading companies have realized that sourcing senior world class talent from outside of their company, industry, and home country on a fractional basis will lead to more productivity, higher levels of innovation, lower costs, and overall better results.

All companies outsource certain functions, but increasingly top-performing companies are only hiring full-time employees for their core functions. Nearly every other function can – and should – be outsourced. If it’s not core to your business, why do it?  This provides significant leverage and makes these companies much more productive. This is evidenced by the fact that many PE and VC firms look at revenue per employee as a key performance indicator.

What Exactly is a Fractional Executive?

Fractional executives are engaged with companies in a part-time or fractional capacity, and may work with several companies at once in a senior or C-Level role.

What Are Some of the Primary Reasons to Use Fractional Executives? 
Higher Quality Talent

Certain skills and expertise can be very difficult to find, and therefore companies realize they need to adapt to changes in senior talent preferences. An HBR Study found that 2/3rds of surveyed CEOs expected to increasingly “rent,” “borrow,” or “share” talent to meet specialized needs. 

The demand for specialized talent is better matched by a more flexible workforce.  Seasoned executives are increasingly deciding to become freelancers versus working full time in one company.  Fractional roles allow more flexibility in their schedules, they can pick engagements they are excited to work on, and often they can earn more than if they worked at one company.  According to the Freelance Forward 2020 report, 36% of the total US Workforce is doing some freelancing, and these numbers are growing.  These are not just low-skilled workers.  UK research revealed that 59% of the gig economy workforce are knowledge and professional workers as noted in this HBR article. Many consider freelancing as a key component of the Future of Work. 

Increased Innovation

McKinsey and many others have concluded that meaningful corporate innovation requires external collaborators.  Diversity of ideas is critical to enable true change and progress.  Engaging a fractional executive with a certain skill set from another industry, or geographic region can challenge long-held company viewpoints therefore could lead to dramatic change and improvements. Non-full-time executives are also less susceptible to office politics that could squash creative ideas.

Lower Costs

High quality fractional talent will not come cheap, but will typically be a far lower cost alternative to full-time hires.

  • Full-time employee benefits can be substantial including healthcare, vacation pay, relocation and signing bonuses.  Accelerance estimates that full-time benefits account for approximately 33% of a workers total cost to a company.
  • If there is not a need for a full-time executive there are meaningful cash and equity savings by bringing on a fractional executive.  Even larger costs will come if you make a mistake on a full time hire including missed deadlines, poor work product and negative effects on your broader team and culture.
  • Time – It typically takes 6+ months to bring on a senior hire with numerous interview cycles, chewing up your time and your team’s time. Important projects can also be delayed.  Missing your market window can be existentially important, determining whether you win or lose. Interim or fractional executives can fill critical talent gaps within weeks. This individual may eventually end up joining full time, or you can decide to keep them engaged long term on a fractional basis.
Are There Any Risks Involved in Engaging Fractional Executives?
  • Loyalty – While full time employees may have more loyalty to a company in the long term, it is in the fractional executive’s best interests to maintain strong relationships with all of their clients given time and opportunity costs of finding new clients, as well as their desire to have strong references.
  • Intellectual Property theft – It is critical that employers require fractional executives to sign agreements that require confidentiality and assignment of IP they create during the time they work/consult for the business, just as they do with full time employees.
  • Results – Fractional executives are incentivized to deliver strong results given their desire for referrals and good references. Employers should make sure engagement agreements with fractional executives have clear deliverables, and if possible, make these deliverables tied to overall compensation, including possibly success or equity based compensation.
What Are the Best Ways to Find Fractional or Interim Executives?
  • As with full-time employees, suppliers, and partners, referrals from employees, investors and other trusted relationships are the best way to find quality fractional executives. 
  • Linkedin is a go-to resource for both fractional and full time hires.
  • Specialized fractional executive firms and recruiters can be a good resource for vetted candidates.
  • Freelancer marketplaces are more risky ways to source fractional executives given quality is unknown.  Always check references.
Questions to Consider

Ask yourself these questions to determine if you can effectively use a fractional executive. 

  1. How specialized is the skill set I need?
  2. How hard is it to find someone with that specific skill set?
  3. Do you need this skill set 100% of the time
Call to Action

If you’re considering hiring fractional level talent, we’d love to hear from you at Advantary. We are a partnership of about 30 seasoned executives and entrepreneurs that can help growth-stage companies on a fractional or project basis in a variety of areas including Sales/Revenue optimization, Marketing, Product, Compliance, and Digital/Data Strategy.  If we don’t have the skillset in our team, we can likely point you in the right direction. 

If you’re an executive making the jump to a fractional role, we would also be happy to speak with you. 

Conclusion

Engaging fractional executives has become a proven way for large and small companies to efficiently access top talent.  Competitive dynamics in nearly all industries require executive teams to source talent globally.

About the Author

Andy Scott is a Partner at Advantary, LLC and is focused on Growth, Capital Markets, and IP Strategy engagements.

Before joining Advantary, Andy launched multiple high growth startups across various industries. Within the IP realm, Andy co-founded a leading patent strategy and brokerage firm, as well as was an early executive at RPX which went public three years after inception and built multiple businesses to help companies manage patent risks. Andy was named as one of the ‘Top 300 World’s Leading IP Strategists’ by IAM Magazine.


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