Written by: Hanadi El Sayyed
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In part 1 of this series, we defined what fractional employment is and its benefits. We also explained why companies should start integrating this model in their workforce planning strategy
In part 2, we explore why fractional employment is an excellent strategy for startups.
Among the many hurdles a startup faces, talent consistently ranks as the single greatest challenge for founders. Attrition of talent and a constrained budget to attract C-suite executives are the two dimensions to this talent challenge.
According to the Kauffman Foundation 2016 Index Startup Activity, attrition in startups in their first year exceeds 25%. Founders juggle so many roles that they don’t have adequate time or resources to seek out, recruit, vet, train, and onboard top talent effectively, knowing that recruiting stellar talent that has the same level of shared purpose and context is not a luxury but a critical need for startups to succeed. Access to best in class talent and the speed with which it is sourced, onboarded, and integrated into the team matter massively and are critical requirements for a startup’s liftoff. Startups that lack the proper workforce will find it challenging to stay focused on product development, customer service, and market growth.
“Full-time employees are the most expensive and least flexible source of labor, qualities that make them unattractive to corporate America and Silicon Valley startups alike.”
Diane Mulcahy – Author of The Gig Economy: The Complete Guide to Getting Better Work, Taking More Time Off, and Financing the Life you Want
The other dimension to the talent challenge that founders face is the ability to attract and recruit executive-level leadership. Whereas formerly, C-suite teams were typically associated with enterprise-level organizations, today, there isn’t a precise formula or universal indicator as to when C-suite executives are required, especially for startups. One of the biggest frustrations that founders face is their inability to afford executive leadership that would help them succeed. Fund constraints render founders unable to hire their CFO or CMO or even a CTO full-time when they need them and at the right stage of their startup.
Additional Read: Why You Should Hire A Chief Operating Officer (And When To Do It)
In part 1 we established that fractional employment could offer a wealth of benefits to all types of enterprise companies. Startups are no different. They too are businesses that face and deal with challenges in marketing, HR, finance, technology, and sales. They should not be forced to compromise on the level, quality, and the size of the workforce they need to thrive. That makes fractional employment especially relevant to them, the primary reasons coming down precisely to the above two points: 1-access to top talent and 2-budget.
The gig economy presents a new paradigm for startups to engage with best in class talent, at all levels, on-demand, and at a fraction of a cost.
Let’s dwell a bit more on the benefits of fractional leadership in startups. First, to put things into perspective, fractional executives are leaders who become a part-time addition to the C-suite or executive leadership of a company. Carrying long years of corporate experience, they are high-level freelancers that work only a percentage of full-time but can bring the same credibility and skills to an organization as a comparable full-time hire.
This is exactly what startups need.
Additional Read: Even Senior Executives Need a Side Hustle
The benefits of hiring a fractional executive at startups are summarized below:
A big challenge for entrepreneurs is often about identifying the right time to bring in executive talent to scale systems. In legacy workforce planning models, a full-time executive is hired and onboarded prior to the associated anticipated increase in revenues, which strains the budget in terms of cost and will negatively impact profitability. With fractional executives, however, founders have the flexibility to engage the fractional executive at the same time as the anticipated growth. Additionally, a fractional executive typically needs less training upon onboarding because of their higher experience level, and this means gained efficiencies very early on.
Startups cannot afford full-time executives. Hiring a fractional executive allows startups to overcome the full-time price tag hurdle, especially that of executives with big brand experience. Marc Prisant, former Executive Vice President & CFO of the Steadman Philippon Research Institute in Vail, Colorado shares, “The advantage of a fractional executive is that companies get 100% of their expertise and brainpower, without incurring 100% of their true cost. This preserves margins and the bottom line.” For example, and as a guide, a 15% share of a full-time competent CFO’s time (approximately 30hours/month) should be sufficient.
Founders of a startup must maintain focus on their vision and mission. Although talent acquisition and management are critical components of a company’s success, with high attrition among startups, managing the process of finding and recruiting top talent comes at the expense of focus on product or business development. Fractional executives free up a founder’s time for bringing the vision to life. Whether you need a CFO, CTO or CMO, you are sure to find the talent that you need with fractional employment model. Applying this model can make up for the team’s shortfalls and enable the startup to achieve its business goals.
It’s worth mentioning that, luckily, technology has made it easier to access executive talent and even contract them remotely.
Finally, fractional employment is an attractive option for startups that are operating with tight budgets. While this financial advantage exists for almost every company, it is especially relevant for startups. Many startups have negative cash flows. Others may be at the pre-revenue stage. While invested capital may keep these startups afloat, they must still carefully watch their budgets. Fractional employment can go a long way here, as they let startups leverage game-changing talent without breaking the bank. The best-case scenario? The company gets immense value out of the fractional employee while paying them less than the average full-time employee.
In simple and few words, fractional recruiting is a game-changer for startups.
