The rise of the fractional CXO

Companies are struggling to keep employees – and not just at the lower levels. 70% of high-level executives are seriously considering quitting their jobs to improve their work-life balance. A new role has appeared in the gig economy: gig CEOs. With contracts hitting an average of 12 to 24 months, can they help startups manage their futures more economically?

As recession looms, 70% of executives across the anglosphere already have one foot out the door.

Over two thirds of C-suite staff are seriously considering quitting their jobs after growing tired of the unrelenting stress, pressure, and burnout that’s likely only going to get worse. 

It’s a class of people that doesn’t garner much sympathy. But there will be serious repercussions for the economy if they all go. 

As the old saying goes, nature hates a vacuum. With leadership gone, how do companies manage? Enter the rise of the fractional CXO. 

These guys are willing to take on CEO roles with contracts hitting an average of 12 to 24 months.

Sometimes, they work for multiple businesses at once, spending as little as one day a month for advice. 

But is hiring a “gig CEO” a sustainable solution for startups?

Part-time CEOs

80% of fractional CXO Louis Lalonde’s clients are startup founders who can’t afford a full-time leadership role on their payroll but need guidance ASAP. 

He works with 2 to 5 clients part-time,  commits 20% to 50% of standard working hours, and charges a third of the price.

Unlike full-time high-level executives who charge USD $800,635, they operate on a “pay what you need” model that works for everyone.

In 2022, fractional CXOs have helped in employee layoffs in the midst of uncertain business conditions. The poster child of tone-deaf layoffs is where the company sent layoff checks before they were even announced, and even reportedly shut down computers while their employees were working.

Talent marketplace Continuum co-founder Nolan Church notes executives came to him: “A bunch of our executives were actually doing this work before coming to us and stating that layoffs were going to be something that companies need help with.”

Looking ahead, Continuum, which announced a USD $12 million in Series A funding, will build an executive storefront so it’s easier for startups to click a button and book time with fractional CXOs.

Church establishes the importance of having a fractional CXO marketplace: “We want to be the home page for executives as they think about driving more business and gaining more fractional business…. the executive’s entire back office will be run through our financial pipes.”

With a shortage of high-level executives, startups need to fill up leadership positions. But it’s best to bring in a fractional CXO when your company is growing, business development has become stagnant, you need to scale operations, or need the partnership of another leader.

Digital CEOs

The post-pandemic world is characterised by the creation of two things: hyperconnectivity and the creation of work-life balance.

Unlike fractional CXOs who provide part-time consultation to startups online, digital CEOs have adapted to the new remote workplace and prioritise digitising day-to-day operations. With it, they empower teams to use automated toolsets and AI-powered solutions.

Shoe retailer Zappos CEO Tony Hsieh has perfected digitising his business. He uses digital tools to make his customer-centric business model come true. Free shipping to customers, free returns if they’re unsatisfied with the product, and they even include video reviews.

By adopting a digital culture, employees feel empowered to make the right choices when serving customers. Something that companies with tight rules could learn from.

A blessing for startups?

Atomic Revenue CEO Tara Kinney believes fractional CXOs provide a measurable, faster return on investment: “When their role is complete, fractional executives leave behind more qualified people to produce better outcomes using better processes.”

Many companies don’t need a permanent, in-house executive like a CFO or CRO, because all leadership needs is a comprehensive, workable plan, or better processes. Once the plan is developed, teams can take over from there.

Most fractional CXOs have worked in a C-suite role for 10 or 20 years. So startups that work with CXOs are hiring someone who thoroughly knows how to tackle business problems or growth opportunities. Something an in-house CEO may not possess.

But the biggest advantage of fractional CXOs is how fast they deliver results to companies. Since they’re not tangled up in company politics, fractional executives can focus solely on handling business problems.

When the issues are identified, they can remove barriers that are stopping companies from meeting their goals with complete objectivity. Because of this, businesses – especially startups – can see faster profitability without dealing with in-house politics.

David Neafus is a fractional Chief Financial Officer who has worked for startups, IPOs, mergers, and equity financing. His experience raising USD $500 million allowed small companies to access the firepower of a big-name CFO.

A good gig?

Sometimes, issues arise that may prohibit hiring a fractional CXO. Investors often urge founders to hire an in-house team to keep the knowledge secret. With gig CEOs, they fear fractional consultants may not have the loyalty of an employee.

Fractional CXOs also aren’t useful when it comes to establishing strategic roadmap discussions with windows of 2 to 5 years. This is primarily because that’s the typical timeframe fractional CXOs operate.

ON Partners co-founder Brad Westveld voices his disapproval, saying: “I find it hard to believe that a ‘rent-a-CTO’ can be effective if he or she is only there two to six months, or part-time. The whole nature of a CTO is ‘long-term vision,’ and part-time or not fully integrated in the business would cause more problems than intended.”

Despite this, the fractional CXO business is booming. And with the rise of the Great Resignation, startups need leadership to grow and expand their vision. 

When companies leverage high-level CXO advice early on, startup founders are bound to reap the benefits in both the short and long term.

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