How to Select Fractional CXOs to Help Your Business?
Who are Fractional CXOs?
Fractional CXOs are leaders who offer a fraction of their time for your company. They are experts in their field and work in a shared capacity across multiple companies, hence the word ‘fractional’.
Future of Work Driving the Fractionalization of Talent
As explained by McKinsey Global Institute in the article, the ‘Future of Work’, companies are experiencing a change in the way they operate globally. Even Indian SMEs are witnessing this shift from a local, in-person model to a hybrid or remote working model where the talent is scattered across cities. This working style is supported by digital technologies and AI-enabled tools.
With the advancement in technology and the ease of operating in international markets, Indian SME businesses are experiencing a greater need for high-level executive talent to formulate winning strategies and implement them. Similarly, the existence and success of a startup firm depend on access to expert leadership talent.
On the supply side, experienced top talent is feeling the need to try their luck with the gig economy and start independent ventures. This satisfies their need for entrepreneurship and self-actualization and helps them achieve work-life balance, too.
India also has seen an increasing trend of industry veterans with vast experience in their field offering their services on a fractional basis, especially to small and mid-sized companies and startups that need but can not afford to hire full-time top functional experts. The easy availability of the Internet and remote working technology tools are making it possible to connect the top talent to the companies in need, irrespective of their geographic location. It has created a win-win situation, both for the top leadership talent and the SME and startup businesses.
Which Functions Can Be Outsourced to a Fractional CXO?
Fractional CXO services started decades ago but under different names, such as management consulting, strategy, and operations consulting. Arthur D Little, the first management consulting firm, was founded in 1886. Their India website states the purpose of their existence, and I quote: “At Arthur D. Little India, our goal is to help our clients achieve exceptional results. We do this by combining the strengths of people, technology, and strategy, empowering organizations to succeed in a dynamic and evolving business environment.”
Isn’t this what CXOs do for their companies? So, can we say that ‘strategy’ was the first function outsourced to fractional CXO advisors?
Almost all the functional leadership positions can be outsourced to fractional CXOs. For example:
- Finance - CFO
- Technology - CTO
- Marketing - CMO
- Sales – (CSO)
- Legal – FGC (Fractional General Council)
- Human resources - CHRO
- Strategy – called a strategy consultant or management consultant
- Operations – COO (Chief Operating Officer)
How Do Fractional CXOs Work? - Need-based Engagement Models
Fractional CXOs offer various engagement models based on the needs of their clients:
- Monthly retainer
- Project or Assignment
- Interim CXO
Monthly Retainer Model
This model is chosen by the fractional CFOs when their clients need them to supervise and guide internal finance and accounts teams on a regular basis.
Usually, there is a 2-3-person team for each client. Every team will have a lead CFO partner who is supported by consultants who are chartered accountants.
The consultants work closely with their clients' internal F&A teams and report their progress to the CFO partner and the client management team periodically.
The CFO partners spend their time formulating financial plans, strategies, and issue resolution.
Project or Assignment
Another engagement model offered by the fractional CFOs is working on a specific project. Examples of such projects are preparing a business plan and financial strategy for market expansion, preparing for the launch of an IPO (initial public offering), reevaluating pricing models to stay competitive, and so on.
In these situations, the internal finance teams usually need the advisory support of an expert CFO who has worked on these kinds of projects with other companies and similar industries. They may not need a fractional CFO on an ongoing basis, but only for a short period.
Interim CXO
CXOs also offer to work in a short-term, interim capacity based on the client's needs.
For example, when a company has an in-house CXO but he/she quits, and appointing a replacement is expected to take some time, the company might need to hire the services of a stopgap fractional CXO who can serve as the interim CXO, holding the fort until the full-time person takes charge.
Interim CXOs also play a key role for a startup or a company in the growth phase.
How to Select the Right Fractional CXO for your SME or Startup Business
Scope Definition
Have a discussion with your internal leadership team and finance manager to assess the areas where you need advice from an external CXO. Involve all the stakeholders in this process.
Prepare a document defining the expectations from this fractional leader.
Share this scope document with the shortlisted candidates and request them to share their approach to address your requirements.
Clarity at the initial stage goes a long way in ensuring success.
Experience
Use the scope document to identify the experience required for this CXO.
You can use Google and LinkedIn search to find out more about CXO's past experience. I would suggest that you also verify their certification and their reliability.
This also depends on whether you are going to hire a gig worker or an organized firm with many CXOs working.
If you hire firms such as CFO Bridge, which has over thirty CFO partners, you will have access to a diverse pool of talent.
Availability
Certain situations are time-sensitive, such as a crisis situation when your company is in the red, facing collections problems, a new competitor with a new product is threatened, or you need to raise funding or respond to an acquisition threat.
You need to check that the shortlisted firm or person can commit their time as per your needs.
Also, find out their method of working - whether hybrid or in-person.
Ensure it matches your working style. They will be an extension of your team and need to gel well with the in-house team.
Reference Checks
Needless to say, before finalizing the engagement with the fractional CXO, it is good to talk to a few of their past and current clients to understand the actual contribution they have made to these client’s businesses.
Client testimonial videos or case studies that are available on the website can be a start, but request actual interaction with a few clients.
While doing these reference checks, you can also ask questions about the confidentiality and data protection policies of the shortlisted candidates.
Fees
There are a few options for designing a fee structure that is beneficial to both you and the CXO. A combination of fixed and success-based fees can be explored.
Remember, sharing whatever data and information is required by the fractional CXO in advance and facilitating open communication and feedback mechanisms promotes the success of such engagement.
There are a couple of firms in the finance and technology domain that are helping SME and startup businesses – CFO Bridge and CTO Bridge.
Please contact them for more information.
