Fractional Executive Frequently Asked Questions
Date: August 2023
By: The Fractional Executive Collective
Led By: Will Simpson and Toni Lee Rudnicki
Contributors: Ali Cudby, Brian Peterson, David VanderJagt, Hazel Evans, Jacki Leahy, Joshua Monge, Nicholas Zeisler, Tracy Rowland, Toni Lee Rudnicki
Assumption: We have aligned that a Fractional Executive is an experienced Senior Executive now considering or working with one or more companies on a fractional (not full-time) basis. This is a decided focus and career choice, not a stopgap between full-time employment.
Mission Statement: The Fractional Executive Collective is a unified alliance of visionary Fractional Executives committed to sculpting the horizon of Fractional Executive endeavors. We craft this document as a guide for alignment around a consistent framework to illuminate the nuances of fractional executive work, using the dedication and collective insights of our group. Our driving purpose is to provide clarity, depth, and direction for those poised at the threshold of this burgeoning domain, ensuring an informed and inspired transition into the future of executive roles.
What is a Fractional
Executive?
A Fractional Executive is a highly experienced business executive who is hired on a part-time or project basis to fill a critical leadership role in a company. They bring expertise, strategic thinking, and a proven track record to help companies achieve their goals.
Fractional Executives have experience across a wide range of industries and functions, including finance, operations, marketing, and more. They can help companies navigate complex challenges, seize new opportunities, and drive growth.
What are the benefits of hiring a Fractional Executive?
- Access to experienced talent without full-time commitment
- Cost savings compared to full-time executive salaries
- Flexibility to adjust leadership resources as needed
- Expertise across a wide range of industries and functions
- Ability to provide strategic guidance and support
Fractional Executives offer a unique blend of expertise, experience, and flexibility. They can help companies achieve their goals, no matter what the challenge.
How do I become a Fractional Executive?
There are many paths to becoming a Fractional Executive. Professional benchmarks often include:
- Published thought leadership in your area of expertise
- A proven track record in a targeted area of expertise that spans many years and often multiple companies
- An ability to quickly jump into the deep end of an organization and often manage via "influence without authority" cross-functionally with both senior leadership and functional teams
- Willingness to push back against fellow senior executives
What should I do before becoming a Fractional Executive?
Before pursuing a career as a Fractional Executive, it is important to have a solid understanding of your target industry and function. Building a strong network of contacts is also key, as is having a clear plan for marketing yourself and your services.
Deep Introspection is Key
Before embarking on your journey to become a Fractional Executive, take time for deep introspection. Do a personal inventory of past experience, strengths, and achievements.
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Skills Assessment
Make a list of the core competencies that have helped you succeed in past roles, and identify your unique selling points.
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Scope of Work
Brainstorm the critical skills you enjoy using and want to leverage to benefit your clients.
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Know Your Why
Discover your motivation for going fractional. Some possible reasons include:
- Lifestyle: Some choose this path for the flexibility it offers, allowing them to balance passion projects with leadership roles.
- Income and Engagement: The allure of smaller, newer companies can be enticing. They might not have the budget for a full-time executive role, and some professionals might prefer not to return to large corporations.
- Personal Fulfillment: Knowing your why can help you find fulfillment and satisfaction in your work, whether it's through making a difference, pursuing your passions, or building new relationships.
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Future Goals and Business Acumen
Think long-term. Determine where you want to be in the next 1-3 years. It's essential to assess whether you need the stability of full-time work or if the fractional route aligns with your future ambitions. Additionally, delve into the nuances of setting up an entity, understanding professional liability insurance, managing health benefits, and grasping the intricacies of building a fractional client base.
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Self Assessment and Network
Ask critical questions:
- Is fractional work your long-term goal?
- Are you equipped to build a business and a consistent client pipeline?
- Do you possess the necessary C-suite experience to meet client expectations?
The first step in finding your focus as a Fractional Executive is to know your superpowers.
What's the quickest and easiest way to start Fractional Executive work?
One way to get started with Fractional Executive work quickly and easily is to look into your existing network and identify opportunities. See below for more details.
Setting Up a Legal Entity
The critical first step is to establish a formal business structure. Initiatives like Legal Zoom can simplify the process of filing for an LLC or multi. Once the LLC and a Tax ID are in place, creating a business bank account and connecting it to payment platforms like Stripe can manage invoicing and payments efficiently.
You should form an LLC to protect yourself and establish professionalism. In places like California, some companies may be hesitant to hire 1099 contractors without an LLC due to potential risks related to employment obligations.
Determining Demand and Differentiation
Pinpoint the unique skill or service you can provide. Understanding and aligning with a specific market challenge or demand is foundational. Emphasis is also placed on elucidating your unique value proposition and specialization.
Leveraging Social Media and Networks
In today's digital age, platforms like LinkedIn stand out as vital assets for enhancing visibility and forging meaningful connections. Consistently sharing content that addresses industry challenges and their resolutions not only solidifies your reputation but also showcases your expertise. However, the digital realm is just one piece of the puzzle.
Direct, personal outreach can be even more influential. Consider this example of templated outreach:
"Hi XYZ, Since we connected last I now have my own company offering XXX services. I would love to get your feedback and catch up on your updates."
Such initiatives often unlock doors to new ventures, clients, and invaluable referrals.
To further bolster your online presence and credibility, consider having a core set of documents and content at the ready:
Services Overview: A concise summary of what you offer, highlighting the value proposition.
- Professional Bio: A detailed background of your professional journey, emphasizing your competencies and experiences.
- LinkedIn Posts: A series of well-curated posts that can be shared periodically to maintain engagement and relevance.
- SOW (Statement of Work) Template: A standardized document detailing the scope, duration, and terms of services you provide.
As your services mature, consider venturing into multimedia channels. Initiating a Podcast or similar platform can be an instrumental tool for engagement. It offers an avenue to delve deeper into industry subjects, feature guest experts, and share insights. Plus, it serves as an excellent resource to share with potential clients, further establishing your authority in the field.
Community Engagement and Continuous Learning
Tapping into the wisdom of experienced professionals in the Fractional field can provide a wealth of knowledge. It's about not only offering services but also gathering insights, learning best practices, and evolving with the industry.
Overall, while there's unanimous agreement on the primacy of having an LLC for protection and professionalism, the path to client acquisition and growth in Fractional work is enriched by a blend of legal setup, market research, active networking, and ongoing learning.
What tech stack would you recommend as I dip my toe into Fractional work?
For essential tech stacks, Fractional Executives should consider reliable communication platforms, project management software, and robust accounting software.
Foundational Tools
- Personal Domain: There's strong agreement on having a personal domain for professionalism. Platforms like Squarespace or WordPress are suggested. However, opinions differ on immediate website setup versus prioritizing a LinkedIn presence initially.
- Email and Office Suite: The choice oscillates between G Suite and MS Office, with some favoring the robustness and integrations of the latter.
Client and Project Management
- CRM: HubSpot emerges as a popular choice for tracking leads and client interactions.
- Project Management: Opinions vary here, with tools like Asana, ClickUp, and Monday.com each having their proponents. The decision often hinges on personal preferences and specific client needs.
- Meeting Scheduler: Calendly stands out for its efficiency in scheduling meetings.
Finance and Billing
- Accounting and Payments: Choices span across Quickbooks, Freshbooks, and Stripe, catering to different facets of financial management.
Communication
- Zoom: Amidst diverse communication tools, Zoom is consistently recommended, highlighting its ubiquity for virtual meetings.
Finance and Billing
- Collaboration: While various platforms are available, Notion is highlighted as a multifunctional workspace.
- Time Tracking: Harvest is flagged for those keen on monitoring time expenditures.
Should I niche as a Fractional? What are the pros and cons?
Specializing in a specific niche as a fractional professional offers a variety of benefits. It allows you to command higher rates, be the go-to expert in your chosen field, and attract ideal clients. On the other hand, the cons include a limited pool of potential clients in the said niche and greater challenges in marketing to clients outside of it. Ultimately, it's essential to weigh the pros and cons before deciding whether to niche down or keep your offerings broad.
PROS
- Clear Marketing and Branding: Adhering to the saying, “If you sell to everyone, you sell to no one,” niching allows you to focus on a specific audience. For instance, being a general Fractional CFO might make you one among countless others. However, specializing as a Fractional CFO for businesses operating for over 10 years can refine your target audience, making you stand out.
- Easier Referrals: A clearer niche allows for more straightforward referrals. When your network understands your specific expertise, they can refer you to potential clients more confidently.
Passion and Enjoyment: Focus on the work that excites you, allowing you to build a business that aligns with your passions. - Articulated Differentiation: A niche helps in communicating what sets you apart.
- Efficiency and Predictability: Niching can lead to economies of scale, allowing you to reuse frameworks, tools, and processes, thus offering more predictable results for your clients.
Increased Value: As industries grow more complex, specialization becomes increasingly valuable. You can command higher rates with clear industry expertise, leadership knowledge, and specific connections.
CONS
- Limited Referrals: Specializing too narrowly may lead to overlooked opportunities. If others in your network view you strictly within a tight niche, you could be bypassed for roles that, while outside your defined specialization, still align with your broader skill set. Interestingly, in some disciplines, having an external perspective outside a particular industry can offer unique advantages, introducing fresh insights and innovative approaches. To counteract this drawback, it's crucial to cultivate a robust network of other fractional executives. This approach allows for referrals and sets the stage for mutually beneficial collaborations, especially when a partnership agreement is in place.
In conclusion, the majority of advice leans heavily towards the benefits of niching down in the Fractional workspace. This approach allows professionals to utilize their expertise, streamline their processes, and provide significant value to clients. However, it's also wise to maintain some flexibility to capture broader opportunities while leveraging strong networks to ensure business continuity.
What is the difference between Fractional Executive, Consultant, Coach, and Interim?
The field of Fractional Executives is still emerging, and many things are likely to change in the coming years. However, there are a few key differences that distinguish Fractional Executives from other professionals.
Summary answer:
The distinctions between these roles are mainly based on agency, representation, accountability, and the capacity in which they function within a business. Here's a breakdown: The distinctions between these roles are mainly based on agency, representation, accountability, and the capacity in which they function within a business. Here's a breakdown:
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Fractional Executive
- Role & Agency: Has the authority to work on the business's behalf but in a limited time capacity.
- Representation: Accountable for actions as a representative of the business.
- Function: Plans, leads, and directs the business and teams, usually in collaboration with other leadership members, for a fraction of the time.
- Distinction: While they may exhibit qualities from points 2-4, only having those qualities doesn't make one a Fractional Executive.
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Consultant
- Role: Provides information and guidance to a business without acting, performing, or representing the business.
- Accountability: Not accountable for completing the work but for achieving the consultation's intended results.
- Function: Demonstrates the path and guides the business along it.
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Coach
- Role: Encourages a business towards specific goals and plans.
- Agency: Lacks agency in the business and does not represent it.
- Function: Helps the business maintain accountability and progress.
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Interim
- Role: Fills a position temporarily until a suitable replacement is found.
- Representation & Time: Represents the position in the business, typically full-time but only for a temporary duration.
- Function: Assumes the responsibilities of the original role holder until a permanent replacement is identified.
Additional Insight:
- Working IN and ON the Business: A distinguishing factor for Fractional Executives is that they work both IN and ON the business. They often lead full-time employees, subcontractors, or third-party entities crucial for delivering the work's scope. Their involvement makes Fractional Executive roles more integral, making it challenging to merely consider them as expendable costs when evaluating business expenses.
How does the compensation structure typically work in this role and how does it compare to a traditional full-time executive position?
In comparison to traditional full-time executive positions, the pay structure for Fractional Executives is often more flexible and can be tailored to fit the specific needs and resources of the business.
Summary answer:
The compensation structure for a fractional executive often revolves around a retainer basis, where they are paid a set amount, often monthly, for a pre-defined block of work hours or tasks.
Key Considerations:
Retainer-Based Compensation:
- This model is the most widely used. It typically consists of packages of work based on blocks of time, often combined with specific processes and tools.
- Engagements usually start as a monthly retainer for a predetermined number of hours at a given cost.
- Specifically, in roles where one is serving as a Fractional CFO or in a similar capacity, the retainer model is the preferred choice.
- A 'proportional' approach is also common, aligning with the time-based model. For instance, a 20% or 40% commitment might equate to dedicating one day a week or two days a week, respectively. It's crucial to understand that this doesn't necessarily translate to set days like "Mondays" or "Tuesday and Thursday", but rather serves as a guideline for the amount of time one would be available to a client.
Project-Based Variations:
- Some engagements, especially specific projects like capital raises, might start with a retainer for an initial period.
- As the project progresses, the payment structure can shift. It might change to a smaller block of hours or an hourly rate to support the project deliverables. This transition ensures that there isn't unremunerated follow-up support and can lead to additional engagements or even long-term fractional roles.
Duration and Commitment:
- It's common to start with a commitment, such as a 3-month retainer, to ensure stability and consistency.
Caution Against Hourly Contracts:
- There's a strong sentiment in the group against "hourly" contracts. Respondents shared that they haven't observed positive outcomes when fractional executives adopt an hourly rate. It's recommended to avoid any implication of an "hourly" contract.
Comparison to Traditional Full-Time Executive Positions:
The primary distinction between fractional roles and traditional full-time executive positions is the flexibility inherent in fractional roles. While full-time positions typically come with fixed salaries and benefits, fractional roles offer a more adaptable, project-based nature.
An essential aspect to consider when determining compensation in the fractional space is understanding the client's specific needs. Are they seeking the leadership and representation typical of a C-level position? Do they aim to establish an entirely new function, or do they have an existing structure that requires leadership or revamping? These considerations create a hybrid compensation model that lies between proportional and project-based. Ultimately, the compensation should reflect the tangible value the fractional executive brings to the table and delivers to the client.
How do you manage your time and commitments effectively across different fractional roles or working for different companies at the same time?
Embracing a fractional role is like spearheading your own business, replete with its highs and lows. To succeed, it's imperative to maintain discipline, manage your time wisely, and prioritize effective prospecting.
Summary answer:
Effective time management and setting clear boundaries are critical when juggling multiple fractional roles. Here are the main insights from The Fractional Executive Collective:
Master Your Calendar
- Become proficient with scheduling tools and maintain a rigorous calendar regimen.
- Color-code clients or projects to visually differentiate commitments.
- Book specific time slots for respective clients and maintain those boundaries.
- Adjustments are inevitable, so when you commit more time than allocated, track it and communicate any discrepancies with your client promptly.
Set Clear Expecations
- Establish Service Level Agreement (SLA) expectations from the beginning.
- Specify primary days/times of availability for each client. While consistency is vital, flexibility is also crucial. No business relationship flourishes with an excessively rigid fractional executive.
- Communication is key. Ensure that clients know they can expect timely responses and follow-through from you. Adopt the philosophy of under-promising and over-delivering.
Educate Your Clients
- It's imperative to clarify the nature of a fractional role to clients.
- Set boundaries by communicating what "fractional" entails and the fact that you have other clients.
- Address any mismatched expectations. For instance, some CEOs might hire a fractional executive anticipating round-the-clock availability. It's essential to preemptively manage and rectify such misconceptions.
I’m in transition from my last Executive engagement and I need to work/stay busy until my next Full-time position. Should I consider a Fractional Executive role as I pursue a full-time role?
The Fractional Executive Collective firmly believes that fractional executive work is not merely a placeholder or a stopgap. It's a dedicated career trajectory requiring a unique set of skills, mindset, and dedication.
Summary answer:
This is a nuanced decision.
Heavily contingent on personal objectives and circumstances. If your primary aim is to bridge a gap between full-time roles, you might consider roles such as "project consultant" or "advisor". On the other hand, truly embracing the fractional realm signifies a commitment to a distinct career shift. The Fractional Executive Collective firmly believes that fractional executive work is not merely a placeholder or a stop gap. It's a dedicated career trajectory requiring a unique set of skills, mindset, and dedication. As such, our community primarily serves those fully committed to fractional executive work. We are here to offer support, resources, and insights for those embarking on this transformative career journey. If fractional executive work aligns with your long-term aspirations, then diving in wholeheartedly can be immensely rewarding.
Additional Considerations:
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Objective Clarification
- If your primary goal is to earn income during the transition and not necessarily build a reputation as a fractional executive, it may be more advantageous to seek contract or part-time opportunities.
- Referring to yourself as "fractional" may set specific expectations, so if you're only looking for a temporary engagement, it might be better to label the role differently.
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Awareness of Labor Laws
- Some regions have updated labor laws that complicate fractional or contract roles, making it essential to be informed and compliant.
- In some cases, working through an agency might help navigate these legal complexities.
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Alternative Roles
- Instead of a fractional executive position, you might consider roles like "project consultant" or "advisor." These titles might align better with a temporary engagement while you search for your next full-time role.
I’m not interested in starting my own business/LLC/etc. Is there a way I can lend my expertise as an Executive without having the responsibility of setting up a formal business?
Yes, you can still leverage your skills and experience as an executive through several non-business options, such as becoming a coach, mentor, or board/advisory committee member. These roles allow you to stay engaged with the industry and contribute to the success of others without the complexities of running a business.
Operating as a Fractional Executive Without a Formal Business
It's certainly possible to operate as a Fractional Executive without owning a formal business structure. Here are some key considerations:
Fractional Agencies
- Partnering with a fractional agency can be a possible solution in this particular case. Such agencies often hire you as an employee and connect you with clients seeking fractional services.
- Smaller firms might have a preference for engaging with professionals who operate under an LLC or similar structure.
Tax Implications
- Even if setting up a business isn't a requirement, it's beneficial, especially when transitioning from W2 (employee) to 1099 (independent contractor) work. An LLC or a similar structure can provide tax advantages.
- However, if the fractional role is a short-term commitment while you're seeking a full-time position, the intricacies of setting up a business might not be a primary concern.
Consulting Opportunities
- If you're not set on the fractional executive label, consider seeking consulting opportunities that can help bridge employment gaps. The focus of this community is on long-term fractionals, and its guidance is primarily geared towards them.
What does the future look like for Fractional Executives?
As the demand for flexible, specialized expertise continues to grow, the future for Fractional Executives appears bright. With advancements in technology and the rise of remote work, the opportunities for these professionals to expand their reach and offer their services to a wider range of clients will only increase. Additionally, as industries evolve and new challenges arise, Fractional Executives will be well-positioned to adapt and provide innovative solutions.
Summary answer:
The general sentiment of the Fractional Executive Collective is that the future for Fractional Executives is promising, with a few considerations. Here are the main perspectives:
Growing Opportunity
- Resignations and Market Changes: Citing sources such as The Wall Street Journal, there's been an uptick in CFO resignations from major companies. These changes suggest opportunities for Fractional Executives as businesses reevaluate their needs.
- Adapting to Post-Covid Realities: The shift towards remote work has made accessing businesses and leaders easier than in past decades. The pandemic has also reshaped pre-existing business norms. Companies are recognizing they might not need a full, top-heavy organization, creating room for Fractional roles.
Evolving Definitions
- Changing Terminology: The term "Fractional" is currently in vogue and has been adopted across various gig work sectors. While the terminology might evolve, the essence of the role is expected to remain.
- Recognition of Value: Fractional Executives are gaining traction among growing Small and Medium-sized Businesses (SMBs) as well as with Private Equity, Venture Capitalists, and other financial entities. The ability to boost business outcomes with experienced executive leadership is recognized. As Fractional Executives come in, deliver success, and move on, their value is continually emphasized.
Networking and Growth in the Fractional Domain
The nature of networking and growth in the fractional space is distinctively nuanced compared to the more traditional approaches employed in other domains. At this strategic level, the process deviates from the typical “hey, do you know anybody who needs this?” approach common to project-level consulting.
When one fractional executive refers another, it's not just a simple recommendation; it's an endorsement that places the referrer's reputation in the balance. Upholding the trust and credibility of the person who vouched for you is paramount. Moreover, as a fractional executive, it's imperative to recognize and address gaps in a client's business beyond your immediate realm of expertise. By observing these gaps and connecting the client with other capable fractionals from your network, you’re not just extending a helping hand but demonstrating a deep-seated commitment to the client’s holistic success.
This proactive, broader view and the ability to think outside one's immediate discipline set fractional executives apart from consultants. While the fractional space offers immense growth opportunities, it also necessitates a deeper level of commitment, foresight, and interconnectedness within one's professional network.
Importance of Experience
The exact title or wording might evolve over time, but emphasizing the necessary experience and expertise will remain crucial in defining the value of a Fractional Executive.
In essence, while the landscape and terminology may undergo shifts, the core value proposition of Fractional Executives seems set to continue, given their flexibility, expertise, and the evolving needs of modern businesses.