Who are we kidding? Aren’t “Fractionals” just consultants trying to sound more important?
… NOPE.
Definitions, vocabulary and history
While not the oldest profession in the world, fractional executives have been around for a very long time, although more common in certain disciplines than others. In the last several years there has been a movement to clearly define and differentiate “fractional executives” from employees, consultants and advisors.
To the extent there is confusion, it partly stems from our desire as humans to codify and simplify. The simplification for “fractional executive” has evolved to “fractional.” That is unfortunate in that dropping the word “executive” significantly reduces the clarity of this term. For purposes of this post, we will capitalize Fractional to indicate we are speaking about the person who serves as a fractional executive (noun vs adjective for you grammarians).
Employees
We all understand the nature and status of an employee. Employees are most typically fully-dedicated resources that are compensated by the enterprise and expected to fill a role with duties assigned as needed. An employee may come to the enterprise with or without specific industry or technical knowledge and there is an expectation that an employee will learn on the job. Senior Employees are expected to forego any major professional involvement outside the firm and present themselves as exclusively or primarily part of it. The organization is in turn expected to compensate them for their full attention at full market rates.
Fractional Executives
Fractional executives act as part-time or temporary senior leaders deeply involved in managing and directing the enterprise. This is the biggest point of difference between a Fractional and a consultant or advisor: a Fractional is expected to operate at an executive level. They will own or direct a particular functional area, a particular technical area or a particular outcome in the same way as a senior employee or an owner. They work directly with other senior executives as peers. A Fractional may or may not have direct reports within the organization but will provide executive level leadership of a functional area or an operational imperative. In short, the only real difference between a full-time executive and a Fractional is that they may divide their time between multiple organizations rather than dedicate themselves to just one.
Consultants
Consultants offer specialized advice and solutions for specific challenges or projects and are less likely to 1) fill a leadership role and direct the daily activities of employees or 2) be the sole owner of a critical company initiative.
Advisors
Advisors provide expert advice and guidance in a specific field or area of expertise. They often provide strategic level expertise and may be an investor or have an ownership share in the enterprise they are advising. Advisors typically do not engage in hands-on implementation of their advice and may or may not receive compensation directly related to their advisory services.
The emergence of fractional executives is often linked to the emergence of the gig economy. We would say the use of fractional executives was not born out of the gig economy but was buoyed by the growing acceptance and understanding of the gig economy and by technology that enables organizations to easily find a Fractional with very specific expertise, without being limited by geographic proximity.
The role of a Fractional Executive
The line between a Fractional and a Consultant is not well defined but is becoming more distinct as awareness of Fractional resources grows. The nature of engagements for employees, Fractionals, consultants and advisers vary widely however there are “norms” around each human resource category that provide insight into their similarities and differences. This is obviously subjective and is intended to provide clarity at a high level rather than set firm boundaries around each resource category.
| Senior Employee | Fractional Executive | Consultant | Advisor | |
|---|---|---|---|---|
| Time expectation | Full-time | Part / full time | Part / full time | Part time |
| Senior leadership team participation (VP or C-Level) | Yes | Yes | No | No |
| “On the job” training & advancement | Yes | No | No | No |
| Compensation options | W-2* Salary / Bonus / Equity | 1099 Contractor Bonus / Equity possible | 1099 Contractor | Equity |
| Included in employee benefit programs | Yes | No | No | No |
| Expectation of long-term engagement | Yes | No Conversion to full-time possible | No | No |
| Hiring risk and termination cost | High | Low | Low | Low |
When does it make sense to use Fractionals?
Fractional Executives are treated similarly to employees in that they assume management responsibilities where consultants and advisors typically do not. They have full ownership of issues or activities and are most often measured by results rather than effort.
Fractionals are expected to bring direct experience to bear, rather than “figure things out,” or “learn on the job.”
Fractional Executives are easier to hire/fire than employees, and to bring on in increments. They can typically be mobilized very quickly and related expenses are more controllable. Likewise, services from a Fractional Executive are relatively easy to terminate.
In brief, if these circumstances are a reality for your enterprise, you should consider the use of Fractionals.
- Early stage when capital is limited and leadership teams are relatively small
- Timeline to achieve an objective is short
- The need is temporary either due to the nature of the work or due to a temporary vacancy in a leadership role.
Compensation Models
Compensation models for Fractional Executives vary widely and can include these compensation models, as well as others.
- Hourly/daily/monthly fee
- Project fee
- Success fee/bonus
- Equity
…or some combination of the above
In a future blog, we will share more ideas on compensation options and how to structure Fractional compensation in order to best align to organization needs and contribute toward good outcomes.
