Expecting Free Fractional Services in Tech Startups

Why free isn't free

In the fast-paced world of tech startups, resourcefulness is often seen as a badge of honor. Entrepreneurs pride themselves on their ability to bootstrap, stretch every dollar, and maximize limited resources. If you’re a founder or the CEO/CTO, you’re probably out in the field as the CRO/Sales Rep for the same reason – to save money.

So, you’ve been approached by fractional executives wanting to help you.  It would be great to not spend so much time in the field and instead focus on running the company and getting it funded, wouldn’t it?  But they’re asking to be paid for their services.

Having been in this situation on the fractional side, I’d be rich if I had a nickel for every CEO who wanted me to work for them for stock.  While to them it may seem like a savvy move to cut costs and only pay for “results”, asking fractional providers to work for free or for equity in many ways is not the best strategy.

The Appeal of Fractional Services

Fractional services—part-time 1099 contractors such as fractional CROs, marketers, or channels and alliances—allow startups to access specialized expertise without hiring full-time staff. And, if you choose the right fractional guys, at least speaking for the BD Methods Team, we’ve been there before.  Our experience can help you as the CEO and management team get fresh ideas and make the right strategic moves to turn challenges into opportunities and get new paying customers and partners.

 

The Problem with "Free"

What’s often overlooked is the hidden cost of free services. While the dollar amount may be zero, the implications for the startup’s growth, reputation, and operational efficiency can be far-reaching. Here’s why startups should reconsider this approach:

Initial work

As fractional executives, our experience is in high demand.  By taking a role with your company, we are foregoing other paying opportunities. 

In addition, there is typically a lot of up-front work that can take months -  particularly in sales and channel development, that must be done before you start to see a return. 

We are also making some assumptions about your company, your solution, and your team, such as:

-Does your solution have a product/market fit?

-Does the technology work with minimal customization or hand-holding?

-Is the value prop compelling and clear?

-Is product support adequate?

-How is recurring revenue optimized?

-Do you have the resources to support us?

There may not be clear answers to these questions, so we often spend much of our early effort creating and/or improving these areas.  These and other factors represent the risk that we take as fractional execs when we take on a new role.

Sharing the Risk

If you’re not paying us, we’re taking all the risk.  But if you fairly compensate us, then we’re both sharing the risk.  You should write a check to us every month and the dollar amount should be impactful.  Here’s why:

-We’ll have your attention.  If we need resources, or time from you and/or your team, we’re more likely to get it.

-We are less expensive than hiring someone.  If you’re looking for marketing muscle, a full-time CMO will cost you in the $300K/Yr range.  We’re a lot cheaper and often have more experience.

-We’re actually less risky.  As 1099 contractors, if we don’t work out you can move on quickly.  These days, if you hire the wrong person it may take months to let them go and then potentially even longer to find their replacement.

-You’ll have our attention.  Most of us are coin-operated. Paying us obligates us to perform. We were all A players when we were full-time employees, and that genetic makeup never changes.  We’re used to being top performers and getting comped accordingly. 

One of my mentors once said, “If I wanted to work for free I’d join the Peace Corps”. Free work is rarely, if ever, motivating for us. It also sends a message that getting funding or resources to meet future needs may be tough to get.

The Illusion of Savings

While free services may reduce upfront costs, they often lead to long-term expenses. You’re not going to get A players without offering compensation.  Those fractional executives who do agree to free or equity-based compensation are less likely to be top performers, or they might take the free work if they’re just starting out on their fractional career.  As a CEO, you might see poor-quality work that necessitates costly revisions, missed opportunities, and slower growth. A subpar marketing strategy, for example, might lead to weak brand recognition, while inadequate financial planning could result in funding shortfalls.

Mitigating the Risk

Recognizing the importance of compensating fractional service providers doesn’t mean startups must abandon cost-conscious strategies. Instead, you can take steps to ensure fair, sustainable, and mutually beneficial relationships:

·      Set realistic budgets: Allocate funds for key fractional roles, prioritizing areas that drive growth.

·      Make sure you’re allocating enough time. If you’re hiring a fractional CRO and only asking them for a one hour per day commitment, is that enough?  Unlikely. Sales growth is the number one challenge for early stage companies.  Ask your investors.

·      Define and set metric-driven goals and objectives for your fractional executives.  Make sure their engagement proposals outline what they propose to achieve and in what time frame.  For sales, it can be #POC’s, #New Logos, Increased Pipeline Value, etc.  For other departments, create measurable objectives and a reasonable time frame. 

·      Measure PROGRESS, not ACTIVITY throughout the engagement.

·      Treat us like we are your employees.  We should attend all-hands calls, forecast meetings (if we’re in sales or channel development) and other team activities.

·      If we’re not performing according to the metrics we originally agreed to, call us out, work out a plan and if it doesn’t improve let us go.

Conclusion

For tech startups, success hinges on resourcefulness and strategic decision-making. While seeking free fractional services may seem appealing in the short term, the hidden costs far outweigh the perceived savings. And most of all you're buying the kind of experience that will get you the results you need: More paying customers, more pipeline and a larger more revenue-producing ecosystem.

Unless you’re the Peace Corps.