Some interesting insights from Ken Schachter at Newsday about gig work on fractional executives.
A Fractional Executive Primer – What is a Fractional Executive?
A fractional executive operates as an outside contractor, devoting a portion of the workweek to one or several companies. Among the roles filled by fractional executives are: chief operating officer, chief information officer, chief marketing officer, chief sales officer, chief financial officer, and even chief executive officer.
Why would companies hire fractional executives? Fractional executives can provide high-level experience at a price that is within reach for many small or mid-size companies. Companies also can easily terminate engagements with outside contractors. Why would experienced executives want to take fractional assignments? Some executives are attracted to the scheduling flexibility of fractional work, while some retired executives want to get back in the game.
“Fractional” executives are filling C-suite level roles on Long Island and beyond as the pandemic tightens budgets and traditional career paths veer into the gig economy.
Fractional executives are neither consultants (who work on a particular project) nor interim executives (who work until a permanent replacement is hired) nor part-time employees (who may get company benefits).
Instead, they are hired guns who, as the name suggests, can juggle jobs at multiple companies, devoting a fraction of the workweek to each.
“Right now, because of the pandemic and the gig economy, you’ve seen this spurt” in demand, said Ari Ginsberg, a professor of entrepreneurship and management at New York University’s Stern School of Business.
The COVID-19 outbreak has contributed to the rise in fractional work by forcing many companies to reexamine how they deploy their financial resources.
“They have to be careful about how they use their money,” Ginsberg said.
At the same time, working in the gig economy — often associated with dog walkers, Uber drivers and DoorDash deliverers — is gaining wider acceptance.
“It used to be a career economy,” Ginsberg said. “There was a career orientation.”
But these days many workers seek the freedom of operating as an independent contractor, while some retired C-suite executives are eager to return to the office.
“It gives them the opportunity to do what they enjoy and what they were trained for,” Ginsberg said.
Skills that transition
Benjamin Wolf, founder of Fractional Leadership LLC in Woodmere, works as a fractional chief operating officer
The former Manhattan restructuring and bankruptcy attorney has worked with a variety of companies, including FreedomCare LLC in New Hyde Park, which allows friends or family members to be paid for providing home health care.
He also has worked with a Montvale, New Jersey, advertising firm and a Brooklyn-based installer of hard wood floors.
Building a structures where employees are accountable and metrics are applied to the business “generally translate regardless of industry,” he said. “I’m agnostic as to what their industry is.”
Another fractional executive is Suraya Yahaya, a native of Kuala Lumpur, Malaysia.
She earned a law degree in the United Kingdom, but transitioned to business when she moved to Denver with her husband 20 years ago.
“It was a huge shift for me,” she said.
Rather than return to law school to get licensed in Colorado, Yahaya earned a master’s of business administration.
As a fractional chief operating officer, Yahaya said, she can apply the same “analytic thinking” required from an attorney to the world of business.
“Being a fractional executive is very entrepreneurial,” she said. Her clients have included companies in businesses related to education, health care, events management and cannabis.
Gigs as a big slice of the pie
A 2018 Gallup Poll found that 36% of U.S. workers participate in the gig economy through primary or secondary jobs. But data specific to C-suite executives remains anecdotal.
Wolf, for example, said that he has seen leads for fractional positions more than double since the start of the pandemic, which also has made telecommuting more widely accepted.
“People who never would have done remote work find themselves forced to work remotely, including the leadership team,” Wolf said.
In addition to COO, the roles filled by fractional executives include: chief information officer, chief marketing officer, chief sales officer, chief financial officer, and sometimes, chief executive officer.
Pay package impact
Richard Chan, a professor at the Stony Brook University College of Business, said fractional executives are most commonly found at small and mid-size companies that can save on costly executive pay packages.
“Compensation is very hefty, including short- and long-term incentives and perks,” he said. “It’s an optimal choice in a downward economy.”
Wolf said many companies are simply not big enough to afford a full-time executive making $250,000 to $350,000 plus bonuses. But a fractional executive can provide a time commitment equivalent to 20% to 50% of a full-timer at a third of the price, he said.
Though even fractional compensation could stretch a company, Wolf said that successful fractional executives could work themselves out of a job after six or nine months, reducing the cost.
Pros and cons
Hiring a fractional executive also allows a company to fill a job far faster than by conducting a formal executive search, Chan said. “It gives them continuity in their day-to-day operations.”
Yet another reason to hire a fractional executive is that they can bring a fresh perspective into a hidebound company,
On the other hand, Chan said, as outsiders, fractional executives may have a harder time grasping day-to-day operations and understanding internal company politics, which can pave the way when rolling out new initiatives.
Further, Chan said, the compensation of fractional executives generally is not aligned with the performance of the company, a practice that is widely followed for full-time C-suite executives.
Experience and insight
At Hauppauge-based Ultra Bright Lightz, an e-commerce business that markets emergency lights and sirens to first responders, president and chief executive Justin Tomney said that hiring a fractional CFO has struck an ideal balance.
“We receive all the benefits of a regular CFO, but at a much-reduced cost,” he said. “Having someone experienced in the field to look at my business from a high level helps me see things I might have otherwise missed.”
Tomney said that tracking thousands of orders a week along with budgets, profit and cash flow “is a daunting task for a CEO at any size company” and that having an experienced CFO provides insights that help guide policy.
“The savings are well beyond tens of thousands each year,” he said.
Dan Bartley, Ultra Bright Lightz’s CFO, said his experience working at two publicly traded companies, major accountancy Deloitte Touche Tohmatsu Ltd. and others inform his work.
“I bring what I learned along the way to each of my clients,” he said. “I also have [a] strong transactional background so I can advise my clients on both organic growth and growth through acquisition,” goals of Ultra Bright Lightz.
A stable of ready execs
In January 2020, Nelson Tepfer, a veteran CFO, saw an opportunity to tap the demand for executive talent and cofounded ProCFO Partners. The company is based in Manhattan, but has many Long Island clients, including Ultra Bright Lightz.
“We started with eight CFOs and there are now almost 30,” he said. “Nine or 10 of our CFOs now live on Long Island.”
Tepfer, who operates the “virtual” company from a Brooklyn home office, said most of his customers are family businesses with fewer than 100 employees, and some of his CFOs work with as many as three or four clients.
“We have an always-on approach,” he said. “We don’t bill clients hourly. We go based on the level of engagement.”
Tepfer said he seeks to match fractional CFOs to the business owner based in part on personality.
When placing a CFO, Tepfer said, how well the executive gets along with the owners can be more important than the candidate’s experience.
Temporary or not-so
How long a fractional executive stays with a company can vary. While an engagement may be open-ended, companies may evolve and grow into a full-time CFO.
“We’re a low-risk option,” Tepfer said. “We walk in the door and we could be gone the next day. There are some engagements where we’ll help them to hire a full-time CFO to replace us.”
Tepfer said his partner operates out of Chicago and ProCFO is looking at expanding to Dallas, Kansas City and other metropolitan areas.
One member of Tepfer’s team is Kathleen Reynolds of Sea Cliff.
She has a flexible schedule, splitting her time between a commercial interior design company and a healthcare technology startup.
“From a family perspective, it’s changed my life,” said the mother of boys aged 18, 13 and 12.
After spending about 20 years as an executive on Wall Street at Morgan Stanley and Goldman Sachs, Reynolds tried going solo as a fractional executive, but finds working with ProCFO has marked advantages.
“It’s so much better to have a network of colleagues,” she said. “That’s what I missed when I was on my own. Sharing our experience.”
Yahaya, the fractional COO, has formed a company to market her services, Khazana Inc. Khazana is the word for “treasure” in Malaysian.
Among the things she treasures most about her business life is its unexpected nature.
Said Yahaya: “You never know what’s around the corner. … Every day you’re problem-solving.”