Startups, SMEs increasingly covet so-called fractional CXOs

And they are highly coveted.

Startups and SMEs are increasingly hunting for these so-called fractional CXOs to manage operations and get access to good talent at affordable costs. Given the flexibility that such arrangements afford, an increasing number of senior employees have been opting for a career as a fractional CXO since the pandemic ended two years years ago.

While the uptick in hiring of fractional CXOs hovers around the 25%-mark globally, HR consulting firm Randstad has observed a 10-12% rise among Indian startups across legal, finance, e-commerce, and tech industries, according to Gibin Jayaprakash, business head, executive search, Randstad India. While the trend started in 2020, it has picked up pace in the last two years.

Srinivasan V Swamy, founder of CFO Bridge, a company that provides on-demand fractional CFO services to SMEs and startups, said he has seen a six-fold growth in enquiries as compared to the pre-pandemic period. “I would hardly receive about 10 leads a month prior to the Covid-19 pandemic. Now, I am receiving close to 60 leads in a month,” he said. As much as 40% of the company’s business comes from startups and 60% from SMEs.

Swamy added that the broader IPO market and the activity that is happening has accelerated the demand for such executives, with Mumbai and Bengaluru leading the adoption. From a supply side, he said, there are many sitting CFOs of large companies planning at least a couple of years ahead. “They are saying, let’s start talking now so that I can plan and then do a proper, you know, planned exit from my existing employment. I have pipelines where people are talking to me two years ahead of their joining.”

Most of the c-suite executives that Mint spoke with said they are going for the fractional way of working for better flexibility and use of their experience in fuelling growth at these companies.

“So, in the fractional world, there is a saying that you know, I would work on what I want to work on and when I want to work on, which is not possible when you are working in a corporate job, you don’t get to choose your projects. So that’s the reason I handpick the kind of projects which where I really see that there is a potential in this and you know it’s making sense,” said Kushagra Gupta, a fractional CMO and founder and vice-president of Council of Fractional CXO, founded in February this year.

“I wanted to come out of the corporate world, as it was more of a monotonous job working for one company. There is a lot of gap in the SME and startup sector as compared to any other bigger corporates, which is what we fill in. There’s no financial discipline at all, which is the main focus area for any finance guy, but unfortunately as a founder or MD of a company in a smaller setup, he will be looking at finance rather than growing the business. We come in saying you focus on the business and we will take care of the finance,” said Prabhu R, a fractional CFO.

According to Nitin Dhawal, co-founder and CEO, Scogo Networks, a fractional CFO brings financial discipline in a startup and at early stages, it’s hard to get the best talent in finance to join a startup. “When you become a certain size, complexity emerges in your business and you may have more than one revenue stream…A CFO wouldn’t find enough juice in the company, so we wouldn’t get the top-tier talent in finance. Even a finance MBA guy wouldn’t want to come in.”

Satyanarayanan Visvanathan, who co-founded CTO Bridge in November last year in partnership with CFO Bridge to offer on-demand CTO service, said, “Everybody tries to take a business model and blend it sufficiently with technology and try to create that differentiating segment. In this, invariably, there is one or two co-founders who is a technology-based person. But sometimes they may not have the right capabilities also, that differentiation factor. There is a need for these startups to have the right investment in terms of technology and the fractional leader comes in handy for them.”

Experts say a fractional CFO is not just a different label for a consultant role, but has a larger scope. Swamy said consultants tend to have a more advisory approach, whereas an employee is hands-on.

“When you hire a consultant, they come for a very specific milestone. We were able to introduce our partner as our CFO. The rest of the organization understands that we have a CFO in the organisation,” said Dhawal.

“If I am a fractional CMO, I am the CMO of that startup. It’s just that since the arrangement between us is in such a way that I would also be working for two more people at the same point of time. I’m a complete CMO in terms of the work, and I will work the same way I was working in a full-time organization, but I get to work on five projects,” said Gupta.

Satish Kadu, founder and CEO of YOptima, said he went for a fractional CFO role as opposed to a consultant or an advisor, as he needed a leader responsible for the company’s finance, but its need and budget didn’t justify a full-time CFO.

On how having a fractional CFO helped, Kadu said, “It helped with lower cost without compromising on sense of responsibility and advisory depth. Hassle-free management by her saves a lot of time for me and offers much required oversight…The junior team in finance respects her and feels they are growing with her as opposed to a situation if I was managing them directly.”

But there are reservations, too. According to Swamy, there are two areas where the apprehensions lie.

“Apprehension number one is, you know, like, for example, I am a Thursday CFO, right? I go to your office, I come to your office on Thursdays. But he says, Srinivas, really problems are not going to queue and schedule. Problems will keep coming to me 365 days. And second is, they believe that if you have a full-time employed resource, there is better accountability,” he said.

“I believe that this ‘accountability is available only if you are engaging somebody full-time’ is a bit of a myth. But I think it’s an area that will transition. The first area is still difficult, queuing and scheduling.”

On average, a fractional CXO earns anywhere between ₹80 and ₹1.20 crore per annum and enjoys the benefits of continuous learning, multi-specialization, and increased goodwill amongst peers, according to Jayaprakash.