Hello! I have been getting a lot of requests to be a fractional CTO and needed advice on how the model works? Any Fractional CTOs here, do you usually charge $$ or take equity (how much should I be thinking?) or both? I’ll be working with seed, series A and B funded startups. Thanks!
Hey , Have a look at my latest blog about how fractional cto can transform your journey
Read now : https://talhafakhar.medium.com/revolutionizing-your-startups-journey-the-transformative-power-of-a-fractional-cto-702e22fa4bccI like the audit/discovery package mentioned earlier. Avoid hourly, define the scope and craft a retainer package around it. I avoid hourly because its too easy to become the dump truck of duties (we dont want to hire X, you can do it) instead of the true goal of getting access to my full experience at less than full price.
As for equity, I’m assuming we are talking early stage startups. I craft a separate advisor agreement for that. I think having some long term upside in the company is in both of our best interests but it shouldn’t come at my personal expense. Most equity is worthless.
Have an ideal steady state in mind and work towards that. For me, its 2 10-hour-ish retainers and a handful of advisor spots. This gives me time to pursue my own projects, ends up close enough to market, and gives me a handful of lottery tickets.
Can I DM you. I was offered a fractional cto at a stealth start up. Need some advice
You either have package options or custom tailor it around the opportunity.
I recommend trying to avoid hourly rates.
My best strategy is to sell an audit / discovery package first. I have about 12 sections on a report I do and give each a proprietary/opinionated score based on my findings. I also have a second factor I call risk, which helps set my opinion on priority. A few of my categories are documentation, team, security posture, data model, disaster recovery, scalability, code review(s).
I usually write a page or two for each section based on my process.
They give me free reign to come in and poke around, access to the resources (people) I need to accomplish my research. It’s empowering to get into everything, under the hood and point out all their problems.
I provide an example audit report and sell it based on the customer, but usually 10-20k for about 2 weeks worth of work with a 30 day delivery window. I’ve also waived the fee when I felt I could work in a $100k+ deal for it. Even if they want me to fix a specific thing I always start with an audit, it just immediately puts you in a position of strength and the knowledge you’ll have once you go through it will make you invaluable to the company. It’s also very easy to sell, you ultimately eliminate the complexity of trying to negotiate solving a specific problem - which you can’t do blind and need to dive in anyway to make an intelligent decision. Without a package, the research can become implied as free as part of a scoping estimate. You also only have to sell two things - your expertise and their trust.
This allows me to get a package project with a fixed timeline out of the way as soon as possible and not waste time… it also serves the purpose of providing a deep dive into all aspects of the business and can identify opportunities for work.
The secret with tech audits is you will ALWAYS find something that needs addressed, and you’re the person who found it, documented it and hopefully knows how to fix it. As a true CTO, you may not even need to fix it yourself hands on, just know how to find the best options to get it fixed.
Excellent thoughts. Can you refer something to workout the audit and the template? Been trying to zero in on an approach as I hear[/think] many “non-tech” founders are looking for fractional CTOs.
I sent a dm about this.
I do something similar. An intro call turns into an assessment. When I complete the assessment, the prospect picks from 3 possible packages that scale based on how much access they want.
There a community or set of resources for fractional CTOs?
Related business and our model is similar and has been successful- selling a short, defined fixed deliverable (like your audit) that is primarily discovery on my end as a lead in.
Pros of this is the small financial commitment for them (compared to a full contract/project), allows me to get paid to deeply diagnose the problems, allows us both to make sure we’d like to work together, and provides them something of actual value even if they don’t decide to go forward.
Yes, I agree - the take away is that the document has value, hopefully tremendous value in understanding where they stand. Most CEOs not being technical need someone they can trust to provide a true assessment and give them an ‘unbiased’ report on the state of their business. Especially the fast growth startups where everything seems to be falling apart and they just can’t seem to get a real solution. Often times I’ll report the staff is shorthanded for what’s necessary to maintain a business at their pace… I try to do my best to stay on the good side of the existing teams and not crap on them directly. Being in tech for over 25 years and getting shit on by outside parties is too common from people trying to make a quick buck. I like to think I bring an ethical approach to doing what’s best for the business.
Also - getting access to their actual order system helps me fully understand the risk / opportunity of the situation.
Thanks for the logical tip about the audit.
Could you clarify the “after audit part”? You give a few hints like
- avoid hourly rates
- waive the fee for a $100k deal
- negotiate project fee … Can you give some example deals on how you package your service (as a product)?
Are you fractional as in:
- you stay a few months and solve a specific problem
- you stay parttime for long term (combining CTO roles)
Thanks!
I think you meant to reply to my comment - From your questions I’d say you’re looking at this from a job perspective, I’m looking at it as a relationship.
The difference is I’m not trying to sell long term deals out of the gate - I never want a situation that gets stale over time, it starts to feel like employment situation… as hired expert you’re the boss, as an employee it’s not as effective.
You can stay as long as needed, calibrated to what the company actually needs. Every company is going to have different problems, budgets, size - a small company with simple problems don’t need me forever and I don’t need them.
The audit process helps you identify the opportunity unique to the company you’re working with - what you do from there should reveal itself as you go.
It’s as simple as you working part-time, and you shouldn’t overthink it beyond that. You charge them whatever you have to, and any longterm bonuses in the form of equity is basically there only to motivate you to stick around longer than you in most cases will want to (web search: cliff vesting).
What I do is that I start as a paid advisor, which essentially is a paid discovery phase. Then I slowly take on the responsibilities of a paid CTO. And only if all that works just fine I’d be willing to discuss equity as a way to keep me around (or to lower my salary).
That being said, personally I really want to work with very early founders as that’s where I can do the most to help, but that means that they’re also very inexperienced (which causes huge problems, and lots of arguments). So I’ve ended up having to focus on them paying my regular consulting fee from day one simply to weed out the too unprofessional dreamers. So if you’re being approached by more mature and professional teams, and get good terms, equity might actually have more of a real world value; just remember that it most likely has zero value until the day you’re able to actually sell it, so have a realistic plan for how to do that.
I’ve done work as an advisor and fractional VP of Sales.
In my opinion, you should structure it as upfront cash compensation. This way you can reduce your risk exposure and increase your personal cashflow.
If you get enough gigs you will be able to replace your day job compensation and become a fractional CTO full-time. Happy to chat about it if you want to DM me
I do this. Have my prices and packages on my website. Let me know if interested. Happy to help.
I charge $$$$. Almost always hourly as I’ve never figured out the retainer model. I am about to do my first fixed price “audit”, so we will see how that goes.
On occasion I take both cash and equity depending on the company, funding etc. I know one frac CTO who insists on both and never lowers his rate either.
I’ve had equity pay out exactly once over the years. With cash, I can buy all kinds of equity in companies that actually have liquidity.