A Guide To Fractional CTO Rates And The Benefits They Offer
Table of contents
We've all heard the story: One (or two) brilliant founders have a game-changing idea. They hire a group of early employees/stock option holders. And, through sheer grit and the right people around, they disrupt an industry becoming billionaires in the process.
Except that it isn't really true, right?
Every year so many startups fail – 90%. And the ones who achieve Unicorn status later regret distributing equity like it's free.
It's no secret that early-stage startups require a ton of strategic thinking and seasoned technological expertise. And especially when you do not have that tech mind, you try to onboard someone to lead the company's implementations from a strategic standpoint to ensure that technology roadmaps are executed correctly.
To gain that tech leadership, startups earnestly hunt for a technical co-founder or a Chief Technology Officer.
But why would any seasoned technology executive professional join your startup with no proven reason to believe it would succeed?
Besides, bringing a skilled CTO at a partner level in the early stages can cost startups dearly both in short and the long run.
So, how do you get the strategic guidance you're looking for? This is where a fractional chief technology officer comes in.
A fractional CTO is a person who serves as a part-time CTO for the company. This person is responsible for managing all the tech aspects, building processes, and making significant tech decisions for a startup.
Now you must wonder how much these fractional CTOs cost and if they can really help your startup grow. But before diving into the fractional CTO rates, let's first discuss why you should consider hiring one and how this person can lead your company's tech strategy, team growth, and development.
Why Should You Hire a Fractional CTO?
If you're an early-stage startup, you know that the cost of hiring one full-time is incredibly high.
Even if you have enough funds, considering a CTO's skills, experience, creative vision, and critical attitude, why would a qualified CTO choose to work for your brand-new startup? How will you convince them to leave their high-paying full-time job and start full-time at your organization?
According to Glassdoor, the average salary of a CTO is $173,968/year. Depending upon location, education, and experience, that number can easily exceed $300,000/year. If a person can make a considerable amount of money and acquire equity at an established enterprise, you'll need to make a strong argument for why your startup idea is worthwhile.
One of the typical ways to make this happen would be to have the compensation be composed of a significant equity component to make up for a lower cash component.
However, you might still face reservations from the candidates as startups are very risk-prone. Qualified CTO candidates know too much about startup failure rates and will likely reject your new, unfunded company in favor of the stability of a more established business. Or, you end you hiring the CTO by shredding 40%-50% equity.
That's not it.
Even if you find that diamond in the rough, it may take months. All this wasted time could have gone toward fundraising, market research, and product development. Plus, there is a possibility of performance issues once hired, which is not an ideal scenario to be in with a co-founder or partner.
All these facts boil down to just one thing—a fractional CTO is an excellent choice to save time, effort, and money(equity).
How Can A Fractional CTO Add Value To Your Organization?
Imagine a situation. You hired a development agency to build your product but are suddenly paralyzed by a loss of technical expertise and lose precious time, money, and reputation. The cause: outsourcing the wrong team!
A part-time CTO can act as a matchmaker here and ensure that the developing party understands the required business features well and that they don't get lost in translation.
Furthermore, even experienced developers need solid management and oversight to operate at peak efficiency. A fractional chief technology officer offers the necessary guidance irrespective of whether you have an in-house or freelancer team. They act as a trusted advocate for your organization by protecting your ideas, developing policies and procedures, and using the best technology to enhance your product.
Below are some other benefits of hiring a fractional CTO for your startup.
1. Save Money.
Hiring a full-time CTO can leave a big hole in your pockets, especially when you are an early-stage startup. Fractional CTOs are seasoned pros and have the necessary skills to take on the work that would be expected from a full-time CTO. You can significantly reduce CTO hiring costs while still enjoying all of the benefits of such involvement.
2. Lesser Stake In The Company
Another aspect to look for is equity. While a full-time CTO could demand a more significant equity investment in your business (often 10% - 40%), a part-time CTO might carry out the same tasks and grow your business for just a 1% - 2% stake.
3. Better Exposure
Since fractional CTOs are probably working with 3-4 companies at a time; they can provide an outside strategic perspective on your current technological strategy. They get greater exposure to more organizations, more teams, more talent, and more projects and hence, are fully equipped to help overcome tech challenges.
4. You Get Trusted Guidance From An Experienced Person
Many non-tech founders look at dozens of agencies and freelance developers to develop their products. And in a lot of cases, outsourcing may seem to be the only available choice. However, they lack the skills needed for managing and putting together a technical team, building a tech vision, and having the ability to execute it.
This can result in a poor match and all kinds of trouble. Having an expert on board ensures that you have someone who can audit and review deliverables in terms of quality, scalability, extensibility, and code neatness.
Fractional CTO Rates Worldwide
The fractional CTO cost varies depending on your demographics and company size. The costs also depend upon whether you're hiring a freelancer chief technology officer or an agency to act as your CTO. Some part-time CTOs work independently. However, others are part of an agency.
Generally, a fractional CTO often costs $150 to $300 per hour, though they may ask for equity too. They bill an early-stage startup $100 per hour to develop a strategy or an MVP, and it can go up to $1000/hour to perform technical due diligence for a VC before they agree to a sizable investment round. Some professionals also work on a month-to-month retainer.
It is also crucial to remember that while some fractional CTOs work full-time, others are consultants and might not always be accessible. Additionally, they may work with three or four organizations simultaneously. Nonetheless, they allow you to avoid paying a full-time CTOs salary, bonuses, equity, and other related expenses.
Other factors determining the fractional CTO cost are:
1. Experience
Without a doubt, experience plays a significant role in determining the salary of a fractional CTO. The value that a 5-year experienced person will bring to your startup can differ from that of a professional with 15 years of experience.
2. Tech Competencies
In general, CTOs have a broad knowledge of all the skills required in the tech field. However, the cost of hiring one would also depend upon the specialization. For instance, if your product explicitly demands Artificial Intelligence or Blockchain technology, hiring someone with specialized knowledge of these technologies would come at a higher cost.
3. Industry
The rates also vary in different industry sectors. The rates might be higher if you're looking for someone with an industry-specific skillset. Take, for example, the fintech industry. It can include everything from straightforward mobile payment apps to complex blockchain networks housing encrypted transactions. The more complex your requirements are, the higher the remuneration of the CTO can be.
4. Location
The part-time CTO prices also vary from country to country, making outsourcing from other countries a valuable investment. Many US companies are already sourcing their major tech requirements amid the tech talent shortage, possible recession, and economic crunch.
Here is a representation of the fractional CTO salaries (Monthly) across the globe:
When Does Your Company Need a Fractional CTO?
Understandably, you must have come across several investors who are not ready to invest in your startup because you do not have a tech expert onboard. Or, you might come across investors saying - "If you are not able to attract a CTO, you do not have a compelling idea."
When they say this, they're looking for assurance that you're working with someone who can help you build a great product. That person can be a fractional CTO as well.
Outsourcing fractional CTO services can help you in the following cases:
1. You Have A Product Idea, But Your Team Lacks Guidance.
Want to create a new software product but aren't sure what direction to go in or what technologies to use?
In that case, a fractional chief technology officer can assume full responsibility for planning, supervising, and launching your tech product.
2. Your Project Needs The Knowledge Of An Accomplished Tech Executive.
Tech is not the core of your product. For instance, you are building an eCommerce company. You only need someone to have an exclusive technology vision and strategize to optimize the company's processes and operations. Fractional CTO's center around a portion of the obligations and explicit areas of necessities. They can help you with specific aspects of your company.
3. You Require Technical Guidance But Don't Have Funds.
While the average fractional CTO rates aren't low, they still come at a lower price than the full-time CTOs. If you are an early-stage startup with minimal funding, you would probably want someone more affordable.
4. You Require A Visionary Plan.
For early-stage startups, having a tech strategy is just as crucial as having a business strategy. A fractional CTO can help you direct your plan in the right direction and ensures that it aligns with your long-term goals.
Fractional CTO Roles and Responsibilities
Sure, you might know that a CTO role typically involves technical aspects and business growth—collaborating with developers, overseeing IT maintenance, building relationships, raising funds, etc.
However, these functions and responsibilities vary by the company's industry, size, and maturity.
You might demand one or more roles or responsibilities of a fractional CTO. Sometimes they will only concentrate on tech-related issues. Other times they actively participate in decision-making and are crucial in bridging the gap between upper management and the IT teams. Both considerations might vary across organizations and industries.
For instance, your business might employ a part-time CTO as a strategic planner. This person's top priorities would be finding the best technology for the company and developing a technical roadmap to create the groundwork. Another startup might hire a part-time CTO to take care of the infrastructure.
Factors To Consider When Hiring A Fractional CTO
The education, experience, and skill sets of fractional CTOs are equivalent to those of their full-time counterparts. Their exposure to technologies, projects, and teams, however, is where they diverge. When selecting a part-time CTO for your firm, consider the following factors.
1. Your Business Size
While fractional CTOs are usually associated with startups, there has been a change in the value they can provide in recent years. Now, even larger companies are embracing their use. Nonetheless, fractional CTO services are ideal for early-stage startups looking for an overall strategic direction and efficient utilization of technology throughout the company.
2. In-House Team Capabilities
Have a self-sufficient team that can coordinate your business technology well? In that case, it's a waste of money to hire someone. Comparatively, if your in-house team/partner/you lack the expertise a chief technology officer can offer, it makes sense to hire one.
3. The Complexity Of Your Tech Needs
Some businesses have more comprehensive and complex tech requirements than others. While outsourcing fractional CTO services, ensure that you have identified areas where your technological needs can be addressed.
4. Short And Long-term Goals Of Your Business
Before hiring a part-time CTO, you should clearly understand the short- and long-term goals you have for your company. Simply put, it provides your CTO with resources to work with.
How to Hire a Fractional CTO?
According to forecasts, demand for fractional CTOs and a wide range of other executives are rising and will continue to grow. The same can also be inferred from the below chart.
That said, it becomes imperative that you approach the right source to hire fractional CTO services.
While networking at trade events might also come into the picture, below are the two best ways that make hiring a virtual CTO in 2022 straightforward.
1. Job Aggregators
Leverage job aggregator sites like LinkedIn, Indeed, and Glassdoor, and simply post about your open positions. Currently, there are about 8.2 million C-level executives on LinkedIn. There are high chances that you encounter plenty of fractional CTOs. However, the only downside is that it takes a reasonable amount of time and effort to screen their profiles.
2. Tech Marketplaces
You can find the ideal fractional CTO for your company's needs and projects by contacting a reliable outsourcing partner like Default. Besides, when you team up with them, you gain immediate access to a team of pre-screened, highly-skilled fractional CTOs. Not only will it save your precious time, but it will also leave your team free to devote their time to revenue-generating tasks.
Conclusion
Building a great startup requires the willingness to think beyond the norms and find the best people to get the job done—regardless of their title. It also demands you to identify the requirements for success now, tomorrow, and the following year, as well as to locate individuals who can move your business and product in the direction you want them to go.
Sometimes, that means hiring someone who can provide immediate value via expertise at a relatively lower cost. A fractional CTO delivers precisely what your startup needs to gain an edge in this competitive market.
Default is your one-stop destination for hiring fractional CTO services. At Default, we've cultivated a community of available fractional CTOs on-demand to help your business scale. If you would like to discover more about how hiring a CTO can help you enhance company earnings, efficiency, and position as an industry leader, Schedule a call with us today!
They provide much-needed guidance on product development, general IT problems, cybersecurity tactics, and business process optimizations that accelerate your time to market.
We've all heard the story: One (or two) brilliant founders have a game-changing idea. They hire a group of early employees/stock option holders. And, through sheer grit and the right people around, they disrupt an industry becoming billionaires in the process.
Except that it isn't really true, right?
Every year so many startups fail – 90%. And the ones who achieve Unicorn status later regret distributing equity like it's free.
It's no secret that early-stage startups require a ton of strategic thinking and seasoned technological expertise. And especially when you do not have that tech mind, you try to onboard someone to lead the company's implementations from a strategic standpoint to ensure that technology roadmaps are executed correctly.
To gain that tech leadership, startups earnestly hunt for a technical co-founder or a Chief Technology Officer.
But why would any seasoned technology executive professional join your startup with no proven reason to believe it would succeed?
Besides, bringing a skilled CTO at a partner level in the early stages can cost startups dearly both in short and the long run.
So, how do you get the strategic guidance you're looking for? This is where a fractional chief technology officer comes in.
A fractional CTO is a person who serves as a part-time CTO for the company. This person is responsible for managing all the tech aspects, building processes, and making significant tech decisions for a startup.
Now you must wonder how much these fractional CTOs cost and if they can really help your startup grow. But before diving into the fractional CTO rates, let's first discuss why you should consider hiring one and how this person can lead your company's tech strategy, team growth, and development.
Why Should You Hire a Fractional CTO?
If you're an early-stage startup, you know that the cost of hiring one full-time is incredibly high.
Even if you have enough funds, considering a CTO's skills, experience, creative vision, and critical attitude, why would a qualified CTO choose to work for your brand-new startup? How will you convince them to leave their high-paying full-time job and start full-time at your organization?
According to Glassdoor, the average salary of a CTO is $173,968/year. Depending upon location, education, and experience, that number can easily exceed $300,000/year. If a person can make a considerable amount of money and acquire equity at an established enterprise, you'll need to make a strong argument for why your startup idea is worthwhile.
One of the typical ways to make this happen would be to have the compensation be composed of a significant equity component to make up for a lower cash component.
However, you might still face reservations from the candidates as startups are very risk-prone. Qualified CTO candidates know too much about startup failure rates and will likely reject your new, unfunded company in favor of the stability of a more established business. Or, you end you hiring the CTO by shredding 40%-50% equity.
That's not it.
Even if you find that diamond in the rough, it may take months. All this wasted time could have gone toward fundraising, market research, and product development. Plus, there is a possibility of performance issues once hired, which is not an ideal scenario to be in with a co-founder or partner.
All these facts boil down to just one thing—a fractional CTO is an excellent choice to save time, effort, and money(equity).
How Can A Fractional CTO Add Value To Your Organization?
Imagine a situation. You hired a development agency to build your product but are suddenly paralyzed by a loss of technical expertise and lose precious time, money, and reputation. The cause: outsourcing the wrong team!
A part-time CTO can act as a matchmaker here and ensure that the developing party understands the required business features well and that they don't get lost in translation.
Furthermore, even experienced developers need solid management and oversight to operate at peak efficiency. A fractional chief technology officer offers the necessary guidance irrespective of whether you have an in-house or freelancer team. They act as a trusted advocate for your organization by protecting your ideas, developing policies and procedures, and using the best technology to enhance your product.
Below are some other benefits of hiring a fractional CTO for your startup.
1. Save Money.
Hiring a full-time CTO can leave a big hole in your pockets, especially when you are an early-stage startup. Fractional CTOs are seasoned pros and have the necessary skills to take on the work that would be expected from a full-time CTO. You can significantly reduce CTO hiring costs while still enjoying all of the benefits of such involvement.
2. Lesser Stake In The Company
Another aspect to look for is equity. While a full-time CTO could demand a more significant equity investment in your business (often 10% - 40%), a part-time CTO might carry out the same tasks and grow your business for just a 1% - 2% stake.
3. Better Exposure
Since fractional CTOs are probably working with 3-4 companies at a time; they can provide an outside strategic perspective on your current technological strategy. They get greater exposure to more organizations, more teams, more talent, and more projects and hence, are fully equipped to help overcome tech challenges.
4. You Get Trusted Guidance From An Experienced Person
Many non-tech founders look at dozens of agencies and freelance developers to develop their products. And in a lot of cases, outsourcing may seem to be the only available choice. However, they lack the skills needed for managing and putting together a technical team, building a tech vision, and having the ability to execute it.
This can result in a poor match and all kinds of trouble. Having an expert on board ensures that you have someone who can audit and review deliverables in terms of quality, scalability, extensibility, and code neatness.
Fractional CTO Rates Worldwide
The fractional CTO cost varies depending on your demographics and company size. The costs also depend upon whether you're hiring a freelancer chief technology officer or an agency to act as your CTO. Some part-time CTOs work independently. However, others are part of an agency.
Generally, a fractional CTO often costs $150 to $300 per hour, though they may ask for equity too. They bill an early-stage startup $100 per hour to develop a strategy or an MVP, and it can go up to $1000/hour to perform technical due diligence for a VC before they agree to a sizable investment round. Some professionals also work on a month-to-month retainer.
It is also crucial to remember that while some fractional CTOs work full-time, others are consultants and might not always be accessible. Additionally, they may work with three or four organizations simultaneously. Nonetheless, they allow you to avoid paying a full-time CTOs salary, bonuses, equity, and other related expenses.
Other factors determining the fractional CTO cost are:
1. Experience
Without a doubt, experience plays a significant role in determining the salary of a fractional CTO. The value that a 5-year experienced person will bring to your startup can differ from that of a professional with 15 years of experience.
2. Tech Competencies
In general, CTOs have a broad knowledge of all the skills required in the tech field. However, the cost of hiring one would also depend upon the specialization. For instance, if your product explicitly demands Artificial Intelligence or Blockchain technology, hiring someone with specialized knowledge of these technologies would come at a higher cost.
3. Industry
The rates also vary in different industry sectors. The rates might be higher if you're looking for someone with an industry-specific skillset. Take, for example, the fintech industry. It can include everything from straightforward mobile payment apps to complex blockchain networks housing encrypted transactions. The more complex your requirements are, the higher the remuneration of the CTO can be.
4. Location
The part-time CTO prices also vary from country to country, making outsourcing from other countries a valuable investment. Many US companies are already sourcing their major tech requirements amid the tech talent shortage, possible recession, and economic crunch.
Here is a representation of the fractional CTO salaries (Monthly) across the globe:
When Does Your Company Need a Fractional CTO?
Understandably, you must have come across several investors who are not ready to invest in your startup because you do not have a tech expert onboard. Or, you might come across investors saying - "If you are not able to attract a CTO, you do not have a compelling idea."
When they say this, they're looking for assurance that you're working with someone who can help you build a great product. That person can be a fractional CTO as well.
Outsourcing fractional CTO services can help you in the following cases:
1. You Have A Product Idea, But Your Team Lacks Guidance.
Want to create a new software product but aren't sure what direction to go in or what technologies to use?
In that case, a fractional chief technology officer can assume full responsibility for planning, supervising, and launching your tech product.
2. Your Project Needs The Knowledge Of An Accomplished Tech Executive.
Tech is not the core of your product. For instance, you are building an eCommerce company. You only need someone to have an exclusive technology vision and strategize to optimize the company's processes and operations. Fractional CTO's center around a portion of the obligations and explicit areas of necessities. They can help you with specific aspects of your company.
3. You Require Technical Guidance But Don't Have Funds.
While the average fractional CTO rates aren't low, they still come at a lower price than the full-time CTOs. If you are an early-stage startup with minimal funding, you would probably want someone more affordable.
4. You Require A Visionary Plan.
For early-stage startups, having a tech strategy is just as crucial as having a business strategy. A fractional CTO can help you direct your plan in the right direction and ensures that it aligns with your long-term goals.
Fractional CTO Roles and Responsibilities
Sure, you might know that a CTO role typically involves technical aspects and business growth—collaborating with developers, overseeing IT maintenance, building relationships, raising funds, etc.
However, these functions and responsibilities vary by the company's industry, size, and maturity.
You might demand one or more roles or responsibilities of a fractional CTO. Sometimes they will only concentrate on tech-related issues. Other times they actively participate in decision-making and are crucial in bridging the gap between upper management and the IT teams. Both considerations might vary across organizations and industries.
For instance, your business might employ a part-time CTO as a strategic planner. This person's top priorities would be finding the best technology for the company and developing a technical roadmap to create the groundwork. Another startup might hire a part-time CTO to take care of the infrastructure.
Factors To Consider When Hiring A Fractional CTO
The education, experience, and skill sets of fractional CTOs are equivalent to those of their full-time counterparts. Their exposure to technologies, projects, and teams, however, is where they diverge. When selecting a part-time CTO for your firm, consider the following factors.
1. Your Business Size
While fractional CTOs are usually associated with startups, there has been a change in the value they can provide in recent years. Now, even larger companies are embracing their use. Nonetheless, fractional CTO services are ideal for early-stage startups looking for an overall strategic direction and efficient utilization of technology throughout the company.
2. In-House Team Capabilities
Have a self-sufficient team that can coordinate your business technology well? In that case, it's a waste of money to hire someone. Comparatively, if your in-house team/partner/you lack the expertise a chief technology officer can offer, it makes sense to hire one.
3. The Complexity Of Your Tech Needs
Some businesses have more comprehensive and complex tech requirements than others. While outsourcing fractional CTO services, ensure that you have identified areas where your technological needs can be addressed.
4. Short And Long-term Goals Of Your Business
Before hiring a part-time CTO, you should clearly understand the short- and long-term goals you have for your company. Simply put, it provides your CTO with resources to work with.
How to Hire a Fractional CTO?
According to forecasts, demand for fractional CTOs and a wide range of other executives are rising and will continue to grow. The same can also be inferred from the below chart.
That said, it becomes imperative that you approach the right source to hire fractional CTO services.
While networking at trade events might also come into the picture, below are the two best ways that make hiring a virtual CTO in 2022 straightforward.
1. Job Aggregators
Leverage job aggregator sites like LinkedIn, Indeed, and Glassdoor, and simply post about your open positions. Currently, there are about 8.2 million C-level executives on LinkedIn. There are high chances that you encounter plenty of fractional CTOs. However, the only downside is that it takes a reasonable amount of time and effort to screen their profiles.
2. Tech Marketplaces
You can find the ideal fractional CTO for your company's needs and projects by contacting a reliable outsourcing partner like Default. Besides, when you team up with them, you gain immediate access to a team of pre-screened, highly-skilled fractional CTOs. Not only will it save your precious time, but it will also leave your team free to devote their time to revenue-generating tasks.
Conclusion
Building a great startup requires the willingness to think beyond the norms and find the best people to get the job done—regardless of their title. It also demands you to identify the requirements for success now, tomorrow, and the following year, as well as to locate individuals who can move your business and product in the direction you want them to go.
Sometimes, that means hiring someone who can provide immediate value via expertise at a relatively lower cost. A fractional CTO delivers precisely what your startup needs to gain an edge in this competitive market.
Default is your one-stop destination for hiring fractional CTO services. At Default, we've cultivated a community of available fractional CTOs on-demand to help your business scale. If you would like to discover more about how hiring a CTO can help you enhance company earnings, efficiency, and position as an industry leader, Schedule a call with us today!
They provide much-needed guidance on product development, general IT problems, cybersecurity tactics, and business process optimizations that accelerate your time to market.
Give your product vision the talent it deserves
building your dream engineering team.
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