#023 - Cloudy with a Chance of SaaS
Fractional CTO Compensation & Cost
Fractional CTO February
For the month of February, I will explore the concept of a Fractional CTO (Chief Technical Officer) and the benefits of hiring one for your SaaS offering. I will touch on various themes, types, and topics around Fractional CTOs. Feel free to share this with anyone in need of one, or someone looking to become one. This week's post defines the ways in which a Fractional CTO can be compensated.
The Challenge of the Fulltime CTO
When you are a non-technical founder and do not have a technical co-founder, you may think you need to hire a full-time CTO to handle the required day-to-day and ongoing technical decisions. This might seem like a straightforward decision, but it is fraught with many challenges and pitfalls. Bringing on a full-time CTO could be very expensive in terms of cash outlay, and the amount of equity they will require. In addition, the vesting schedule for that equity is likely to be 3 or 4 years, which means they might stick around far longer than you want them to. When you have a 3 or 4-year vesting schedule, full-time CTOs not working out for you may stick around a lot longer than you would like. The hired gun, full-time CTO, may not have the commitment that you as a founder will have. The full-time CTO, unless vetted very carefully, may not have the hours of mastery required to lead and inspire your team. Why pay for a full-price, full-time CTO, when a Fractional CTO can be employed to prevent these challenges, while also providing many advantages?
Time Commitment
By its very nature, the Fractional CTO is a part-time resource dedicated to the technical success of your SaaS. They will get you to market faster, than just you on your own. On a daily basis, they will be available via Slack or a similar platform and they will host standup meetings to remove blockers and troubleshoot challenges. Weekly, they will have standing meetings with senior leaders for guidance and counsel. Monthly, they will ensure strategic goals and direction are being reviewed and pivoted as required. Quarterly, they will provide status updates and report on OKRs (Objective and Key Results) for the technical organization. Yearly, they will participate in long-term goal setting, which is then revisited on an ongoing basis with the senior leadership team. Basically, the Fractional CTO protects non-technical founders from the technical things they do not know. In the beginning, the Fractional CTO is setting the cadence and way of working for the developers, but is also setting the expectations for the non-technical leaders in the organization.
Compensation
As mentioned earlier, a dedicated CTO for your startup will come with a significant equity outlay along with a significant salary. By hiring a Fractional CTO, you can leverage a small amount of equity (2-10%) generally vesting in a year, and a monthly retainer ($2-$20k or more a month) depending on the scope of services provided. The Fractional CTO gets to work on a few projects at once, which for the right person, is very energizing, engaging, and fun. It also allows them to spread their risk across a few companies, and create a few lottery tickets with possibilities for multiple exits. At the same time, you as the founder get to protect your equity and manage your cash flow. It’s a win-win for all involved.
Cost
The most expensive software development in the world is the one without clearly defined outcomes and metrics to track success. If you rely on a single part-time developer or an oversubscribed agency, instead of a Fractional CTO, it is so easy to pour money into development that doesn’t lend itself to success. By mentoring a dedicated team of developers, your Fractional CTO will keep your team on track, set them up for success, and prevent mistakes and errors a non-technical founder might learn the hard way. The Fractional CTO is there to prevent you from killing your Saas via simple errors.
Fractional CTO
The Fractional CTO gives the SaaS founder many advantages, including:
Less equity outlay
Lower upfront costs
Faster time to market
Protecting the non-technical founder from themself
Thank You
Jim ‘The Designatic’ Tyrrell
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