Mis-Managing the Fractional Workforce. What You Need to Know

Fractional leadership can be a very efficient way to bring experience into your growing company, but only if it is used properly.  Many times owners, Private Equity, or Venture Capital expect fractional leaders to also do all the work. The best use of experience is to make sure it is shared.

In this episode we will talk about the challenges of using Fractional Leadership and what it takes to make the most of your investment.

[00:00:18.16] - Alice

Hello. Welcome to Books and the Biz, a podcast that looks at both the financial and operational sides of success. Please welcome our hosts, Dan Paulson and Richard Veltre. Dan is the CEO of InVision Development International, and he works with leaders to increase sales and profits through great cultures with solid operations. Rich is CEO of the Veltre Group and a financial strategist working with companies to manage their money more effectively. Now onto the podcast.

[00:00:53.05] - Dan Paulson

Hello, everyone. Welcome to Books in the Biz. We are back still playing around with this new technology here. Rich, how are you doing?

[00:01:01.13] - Rich Veltre

I'm doing fabulous. How are you?

[00:01:03.18] - Dan Paulson

Excellent. Excellent. Well, it's been a week since we launched xcxo. I have put the announcement out there and getting a lot of kudos. Congratulations and actually some introductions, so thumbs up. I think it's going the right way here. But with that said, we kind of want to expand on why fractional work or fractional leadership might be the best for an organization. And actually, before we got on camera here, you and I were talking about a situation that you're actually going through right now that is a perfect example of what some organizations expect and where fractional might actually be able to help minimize cost and maximize efficiency. So I'm going to kind of turn it over to you and let you take it from there.

[00:01:50.01] - Rich Veltre

Yeah, no, it's kind of funny. It's a project that I've been working on. It's part of the reason why I think that I was so excited about launching xcxo. I think that I've been hired several times over the last few years to be an interim cfo. And the challenge tends to be that the expectation of what I'm going to be able to accomplish in the time that I'm playing the role of the interim CFO has been a challenge because the expectations are I'm going to be the one guy that's going to get hired and it's going to solve everybody's problems. And it's not necessarily realistic. You probably have a need for more than just one person. So if you're hiring the cfo, you're kind of hiring someone that you want to go in and tell you this is what you need. Right. And in this case, what wound up happening was I got hired to fill the role just until they fired. Just until they brought somebody in full time. And that works great, except for the fact that I'm the only one they hired. So there's literally no one on the finance team. So the expectation that they had was, you're going to come in and you're going to be the cfo.

[00:03:06.21] - Rich Veltre

And by the way, we have all these reporting requirements that have now been added because this private equity firm is who bought the company that was previously run entirely by a founder or a founder and his wife. So the founder and his wife have exited. You've got private equity comes in and private equity says, hey, guess what? We have, you know, we borrowed debt in order to make the acquisition. So we have filing requirements with the bank, we have filing requirements with investors, we have filing requirements with taxes, we have filing requirements with potentially some other governing body. Things are changing. We need to understand how we're going to accomplish this. And they probably have done a lot of this work already in due diligence. But it becomes a little bit of a challenge when they expect, well, we're bringing on this one guy and we're just going to work him to death for three months and then the new guy will start and he'll be all fresh and ready to go. So I say that a little bit as a joke, but that's kind of the way it went. It became, I'm working crazy hours to get some things done that I know they need.

[00:04:09.02] - Rich Veltre

But at the same time, when I say, you know, we should bring somebody in to do this, I'd like to be taken seriously. But you know, I brought people, I'm bringing this to people's attention because it's part of the reason why I think XCXO is really so important. And that is, you know, bring the guy in that you want to be your fractional leader. That means you're bringing somebody in to assess. And then from the assessment you could say, these are the people that we need in order to do X, Y and Z job. The understanding to them was kind of, well, you're just going to do all of it. Well, I'm paying some bills. At the same time as I'm dealing with setting up reporting, I'm reporting back to you. How much more do you expect that I can get done in a 40 hour period? I mean, if you think that I can do this by myself, I would tell you that's just the wrong expectation. You know, the realistic part of it is you need someone who's paying the bills, who's not going to cost you what it would cost to hire someone like myself.

[00:05:16.25] - Rich Veltre

Why would you hire someone like me and wind up pushing me into an AP manager role.

[00:05:22.05] - Dan Paulson

Exactly.

[00:05:22.29] - Rich Veltre

Or an AP clerk role. It comes down to the dollars and cents that you could have hired me for. A very short amount of hours because you only need somebody at the top level for a few hours a week. Then you get into the grunt work of actually taking over the system and then making the appropriate changes to account for the acquisition and provide whatever details you can give while these people are interviewing for someone to be here full time. So it's a legitimate use of the service. However, the expectation I think was a bit off and I think that that's the piece that I think I want to address as we launch into xcxo.

[00:06:09.28] - Dan Paulson

Yeah, I think that there's this assumption, I mean, let's face it, you're paying a pretty good investment even for a fractional leader to come in and help you in those areas that you need assistance in. And to me it's the assumption, well, if I'm paying all this money, they should be able to do all this stuff. I've even run into it on the operations side. It's like, well, you know, what you're really paying for is that knowledge and experience that's accumulated over the last 20 plus years. You're not actually paying for them to do all the hands on work. Doesn't mean they're not going to do any of it. At the same time, you should not be expecting them to do all of it. Because that to me is not, as you point out, not a valuable use of that talent where the value comes in for any sort of fractional leadership. Like what we're talking about here with XCXO is to make sure that they're teaching your staff your talent or the talent you hire how to be more successful in their roles. They're sharing that knowledge that came over time with people who just don't have that degree of experience.

[00:07:18.18] - Dan Paulson

And you know, ideally, I think where we're going to see the biggest bang for the buck is these companies already have people on staff that are kind of doing parts of the job, but they just need a little extra nudge to get further down the road. And that's where you're going to see people that you know are you're going to be working with them for six months to a year to two years to really gain their, their skill sets, build those skill sets up. That's going to be where you're going to be most powerful. If you're a company that's just looking to hire an individual that you say is going to work, you know, 20 hours or less a week, but you're expecting to do 40 hours a week worth of work or more. I think that's just an unrealistic expectation that many of these individuals have because, you know, again, I'm paying you all this money. Why can't you do all this stuff?

[00:08:07.26] - Rich Veltre

Yeah, I think in today's economy, too, I think there's. There's a challenge. There's additional challenge there. Right now, you're basically looking at the people themselves and you're saying, you know, I'm just going to throw everything at them and they're just going to be able to do everything right. I see too many people turning around and saying no. They're just. They're just flat out saying no. Why? Because they can go somewhere else, or they could go and find another opportunity, or they could just let you know that this is an unrealistic expectation. So, you know, I especially would tell you that, you know, it really becomes difficult if the expectation hasn't been put out on the table. You know, I mean, I can tell you right now, I'm paying bill. I'm just basically treating myself in the position that I was in with this client. You know, I'm kind of treating myself as. I'm just here putting band aids on things until the new guy starts. Because literally three weeks into the engagement, they said, well, we hired somebody and here's the start date. So the other big problem there, and I, you know, I mean, look, to me, it's a problem, okay?

[00:09:16.15] - Rich Veltre

Maybe to them it's not. Maybe there's been other conversations, whatever. So we'll just. We'll caveat that really quickly because I don't want anybody, you know, coming back heavy later, okay? But, you know, the problem with that is everything shuts off, okay? There's a new guy, he's hired. He knows when he's starting. I know when he's starting. Am I putting any policies in place between now and the time that the new guy starts? No, I'm not touching anything at this point. I'm just getting to the point of now to when he starts. And in this case, there was an extended period where he's kind of tied up with something else until he can start. So there's a challenge there. Like, you just created a whole new challenge for me because I have to work in the parameters of what you had before. I can't put anything really new in because I'm going to go and what, tell everybody, this is what everybody has to do. And then the new guy starts and he doesn't like it. Yeah, he's going to change. So whose fault is it? And I'm not big on fault, okay? Because I've done these engagements before where I've come in and essentially set policies up, I set up processes.

[00:10:32.09] - Rich Veltre

I know how to set up systems. You want a new system in there, I could have had it done already, okay? Like, we could put this whole thing together. Because I'm not doing rocket science, okay? I'm here putting in processes that I know will work over the fact that I've done this for 30 years, okay? So I can put something together that's gonna work. I could put something together that's gonna work until the new guy comes. Like, I can do it. I know how to do it. To say, look, we're only doing this temporarily. This is what I need for now. Then you guys gonna come in, he may change it, but for now, just do this for me this way, okay? I know how to do that. I know how to get people to help me. But if you put me in there alone, who's gonna help me, Right? No one.

[00:11:16.05] - Dan Paulson

Well, and here's where it would be better in a situation like that, where they bring in the fractional leader to work in conjunction even with the hiring process. So that way, if you were involved in that, you know, at the very least, you kind of know what the other person is thinking, how they. How they want things set up, and you can collaborate with them, maybe even after the job is offered, they can provide some guidance so that as you're setting stuff up, it isn't such a big switch because, you know, there's multiple ways to get to the same result. Your way is your way, and that's the right way for you, but it might not be the right way for them, and then that's where all the changes come about. But if you're helping in that hiring process and then you're helping in the onboarding process or, you know, in the transition period like we. We should have. In most organizations with leadership, there should be a passing of the baton to somebody else is going to be far more helpful if you're involved in that instead of, I'm going to do work now until the point when this other person starts, and then they're going to take over, because like you said, all you're doing is covering the bare minimum and doing so at a pretty high investment.

[00:12:26.01] - Dan Paulson

So, you know, this is where I believe organizations need to learn how to better utilize fractional leadership to their advantage, not as just a patch to something else down the road.

[00:12:38.05] - Rich Veltre

Yeah. And I. And I think that the other. The other thing is, you know, down the Line, you know, I'm. I've been playing the CFO role now for over 20 years. Before that, doing all CPA type work, accounting, you know, getting involved in general business, understanding how things have changed. Now, the reason that I did all of that stuff for those many years is to be able to turn into someone who can look forward and can kind of plan on, here's how it's going to go. And that gives me resources to pull on to tell me whether or not the strategy is going to work. So. And it doesn't always work. Even as well planned as I try to do, it doesn't always work. But there's enough that if it's really not going to work, I don't start it. And I say we just don't need to go down that path.

[00:13:29.08] - Dan Paulson

Right.

[00:13:29.18] - Rich Veltre

So the reason I bring that up is the fact that you and I, for the however many episodes of books and the biz that we've done, it's been a high percentage of conversations about the fact that there's a hiring shortage, that there are fewer and fewer people. So the fact of the matter is you need to find a way, as an employer, as a business owner, as somebody who wants to grow businesses. You know, you need to find a way to address the fact that somewhere down the line you're going to hit that. Okay. You are going to hit that point where the talent is going to be harder to find. Okay.

[00:14:10.08] - Dan Paulson

I believe most companies have already reached that point.

[00:14:12.19] - Rich Veltre

They're already starting to see it. And I think it's going to get worse. Like my prediction on it is, it's going to get worse. So we have to, you know, there's a lot of education, I think that has to go on. But at the end of that, fractionals is going to come out as probably a really good winning strategy.

[00:14:32.21] - Dan Paulson

Yes.

[00:14:33.20] - Rich Veltre

So I think there's an awful lot of education of the, you know, of the working pool, letting you know there's opportunity here to do what you want to do, to work from home, to do all the things that you're asking for as the new workforce. We'll call you the new workforce today. Okay. There's an education for you to how to present yourself as a fractional so that you can grab onto the opportunities that are going to come from the opposite side, the workers or the owner side who are going to run into this. I need a project done and we need to pull out people. You're going to be right there, ready to go. Okay. Then we have to educate the owners, the Founders, the business owners, Right. We have to educate them to how to utilize the pool. Okay? Utilize the talent pool. Utilize the proper level of the talent pool. Fastest way you can alienate a worker is to bring them in like, oh, you're gonna be the cfo and then you hand them a pile of bills and say, here, go process these. Okay?

[00:15:37.12] - Dan Paulson

And that's what you do for the next six months.

[00:15:39.24] - Rich Veltre

And you think they're gonna stick around for six months, okay? They're not going to stick around more than a week. They're going to run for the hills because they're going to hate the job. They're not going to want to do it. You're going to basically be looking for what you got before. That's not where you need to learn. Okay? And I hate telling people you need to learn, but guess what? We all have to learn because this is different. This is a totally different aspect of everything.

[00:16:05.20] - Dan Paulson

Yeah. And let's just face it, you know, people have way more choices when it comes to where they can work versus in the past where, you know, there were far more people than there were jobs. Well, now the script is flipped. You know, you were bringing that up that it's getting harder and harder to find people. Well, you know, you're in New Jersey, you're just outside of New York City. You're in a highly populated area that is also desirable for people to go to. It's kind of like Chicago here in the Midwest. I live in a small town. Well, small towns still have businesses, they still have needs, and they're competing with places like even Madison or someplace a larger city like that where there's more stuff to do, there's more restaurants to eat, more activities than there is in a smaller town. If you are just thinking in the same old way you've been thinking before, it's going to be hard to attract that talent in. I know this. Working with clients, if they're out in a very small town out in the middle of nowhere, trying to find somebody who's an operations manager or chief operations officer or a CFO is rather difficult unless they are A, either from the area or B, the area offers something unique to them that most other people wouldn't gravitate to.

[00:17:23.16] - Dan Paulson

In my world, you're looking for the outdoorsy farmer type, but let's face it, there's not a lot of those out there. So if you don't have something to attract them in, and especially to do so at a full time basis gets rather difficult. And this again is where fractional could come in. Cause maybe you tack on some less experienced people that you can hire locally that do want to stay there, that maybe don't want to take off and go live in the big city for 20 years and then come back and you can use that fractional service to educate that team up, to fill those gaps that you're talking about. So now the fractional leader's doing the job, utilizing the experience they have, and in the process, they're teaching up the employees that are working there that do want to stay in the area and giving them an opportunity for growth in their jobs.

[00:18:13.00] - Rich Veltre

Yeah. And I think the other thing is too. I mean, when you really think about it. Okay, think about the old way, right? I mean, think about. I have a story when I was, I don't know, under 10 years into the business, into the business world, you know, and I was working as an accountant, and I got invited to a meeting and I met a guy who said, you know, we just started up this company and we're out investing in, you know, a bunch of other smaller companies, which nowadays you would think that was nothing, but.

[00:18:45.05] - Dan Paulson

Right.

[00:18:45.23] - Rich Veltre

Twenty plus years ago, this was a rare occurrence that I would get a meeting with somebody who was out, you know, basically being almost what we would call an incubator now. Right?

[00:18:54.16] - Dan Paulson

Yep.

[00:18:55.22] - Rich Veltre

So he walks in and he basically invited us in because he was looking for tax strategies on saving some money because, you know, things weren't looking so great. And in walks another executive. And he says, well, this is my cfo. And the first thing out of, you know, the first thing that popped into my head was, how are you affording a cfo? You know, and this was before fractional really took hold.

[00:19:20.12] - Dan Paulson

Right.

[00:19:22.00] - Rich Veltre

So, you know, go back to the way that it was. This is what some people still think. The first thing that they think is, I'm going to go and I'm going to hire someone full time.

[00:19:31.14] - Dan Paulson

Right.

[00:19:31.29] - Rich Veltre

Okay. And the question becomes, what happens if you were able to get that guy part time? What if you were able to get just a few hours of that guy's time every few. Every week, every month? Right. I mean, we've been. There have been a lot of people out there talking about this for a long time now, you know, and I'll call it a long time, meaning, you know, the last few years at least, that's become very prevalent.

[00:19:56.26] - Dan Paulson

Right.

[00:19:57.15] - Rich Veltre

But people still aren't getting it.

[00:19:59.09] - Dan Paulson

Mm.

[00:19:59.28] - Rich Veltre

Like, understand that you don't need that guy for 40 hours. Okay. If you utilize him for 40 hours, you're probably Overpaying for something that he's doing.

[00:20:10.14] - Dan Paulson

Right.

[00:20:11.11] - Rich Veltre

Okay. Because like in the example before, if someone comes to me and says, we're gonna hire you as a CFO and I give you a CFO price, and then you ask me to process bills. Okay, you're overpaying for the processing of the bills because a bookkeeper can do that. Or an accountant, just a normal regular rate type person.

[00:20:32.23] - Dan Paulson

Well, even the accountant's going to bring in a bookkeeper to do that work. The accountant's not going to do it for you.

[00:20:38.02] - Rich Veltre

Exactly. They're going to outsource it themselves. So. But. But even that would be cheaper than bringing someone on as the cfo. Did you really need a CFO because you didn't think about it, you just thought, well, it's automatic. I just need a cfo.

[00:20:51.03] - Dan Paulson

Right.

[00:20:52.05] - Rich Veltre

But then when the CFO comes back and asks you to hire someone to do X, Y and Z task.

[00:21:00.11] - Dan Paulson

Listen.

[00:21:01.22] - Rich Veltre

Sorry, we're on podcast, so I just shook my ear.

[00:21:05.10] - Dan Paulson

Yes, yes, they do need to listen, but I think it's. It's more about breaking down the old norms.

[00:21:13.06] - Rich Veltre

Yes.

[00:21:13.23] - Dan Paulson

And that's, that's where we're stuck is again, we're. We're perceiving, we're paying all this money. This person should be able to do all these things. They should be able to do it, you know, do 50 hours and 20 hours worth of work. And that's really not the case. You're also not utilizing the talent the way it should be utilized, which is address the critical needs and strategies that somebody with that level of experience has so that they, that you can then turn around and better utilize the employees that you do have to actually do the job, take care of the task at hand.

[00:21:44.16] - Rich Veltre

Yeah. I mean, you're ultimately going to build a team. Right. You're. Your, Your whole goal is going to be if this is a company that you're looking to grow and expand and get to the next level. Okay. The next level means expanded money or the expanded profit if you do it right. Okay. But it also means the only way you get there is to expand the team.

[00:22:05.26] - Dan Paulson

Yes.

[00:22:06.11] - Rich Veltre

Okay. So if the challenge is to continue to build a team, why not start right off the bat how you're going to do it? Like, some of that needs to be planned out in your planning process. Like, if you're going to buy a company, plan out how you're going to buy the company, but also plan out the fact that I'm going to need to put more people in or I'm going to need to put processes in or, you know, you're going to have to address these things that I just don't believe are being addressed. Okay?

[00:22:36.11] - Dan Paulson

So yeah, it's, it's all the more reason why using the fractional work makes even more sense. Because as you point out, you know, if somebody spends, we'll say $200,000 to hire an operations person, for example, but then that operation comes, person comes in and says, well, I'm going to need somebody for safety, I'm going to need somebody for project management, I'm going to need somebody for quality control. You're looking at, well, I've just spent 200,000 on this guy. Now you're talking about adding 50 to 100,000 here, 50 to 100,000 there, multiply it times the number of jobs, and all of a sudden now it becomes a greater expense. I also see the fractional person, at some point as you start putting that team in place where you can actually cut back on that person's hours, maybe your company's not big enough that you need a full time cfo, coo, cmo, any of that. But after you start establishing your team, now that person's there to monitor and guide. They're more of a coach than they are active in the role. So now you can say, well, somebody that was working maybe 10 to 15 hours a week for you is now working five and their job is just to again, make sure the team is doing the right things and being there to answer questions or handle challenges that maybe the team isn't familiar with.

[00:23:53.23] - Dan Paulson

As you grow, then eventually, hopefully what you are doing is you're adding somebody in that position full time. But then that's where again, the fractional person can transition their way out and they can provide a passing of the baton to the person that's going to work in there full time. It's far more cost effective. It might not sound like it, but when you start figuring out again what you're going to need to fill that team, do you want to tie it up in the guy at the top and then have that guy at the top be extremely frustrated because he's got nobody to teach it to, nobody to coach it to.

[00:24:25.11] - Rich Veltre

I used to walk in and I used to get myself comfortable with the fact that I was not a full time employee by telling not only myself, but everybody around me, yeah, I'm here to work myself out of a job. And while that sounded funny, I wasn't laughing. It was exactly true. The goal was, I come in, I take a Look, I do things and I do things so that you can run without me. Like you don't need me in those jobs. Or I could move to another project because this project is done, this is set. You move to another project even if it's within the same company. The fact of the matter was I had an objective, I got it done and I either move to another project or I move on. And to a certain extent, that's what fractional can mean. It doesn't necessarily mean that I'm gone. It could mean that I just move on to something else that has to be done inside the company. Company. And then, you know, my little joke about working myself out of a job, you know, doesn't necessarily be perfect. But like you said, if you're telling me that you're going to start a company and you're going to hire six full time executives to run a C suite to run the company when you start, you miss the point.

[00:25:39.14] - Dan Paulson

Right, right.

[00:25:40.22] - Rich Veltre

Because those people, 99% of what they're doing is overhead.

[00:25:46.05] - Dan Paulson

Exactly. An expensive overhead at that.

[00:25:49.06] - Rich Veltre

An expensive. I saw somebody do it. He had a whole plan, he had a beautiful plan to do this massive job. He was going to do this massive consolidation of companies in a certain, you know, in a certain industry. And the first thing he did was make commitments to an entire C suite. I mean, there had to be 10 people that he had made commitments to and he hadn't even acquired one company yet. And I said, do you realize that the first company you're trying to buy, you're in two years now and this entire C suite is now looking to collect on the time that they spent with you and what's the plan to get them paid going forward?

[00:26:27.19] - Dan Paulson

Exactly.

[00:26:28.02] - Rich Veltre

You only have one company and the profit wouldn't even pay one of those C suite executives. There was no plan. And I just said, there's nothing I can do for you. There's really nothing I can do for you. Because you've created a no win situation.

[00:26:44.28] - Dan Paulson

And that is why they should be talking to us before they even start any of this stuff.

[00:26:50.08] - Rich Veltre

Absolutely 100%. Because it's the 100% focus of what we're talking about. It's 100% the focus of what you and I are putting together.

[00:26:57.17] - Dan Paulson

Yes. And to get a hold of us, they can reach out to us@xcxo.net not the.com you got to go to xcxo.net. Rich, they can contact you at.

[00:27:12.24] - Rich Veltre

I always forget this email address.

[00:27:15.06] - Dan Paulson

It's easy. It's Rich@xcxo.net.

[00:27:16.24] - Rich Veltre

It's rich. I thought so. I was going to say that I would have been right. So it's rich@xcxo.net.

[00:27:21.26] - Dan Paulson

It's all new to us, folks. It's all new to us. And then you can reach me at dan@xcxo.net we will be happy to talk to you and we can help you lay out that plan. I think that's another key service that we'll provide that, you know, other fractional services might not is we'll help you figure out what you need, how much you need, who you need. And oh, by the way, we actually help find somebody who's going to be the best fit for you and your organization. So it's not just plugging a body in, is actually doing a little matchmaking and trying to make sure that there's a good connection there because communication is key, as we both know. Huge, huge, huge, big, huge stuff. Anyway, Rich, that's been fun, this good episode and we will talk again next week when we will actually have a guest on. So thanks for joining me and we will see you next week.

[00:28:11.05] - Rich Veltre

All right, Dan, I'll talk to you later.

[00:28:12.26] - Dan Paulson

All right, thanks again.