Statistics around VC funding in 2022 aren't providing any rest for the weary startup. From Q1 to Q2, numbers have fallen significantly. Funding globally fell 23%, with a 15% decline in the overall number of deals and a 16% fall in investor exits. Mega-rounds were down as well, with a 31% drop in deals over $100 million. VCs have their reasons: Inflation, war and economic uncertainty inspire reasonable caution.
However, if you happen to be a startup building a product and company simultaneously, dwindling capital can negatively impact hiring much-needed talent. This contraction of resources can put the kind of pressure on leaders and teams that inhibits growth, creativity and innovation.
In order to avoid this pressure, consider fractional hiring. Fractional hiring is today what freelance work was 20 years ago. It reflects the current zeitgeist around work culture and could be just the thing to alleviate cash flow issues while also providing a mutually beneficial relationship between you and new employees.
Here's how to get it done.
Fractional Hiring: Onboarding The Best To Shield Against The Worst
The roots of fractional hiring can be found in academia, where professors would be retained for their expertise and spend "fractions" of their time across various obligations ranging from teaching to research to consulting.
Startups can use this model to extend their runway and reduce cash burn by hiring for multiple key roles (like accounting, human resources, sales or software development) on a long-term but part-time basis. Don't confuse this with freelance or contract work, which is project-based. A fractional hire is a member of your team who, ideally, will be around for years. They just happen to be doing the same for other organizations at the same time.
This year has been rife with calls for startups to "plan for the worst" and "take it or leave it" regarding significantly lower valuations. During an economic downturn, fractional hiring can allow both you and your new hire more freedom and flexibility. You're free from added costs like healthcare benefits or taxes while still having the flexibility to hire the talent you need. You also won't lose the expertise of the hire at the end of the project, which so often happens with freelancers.
At the same time, the new hire has the freedom to generate multiple income streams through work with other companies—a means to calibrate the risk of working with startups during uncertain times. If one of their employers folds or goes through a round of layoffs, which has happened quite a lot this summer, they still have those other income avenues to lean on.
Fractional Hiring Risks And How To Avoid Them
Fractional hiring is a relatively new concept, so it's important that you and the prospective employee are clear on the terms of the agreement. This includes details like working hours and availability as well as the output they will be responsible for and expectations for the long term.
To avoid reenacting a contractor-style relationship, the new hire should be fully treated as a new employee. Their hiring should be announced to your team, they should have an invite and presence at company-wide meetings, and they should be engaged on Slack or any platforms you use to collaborate. In every way, they are a team member; they just work fewer hours.
It's vital to be mindful of those agreed-upon hours. Startups are notorious for employee burnout. One major danger of a fractional hire is that they wind up overstretched. Do not expect a fractional hire to produce full-time work in part-time hours. Instead, set up regular check-ins to ensure their workload is comfortable. A CRM (if you don't already have one) could also be a smart investment so they are able to provide updates on progress and adjust timelines as needed. Additionally, because they are likely working for other companies, ensure their contract includes a noncompete clause. You don't want anything proprietary making its way into a competitor's hands.
Fractional hires fulfill longer commitments than freelancers, so communication regarding future expectations is essential. In some cases, fractional hires may turn into full-time employees. In many cases, however, that may not be possible or of interest to either party. Fractional hires mirror the self-employed in that way. They're designing a work-life balance that works for them. If anything, this level of independence and confidence should inspire employers to hire them, knowing they can deliver with lower overhead and added flexibility.
Finally, the nature of a fractional hire means it's likely this person is working remotely. Do not make the mistake of taking regional differences lightly regarding labor laws. Connect with the local embassy of the country where you intend to hire and talk with associated business organizations who can guide you around types of contracts and any particular laws around contract term limits or tax payments as well as regional legislation around forms of payment.
While the bureaucracy can be intimidating, it's a worthy hoop to jump through for the benefits of legitimate fractional hiring.
Fractional Hiring: Not Just Surviving, But Sustained Thriving
Although fractional hiring is a good strategy for startups in the current downturn, it can also make sense as a long-term strategy to grow teams and businesses in a sustainable way. The pandemic institutionalized remote work, and we're living in the creator's economy. Highly-skilled professionals are more likely than ever before to create their own career paths.
Fractional hiring allows people to pursue different interests, try on different industries and explore what works best for them. While it may not be for everyone, it is more aligned with the ways in which work culture and employees are evolving.
As a startup looking toward the oncoming winter (both literally and figuratively), fractional hiring can help you get through it successfully while also helping you operate as a more efficient organization in the long term.