Fractional CTO: Prime Directive

Fractional CTO is an optimization problem, but not the kind I was prepared for with a degree in engineering.

I'll dive into different CTO archetypes soon; today's post is all about what it's like to do the CTO job fractionally, for multiple businesses at once.

I'm Adam Brakhane, the CTO of Gateway X, a Venture-Studio that starts bootstrapped businesses building everything from staffing agencies to SaaS.

A normal day

The businesses where I sit as CTO vary from very technical (has engineering) to far less technical (Shopify e-commerce), but there's really no business today that is non-technical. Seeing as I own stakes in each of the businesses, my mandate is simple: Provide as much value as possible with as little new investment by the business as possible.

Note: It's not, "Build an engineering team", or "deliver great software", or "build something cool". Every day I ask:

That's it.

Some days, for some businesses, technology is more of a distraction than a boost. Great! I'll see you in a month.

Optimization problem

Luckily, it's just an optimization problem. Consider the inputs and outputs.

A business is really just a machine where if you put one dollar in, more than a dollar comes out.

Technology can be expensive, especially custom technology (because people build it and people are expensive).

Follow along with a case study

Imagine one of our business that doesn't have an engineering team takes in about $3mm in revenue per year. Let's say they could build some cool software to improve custom retention. Describe it like the business machine. We need to quantify the inputs and outputs:

Inputs:

• Time/Attention

• Cost (engineers or contractors)

Outputs:

• Better 6 month retention

If the better 6 month retention could improve yearly revenue by 10% (pretty great!), we would expect ~$300,000 in revenue. Assume we have a 25% profit margin, so that's $75,000 yearly in net-new profit.

Would you hire an engineering team?

I wouldn't. There are even more variables that devalue this farther

• Is our 10% estimate accurate?

• If we start building today, I have to pay the team, but won't see real software for a few weeks

• Once I have the software, I won't see 6 month retention shift significantly for another ~6 months

That's the job

It's not my job to hire or not hire, it's my job to quantify what the costs and benefits of technology are. My job is to communicate that information to the CEO so that they can make the best decision for their business.

That includes the less tangible benefits of technical tools & people:

• We fix lots of problems you didn't even know existed!

• Software I build today can run forever at marginal cost!

• Our tech can be a moat against new competition!

If you've got a CEO worth their salt, they won't accept those statements at face value.

A new type of management

If you've ever had to convince your CTO of something, convincing a CEO is a whole new ballgame. Your CTO likely just understood those intangibles allowing you to get your point across successfully with an awful (no offense!) communication job.

Communicating possibilities and projects to a non-technical executive takes a whole different skillset than it took to dream up those projects to begin with. You need to understand their goals and reality of the one-dollar-in-many-dollars-out machine they are trying to build.

When you can align your projects to their goals, you get the double-whammy benefit of

1. People will say, "yes" a whole lot more

2. You actually start to design projects that make the machine better