CTO as a Service - Costs, Duties & Risks

Introduction

Do you need ad-hoc support with your IT infrastructure, technology strategy, or project leadership?

Want to optimize your budget but not at the expense of quality?

Do you have a startup and are looking to scale quickly?

If so, CTO as a Service may be just for you! In this article, we'll discuss how a part-time external Chief Technology Officer can help you expand the prospects of your business.

CTO ‘subscription’ – is that even possible?

We live in a subscription world. Increasingly, rather than owning something on our own, we prefer to pay for access to products when needed. Flats, cars, services, software, digital products – we can rent anything. And it's no different with expertise.

Companies have long benefited from outsourcing skills and competencies they don't have in-house. In many organizations, areas such as software development, marketing, PR, or HR are taken care of by experienced advertising agencies, recruitment companies, and software houses. This business model has proven to be so efficient and cost-effective that it has also expanded to single, specialized positions within the company. An excellent example of this trend is CTOaaS.

CTO as a Service – How does it work?

A CTO, or Chief Technology Officer, is an expert who combines technology and business competencies. This person is responsible for developing and managing the company's technology resources and planning tech development strategies based on current industry trends and the organization's business needs. Such a wide range of competencies makes it quite a challenge for a company to hire an experienced CTO. Not to mention the cost, as a C-level expert expects a C-level salary, and full-time cooperation is a big investment. Fortunately, the market today offers a solution to these worries. 

CTO as a Service is a business arrangement where a company hires an external individual or firm to provide CTO-related services on a temporary or contract basis. It's an alternative to having a full-time, in-house CTO. This approach can be especially beneficial for startups, small businesses, or organizations that require technical expertise but may not have the resources or need for a permanent CTO. Why is this solution so revolutionary? The use of external specialists such as graphic designers, copywriters, or developers is standard in the market, but C-level staffing is usually reserved for in-house employees. Today, we are seeing an evolution of this approach.

When a company needs a CTO?

A company may recognize the need for a Chief Technology Officer (CTO) at various stages of its growth and development.

CTO as a Service for startups

Lack of technical leadership: Startups, especially non-technical founders, may require an external CTO to develop their product or service from a technical perspective. This is crucial in early stages where technological decisions have long-lasting impacts.

Budget constraints: Hiring a full-time, experienced CTO can be financially daunting for startups. An external CTO can provide the needed expertise on a flexible, more affordable basis.

Rapid growth and scaling: As startups begin to scale, the complexity of their technical infrastructure may exceed the capabilities of the existing team. An external CTO can guide strategic technical scaling efforts.

Product development and MVP: Startups at the pre-seed or building stage require robust technical strategies to develop their MVP and refine their product. An external CTO can drive these initiatives without the long-term commitments of a full-time hire.

CTO as a service for established businesses

Digital transformation: Companies looking to modernize their operations or expand into new digital areas can benefit from an external CTO's expertise to steer these complex projects.

Filling leadership gaps: In cases where a business's CTO departs suddenly or there's a prolonged search for a permanent replacement, an external CTO can ensure continuity in leadership and project progression.

Project-specific expertise: For specific projects that require specialized knowledge or skills that the current team lacks, bringing in an external CTO can add immense value and ensure project success

Cost comparison - How much does it cost to hire a CTO?

According to TestGorilla, the average salary for a CTO in the US for 2023 is $296,290 per year, with a range between $259,133 and $340,210, depending on experience, skills, industry, and location.

Mobilunity provides data showing that monthly rates for external CTO services vary by country. In the USA, the rate is around $13,728 per month. This model is cost-effective for companies needing strategic tech guidance without the full-time expense, particularly useful for SMEs or startups at certain growth stages​. According to Enou, part-time CTO-as-a-service rates are: $100 - $300 per hour, $5,000 - $15,000 per month. According to Soltech, fractional CTO costs companies from $200 to $500 per hour.

CTO as a Service vs. in-house CTO

At this point, you're probably asking yourself "Why should I hire an external CTO when I can have an in-house full-time expert?". Well, to answer this question, you always have to consider two factors: needs and resources. So let's compare the two options.

In-house CTO

Pros:

• Deep Company Understanding: An in-house CTO is fully integrated into the company and understands its culture, goals, challenges, and opportunities.

• Long-Term Commitment: An in-house CTO is likely to have a higher level of commitment to the company's success and growth.

• Immediate Availability: Since they are always on-site, in-house CTOs can respond quickly to technology-related issues and opportunities.

• Cohesive Team Building: In-house CTOs can work closely with other departments and technical teams to build a cohesive and aligned technology strategy.

Cons:

• Higher Costs: The salary, benefits, and overhead costs of an in-house CTO can be significant, especially for smaller companies or startups.

• Limited External Perspective: In-house CTOs may become entrenched in the company's existing practices, potentially limiting exposure to new ideas and approaches.

• Risk of Skill Gap: If the in-house CTO's skills become outdated or don't align with evolving technologies, the company could face challenges.

CTO as a Service

Pros:

• Cost Savings: CTO as a service cost is significantly lower since you're not bearing the full expense of a full-time executive, including salary, benefits, and bonuses.

• Flexibility: You can engage a CTO as needed, which is particularly advantageous for specific projects, temporary needs, or during periods of technological transition.

• Expertise on Demand: You get access to specialized expertise without committing to a permanent CTO. This can be valuable for companies needing guidance in specific technical areas occasionally, not on a regular basis.

• Innovation and Fresh Perspective: An external CTO can bring fresh ideas and insights from working with various organizations, potentially driving innovation.

• Objective Decision-Making: External CTOs might provide a more unbiased perspective on technology decisions and strategies since they're not as deeply embedded in the company culture.

Cons:

• Limited Company Knowledge: An external CTO might take time to understand the company's culture, operations, and unique processes.

• Lack of Long-Term Commitment: Since they're not engaged in long-term cooperation with the company, an external CTO might not have the same dedication as an in-house CTO.

• Coordination Challenges: It can be challenging to coordinate and align the external expert's work with the rest of the team, especially if the CTO's availability is limited.

Putting all this information together: an in-house CTO will be a better option for bigger companies that need regular technology support on a daily basis, manage multiple processes and specialists, and budget is not an issue for them. 

Meanwhile, CTO as a Service for startups and smaller businesses is an opportunity to gain technology support, expertise, and access to the latest trends and innovations that are key to growth and scaling in a cost-effective way.

CTO as a Service - Comparison of various engagement models

Interim CTO, CTO as a Service (CTOaaS), and Fractional CTO are three distinct engagement models for businesses to leverage external technology leadership. Each serves different organizational needs based on the company's size, stage, and strategic goals. Here's a comparison:

Interim CTO

1. Purpose: Typically engaged during periods of transition, such as the sudden departure of a CTO, or while searching for a permanent replacement. Interim CTOs ensure continuity in tech leadership and operations.
2. Engagement: Short-term, often full-time, focused on stabilizing and guiding the technology department during the transition phase.
3. Benefits: Immediate impact by providing leadership during crucial periods, maintaining momentum in projects, and assisting in the recruitment of a new permanent CTO.

CTO as a Service (CTOaaS)

1. Purpose: Offers on-demand access to CTO-level expertise without the overhead of hiring a full-time executive. Suitable for startups and SMEs needing strategic technology advice, product development guidance, and technology roadmap planning.
2. Engagement: Flexible, can be scaled up or down based on the company's needs. Services can range from strategic consulting to hands-on project management and team leadership.
3. Benefits: Access to top-tier expertise and broad experience on a flexible basis, cost-efficiency compared to a full-time hire, and no long-term commitments.

Fractional CTO

1. Purpose: Similar to CTOaaS but more focused on ongoing, part-time involvement with a company. Ideal for businesses that need regular, strategic tech leadership but not on a full-time basis.
2. Engagement: Long-term, part-time, providing continuity and the ability to deeply understand and impact the company's technology strategy over time.
3. Benefits: Brings experienced technology leadership at a fraction of the cost of a full-time CTO, with a more consistent presence than CTOaaS, allowing for deeper integration with the team and strategy.

Key differences

• Duration and commitment: Interim CTOs are usually short-term, full-time roles aimed at navigating through transition periods. CTOaaS offers flexible, on-demand access to technology leadership, suitable for specific projects or strategic advice. Fractional CTOs engage in long-term, part-time roles, providing ongoing strategic guidance.
• Engagement depth: Interim CTOs immerse themselves in day-to-day operations, similar to a traditional full-time CTO. CTOaaS can vary in engagement depth, from advisory roles to more hands-on leadership, depending on the need. Fractional CTOs offer a middle ground, with consistent, part-time involvement that allows them to deeply understand and influence the company's technology direction.
• Ideal use case: Companies facing a sudden vacancy or transition in their technology leadership opt for an Interim CTO. Startups and SMEs that require strategic technology insights without the overhead opt for CTOaaS. Businesses that need ongoing strategic tech leadership but cannot justify a full-time position choose a Fractional CTO.

Cooperation models with examples

The flexibility of CTO as a Service allows you to choose a business model that fits your company's specific needs. We can distinguish three main types.

Part-time CTO

In this model, the company gains access to an experienced expert for the number of hours it needs. The possibilities are wide, for example, CTO services 6 hours a day for six months, 8 hours a day for 3 months, 2 hours a day for a year, and so on. It all depends on your business goals and scope of work.

Example: You have made a merger with another company and want to create a strategy for long-term technological development in the new structure and plan to expand the team to get specialists with the right competencies. CTO as a Service will help you coordinate the work of the newly enlarged team and recommend the best strategic steps based on current trends.

Fractional CTO

In this model, an external CTO offers the company strategic tech leadership and advice on selected areas or competencies.

Example: You employ an in-house CTO at your startup however, there is a need to expand one’s skills and knowledge into new areas. CTO as a Service can provide your in-house expert with support, knowledge, and guidance in the competency development process, giving him or her knowledge of innovation and a fresh perspective.

Project CTO

This option will be a good choice for fixed-scope projects, where an external CTO will manage and guide the development team through all stages of product design, implementation, and launch.

Example: You need a new web and mobile application for your product. Three teams are collaborating on the project: your internal team, the developers of the software house you're working with, and your SaaS provider. You need an external, objective expert to help you choose the best technologies and solutions, analyze the recommendations of each party, coordinate the work of many people, and oversee the project from start to finish.

Why to choose CTO as a Service - benefits

1. Easier recruitment 

Instead of spending time and resources on a lengthy hiring process, you can quickly bring in a qualified CTO with the required expertise.

2. Hire-as-you-need approach

Hiring a full-time C-level expert is a mutual commitment. If the nature of your business doesn't require constant engagement from the CTO, it's better to use the support of an external specialist as you need it. Otherwise, you will have to incur the cost of retaining an expert whose potential you are not using, or constantly hiring and firing CTOs which would expose you to a negative reputation for your company as a non-reliable employer. 

3. Fresh perspective

Working for a company on a regular basis makes a person accustomed to its processes and the way it operates. It's hard to stay alert and open to change when you've been doing things "as always" for years. Support from an external expert provides an objective perspective on technology decisions and strategies, as they are not as deeply involved in the company's internal dynamics and politics. This can lead to more effective decision-making.

4. Flexibility

CTO as a service offers flexibility in terms of engagement. You can hire a CTO on a project-by-project basis or for specific timeframes, such as during a technology transition or a critical phase of development. This flexibility allows you to adapt your technological leadership to your company's evolving needs.

5. Cost savings 

One of the biggest advantages of CTO as a service for startups and small businesses is cost efficiency. CTO as a service cost is significantly lower than a full-time expert as you pay for the services only when you need them.

6. Rapid scaling

If your company is experiencing rapid growth, a CTO as a service can help you scale your technology infrastructure and strategies quickly to meet the increased demands. 

7. Network and industry insights

External CTOs often come with a broad network of industry contacts and insights. This can be beneficial for partnerships, collaborations, and staying up-to-date with industry trends.

Risks and drawbacks of hiring CTOaaS

1. Limited understanding of company culture‍

External CTOs might not be as immersed in a company's culture and values as a full-time, in-house CTO would be. This limited exposure can impact their ability to make decisions that fully align with the company's ethos and long-term vision.

2. Confidentiality and security concerns‍

Entrusting an external service provider with sensitive information might raise concerns about data security and confidentiality. Although reputable providers ensure confidentiality through contracts and agreements, the risk of information leakage exists.

3. Reduced control‍

Companies might experience reduced control over their technology strategy and implementation. While CTOaaS allows businesses to tap into expert advice, ultimate decisions are made based on recommendations rather than direct, in-house assessments.

4. Potential for misalignment‍

There's a risk that the external CTO's vision and strategy might not fully align with the company's goals and objectives. This misalignment could stem from a lack of deep engagement with all aspects of the business.

5. Dependency‍

Relying on external experts might lead to dependency, potentially making it difficult for the company to develop its own internal capabilities and leadership in technology.

6. Availability and commitment‍

External CTOs, especially those serving multiple clients, might not always be available when needed. Their divided attention could impact the level of commitment and responsiveness to your company's immediate needs.

7. Cost‍

While CTOaaS can be more cost-effective than hiring a full-time CTO, costs can still add up, especially for long-term or extensive engagements. It's important for businesses to carefully consider their budget and the scope of services required.

8. Integration with existing teams‍

External CTOs may face challenges in integrating with and being accepted by existing in-house teams. This situation can lead to resistance, communication gaps, and inefficiencies.

How this works in real life - examples

The external CTOs can provide support in many areas of activity at the intersection of technology and business. Among the most popular services offered by CTOaaS companies are:

• Strategy and architecture, including product roadmap, tech stack, and team composition.
• Oversee the compliance of actions taken with the strategy and business objectives.
• Education, guidance, and leadership of the project team and internal specialists.
• Redesign and scaling of existing solutions and systems.
• Budget optimization by selecting the most effective solutions for the company's current situation.
• Modernize the current infrastructure by recommending new technological solutions.
• Developing the team by supporting the process of selecting the best specialists and vendors to work with.
• Advisory and consulting at every stage of company development planning, project execution, and strategy implementation.

CTO as a Service Hiring Options

Interest in the CTO as a Service model is growing. More and more companies are looking for external specialists, and thus - more and more entities are offering this service. Here are some CTO as a service hiring options:

CTOaaS companies

There are companies that specialize in offering CTO as a service. These firms have a team of experienced CTOs who can provide strategic consulting, technology roadmaps, and project management services.

Technology service providers

Some technology service providers, such as IT consulting firms or software houses, offer CTO as a Service as an extension of their offerings. They can provide technology leadership while also providing technical solutions. If you have a trusted business partner or have found a company with an impressive portfolio they'd like to work with, ask if they offer CTOaaS.

Independent consultants

Technology consultants with CTO-level experience can be engaged as freelancers on a project basis or for specific periods. They can provide strategic technology advice, oversee projects, and offer guidance tailored to your organization's requirements.

Skills of an effective CTO

When hiring a part-time external CTO, focusing on several key areas can ensure you bring the right expertise and alignment to your team.

Technical and strategic expertise: Ensure the candidate has a robust technical background and can understand and align technology with your business strategy. They should be knowledgeable about current and emerging technologies relevant to your industry.

Leadership and team management skills: Even in a part-time capacity, the external CTO will need to inspire and lead your technical team. Assess their ability to manage, mentor, and lead teams, even remotely. Their approach to fostering innovation and managing workloads to prevent burnout is crucial​.

Strategic thinking and vision: The right external CTO should be able to align technology strategies with your business goals, understanding both the market and the competitive landscape. They should bring a strategic mindset to your business, capable of forecasting tech trends and how they might impact or benefit your operations​

Problem-solving skills and adaptability: Evaluate their ability to tackle challenges creatively and efficiently. The tech landscape changes rapidly, so their approach to learning, adapting, and solving problems is essential​.

Risk management: Evaluate their approach to risk management, especially in terms of technology and data security. The right candidate should be proactive in identifying potential risks and developing contingency plans to mitigate them

Cultural fit and collaboration: Even as a part-time external consultant, the CTO will need to work closely with your internal team. Assess their ability to fit into your company's culture and their willingness to collaborate and communicate effectively with team members across the organization.

Where to find a good CTO?

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Finding candidates for a part-time external CTO role involves exploring various platforms and networks to access a wide talent pool. Here are several strategies and places to look for qualified candidates:

1. Professional networking sites: LinkedIn is a primary resource for finding professionals across industries. You can search for candidates with specific experiences, skills, and industry knowledge. LinkedIn also allows you to see endorsements and recommendations from other professionals, which can be invaluable in assessing a candidate's abilities and past performance.
2. Tech and industry-specific job boards: Platforms like AngelList, Stack Overflow Jobs, and GitHub Jobs cater to tech professionals and can be excellent places to find candidates with the specific technical expertise you require. These platforms often attract individuals interested in startup culture or part-time and freelance opportunities.
3. Referrals and professional networks: Leveraging your professional network can lead to high-quality candidate referrals. Ask your contacts if they know any experienced tech leaders or consultants who might be interested in a part-time CTO role. Personal recommendations can often lead to finding candidates who are a good fit for your company's culture and needs.
4. Freelance platforms: Websites like Toptal, Upwork, and Freelancer can connect you with freelance tech professionals who may be interested in a part-time CTO position. These platforms allow you to review candidates' profiles, previous work, and client feedback before reaching out.
5. Tech meetups and conferences: Attending industry-specific meetups, conferences, and seminars can help you network with potential CTO candidates in person. These events often attract leading professionals in the field who are interested in staying abreast of the latest trends and may be open to new opportunities.
6. CTO and tech leadership forums: Online forums and communities for CTOs and tech leaders, such as CTO Forum, CTO Craft, and specific groups on Reddit or Slack, can be valuable resources for connecting with potential candidates. Participating in these communities can also provide insights into candidates' thought leadership and approach to technology and management.

How to choose the right CTO?

Step 1. Define your needs and expectations

• Identify technical requirements: Outline the technical skills and expertise necessary for your project.
• Determine strategic goals: Clarify how the CTO will align technology with your business objectives.
• Set expectations for the role: Define the part-time hours, responsibilities, communication frequency, and project duration.

Step 2. Source candidates

• Use professional networks: Leverage LinkedIn and other professional networks to identify potential candidates.
• Engage with tech communities: Post the role on tech forums, job boards (like AngelList, Stack Overflow Jobs), and attend tech meetups or conferences.
• Ask for referrals: Utilize your professional and personal networks for recommendations.
• Consider freelance platforms: Explore Toptal, Upwork, and similar platforms for freelance tech leaders.

3. Screen resumes and portfolios

• Review technical expertise: Look for relevant experience and skills.
• Evaluate previous impact: Assess their contributions to past projects or companies.
• Check for strategic and leadership qualities: Identify evidence of strategic thinking and effective team management.

4. Conduct initial interviews

• Prepare a set of questions: Cover technical expertise, leadership style, problem-solving approach, and strategic planning abilities.
• Assess communication skills: Ensure they can explain complex technical concepts clearly to non-technical stakeholders.
• Understand their motivation: Find out why they are interested in a part-time role and what they are looking for in a project.

5. Technical assessment

• Technical challenge: Give a small, relevant technical problem or case study related to your project to solve.
• Discussion: Have a technical discussion to delve deeper into their problem-solving approach and technical reasoning.

6. Reference checks

• Contact previous employers or clients: Verify their achievements, leadership quality, and working style.
• Seek feedback from former teams: If possible, get insights from developers or team members who have worked under their leadership.

7. Final interview

• Meet with key team members: Introduce them to your core team for cultural fit and team dynamics assessment.
• Discuss logistics and expectations: Clarify part-time hours, communication tools, and methods, reporting structure, and project goals.
• Negotiate terms: Discuss compensation, contract duration, and any other terms of engagement.

Tips to hire the best CTO as a Service

The business world is becoming more flexible and optimized offering access to new services and skill hubs. CTO as a Service for startups and smaller companies can be a cheaper, more flexible alternative to an in-house CTO. Tapping into the expertise of an outside expert will give you a fresh business perspective, greater ability to scale, and access to broader knowledge and experience. 

How do you find the perfect candidate? Start with these steps:

1. Identify your business needs, budget, and priorities.
2. Identify areas where you need support.
3. Do research on CTOaaS companies, software houses, and freelancers for desired services.
4. Make discovery calls - there's nothing like direct contact to get your questions answered!
5. Choose your new external CTO and add a solid asset to your company!