Most firms jump into delivery before diagnosing the real problem—leading to wasted time and poor results. This episode explores how combining fractional executives with consulting teams leads to better outcomes, especially in complex, high-risk projects. We break down the difference between a consulting engagement and a fractional executive role—and how understanding this can help you win smarter deals, command higher fees, and position your firm as a strategic partner (not just a vendor). You’ll walk away with insights on pricing models, managing scope, and building scalable IP—all while delivering more value to clients.
TRANSCRIPT
Greg Alexander: Hey, everybody. This is Greg Alexander, and you’re listening to the Pro Serve Podcast, brought to you by Collective 54. If you’re not familiar with Collective 54, we are the first community for founders and executive leaders of boutique professional services firms. So if you’re in the expertise business—let’s say you’re in software development, consulting, IT services, etc.—meaning you market, sell, and deliver expertise for a living, this is for you. On this show, we hope to help you make more money, make scaling easier, and maybe someday get to an exit.
Greg Alexander: On today’s episode, we’re going to discuss the differences between providing a fractional executive and providing consulting services. I think there’s some confusion around this. It would be great for us to get clarity around that. Should you offer one or the other, or should you offer both? And if so, what should the mix and combination be? We have a member with us, Mike Pica. Is it Pica or Pica?
Mike Pica: You got it. Yeah.
Greg Alexander: Mike and I had a conversation a little while back. He offers both fractional executive and consulting services to his clients, and I learned a lot talking to him about that. So Mike’s going to answer some of our questions, and hopefully, he can teach you what he taught me. But before we jump into the questions, Mike, would you please introduce yourself to the audience?
Mike Pica: Sure, my name is Mike Pica, and I run a company called Hardware Velocity. Hardware Velocity helps founders bring products to life faster and startups with fewer costly missteps.
Greg Alexander: And it’s hardware engineering, is that correct?
Mike Pica: Think about any kind of physical product that has some kind of electronics integrated into it. Let’s call that hardware.
Greg Alexander: Got it. Very good. You know, everyone’s enamored with software these days. It’s nice to talk to a hardware guy.
Mike Pica: That’s right.
Greg Alexander: Alright, so let’s start at a high level. Mike, how do you define the difference between providing a fractional executive and delivering a consulting engagement?
Mike Pica: There are a few differences. Fractional executives are significantly higher cost to the clients, of course, due to the value they provide. That’s normally the first thing clients will notice as we put together our proposals. The experience that the fractional executives offer and the roles they play can be a combination of consulting services and fractional, but the client gets significantly more value out of the fractional level or strategic level. What we think about is how to connect the business strategy—how the company will eventually make money. Hardware companies take around 12 to 24 months minimum to take an idea all the way to production. In that time, you’re just burning cash. So how can we use these executives to help these clients connect their business strategy to the appropriate product strategies along that journey? Those executives help at that top level.
Greg Alexander: So more senior, more strategic, sounds like, therefore, more expensive. In terms of the engagement itself and how they interact with the client as opposed to a consulting engagement, tell me a little bit about that.
Mike Pica: Yup. All of our engagements require a fractional executive. We do not take on any engagement with consultants only. The reason for that ties directly to your question. We like to be connected to that business strategy. If the team is inexperienced at that strategic level for hardware, all the cash gets spent in the wrong direction with the consulting teams.
Mike Pica: So if we’re at the top, not only can we control more of the business outcomes, we also manage budget, manage schedule, have the direct ear of the executive team, and guide the consulting team to always spend their time and the client’s money on the right things at the right time.
Greg Alexander: Very interesting. So if I put myself in the shoes of a client, I might have some misconceptions. When you tell me that it’s a requirement to hire a fractional executive as opposed to a consulting firm, I might push back on that. Do clients have misconceptions, and how do you overcome that?
Mike Pica: Yup, that’s a great question, and we have had leads come to us and say, “I just need an engineer.” I’m like, “Well, sorry, I’m not your guy,” because oftentimes they’re wrong about what their problem is. It’s my responsibility to help uncover that for them. If I can’t, I poorly executed our sales strategy. The conversations always start with them mostly talking about where they are as a company and the challenges they’re facing, which are normally the wrong challenges, but they’re little ones. I have to slowly guide them to where they actually are. That already brings us to the strategy. Then I say, “Talk to this person.” I don’t have to explain this entire model necessarily. We’re already talking at the executive level, working together on the strategy, and eventually, the proposal falls out of that at the executive level. Sometimes it will be executive plus consultant, but most of the time it’s just more of a crawl, walk, run model.
Greg Alexander: You know, very interesting, because, generally speaking, the consulting industry in the aggregate and as a whole has very low NPS scores. Clients are unhappy. The clients are never going to say, “Well, this project didn’t do very well because I misdiagnosed my situation and chased the wrong problem.” They’re not going to admit that, so they just blame the consultant. Having spent 10 years in management consulting myself, I can tell you, almost every single time we had a bad project, it was because we weren’t solving the right problem. Many times we were solving a symptom, not even the root cause.
Mike Pica: Yup.
Greg Alexander: So that’s why you do it this way.
Mike Pica: Yup, that’s right.
Greg Alexander: Very interesting. Alright, so tell me a little bit about your business model. You know, things like pricing, contracts, and duration. How do they differ across those two things?
Mike Pica: So we’re a pretty young firm. I’m going to call ourselves a firm, even though I don’t know if I get the honor of saying that yet, but we’re pretty young—about two years into the journey. Our pricing has been time and material up to this point. What we’ve slowly done with the overall terms for payment is push it to the front end to be prepaid monthly, so we’re always ahead with cash. As we’ve been trying to figure out ways to package our services, we’ve been leading towards two ends of the spectrum. We touched on this when we talked, Greg. One end of it is “do it for you,” and the other end is “help you do it.” The “help you do it” side is more like the executive is a coach for whoever executive they have in place. The other end is having an executive in place doing the executive work plus the consulting team. It sort of ranges there. That coaching model has started to move to a flat fee monthly to make sure that the clients utilize us enough. If we’re billing out at $350 to $500 an hour, they’re always worried about that hourly rate. But if we set a 10-hour minimum and put that flat fee, now they’re actually utilizing it enough not only for us to provide value but to generate enough margin in it as well as provide enough guidance to the client. The other end of it, though, has been almost exclusively time and material. We help them do it or do it for them.
Greg Alexander: You know, so those that are listening to this and thinking about doing both, which is rare in our community, mostly you’re either a fractional CXO and you don’t do the consulting because the fractional executive is overseeing an internal team at the client site. Or, in our case, in the members’ case, they don’t offer the fractional. They provide a consulting team, and there’s a full-time executive sponsor at the client side directing the consulting team. The combination of the two is interesting. Generally speaking, the fractional executive is usually always charged on some time and material basis, whether it’s a flat fee per month or whatever. Because what happens is the client says, “Okay, if I were to go hire this position full-time, here’s what it would cost me. But I’m only renting a fraction of it, so 25% of whatever equals this,” and they seem to be okay with that. In the consulting world, where you might be issuing a deliverable as an example, sometimes you can move to a fixed fee. So, something for the listeners to think about as you consider that.
Greg Alexander: Let me ask you a question. If you ever started an engagement, I guess this wouldn’t be the case. I was going to ask if you ever started an engagement where you had one and had to shift to the other. But in your scenario, it’s an absolute requirement—you have to have both.
Mike Pica: Yeah, this is where it gets more interesting with the industry I’m in. This burn period I mentioned for companies developing a physical product could take 12 to 24 months if they do it right. When they do it wrong, 97% of hardware companies fail to launch anything—97%. There’s inefficient spending and a misunderstanding of how the product development process works. During that journey, the executive use changes because the amount of effort in the beginning is primarily a product or CPO. In the middle, it’s mostly engineering or more of a CTO, and towards the end, it gets to more operations, go-to-production, or COO. So, we do swap executives or have multiple if it’s like in damage control. Right towards the end, they screwed up the beginning. The consulting teams are all over the place. We have like 20 different roles in there because, in that journey, you need different people at different times. There’s always an executive and sometimes consulting team members, but always some kind of executive along the way.
Greg Alexander: And how do you handle changes along the way? Given what you do for a living, that makes a ton of sense because you’re starting on a journey to build something, and as you gain new information, you have to make changes. How do you handle scope creep in this scenario?
Mike Pica: Well, since we’re time and material, what we do—which is actually a huge pain in the butt, but I haven’t seen any other consulting teams do this in my experience—is provide a billing forecast as far ahead as we can with multiple months, with the expected hours for every single role. Every single month, we update it again because there’s new information. So, not only are we giving a forecast, but we’re also making sure whoever’s handling the money at the client always understands how much it’s going to be. I know other agencies are sometimes afraid of that because they don’t want their clients to be scared, but we’d rather be honest, and they love it.
Greg Alexander: So, time and materials in your case make sense because the scope is changing so much. If you were locked into a fixed contract, you would be nickel-and-diming your client to death with change orders because the scope would be changing constantly. That does make a lot of sense.
Greg Alexander: When you think about your fractional executives and your consulting team, the fractional executive is managing your consulting team. Is that correct?
Mike Pica: Right.
Greg Alexander: So that consulting team is not engaging with the client. They’re only engaging with your fractional executive. Or is that inaccurate?
Mike Pica: It’s inaccurate.
Greg Alexander: They are engaging with the client.
Mike Pica: Yeah, so we differentiate ourselves a little bit where we embed ourselves into the team like we’re part of the team. If you have a functional organization within a small team that includes a CTO, CPO, or similar roles, and you have team members, they’re obviously going to talk to other teams. It’s the same kind of model, but you have that executive helping to manage everything.
Greg Alexander: Okay. And when you’re pursuing new business and are maybe being compared to a competitor that doesn’t do it the way you do it—requiring a fractional executive with the consulting team—they’ll just sell some bodies in a consulting project typically. How do you position this with the client in order to win the business?
Mike Pica: Okay, so this is a great question. I think on the marketing side, like website material we’re sending out, we are in a very fragmented market. Everyone says they do the exact same thing, and it’s very difficult to position ourselves in a way that people understand what we do. We’re slowly improving our messaging there. Now, when we’re on a call, it’s a lot easier when me or the other executives are on it because we can slowly walk the client from where they think their problem is—or are not aware of their problem—to what it might be. Because we’re doing that from the perspective of making sure they have a successful business, not just to fill in a random tactical problem they might have, we’re already different from the first call we have.
Greg Alexander: And does that change who you go after? Like, does that change your ideal client profile? Are you looking for a certain level of self-awareness on the client side, or do you have to help them increase their self-awareness for this to be successful?
Mike Pica: Great question. Every time, I don’t think I’ve necessarily raised the client to the awareness of the importance of what we’re doing. I actually blame us for not appropriately outlining the value and bringing them there. But, I mean, to be a hardware founder, you also have to be a little nuts and arrogant because you think you can actually make money from something where you’re burning one to three million dollars in a few years. Like, that’s crazy, right? Software companies will stand something up in a month. Oh, it doesn’t work? Fine, let me just reset it. Not with hardware. You’re basically screwed if the whole thing fails. So it’s tough, but I would blame us if we can’t appropriately communicate and allow the client to recognize that value on the sales calls.
Greg Alexander: You know, something that you just said prompted a thought. There’s a difference between being a subject matter expert and being a professional consultant. A subject matter expert, like in Mike’s case, might be a fantastic hardware engineer who can geek out with the best of them. But if that subject matter expert isn’t a professional consultant and gets on the phone with a client who hasn’t really thought through the problem correctly, they can end up insulting the client by saying, “Hey, you’re wrong, and I’m right.” That’s the worst thing you can do in the consulting space. You have to have professional consulting experience married with your subject matter expertise to help the client maybe come to their own conclusion that they’ve misdiagnosed the problem or are solving the wrong problem. And you can’t make them feel stupid in the process. So you must have a difficult hiring profile. How do you screen for the soft skills?
Mike Pica: Okay, so surprisingly, when it comes to the fractional executives, we involve people that have been doing this for decades. I mean, I’m 15 years into my career, but these are people with 20 to 30-plus years of experience. These are experienced operational executives that have done this for real for a long time.
Mike Pica: They have no trouble on any calls with clients, none, no training at all needed. Now, what they do need, though, and I’ve been having a lot of trouble with, is having them rise past their function, whether it’s a CPO, CTO, or COO, and recognize the opportunity for the other gaps functionally to bring in the right other executive. They’re so used to acting in their executive capacity that they don’t know they need to look for those other gaps. I need those other gaps in order to expose more holes to plug for the consulting teams to generate significantly more revenue. So that’s actually been the bigger challenge. The way I’ve dealt with that is primarily by choosing people that are executives who have been consulting for a while, which is really hard to find. Mostly, they are retirees that don’t want to completely retire.
Greg Alexander: Well, I mean, the baby boomers are all aging. There’s a growing population of those folks that maybe don’t want to grind it out with a full-time gig anymore. But they also don’t want to play five rounds of golf every week. They want some work, right? So that’s probably who you’re going after. Yeah, that makes a lot of sense.
Mike Pica: There’s another thing, Greg, I want to mention that has been incredibly valuable for these fractional executives. One of the benefits of working with these fractional executives is that they’re basically telling me what processes I should write up just by doing their job. It makes it so easy to then sell it again because I see what they do, and then we write it down into a process. I eventually would like to create playbooks across the entire hardware product development cycle that we can then license out at a significantly higher gross margin than using fractional executives. The fractional executives continue to uncover more service offerings at the tactical level that can be tightly packaged and written down because I’m seeing what they do.
Greg Alexander: Yeah, you know, admired like. They do, right? It’s free to make because they’re already billing the client and making money while they’re doing it.
Mike Pica: Exactly.
Greg Alexander: 100%. That’s a brilliant idea because these senior people drop them into a client situation, and they just start performing based on all their years of experience. They’re doing things that they sometimes don’t even realize what they’re doing or how they’re doing it, and how valuable it is.
Greg Alexander: Mike, this is very helpful. On behalf of the community, thank you for helping us understand the difference between a fractional executive and a consulting team, and how to think through that. I think forcing some clients to use a fractional executive to make sure they’re solving the right problem and spending their money wisely is a very good idea. So thank you for sharing that.
Mike Pica: Yep, thanks for having me, Greg.
Greg Alexander: Okay, a couple of calls to action here for everybody. If you’re a member of Collective 54 and you want to learn more about this, please attend the Friday role model session. We’ll facilitate a Q&A with Mike, and you’ll be able to ask more questions. If you’re not a member and you want to become one, go to Collective54.com and fill out an application, and we’ll get in contact with you. But until next time, I wish you the best of luck as you try to grow, scale, and someday exit your firm.
Note: This transcript was generated by Zoom.