Diminishing Marginal Utility: Evaluating the Long-Term Value of Hiring Executives (Natalie Stones)

As a small business owner or startup founder, you understand the importance of hiring the right people for your organization. It’s what enables you to grow, succeed, and ultimately achieve your goals. Yet, hiring can also be a challenging and costly process, particularly when it comes to hiring executives. Hiring your leadership team is a crucial decision that can catapult your organization's success, but can also burn through your runway.

The impact provided by these executives can also start to diminish over time, making it difficult to determine whether hiring them long-term is worth the investment (salary, benefits, equity, bonus). In this post, we’ll explore what diminishing marginal utility is, how it applies to hiring executives, and alternative ways to consider executive hiring.

What is Diminishing Marginal Utility?
Understanding the concept of diminishing marginal utility is necessary to evaluate the long-term value of hiring new executives. At its most basic level, it's an economic theory that states as one continues to consume a resource, the benefits realized from each additional unit of the resource will decrease after a certain point. In other words, the more you have of a something, the less valuable each additional unit becomes.

How does Diminishing Marginal Utility apply to executive hiring?
When it comes to hiring executives, diminishing marginal utility can play a significant role in the long-term value of the hire. For example, when a new executive is brought in, they bring fresh ideas, a different leadership style, and a new strategic vision. These executives can be extremely valuable in building new processes, programs, and deliverables, which can provide a significant "boost" to the business. However, once the goals are accomplished, businesses might find themselves with executives who are in "maintenance mode", overseeing what was built, and being leveraged in more of an advisory capacity. So it begs the question, has their "utility" or "value" been fulfilled...and is there a long term benefit to having them onboard full-time or permanently.

Alternative Options
One way to address this issue is by establishing the role of new executives as Fractional in nature. Bring in the executive as an embedded member of the team, working just as they would if they were a full-time employee (creating strategy, designing frameworks, re-invigorating teams, establishing programs, etc.) and once the goals are accomplished, they become your "as-needed" ongoing Fractional partner. This reduces the full-time overhead and gives a company ongoing access to senior expertise at a fraction of the cost.

Another possibility to fully leverage the value of your executives is by reutilizing their skills in different departments. For instance, if a new executive is hired to launch a specific program or product, after it has been launched, they could be reassigned to other departments that require their expertise.

However, some find full-time executive hiring to be the best model for their business. If this is the case, you may still consider a Fractional Executive as an interim solution while you run your search for a full-time hire. Executive searches can take anywhere from 6-12 months to hire, so engaging a Fractional Executive in an interim capacity can help keep your business function moving forward.

Overall, evaluating the long-term value of hiring new executives requires an assessment of the concept of diminishing marginal utility. It is essential to recognize the point at which their value starts to diminish and find ways to reutilize their skills either in different departments or in fractional roles. By doing so, businesses and startups can continue to utilize their expertise in a more cost-effective and efficient way!

If you're considering hiring an executive, Talent Refinery, is a fractional firm curating connections between executive members and companies looking for interim or fractional support. Reach out if you'd like to meet our Fractional team!


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