Business Owners, Ask Vendors These 3 Questions Before Signing A Contract

Regardless of size, all organizations should develop a thorough plan for vetting and selecting third-party vendors.


When considering a third-party vendor as a business owner or startup entrepreneur, remember this: You’ll be trusting that organization with information that is critical to your business. In some cases, that information’s importance may actually stretch beyond your business, which could be potentially problematic if your vendor of choice isn't delivering on its promises.

And according to a security survey by PwC, just 52% of businesses have security standards set up for third parties. Thus, according to the survey, a simple security breach could lead to serious reputation damage and a whole other slew of risks, including compliance risk and strategic risk. With that in mind, knowing what your startup is getting out of its third-party vendor is imperative: You must be able to rely on the people behind it and know that your business — and your livelihood — will never be at risk.

You Know the Risks — Now Have a Plan

Unfortunately, according to a 2015 report from Forrester, only 32% of B2B organizations considered themselves 'very satisfied' with their respective third-party digital vendor. Survey respondents were often looking for better communication and more post-project support, though the typical structure of relationships with contractors probably creates obstacles to getting these.

While no relationship is perfect, the value the right vendor can add to your organization can be tremendous, whether it comes in the form of talent, domain knowledge, or specific technical skills. Plus, outsourcing is typically less expensive than building tools or capabilities in-house. You just need to make sure you know exactly what you’re looking for — and don’t stop until you find it.

Regardless of size, all organizations should develop a thorough plan for vetting and selecting third-party vendors because, at some point, nearly every organization will have to rely on one (or more than one). Due diligence on your end will better ensure that third-party risk has no place at your company. When the time comes to start evaluating candidates, use these three questions to guide your assessment:

1. 'How many years have you been in business?'
As a rule of thumb, I like to hear that a vendor has been in business for at least three years. Companies younger than that likely haven’t had the time to accumulate the type of experience necessary to address some of the unique challenges my business faces. Even if a young company has been nothing but successful since it was founded, the persistence and attitude it takes to guide a business through successes and failures is something I look for — and something that can only be demonstrated with time.

If a company is young but the people leading it have strong track records leading other organizations, this question might not hold as much weight. In any case, though, the more time a company’s team members have spent working together, the more effective they can be.

2. 'How many clients like me have you worked with?'
If a vendor has never worked with a company like mine, that vendor may not know enough about my market, my competitors, and my organization to really help me. On the flip side, if it has experience working with similar companies, the vendor already has an idea of what my company needs from its products or services —and it's likely to teach me something based on that previous experience.

3. 'Do you have three references I could call today?'
If a vendor can give you three references, that’s plenty. If it can’t, that’s a huge red flag. You don’t want to be the first startup a vendor has ever worked with, and you definitely don’t want to be added to a list of companies that have had a bad experience with the vendor. When you call references, ask candid questions, and don’t be afraid to ask what the company didn’t like about working with the vendor. This type of investigating will pay off in the long run.

Also, don’t hesitate to contact the Better Business Bureau or state consumer protection offices to find out more about the vendor you’re considering partnering with — every stone you turn over gets you a little closer to ensuring the third party is right for you and your startup.

Lastly, consider contacting third-party security service providers — they typically keep a list of verified vendors. They can aid you in conducting a comprehensive audit of vendors’ efforts in compliance. While this can take a bit of time, the results are often effective and insightful once the audit is finished and in your hands.

Try Before You Buy: Always Sample the Goods

It’s worth noting that if you’re looking for a new software platform or digital tool, the vendors you talk to should allow you to test their products for free before making a purchasing decision. When I was searching for a company to do online timekeeping for our employees, I asked a few friends for advice, and a number of them recommended a company called Hubstaff. We checked out its website, signed up for a free trial, and asked a lot of questions over the course of the trial.

A trial period that allows you to test a product is a signal that the company is willing to prove itself to you before asking you to sign a contract. A really good firsthand experience with a product can offset a vendor’s lack of long-term business experience or experience with other companies like yours. Our trial experience and the company’s answers to even our most difficult questions ultimately convinced us to partner with Hubstaff, and we continue to feel like we made the right decision.

When you’re looking for a partner, it’s your right to ask questions and take all the time you need to evaluate your options before making a decision. If a third-party vendor can give you a satisfactory response to each of the three questions above and impress with you with a trial run, it’s a good sign you can move forward in your discussions with that vendor. If not, keep looking. Chances are you won’t have to look far to find another one.

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