Launching a startup is risky, and things only get riskier when outsourcing services. Most leaders will require some vendor risk management, or VRM, to give them the confidence to succeed.
“Launching a startup is already a high-risk venture, and unfortunately, outsourced services bring more risk,” Todd Boehler, senior vice president of strategy at ProcessUnity, said. “Even the most basic vendor risk management processes can significantly benefit a company’s longevity.”
But the exact nature of that VRM will vary between startups. For example, fintech startups might require immediate vendor risk management programs to protect sensitive data processing and expand outsourced services to support rapid development.
Although many companies are just starting out, that doesn’t mean they can’t identify essential information about their vendors: what they do, what they can access, and how they monitor that access for misuse or abuse.
That information can set customers at ease regarding sensitive data. In a time of increasing cyberthreats, transparency and vigilance go a long way in differentiating a startup from its competitors. Maintaining a strong public commitment to security is an excellent step in building brand advocates.
Startups differ from large companies regarding VRM
Startups face distinct challenges and need agility from the beginning to quickly onboard the right partners to support growth. They should also be diligent in making sure early vendors are the right ones for their needs. Large companies can easily weather misfires with vendors, but startups can be brought down by going with a vendor that eschews great security practices or otherwise jeopardizes the company’s viability.
Early vendors are one of the most critical aspects of a company’s success or failure—yet it’s easy to overlook them. Typically, founders are focused on having an innovative idea, building buzz about their companies, or looking for fun, memorable marketing angles. All that is great, but if you partner with the wrong vendor early on, all that work could count for nothing.
3 things to think about when considering VRM
1. Keep monitoring vendors.
The diligence shouldn’t stop at properly vetting vendors before onboarding. It’s important to continue monitoring vendor actions over time. Things often change, whether in terms of your point of contact at the vendor company or in higher-level management.
Also, by looking over a long-term scale, you can get a much better sense of the relationship than simply basing it on the first few weeks of the partnership, when vendors are likely to be on their best behavior.
2. Be prepared for staffing needs.
Startups also face the challenge of having fewer people behind VRM processes. Large companies likely have multiple people dedicated to overseeing all vendors, but startups are often just a few founders who are stretched thin, covering all the bases for the launch and initial scale-up period.
For established companies, more people power equals more time to identify vendors in their ecosystems, understand how they contribute, and decide which are critical and who is responsible for each relationship. When you spend a significant amount of your human resources vetting and onboarding vendors, it often slows your time-to-market value regarding critical products or services. The trick is to gain efficiency while still maintaining proper due diligence for risk mitigation and regulatory compliance.
3. Assess risk well.
A clear view of the risk involved with any vendor is critical. Risk can be determined based on the nature of the vendor’s product or service. Critical information, like access level, incident history, and service type tells what sort of risks vendors might pose. Risk areas can include information security, financial resiliency, bribery or corruption, business continuity, and others.
By using a good inherent risk process, you can better determine due diligence requirements. That process will determine next steps, including appropriate contract clauses and monitoring requirements or even ending the business partnership.
By putting due diligence into VRM, you can be sure you have ticked off a critical checkbox for protecting your startup’s future. Just be sure to keep ticking it off each month as you continue to monitor your vendor relationships to give your startup every chance of succeeding while you focus on the fun parts of the launch and early-stage growth. You can build and enjoy fruitful partnerships with the best vendors available, but that success only happens with the proper VRM, so don’t delay.
