By some estimates, the cost of internally managing routine legal work can be 10x in-house counsel salaries.
Successful outsourcing: selecting vendors who can grow with you
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This is the fifth installment in a series outlining practical criteria for evaluating B2B service providers. Be sure to read:
- Part 1: Successful outsourcing: how to select B2B vendors
- Part 2: Evaluating a vendor’s leadership and team
- Part 3: Why vendor industry and product focus are so important
- Part 4: How to evaluate a vendor’s commitment to innovation
As your vendor list grows, so does operational complexity, which is why most companies try to avoid managing hundreds of different service providers. But switching providers can also be painful. It pays to select vendors that can support you as your business expands.
Before you commit to a service provider, consider your business plan. Think about where you hope to be in ten years; make sure that the provider can handle an increased volume of transactions or projects. Find out if they’ve operated at that scale with other customers and talk to those customers. You don’t want a company learning how to scale on your dime.
For example, if your business plan involves eventually operating in another country, make sure that your finance software provider can handle multiple currencies and entities. Find a vendor with operations in the countries where you hope to operate. Otherwise, you’ll find yourself either changing providers or managing a patchwork of providers for a single workflow.
We speak from personal experience: When we founded Ontra, our banking partner only operated in the United States. As we expanded to Europe and Asia, we ended up switching banks to one that could manage different currencies and intercompany transactions, which involved a great deal of work.
As the COVID-19 pandemic has shown us, enterprises should also make contingency plans if their business contracts. Look at a potential service provider’s customer list. The stability of their business shouldn’t rely on your contract with them, because if you decide to downsize or scale back your engagement, you may disrupt their entire operation to the point where they may not be able to serve you at all.
A good rule of thumb: your contract should make up no more than 5% of a service provider’s business.
Scalability questions to ask a vendor
- If I gave you 100% of my business for this product or service, what portion of your revenue would that be?
- What does your business plan look like ten years from now?
- We’re projecting that five or ten years from now, our business will be at X volume. Have you operated at that scale for other customers? If so, who?
- In what geographic areas do you operate today? To what areas do you plan to expand?
In this guide, you’ll learn the critical selection criteria for B2B service providers.
Learn how Legal Process Outsourcing (LPO) can deliver cost savings and other significant benefits for private equity firms.