By some estimates, the cost of internally managing routine legal work can be 10x in-house counsel salaries.
Successful outsourcing: why vendor industry and product focus are so important
This is the third 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 4: How to evaluate a vendor’s commitment to innovation
- Part 5: Selecting vendors who can grow with you
Many companies have beautiful websites that paint compelling stories about their products or services. Before you entrust critical functions to a provider, make sure they can back up those claims.
Finding a vendor with the right industry focus
Look for a vendor that has a solution focused on—and configured for—your industry or, at the very minimum, your specific use case. The vendor’s team should understand your business’s specific needs and nuances.
For example, while Ontra services 17 different industries and verticals, we have particularly deep expertise in private fund asset management, so we configured our proprietary invoicing engine to accommodate the complex cost allocation requirements of this heavily regulated industry.
If you select a non-industry-specific solution, your team may have to configure it to match your workflows and unique requirements. You’ll also need to bring the service provider’s team up to speed on your industry or business problem. You’ll need to explain the fundamentals of your business before determining if the provider’s solution will work for you.
In contrast, if a vendor’s customer list includes hundreds of your peers that they’ve been serving for a while, their solution will probably work out of the box. Its customers will have already requested many of the features that you’re going to want. Your time to value will be shorter, and the burden on your team will be less.
A good rule of thumb is that products or services for your specific use case should comprise at least 20% of the service provider’s revenue. If not, it should at least represent a significant growth area. Management should understand how to solve your particular business problem, and that should translate into demonstrable R&D investment.
If your use case only represents 10% of that company’s revenue, you’re not going to get more than 10% of that company’s R&D investment or management attention unless you’re a growth industry for them.
Industry focus questions to ask a vendor
- What specific features have you built that are relevant to my industry or use case, or uniquely tailored to my business need?
- What specific features have you built in response to feedback from customers who are trying to solve similar problems?
- What’s my account manager’s background in my industry or with similar use cases? Which of my peers’ accounts do they manage?
- What percentage of your revenue does my industry or specific use case comprise?
- Name five to 10 customers from my industry or who are using your solution to solve business problems similar to mine. How long have you been working with them?
Finding a vendor with the right product focus
Make sure that the product or service you’re buying is a core part of the provider’s offering. We can all name companies that have experimented with new products or services that they later shut down or divested. (Google+ springs to mind, as does Google+ for G Suite, which closed down on July 6, 2020.) Imagine if you outsource a critical part of your business—like payroll or accounting—only to discover that the vendor has closed or sold that part of the business.
Companies will cast a wide net in their marketing materials. They may claim to offer numerous products or services, but that doesn’t always translate into a specialization or heavy investment. Unless they’re laser-focused on driving value for that particular product or service, they won’t have designed the unique workflows or technology that will make it successful. Unfortunately, you may not discover this until important performance metrics fall short.
Don’t just take vendors at their word. You’ll spend months implementing a solution only to realize that it doesn’t meet expectations and that its capabilities are inferior to what you’ve been led to believe. You’ll waste your team’s time, and management will lose credibility.
If a product or service isn’t an important revenue driver for the vendor, it won’t get much executive attention or continued R&D investment. At least 20% of the provider’s revenue should come from the product or service they’re trying to sell you. If it’s less, the vendor should be able to prove to you that the product represents an important growth area. The product should have a team focused on it, including a GM and a product manager.
For services, look closely at the organizational commitment to the offering and the company’s focus on its people. The latter should translate into good employee retention rates and substantial investment in recruiting and professional development.
Product focus questions to ask a vendor
- What percentage of your revenue comes from this particular product?
- What specific features and investments have you made for this product?
- What about your technology is proprietary or specific to this product?
- What’s this product’s feature roadmap?
- How long have you been delivering this product?
- Is this product a long-term growth driver for you?
- Who on your team is dedicated to this product?
- For services or technology: Who leads this practice? Who’s on their team? Are they focused on this service? How many of your customers benefit from this service?
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In this guide, you’ll learn the critical selection criteria for B2B service providers.
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