Successful Outsourcing: - AVCJ Private Equity & Venture Forum

Successful Outsourcing:

By Troy PospisilFounder and CEO, Ontra

An evaluation guide for selecting B2B vendors.

https://www.ontra.ai/

03.

06.

32.

Introduction

How to prepare for the vendor selection process

Table of contents

03.

04.

When outsourcing relationships go wrong

Sharing our experience

08.

34.

36.

Critical selection criteria for B2B service providers

Conclusion

09.

12.

22.

10.

13.

23.

17.

27.

10.

15.

25.

20.

29.

The people

Products and services

The business

Leadership

Industry focus

Financial durability

Innovation

Global reach

The team

Product focus

Longevity

Scalability

Data security

The ultimate test: references

Appendix: vendor assessment questions

Companies today are outsourcing all types of business processes, from payroll and background checks to security and legal document review. Outsourcing allows companies to focus on core competencies and strategic activities, operate more efficiently, and save money.

Particularly strong candidates for outsourcing are workflows that are critical but not core to your business strategy, such as high-volume, routine legal activities like non-disclosure agreements (NDAs). Tech-enabled providers have developed solutions specifically for taking over these repetitive-yet-critical workstreams, freeing internal teams to focus on strategically significant, value-generating work.

3 | successful outsourcing

Introduction When outsourcing relationships go wrong

The benefits of outsourcing are clear — when everything goes right, that is. However, nearly a quarter of all outsourcing relationships fail within two years, and half fail within five.1 As one industry watcher commented, “Marriages fail at about the same rate as outsourcing deals.”2 Often, the blame for such failure falls on the shoulders of vendors who overpromise, lack industry expertise, or don’t run sustainable businesses.

However, it’s not always the vendor’s fault when things go sideways. As the founder and CEO of Ontra, I’ve witnessed the buying processes of more than 1,000 enterprise companies, involving a range of approaches with varying degrees of success.

Nearly a quarter of all outsourcing relationships fail within two years, and half fail within five.

“ “


For example, as we started expanding outside the United States and operating multiple entities in multiple currencies, we discovered that our payments processing service provider couldn’t distribute payments in multiple currencies. On the services side, we had to change accounting firms — despite a positive relationship with our original firm — because our tax and audit issues became too complicated as we brought in institutional investors and extended our global reach.

This guide builds on these experiences to give you practical criteria you can use to evaluate B2B service providers and run a vendor selection process that’s organized, thoughtful, and methodical. These criteria will help you ensure that your partnerships will be successful, and that you’ll get the right products or services for your business, on time and on budget.

Some companies handle procurement in an extremely thoughtful and sophisticated way, but I’ve also seen disorganized buying processes that lacked clear objectives or even a clear decision-maker.

One of the biggest problems I’ve seen is the lack of good selection criteria; without this, enterprises risk picking the wrong vendor and outsourcing to a provider that’s a complete mismatch for their business needs. This can lead to a number of business and operational headaches.

Sharing our experience

At Ontra, we’ve had our own learning curve: We’ve bought more than 100 different tools and services over the past seven years. While many of these buying decisions have been successful, we’ve also made mistakes — many the byproducts of our own growth — that have helped us refine our purchasing processes.


Outsourcing fail:

In 2007, Queensland’s health department hired IBM to create a payroll application. The company said it could complete the project for $6 million by mid-2008. Instead, the timeline stretched out several years. Project costs ballooned to $1.2 billion, 16,000% above the contracted cost. The app never did work.3

A government inquiry called the system — which went live in 2010 after 10 aborted attempts — a “catastrophic failure.”4 But as one article put it, “there was plenty of blame to go around.” One big problem was that the Queensland officials hadn’t communicated expectations well or evaluated contractors properly.

With the project’s flawed and mismanaged scoping and evaluation process, it was doomed to failure from the very beginning.

Queensland and IBM

How to prepare for the vendor selection process


Even before you start evaluating vendors, there are a few steps that will ensure a smoother buying process.

As a recent article in the Harvard Business Review suggests,

Develop a systematic selection process and treat negotiations as a win-win. Treat the selection process as if you were hiring a new employee. Work with your team to develop objective criteria, agree on respective weightings, and then make a value-based decision.5

Once you’ve taken these five preparatory steps, you’re ready to dive into evaluating potential vendors against the following critical selection criteria.

Step 1: Identify your business needs. What problem are you solving by outsourcing this process? How will you measure the impact of a solution and whether it met your business needs?

Step 2: Identify your criteria. What specific criteria, technical or otherwise, must the solution meet to fit your needs?

Step 3: Identify the team. Determine who will be involved in vendor evaluation as well as in the final decision-making process.

Step 4: Create a scorecard. Develop a written method for evaluating and ranking members. (We provide a list of possible questions in the Appendix.)

Step 5: Map the finish line. Determine exactly how and when you’ll make a final decision and stick to your deadlines.

Outsourcing fail:

In 2003, EDS won a contract to manage voice, video, networking, desktops and training for the U.S. Navy and Marine Corps. A year later, EDS had to write off $350 million in lost assets because it couldn’t complete its obligations. It turned out that the two military branches needed to replace tens of thousands of legacy and customer applications instead of the 10,000 EDS had planned on.

Compounding a lack of communication was the fact that the Navy had no clear decision-maker. “The buck stopped nowhere,” said InfoWorld. “There was no single person or entity that could help EDS determine what legacy applications were needed and what applications could be excised.”

Another example of why companies, no matter what their size, need clear, structured processes for selecting vendors.

The U.S. Navy and EDS


https://www.infoworld.com/article/2652801/painful-lessons-from-it-outsourcing-gone-bad.html

Critical selection criteria for B2B service providers


The criteria for assessing providers fall into three main categories: the people, the products, and the business itself. The ultimate and most important test, of course, is references from other customers.

At the end of each of the following sections, you’ll find a list of questions to ask potential service providers. In the Appendix, we’ve compiled these questions into a list that you can use as you evaluate providers.

The success of any outsourcing engagement extends far beyond the products or services you’re buying. Your ultimate success depends on the provider’s leadership, as well as on the team that will be handling your account day after day. This is because, in the end, features are commodities. What aren’t commodities are commitment and trust — and those come from the people.

The people


The team

Some vendors excel at sales, but once you’ve signed the contract, you might find that you’re shunted off to a junior-level staff member who doesn’t understand your business.

Before you reach that point, find out who’ll be supporting you on a day-to-day basis in each of the regions where you’ll be operating. Make sure you have a dedicated account manager so that you always have a point of contact. Learn the qualifications of the people on the team; ensure they have the technical capabilities to ensure a successful engagement. Find out who will be available if you have questions about the products or services.

Features are commodities. What aren’t commodities are commitment and trust — and those come from the people.

“

“

When doing your due diligence, ask about employee retention and turnover. With churn rates of 13.2% and 11.4% respectively, technology and professional services have some of the highest levels of turnover.6 Customer service shouldn’t be a revolving-door position in your partner’s organization.

Here are a few guidelines to help you determine if leadership still retains their zeal for their business mission:

The founding team is still part of the company’s leadership. Most founders have a deep passion for the businesses they start.

Non-founder management team members should have a background in the service provider’s industry or have spent a good portion of their careers in that type of business.

Tenure at the company can also be a good indicator of passion and commitment.

Leadership

Take a close look at the service provider’s leadership team. Review each executive’s background and tenure. Get a sense of how passionate they are about the customer problems they’re solving.

Finally, ask what excites them about the company and the problems they’re solving for their customers.


Q:

What excites you about the problems you’re solving for customers?

Who will be my account manager? What’s their background, and how long have they been with your organization?

Who will support me in the regions where we do business? What’s their background, and how long have they been with your organization?

If we have questions about your service or technology, who will be available to answer?

What’s the average tenure of your customer service representatives?

As my business grows, how will your team scale to support me?

What’s your employee retention rate?

People questions to ask:


A company may have a beautiful website that paints a compelling story about their products’ or services’ capabilities, but make sure the vendor can back up those claims. Before you entrust critical functions to a vendor, delve deeply into what’s behind their marketing.

Products and services


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. They’ll have account managers and team members who understand your business’s specific needs and nuances. For example, Ontra services 17 different industries and verticals, including private fund asset management, investment banking, real estate, and healthcare. We have particularly deep expertise in private fund asset management, so we configured our proprietary invoicing engine specifically to accommodate the complex cost allocation requirements of this heavily regulated industry.

In contrast, if you select a non-industry-specific solution, your team will likely end up having to configure it to match your workflows and unique requirements. You’ll also spend time bringing the service provider’s team up to speed on your industry or business problem. You’ll spend several conversations explaining the fundamentals of your business before you can determine whether the provider can actually deliver a solution that will work for you.

In contrast, if a vendor’s customer list includes hundreds of your peers, and they’ve been serving those customers for a while, the chances are good that their solution will work out of the box. The provider will have invested in a solution for your industry or business need because 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 — or it should represent a significant growth area. The provider’s management should be able to convince you that they understand how to solve your particular business problem, and that should translate into demonstrable R&D investment. For example, 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.

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.

“

“

Total revenue

Relevant products & services


Q:

What specific features have you built that are relevant to my industry or use case, or uniquely tailored to my business needs?

What specific features have you built in response to feedback from customers who are trying to solve similar business 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 who are using your solution to solve business problems similar to mine. How long have you been working with them?

Industry questions to ask:


Product focus

Before purchasing a product or service, make sure that it’s a core part of the provider’s offering. The business world is full of examples of providers that have experimented with new products or services that they then later had to shut down or divest. (Google+ springs to mind, as does the business-oriented service Google+ for G Suite, which closed down on July 6, 2020.7) Imagine if you outsource a critical part of your business — like payroll or accounting — to a provider, only to be informed that they’ve shut down or sold that part of the business.

Many companies cast a wide net in their marketing materials, claiming to offer numerous products or services. However, they may not specialize or invest heavily in those solutions. Unless they’re laser-focused on driving quality and value for that particular product or service, they won’t have designed the unique workflows or technology required to make it successful. Unfortunately, you may not discover this until the performance metrics that are important to you fall short.

Don’t just take vendors at their word and spend months implementing a solution only to realize that it doesn’t meet your expectations and that its capabilities are inferior to what you’ve been led to believe during the sales process. You’ll waste your team’s time, and management will lose credibility.

Similar to industry focus, 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, they should be able to prove to you that the product represents one of the company’s most important growth areas. The product should have a team focused on it, including a GM and a product manager.

If you’re purchasing a service, look closely at the organizational commitment to the offering and the company’s focus on its people, which should translate into good employee retention rates and substantial investment in recruiting and professional development.


Q:

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 your feature roadmap for this product?

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 customers do you perform this service for?

Product questions to ask:


Innovation

Whether you’re outsourcing a function or investing in a product, you want to know that the vendor or service provider is constantly working to make it better. Look for providers with a proven track record of continuous improvement and innovation who are committed to investing in R&D. They should also be able to demonstrate how innovation leads to measurable value for your company.

For example, at Ontra, we’re focused on how quickly we can turn contracts around and how we can deliver features that will shorten that turnaround time. This added efficiency can have a real impact on our customers’ businesses, getting them access to critical information in time-sensitive transactional situations faster and allowing them to source more deals.


One way to evaluate a company’s commitment to innovation is to dive into their investment in their team. Is the founding team — the original leaders who are passionate about the business problem — still with the company? If so, they’re probably driving the vision and therefore, driving innovation. Once a company gets bought by a larger enterprise or a private equity firm, innovation often slows or stops at the expense of focusing on margins and cash flow.

Ask the provider to walk you through their product roadmap and their vision not only for the technology but the industry. The provider should have the team and the capital to achieve that vision; if they do, they’ll keep innovating.

In addition, find out how the provider’s roadmap influences how they deliver tangible value to customers. It shouldn’t

just be a product that looks or sounds “cool.” For example, a lot of companies claim to offer AI tools, but when you pressure test them in real-life situations, they don’t work that well — or even create value. If a provider claims that they’re investing in AI and machine learning (ML), find out who’s on that team and how those investments are creating measurable value for customers.

Finally, ask about the size of the product and engineering teams working on the product you’re considering, and whether those teams are growing. Growth in these functions is a good indicator that the provider will continue innovating and isn’t content to simply milk existing products for profits. Ask, too, whether those teams are full-time or outsourced contractors, because software development is a core task for technology companies that doesn’t always lend itself to successful outsourcing.

If a provider claims that they’re investing in AI and machine learning (ML), find out who’s on that team and how those investments are creating measurable value for customers.

“

“


Q:

What’s your product vision? What will your product look like two years from now? Five years?

What are the key value metrics you’re focused on? How do you define the value that you deliver to your customer? How will your roadmap influence those metrics?

Is your founding team still with you?

Who is your CTO? Who is your VP of Product? When can I talk to them?

How big are the product and engineering teams working on this product or service? Are you hiring, and if so, at what rate?

What portion of your software development team are full-time employees? What portion are outsourced contractors?

Who does quality assurance (QA) on your software?

If the service provider claims they’re investing in AI or offer AI tools, ask: Who’s on that team? What value are those features creating for customers?

Innovation questions to ask:


Scalability

Each company that you add to your vendor list also adds to the complexity of your operations. But while most companies want to avoid managing hundreds of different providers, switching providers can also be painful. It pays to select a provider that can support you into the future, as your business expands.

Before you commit to a partnership with a service provider, consider your business plan. Think about where you hope to be in 10 years, and make sure that the provider will be able to 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 multiple entities. Find a vendor that not only has operations in your current country, but in the countries in which you hope to operate. Otherwise, you’ll find yourself either switching providers or managing a patchwork of providers for a single workflow.

I 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 having to switch 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 contract with them, you may disrupt their entire operation and they may not be able to serve you at all. A good rule of thumb is that your contract should make up no more than 5% of a service provider’s business.

Think about where you hope to be in 10 years, and make sure that the provider will be able to handle an increased volume of transactions or projects.

“ “


Q:

If I gave you 100% of my business for this product or service, what portion of your revenue would my business be?

What does your business plan look like 10 years from now?

We’re projecting that in five or 10 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?

Scalability questions to ask:


I’m shocked by how infrequently prospective customers ask to see balance sheets or income statements. Before you consider hiring a B2B service provider to take on a key function of your business, there are critical questions you should ask about the health of their business.

The business



The sad truth is that most technology startups won’t exist five years from now. In an often-quoted study, Harvard Business School senior lecturer Shikhar Ghosh found that “three-quarters of venture-backed firms in the U.S. don’t return investors’ capital.”8 What’s more, 30% to 40% of those have had to liquidate all their assets, meaning that investors lost all of their money.

About three-quarters of venture-backed firms in the U.S. don’t return investors’ capital.

“ “Source: Wall Street Journal

Remember, you may be hiring a B2B service provider to handle a mission-critical part of your business. Even if you’re not taking a direct financial stake in that company, you are exposing your business to risk, because if the provider fails, it could have real financial and operational consequences on your company. The provider should display the metrics of healthy, sustainable business, such as expansion into new markets and customer growth.

I’m not saying that you shouldn’t support small businesses — a lot of innovation comes from young, hungry companies. But you should know what your threshold risk tolerance is. You should also know the threshold of value the solution will need to

generate in order for you to justify taking that risk. If a product from a small company is 10 times better than a similar product from a larger, established player, then maybe that risk is worth taking. But what if it’s only 10% better?

Don’t be shy about asking to see a potential service provider’s balance sheet or income statement. If you’ve signed an NDA, the provider should be able to share it with you.

Focusing on financial durability is even more important today. The COVID-19 pandemic has created a crisis for established companies and startups alike. In July 2020, Startup Genome found that four out of every 10 startups are in a “red zone”: they have three months or fewer of capital runway.9

today are in a “red zone”: they have three months or fewer of capital runway.

Source: Startup Genome

fourout of every10 startups


https://www.wsj.com/articles/SB10000872396390443720204578004980476429190

https://startupgenome.com/article/state-of-the-global-startup-economy

Q:

Who owns this business? What are their motivations (long-term growth, acquisition)?

Who are your investors?

Can I see your financials? If you’re not profitable, how much runway do you have?

What is your customer concentration (i.e., does more than half of your revenue come from one customer)?

Financial durability questions to ask:


Longevity

Closely related to the issue of financial durability is the question of company longevity. Any provider you hire must be committed to building their company for long-term sustainability. You don’t want to be someone’s experiment. (First-time entrepreneurs don’t always realize how hard the road to business success actually is and quickly flee the startup world for large corporations.)

Look at how long the provider’s management and the people with whom you will be directly working have been at the company. Frequent management turnover will make it hard for that provider to maintain strategic focus; frequent turnover in the team supporting your account will be disruptive to your business.

Many small companies are simply looking to be acquired as soon as possible. There’s

nothing wrong with that, but if you’re one of their customers, you may find yourself dealing with new management. Acquisitions often result in decreased investment in innovation, and the new owner may simply shutter existing solutions in favor of their own. For example, after a large consulting firm acquired one of our security vendors, we noticed a marked reduction in responsiveness and a swift increase in pricing.

Another example from our own experience: In the early days of Ontra, we invested in a customer relationship management (CRM) system from a well-known but smaller company. Eventually, that company was acquired by a major CRM vendor, and even though we had specifically not chosen that vendor, we now became their customers. Our pricing tripled, most of the team we worked with left the company, and the product was eventually shut down.


Q:

How long have you been in business?

How long have you been in the industry focused on this product?

How long have you been building this solution?

What’s the longevity of the ownership structure, and how are they investing in the culture, the team, and the long-term success of the business?

What are you trying to accomplish as a company — what are your motivations? Do you have plans to sell the company?

Who is on the team who will be serving my company, and how long have they been with your organization?

Longevity questions to ask:


Global reach

If you plan to expand your operations outside of your region — and thanks to the internet, that’s most companies — you should do business with service providers that can provide seamless solutions across all of the regions in which you currently operate, as well as the regions in which you plan to operate within the next five to 10 years. Otherwise, you’ll find yourself managing multiple providers in each region, or worse, trying to consolidate data from multiple systems, which is expensive and time-consuming.

The benefits of having a service provider with global reach are many:

You can coordinate with one account manager.

You only have to configure one solution.

Changes the provider makes to that configuration will cascade to your global solution.

You can consolidate your administrative work streams, such as invoicing, billing, and account management.

Even if the provider does have a global presence, take the time to evaluate the provider’s team in your specific region and whether they understand the nuances of your business in those regions. While you want to drive a consistent approach and have visibility from headquarters, the provider also needs to be sensitive to your

regional team’s unique needs so that they can establish good working relationships.

The service provider you select should be able to operate in multiple currencies (including invoicing) and should understand local tax, labor, and privacy regulations, especially the European Union’s General Data Protection Regulation (GDPR). It’s worth noting that under GDPR, a company that owns customer data and any third-party organizations managing that data are equally liable for privacy breaches. “A third-party processor not in compliance means your organization is not in compliance,” states CSO.10 It’s also worth noting that the maximum fine for GDPR infringements is €20 million (about US$23 million) or 4% of annual global turnover, whichever is greater.


Q:

What specific investments have you made in regions outside the United States to be able to serve customers in those regions?

Can you invoice in local currencies?

Explain the nuances of the regulatory/insurance environments in the geographies in which you operate, and how you handle them.

How is your technology designed to comply with local privacy laws, including GDPR?

Who will serve as my local team in each region? Can I meet with them?

Global reach questions to ask:


Data security

It sounds cliché, but today’s cybersecurity landscape is constantly evolving. At the very least, make sure that your service provider’s security measures meet the standards you have in place at your own company. One study found that 56% of organizations had experienced a breach caused by a vendor.11

Look for a company with a strong commitment to security, as demonstrated by a robust security architecture, and be sure you understand how they will work with your data. Ask to see a copy of their security policy and practices. Any vendor that hesitates to give you this information isn’t one to whom you want to entrust critical business tasks.

Best practices include:

Regular independent assessments, including penetration testing, and compliance with or participation in security standards such as Privacy Shield, SOC, and ISO 27001.

Strong security features such as single sign-on (SSO) and two-factor authentication (2FA).

Employee and contractor security training that ensures the security of client data.

Information security policies protecting integrity, confidentiality, and availability.

Business continuity plan for emergencies or unforeseen interruptions.

Secure and reliable applications architecture.

Fast response to security incidents and vulnerabilities.

Measures to protect and securely dispose of client confidential information.

Finally, confirm the information vendors submit on due-diligence security questionnaires. Have the service provider send you a copy of invoices for security investments, so you can be sure they aren’t getting rubber stamps on important tests. Call the CTO if necessary.

of organizations had experienced a breach caused by a vendor.1156%



Outsourcing fail:

Virgin Airlines and Navitaire

Security doesn’t just mean protection against hackers. It also means making sure that you and your provider have strong business continuity plans. In September 2010, the FAA grounded all Virgin Airlines flights, disrupting travel for 50,000 customers, after its internet booking and other mission-critical systems crashed due to a disk drive failure at Navitaire, a business process outsourcing unit of Accenture.

As ZDNet pointed out, this situation “illustrate[s] the importance of performing thorough due diligence before selecting a cloud provider…Buyers of mission-critical outsourcing services should consider developing their own plans and procedures to handle external failures.”

https://www.zdnet.com/article/cloud-based-it-failure-halts-virgin-flights/

Q:

Who on your team works on data security? Do you have dedicated resources?

What do you spend annually on security?

What did you spend on third-party security consulting last year?

Describe your penetration testing. Do they review your code? Do they try to hack into your systems?

How is client data encrypted? Where is it stored?

Are all your employees and contractors trained in data security? How often? What are your policies for employee and contractor security?

What is your information security policy?

What is your business continuity plan?

How do you detect and respond to vulnerabilities and incidents?

How do you securely dispose of client confidential information?

Data security questions to ask:

Security breaches will put you on the front page, and not for the right reasons. In March 2020, T-Mobile announced an attack against the company’s email vendor that affected more than 1 million customers, its second data breach in four months.12

Security Due Diligence: Not A Check-Box Exercise


The ultimate test: referencesAs with security, reference checking isn’t a “check-the-box” exercise. Any provider worth hiring should be able to provide several references from existing customers that show how their solutions work in situations similar to yours. The solution should have a demonstrable track record for success in use cases similar to or the same as the one for which you’re buying it.

When your providers present references, confirm that they’re from companies operating at the same scale that you are,

for the same services and in the same regions. Real proof that a vendor’s products or services will work for you comes from other happy, long-term customers with needs that mirror your own. Ask, too, about customers who stopped using the vendor’s product or service; sometimes there’s a good explanation, such as a customer that was acquired or went out of business.

A final recommendation: Don’t just review the list of customer names the provider gives you. Call the references and interview them.


Q:

Can you provide customer references that fit the following criteria?

Long-term customers (engagements of one year or longer).

Companies operating at the same scale.

Companies receiving the same services or using the product for similar use cases.

Companies operating in the same regions in which we operate and in which we plan to operate.

Who has stopped using your product or service and why?

References questions to ask:


Visit www.ontra.ai today to learn more.

Partnering with the wrong service provider can negate the many benefits of outsourcing. There’s nothing worse than trusting a process to an outside vendor only to have that vendor not deliver the services or products that meet your business needs — or, at the extreme end, go out of business, leaving you in the lurch. Take the time to prepare for the vendor selection process. Ask the tough-but-important questions about the service provider’s team, products, and business, using the list in the Appendix as a guide. Check references thoroughly.

If you’re thoughtful about your selection process, you’ll find that outsourcing routine activities can result in more than cost savings: it can free up thousands of hours you can use to focus on the work that produces true strategic value.

Conclusion

About Ontra

Ontra is the global leader in Contract Automation and Intelligence. The Ontra platform combines the best of artificial intelligence and software with a global network of talented lawyers to offer a complete and scalable solution for recurring legal workflows, such as processing routine contracts and tracking obligations in complex agreements. Ontra delivers purpose-built contract workflow and data management tools to easily manage obligations, answer key questions, and analyze trends and benchmarks. By streamlining repetitive legal processes and transforming contracts into data, Ontra helps customers lower costs, improve quality, reduce turnaround times, and provide actionable insights, ultimately freeing internal resources to focus on impactful and engaging work.

Ontra is headquartered in San Francisco, with global operations across North America, Europe, and Asia. Learn more at www.ontra.ai.




successful outsourcing

About the authorTroy is the Founder and CEO of Ontra. Pospisil oversees efforts to scale up the legal technology company, bringing its global, end-to-end solution for negotiating and managing routine legal work to some of the world’s leading companies. Prior to Ontra, Troy worked in private equity investing at H.I.G. Capital and management consulting at Monitor Deloitte.


Appendix

Vendor Assessment QuestionsBased on Ontra’s experience purchasing more than 100 different tools and services, this evaluation guide lists key questions to ask when you’re evaluating potential B2B service providers. Asking these questions will help you run an organized, methodical selection process and choose vendors who can deliver the right products and services for your business, on time and on budget.


Leadership and the team• What excites you about the problems you’re solving for

customers?

• Who will be my account manager? What’s their background, and how long have they been with your organization?

• Who will support me in the regions where we do business? What’s their background, and how long have they been with your organization?

• If we have questions about your service or technology, who will be available to answer?

• What’s the average tenure of your customer service representatives?

• As my business grows, how will your team scale to support me?

• What’s your employee retention rate?


Industry focus

Product focus

• What specific features have you built that are relevant to my industry or use case, or uniquely tailored to my business needs?

• What specific features have you built in response to feedback from customers who are trying to solve similar business 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?

• 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 your feature roadmap for this product?

• 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 customers do you perform this service for?



Innovation

Scalability

• What’s your product vision? What will your product look like two years from now? Five years?

• What are the key value metrics you’re focused on? How do you define the value that you deliver to your customer? How will your roadmap influence those metrics?

• Is your founding team still with you?

• Who is your CTO? Who is your VP of Product? Can I talk to them?

• How big are the product and engineering teams working on this product or service? Are you hiring, and if so, at what rate?

• What portion of your software development team are full-time employees? What portion are outsourced contractors?

• Who does quality assurance (QA) on the software?

• If the service provider claims they’re investing in AI or offering AI tools: Who’s on that team? What value are those features creating for the customer?

• If I gave you 100% of my business for this product or service, what portion of your revenue would my business be?

• What does your business plan look like 10 years from now?

• We’re projecting that in five or 10 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?


Longevity

• Who owns this business? What are their motivations (long-term growth, acquisition)?

• Who are your investors?

• Can I see your financials? If you’re not profitable, how much runway do you have?

• What is your customer concentration (i.e., does more than half of your revenue come from one customer)?


• How long have you been in business?

• How long have you been in the industry focused on this product?

• How long have you been building this solution?

• What’s the longevity of the ownership structure, and how are they investing in the culture, the team, and the long-term success of the business?

• What are you trying to accomplish as a company — what are your motivations? Do you have plans to sell the company?

• Who is on the team who will be serving my company, and how long have they been with your organization?


Global reach

Data security

• What specific investments have you made in regions outside the United States to be able to serve customers in those regions?

• Can you invoice in local currencies?

• Explain the nuances of the regulatory/insurance environments in the geographies in which you operate, and how you handle them.

• How is your technology designed to comply with local privacy laws, including GDPR?

• Who will serve as my local team in each region? Can I meet with them?

• Who on your team works on data security? Do you have dedicated resources?

• What do you spend annually on security?

• What did you spend on third-party security consulting last year?

• Describe your penetration testing. Do they review your code? Do they try to hack into your systems?

• How is client data encrypted? Where is it stored?

• Are all your employees and contractors trained in data security? How often? What are your policies for employee and contractor security?

• What is your information security policy?

• What is your business continuity plan?

• How do you detect and respond to vulnerabilities and incidents?

• How do you securely dispose of client confidential information?

References• Can you provide customer references that fit

the following criteria?

• Long-term customers (engagements of one year or longer).

• Companies operating at the same scale.

• Companies receiving the same services or using the product for similar use cases.

• Companies operating in the same regions in which we operate and in which we plan to operate.

• Who has stopped using your product or service and why?


endnotes

1 Jafari, Ladan. “Why Software Development Outsourcing Fails Most of the Time,” WinaTalent.com, January 7, 2020. https://winatalent.com/blog/2020/01/why-software-development-outsourcing-fails/

2 Andriole, Steve. “Vanguard and Infosys are Now Billion Dollar Outsourcing Partners. Good, Bad and Always Risky,” Forbes.com, August 2, 2020. https://www.forbes.com/sites/steveandriole/2020/08/02/vanguard--infosys-are-now-billion-dollar-outsourcing-partners-good-bad--risky/#482593f26722

3 Garland, Anna. “Five of the biggest outsourcing failures,” ITProPortal.com, December 19, 2015. https://www.itproportal.com/2015/12/19/five-of-the-biggest-outsourcing-failures/

4 Chesterman, The Honourable Richard N. Queensland Health Payroll System Commission of Inquiry, 31 July 2013, p. 12. http://www.healthpayrollinquiry.qld.gov.au/__data/assets/pdf_file/0014/207203/Queensland-Health-Payroll-System-Commission-of-Inquiry-Report-31-July-2013.pdf

5 Kanara, Ken. “Rethink Your Relationship with Your Vendors,” Harvard Business Review, March 20, 2020. https://hbr.org/2020/03/rethink-your-relationship-with-your-vendors

6 Booz, Michael. “These 3 Industries Have the Highest Talent Turnover Rates,” LinkedIn Talent Blog, March 15, 2018. https://business.linkedin.com/talent-solutions/blog/trends-and-research/2018/the-3-industries-with-the-highest-turnover-rates

7 Lardinois, Frederic. “And that’s really it for Google +,” TechCrunch, June 5, 2020. https://techcrunch.com/2020/06/05/and-thats-really-it-for-google/

8 Gage, Deborah. “The Venture Capital Secret: 3 out of 4 Start-Ups Fail,” The Wall Street Journal, September 20, 2012. https://online.wsj.com/article/SB10000872396390443720204578004980476429190.html?st=swtsy1yppkd0367

9 The Global Startup Ecosystem Report 2020, Startup Genome, https://startupgenome.com/report/gser2020

10 Nadeau, Michael. “General Data Protection Regulation (GDPR): What you need to know to stay compliant,” CSOonline.com, June 12, 2020. https://www.csoonline.com/article/3202771/general-data-protection-regulation-gdpr-requirements-deadlines-and-facts.html

11 Korolov, Maria. “What is a supply chain attack? Why you should be wary of third-party providers,” CSOonline.com, January 25, 2019. https://www.csoonline.com/article/3191947/what-is-a-supply-chain-attack-why-you-should-be-wary-of-third-party-providers.html

12 Jaeger, Jaclyn. “T-Mobile data breach: A cautionary tale for all companies,” Compliance Week, March 6, 2020. https://www.complianceweek.com/cyber-security/t-mobile-data-breach-a-cautionary-tale-for-all-companies/28568.article


Successful Outsourcing: - AVCJ Private Equity & Venture Forum

Documents

Transcript of Successful Outsourcing: - AVCJ Private Equity & Venture Forum