When starting and growing a business, relying on third-party vendors to fulfill some aspects of your product or service to clients can be beneficial even necessary. Partnering with established service providers allows a young company to scale up in size more quickly and focus on developing and refining its core business.
Whether the organization focuses on software, manufacturing, travel, logistics or finance, most companies rely on outsourced solutions as part of their business model.
While this practice can streamline processes, lower overhead and allow a business owner to launch products in the marketplace faster; there are also risks to be considered. Specifically, a vendor’s substandard performance can negatively affect a customers’ experience with your brand. As a business owner, minimize these risks to ensure you are delivering on your promise to your customers.
For the past 10 years, my business partner and I have operated a business, Luggage Forward, that relies heavily on large multinational logistics companies. We learned very quickly that although our clients are our first priority, they are not always for our vendors. My company accounts for just a small fraction of the vendors' overall business and they have many other demands on their employees and processes.
Despite these hurdles, we have found ways to effectively manage these relationships. Consider these tips, based on my experience, to minimize risks associated with relying on third-party vendors:
1. Anticipate and prepare.
When setting up a relationship with an established vendor, understand that the firm is likely to have a fairly rigid structure and may not be very flexible in its operations. If you are used to the pace of a startup, this can be frustrating at first. But a predictable process can work to your advantage.
As working with a vendor and figure out the steps in the company's process, you can then anticipate its methods and build your procedures around that. It’s also likely that these processes will not change very often, if at all.
You can’t control or change the vendor's processes so to get rid of headaches, make sure to create your methods to work around them.
Related: Vetting the Viability of Vendors
2. Sell the salesperson.
In most cases, you will have a sales representative or another main contact at the vendor’s company. During the beginning of your new relationship, be sure to share how your business’ potential, combined with this partnership opportunity, will benefit the vendor in the long run.
Vendors want to profit from this partnership as much as you do and a good pitching strategy may put you on more favorable terms with the vendor even if you have no history together. Having a good relationship with your main vendor contact is critical, particularly if an issue arises. It is much more likely to be resolved if you have someone internally at that company who wants to help you. Also, an unexpected thank-you for a job well done is a great way to build goodwill with your vendor, and it doesn’t cost you a thing.
3. Be accountable.
If a vendor’s mistake negatively affects a client’s experience with your brand, you need to take responsibility. Do not throw your vendor under the proverbial bus. Even if it happens to be the vendor’s fault, don't spoil an otherwise good relationship by speaking negatively about that company. Such bad-mouthing is unlikely to solve the client’s problem that you're being paid to solve.
If reliance on a vendor is part of your business model, be accountable for your entire commitment to the client. If you have already anticipated this and put processes in place to minimize this risk of an error, this should only be a rare occurrence.
Outsourcing pieces of your business to third-party vendors can be tremendously beneficial if executed correctly. To minimize risks, remember to anticipate their process and adjust your methods to streamline working with them, get the sales rep to be in your corner, and take responsibility if a client is unhappy due to a vendor’s actions (or inactions).