ktheoryAaron Suggs’s blog

January 25, 2021 — Tags: vendors

Creating and sustaining vendor relationships can be a highly leveraged skill for software engineering teams. But there’s little guidance or structure at small companies for folks learning to build vendor relationships.

So here’s the template of bare essentials and some nice-to-have responsibilities to steer emerging engineering leaders in vendor management. This is born from experience at tiny startups to growth-stage companies with hundreds of employees. Larger companies have more formal processes for choosing and managing vendors.

This post won’t go cover how to choose a vendor and the famous “build versus buy” calculus; instead focusing on what to do after you’ve chosen a vendor.

Without further ado, the template:

The goal is to maximize our organization’s long-term value from the vendor’s service. That means we use their service appropriately, and spend money efficiently.

Minimum essentials

  1. Each vendor should have a Directly Responsible Individual within the org. The DRI is responsible for the items below.
  2. Follow our org’s legal review process. Before you accept terms of service or sign anything, familiarize yourself with your company’s signing authority and approval process. In short, give our legal team a heads up; and they can help navigate contract discussions, particularly around liability and data privacy issues.
  3. Follow our org’s billing process. Give our accounting team a heads up to coordinate who keeps track of invoicing and receipts. Very small companies tend to use corporate charge cards. As they grow, it tends towards invoices and purchase orders with formal approval processes.
  4. Know how to contact the account rep, escalate tech support tickets, or otherwise get high-quality, timely technical assistance. Preferably, this contact info is stored in a well-known, discoverable place for all vendors. (We use Blissfully.) This is particulary important for business-critical vendors like payment providers and CDNs.
  5. Keep payment information up-to-date to avoid service disruptions; and make sure invoices are approved/paid on time. Check your emails!
  6. Use a vendor-specific email list like vendor-name@mycompany.com for all communication with the vendor. As our team grows and we onboard new member, they can easily review and join discussions. As the DRI, you’re responsible for staying on top of this email list.
  7. Ensure money is spent effectively. Should we change our terms to reduce our bill (like commit to a larger quota to reduce overage charges)? For large contracts (>$15k/yr), negotiate with the vendor (the finance team can help with this).
  8. When contracts are expected to change or expire without renewal, inform stakeholders with ample time to implement alternatives.
  9. Ensure the process for onboarding and offboarding employees with the vendor is documented clearly.
  10. Maintain a list of the PII and sensitive information that’s shared with the vendor. Your legal team can help ask the right questions here.

Nice-to-have strategic considerations

Here are some next-level ways to derive significantly more value from your vendor relationship:

  • Maintain a clear sense of the value this vendor provides the organization. Tech vendors typically use value-based pricing (as opposed to cost-based pricing), so being able to describe the value of various features ensures you and the account rep speak the same language.
  • Track how closely our usage aligns the vendor’s typical customer usage. Do we use their service in a common, expected way; or in a custom, unusual way that could be a strategic risk as the vendor evolves? Are we one of their biggest/smallest customers (another strategic risk), or middle-of-the-pack?
  • Maintain a general sense of the competitive landscape and alternatives for the vendor. What’s our next best alternative if we had to move off this vendor? Are there competitors who have a superior service or are gaining quickly? When would it be worth the opportunity cost to build it ourselves?
  • Track and contribute to the vendor’s private roadmap (beta features). Usually the account rep will offer to discuss this once or twice per year.

Congrats, you’re well on your way to a productive, valuable vendor relationship!