6 questions you didn’t ask your vendor

Broken Sales Consulting Business Advisory Services

Fix Sales. Generate Revenue.

6 QUESTIONS YOU DIDN’T ASK YOUR VENDOR

…And why your vendor is glad you didn’t ask

BRENT SIEGEL, MBA, CSOP, CRFS, CSEO, EBANKINGStrategic Executive Advisor

2 Broken Sales Consulting

ASKING THE RIGHT QUESTIONS

Why was the Jefferson Memorial was crumbling?

What risk(s) are you hoping to avoid?


RISK

Risk?• Big vendors vs. Small vendors• Expensive vs. Inexpensive• New vs. Existing • Easy to Replace vs. Difficult to Replace• Security Risks• Customer Contact Risk

RISK

Compliance

Strategic

Credit

Transaction

Operations

Reputation


AGENDA

Insiders Perspective6 QuestionsAppropriate ExpectationsAnalyzing the InformationRequired InformationBonus Material

5Broken Sales Consulting

INSIDERS PERSPECTIVE



Vendors/Partners/Service ProvidersPrimary ResearchSurveyed Vendors

• Large• Small• Technology• Services• Executives• Sales Reps

Experienced as a Banker and as a Vendor



Vendors know how to play the game…better than you doVendors do not want to volunteer information without providing

context… is this spin?Vendors want your businessVendors are not ‘liars’ The reality of asking tough questions.

• Do the vendors want to play the game?



Vendors are trained to answer your RFI and RFP Questions• The psychology of Q & A

o The first word is your answer “Yes” “No” “Here is how we do that…”

o Shorter answers that are clear and to the point show a greater degree of verifiable truth.

o …today some people just do not write very well

• Loose interpretation of your question• Regardless of the question they want to find a way to say “yes”


6 QUESTIONS


6 QUESTIONS

Probably 60 questions your vendors are glad you didn’t ask…• Finances: Financial Reporting• Legal Issues: Corporate and individual/principal/employees• Company: Management Structure• Service: Account Management, Implementation and Support• Service Problems: Customers leaving


6 QUESTIONS

What is your current financial condition?

Provide a current and complete list of customers.

What executives have recently left?

Have you been sued in the last 2 years?

What kind of guarantee or warranty do you provide?

What was the worst customer implementation your firm has had

in the last 2 years?


6 QUESTIONS

Complete Question: • What is your current financial condition? Current Revenue, Revenue Growth, Funding and Capital Structure?

Reality• Ask for Financials – audited, unaudited

Practicality• Audited financials are not required for most vendors

• What do you do with them?

Alternative:• Income Statement

• Balance Sheet

• Some financial document that gives you insight into their current and past condition

• Something in writing – a phone call or a meeting is not enough


6 QUESTIONS

Complete Question:• Provide a current and complete list of customers. How many customers have you lost, and why, and

who are they?

Reality• Ask for a client list

o If it is not too big

o Or for customers like you – size, geography

Practicality• Vendors will provide you with a list but not the contacts – due to confidentiality, professional courtesy

Alternative• Does the vendors website have list of partners

• Ask for a subset – again size, geography, recent, longest, recent customers that left


6 QUESTIONS

What executives (C-level, Director-level, and Managerial-level) have recently left,

why did they leave, and where did they go?Reality

• Ask for list of recent executive departures within the last year, 2 years…• Position, tenure at the firm, why they left and where they are now

Practicality• They should be willing to disclose this

Alternative• Ask about new additions to staff and tenure in the C-Suite• Ask about general turnover – and retention

o Where is the turnover – sales? Development? C-suiteo If the CFO, Controller, VP of Finance has left – this is a huge red flag


6 QUESTIONS

Have you been sued by a client, or a partner, or have any of your owners or executives been sued in the

last 2 years? Reality

• They should disclose any suits against the company• Personnel suits may not be disclosed

Practicality• This is hard to hide without an outright lie• What type of lawsuit

o Tax lien?o Personal injury?o Small claims court?o Criminal suit?o Customers suing the firm?o Former employees suing the firm?

Alternative• Research this on your own • Credit reports


6 QUESTIONS

What kind of guarantee and warranty do you provide? Reality

• Probably in their contract

Practicality• What is your out or what is your remedy• Most vendors will give you some sort of guarantee or warranty language

Alternative• Tougher breach provisions• Service Level Agreements


6 QUESTIONS

What was the worst customer implementation your firm has had in the

last 2 years – why did it happen and how long did it take to resolve?Reality

• Firms with short installs should not have any issues• Firms with longer installs may have more problems

Practicality• More applicable to service firms and large system implementations

Alternative• Can you talk to their most recent or current installs?


6 QUESTIONS – VARIATIONS ON THE THEME (THE CONCEPTS THAT DIDN’T MAKE THE CUT…)

Broken Sales Consulting

6 QUESTIONSFinances: Mission Critical and Sound Practice

• Profitability, Stability, Mission Criticality• Impact of a future event – can they withstand the shock?

Tell me you have customers just like me• Give me your customer list – not just references

Management Departures• CFO, Controller, Finance Executives

19


6 QUESTIONS

Fees and Agreements• Upgrades contingent on ‘buying’ the new

module/service

What was your worst customer experience • Why, what did you do

Implementation Plan• guarantee, warranty

20


APPROPRIATE EXPECTATIONS



Financials• Audited versus not audited• What will you accept?

Big firms will have financials• May not be audited• Can you get a letter from their external accountant? Board? President?

Small firms will not have audited financials• They may not have any financials at all• Ask for capitalization and corporate finance structure

o Debt or equity?

• Are they profitable? Are they relying on venture capital?• When will they become profitable?

Last 3 years of sales revenue• You want to see growth

What part of their revenue stream will your FI provide?



Legal Process information• OFAC, MSB

o FinCEN

• Corporate: Pending and Settled• Principals/Owners/Executives: Pending and Settled

Tough to hide this type of informationYou may have to do your own additional searches

• Search names of executives and board members



Implementation• Plan• Dates• Team• References – provided• References – discovered

A vendor without an implementation plan as part of their marketing process is suspect


ANALYZING THE INFORMATION



Finances• What specifically are you looking for?

Documents• Income Statement = are they profitable• Balance Sheet = statement of financial condition…debt• Cash Flow Statement = operations, investing, financing

o Companies go bankrupt because they can’t pay their bills not because of profitso Operations = own casho Investing – this use of cash is required to stay in businesso Financing - loans

• Audit Opinion Letter

Minimum Acceptable?• Income Statement• Capital Structure



Capital Structure• Venture, debt, or cash flow

Venture Capital• New money at a new firm?• New money at an old firm?• How active are the VC’s

o Bringing dealso Adding structure and discipline

Debt• Personally, I like debt more than equity…if the firm can handle the terms• Ask the question where are they in the term of the note?

Cash Flow• If the firm is funding all operations out of cash flow this is good

o Are they over-weighted to one customer?



Legal• Criminal or Civil Litigation

o Criminal is worse than civilo Criminality should be grounds for immediate elimination

• Customer or Partnerso Some customers are unreasonableo Are they constantly suing their vendors?

Did your vendor pick them anyways? What does that say about your vendor’s judgement

• Corporate or Principals o Is the company being sued?o Are the principals being sued?

• Governmental or Regulatoryo Government Legal action can make it difficult to focus on the businesso Regulatory activity – can be addressed and fixed



Implementation• Detailed• What happens if they miss dates?• SLA’s• Who determines it is done?• What about training?


REQUIRED INFORMATION – REGULATIONS AND COMPLIANCE


REQUIRED INFORMATION

FDIC – FIL 13-2014Highlights:

• Contain practical ideas for banks to consider when they engage in technology outsourcing.

• These documents are intended to assist community bankers by providing information on: Effective Practices for Selecting a Service Provider, Tools to Manage Technology Providers' Performance Risk: Service Level Agreements, and, Techniques for Managing Multiple Service Providers.



Technology Bulletin on Outsourcing (FIL-50-2001) • www.fdic.gov/news/news/financial/2001/fil0150.html

Web links - informational documents available:• Effective Practices for Selecting a Service Provider (PDF Version 303

KB File - PDF Help or Hard Copy)• Tools to Manage Technology Providers' Performance Risk: Service Lev

el Agreements (PDF Version (303 KB File - PDF Help or Hard Copy)

• Techniques for Managing Multiple Service Providers (PDF Version 101 KB File - PDF Help or Hard Copy)

http://www.fdic.gov/news/news/financial/2001/fil0150.html

https://www.fdic.gov/news/news/financial/2001/fil0150b.html

https://www.fdic.gov/news/news/financial/2001/fil0150b.pdf

https://www.fdic.gov/acrobat.html

https://www.fdic.gov/hardcopy.html

https://www.fdic.gov/news/news/financial/2001/fil0150c.html

https://www.fdic.gov/news/news/financial/2001/fil0150c.html

https://www.fdic.gov/news/news/financial/2001/fil0150c.pdf



https://www.fdic.gov/news/news/financial/2001/fil0150d.html

https://www.fdic.gov/news/news/financial/2001/fil0150d.pdf





FDIC Guidance for Managing Third-Party Risk (FIL-44-2008) • www.fdic.gov/news/news/financial/2008/fil08044.html

Highlights: Financial institutions often rely upon third parties to perform a wide variety of services and other activities. An institution's board of directors and senior management are ultimately responsible for managing activities conducted through third-party relationships, and identifying and controlling the risks arising from such relationships, to the same extent as if the activity were handled within the institution. Management should tailor the principles contained in this guidance to each significant third-party arrangement, taking into consideration such factors as the complexity, magnitude, and nature of the arrangement and associated risks. This guidance outlines the potential risks that may arise from the use of third parties and addresses the following four basic elements of an effective third-party risk management program:

• Risk assessment• Due diligence in selecting a third party• Contract structuring and review• Oversight

This guidance is based on and supplements the principles contained in policy guidance that has previously addressed third-party risk in the context of specific functions, such as information technology. This guidance is intended to assist in the effective management of third-party relationships, and should not be considered as a set of required procedures.

http://www.fdic.gov/news/news/financial/2008/fil08044.html



OCC 2013-29 Highlights: A bank should adopt risk management processes commensurate with the level of risk and

complexity of its third-party relationships. A bank should ensure comprehensive risk management and oversight of third-party relationships

involving critical activities. An effective risk management process throughout the life cycle of the relationship includes

• plans that outline the bank’s strategy, identify the inherent risks of the activity, and detail how the bank selects, assesses, and oversees the third party.

• proper due diligence in selecting a third party.• written contracts that outline the rights and responsibilities of all parties.• ongoing monitoring of the third party’s activities and performance.• contingency plans for terminating the relationship in an effective manner.• clear roles and responsibilities for overseeing and managing the relationship and risk management process.• Documentation and reporting that facilitates oversight, accountability, monitoring, and risk management.• Independent reviews that allow bank management to determine that the bank’s process aligns with its strategy

and effectively manages risks.



FFIEC Handbook on Outsourcing Technology Services (June 2004)

http://ithandbook.ffiec.gov/ITBooklets/FFIEC_ITBooklet_OutsourcingTechnologyServices.pdf

The "Outsourcing Technology Booklet" is one of several that comprise the Federal Financial Institutions Examination Council (FFIEC) Information Technology Examination Handbook (IT Handbook).




REQUIRED INFORMATION – SOUND BUSINESS PRACTICE



FinancesLegal issuesManagement practicesCustomer referencesRegulatory requirements

• Risk Assessment• Due Diligence• Regular monitoring and updates


BONUS MATERIAL

Copy of these slides6 Questions ChecklistFree Vendor Checkup

• Where am I? • What are the risk gaps?• What is the roadmap to get there?


CONTACT THE PRESENTER

Brent Siegel


[email protected]

612-850-6304

mailto:[email protected]

mailto:[email protected]

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