Opinions expressed by Entrepreneur contributors are their own.
Key Takeaways
- Before signing contracts with vendors, research companies, ask for customer references, lean on trusted peer networks, and consider on-site visits or hiring an attorney to perform in-depth due diligence.
- Neglecting to read and understand contract language of any kind could potentially result in irreparable harm to any individual or business.
- When reading any business agreement, consider warranties, indemnification, auto-renewal or termination clauses, limitation on damages and limits on rights to sell or transfer.
Running a successful business is challenging in every regard. Like many business owners, I’ve learned to pay close attention to the products and services I purchase. The same holds true for operating expenses, such as payroll and overhead.
For example, I retained a public relations firm. However, after a short time, I realized I wasn’t getting what I expected. Naturally, I decided to end the relationship. To my surprise, the vendor continued to bill me for services that I didn’t need or want. I’m sure every entrepreneur could share similar stories.
In the past few months, I’ve seen several companies I consider fraudulent promise to deliver services they have little or no expertise in. Such examples can cost companies tens of thousands of dollars, a direct negative hit to their bottom line.
A recent compliance scandal
According to leading economic publications, the cybersecurity sector remains one of the fastest-growing industries in the world. By 2030, cybersecurity and data protection are expected to reach $400 billion in annual revenue. Just imagine the opportunities for startups hoping to capitalize on a fraction of this growth.
Anywhere that opportunity awaits, so do fraudsters. The headlines appear almost daily of companies committing fraud or making fraudulent claims. Remember Elizabeth Holmes and Theranos? What about Bernie Madoff or Alan Sanford? The list goes on.
Recently, a leaked document revealed devastating news that shook the technology industry. Delve, a startup company, raised $32 million in seed funding last year en route to a $300 million valuation. The company’s two “wonderboy” founders both received national recognition on the “30 Under 30” list.
What seemed too good to be true could be another addition to the long list of U.S. companies and individuals pulling a “fast one” on unsuspecting customers. According to insider claims, the company orchestrated a “massive, systematic fraud ring” to deliver enterprise security compliance certificates.
Details are still evolving, and it will obviously take time to sort through everything to determine whether guilt or innocence prevails. Time will tell. In the meantime, some of the company’s clients are scrambling to find new compliance providers.
Identifying marketplace value
How do we know we are getting what we are paying for? Such a simple question should provide a simple answer. But in this new environment fueled by AI, quickly identifying marketplace value seems downright challenging.
Knowing who you are contracting or doing business with is the first step. Of all the vendors that your company engages with, how many do you really know? If you’re a small business in a small town, then you may know all or most. If you’re a large corporation, that percentage is much lower.
Assuming some of the allegations against Delve are true, I can’t fault companies that contracted with them. After all, many of Bernie Madoff’s clients were personally acquainted with him, his family or company representatives. We constantly hear about the need to perform due diligence on potential vendors; unfortunately, time and resources are our greatest challenge. A well-designed website, LinkedIn or social media profile displays a powerful message of trust and reliability.
Researching key vendors
To facilitate this objective, I leverage my colleagues in the handful of CEO and executive groups I align with. My colleagues are smart and driven. I like to think I am the same. Yet I rely on their advice and recommendations before signing on with a new vendor.
Taking advantage of online research is also key. Start with the basics. Perform basic research on the company, its ownership and key employees. Ask for a list of customers willing to discuss their experiences.
Sometimes confidential issues prohibit such verification, especially when legal and medical issues arise. Because my company is CJIS-certified and HIPAA-compliant, we take our responsibility seriously. Not only because there are serious civil and criminal repercussions, but because we swore to uphold our responsibility to respect privacy and confidentiality.
It’s also difficult to learn about fraudulent or unethical practices in your own industry. Earlier this year, Australian authorities uncovered a security breach when VIQ Solutions, a transcription company handling Australian family law and federal court cases, outsourced audio files to overseas contractors in India.
This was in direct violation of VIQ’s agreement with the Australian courts. Cases like this one not only impact a single company but can also taint an entire industry. Our company works hard to maintain high ethical standards, and it’s painful to watch others destroy industry trust.
When feasible, I try to vet potential vendors as I would a new partner. I’m not saying that I devote significant time to researching the company that provides my office products. However, when technology or security is involved, I spend ample time doing my homework. Everything I championed above is how I evaluated my current IT management provider. Yes, I spent valuable time examining their services, but my time and effort have paid dividends so far.
Time permitting, arrange an on-site visit before contracting with a large vendor. Any viable company, even with a small office, should provide space for a detailed discussion and company presentation. When necessary, I would retain an attorney or specialized investigator to perform in-depth due diligence.
Understanding the fine print in vendor agreements
Although I’ve never counted, I probably receive a half-dozen or so emails weekly from personal and company vendors relaying updated “terms and conditions” agreements. The latest was from my cell phone provider. Do you read the entire terms and conditions verbiage when you purchase something? That’s what I thought. Neither do I.
Ask any attorney and practically all will advise you to read and understand the “fine print” in any business agreement. Neglecting to read and understand contract language of any kind could potentially result in irreparable harm to any individual or business. Here are some key points to consider when reading any business agreement:
- Warranty — length or scope of seller’s obligation
- Indemnification — buyer’s risk to cover seller’s loss
- Auto-renewal or termination clauses — will the contract renew without cancellation or notice?
- Limitation on damages — maximum amount recoverable
- Assignment/non-assignment — limits on rights to sell or transfer
For major business contracts, I definitely read the “fine print.” If I don’t have the time or bandwidth to understand these agreements, then I forward the language or agreement to my attorney.
At Ditto Transcripts, we choose simple, easy-to-understand language in our client agreements. Every business must protect itself, not only from fraudulent intent, but also from well-meaning customers who don’t understand basic expectations.
Since most of our clients submit payment before work proceeds, we can avoid many issues. However, when client issues do arise, we do everything possible to resolve the situation quickly or offer a refund if they aren’t completely satisfied.
Getting what you pay for can sometimes be challenging. By paying close attention to the details and “fine print” and performing basic due diligence, most unfortunate circumstances can be avoided.
Key Takeaways
- Before signing contracts with vendors, research companies, ask for customer references, lean on trusted peer networks, and consider on-site visits or hiring an attorney to perform in-depth due diligence.
- Neglecting to read and understand contract language of any kind could potentially result in irreparable harm to any individual or business.
- When reading any business agreement, consider warranties, indemnification, auto-renewal or termination clauses, limitation on damages and limits on rights to sell or transfer.
Running a successful business is challenging in every regard. Like many business owners, I’ve learned to pay close attention to the products and services I purchase. The same holds true for operating expenses, such as payroll and overhead.
For example, I retained a public relations firm. However, after a short time, I realized I wasn’t getting what I expected. Naturally, I decided to end the relationship. To my surprise, the vendor continued to bill me for services that I didn’t need or want. I’m sure every entrepreneur could share similar stories.
In the past few months, I’ve seen several companies I consider fraudulent promise to deliver services they have little or no expertise in. Such examples can cost companies tens of thousands of dollars, a direct negative hit to their bottom line.
