A big-name hosting vendor once missed a company’s payroll. The first person to notice was the CEO, because his check didn’t arrive. Then the rest of the employees started bombarding the place.
Small vendors behaved differently. When something broke, the president or owner of the company came to the phone, and the problem got solved now, on that call.
And once, a security software vendor chasing a million and a half dollars of business got me a table at Club 33, the members-only restaurant tucked inside Disneyland.
Those three moments came out of 33 years in enterprise IT, twenty of them as Director of Computer Operations and Technical Services for a retailer. They hold most of what the buying side of the table teaches. Big vendors aren’t safer. A long contract is a trap a company sets for itself, and climbing out costs money. A bad vendor you can’t escape makes life miserable, and a company that signs up for that kind of punishment has done it to itself.
A vendor decision works a lot like choosing a place to eat on a road trip. At the diner off the highway, the owner stands behind the register, and if the eggs come out wrong he walks back to the kitchen and fixes them himself. At the national chain, a customer gets a comment card and a phone number that rings in another state.
Both will feed you on an ordinary day, and either one looks fine from the parking lot. The difference shows up when something goes wrong, and in IT, something always goes wrong.
Why do small IT vendors give better service than big ones?
Small vendors give better service because each customer matters to them. That’s the reason smaller companies got my business, and the service was better.
Look at the arithmetic. A company with forty customers can’t afford to lose one, so the owner treats a problem at your shop as a problem at his own. If your account is a meaningful share of his revenue, your outage keeps him up at night.
Forty thousand customers means a support queue, a tiered escalation process and an account manager whose job is to keep everybody calm while the queue grinds. If you’re a mid-size customer, you’re a small fish in a very big barrel, and small fish get less service. I hate being the small fish. The process exists for the customers who pay the most, and our account was never going to rank among them.
One phone call settles the question. A small vendor’s president or owner would get on the line and get the problem solved now. You can’t call up the president of a giant tech company.
An outage proved it. We were down, and reaching a senior executive at one of the big players meant pulling in favors. That was a lot of work, and nobody should have to call in favors to get their own system back. With a small shop, the owner was one phone call away.
Is a small vendor too risky for a company to depend on?
Sure, the risk is real, and it’s also false.
Small companies can go under any second. The objection sounds responsible. Unfortunately, it assumes the big company can’t go under, and big companies fail too. They get acquired. Product lines get killed, the version you depend on gets retired, and you receive a migration plan with a price tag. A giant that drops a product hurts as much as a small shop that closes its doors, and the giant gives less warning, because nobody there knows your name.
So plan for vendor failure whoever your vendor is.
Export your data on a schedule, in a format you can read without the vendor’s software. Keep the documentation for how your system is configured somewhere you control. For custom software, ask for source code escrow, where a third party holds the code and releases it to you if the vendor folds. And keep independent backups, because a vendor’s backup is a promise and your own backup is a fact. Any serious disaster recovery plan rests on that last point, and it applies to every vendor relationship you’ll ever have.
With those protections in place, a small vendor’s failure becomes an inconvenience. Without them, even the biggest name on the market can leave you stranded.
The payroll that never arrived
Our hosting deal started years before anybody called it the cloud.
One system, HR and payroll, lived in a big-name hosting vendor’s data center on a three-year contract. Our own site and our disaster recovery site stayed in-house, because that was cheaper.
On paper the arrangement made sense. The vendor would run the hardware and keep the lights on, and the company would pay a predictable monthly bill for the privilege.
The service was crap. They were so bad.
Then the vendor missed the payroll, and the CEO got no check. Payroll is the one system in a company that can’t be late, because two days late for a lot of employees means the rent doesn’t get paid. A vendor that can’t run payroll on time has failed at the part of the job everyone cares about. You don’t do that.
Payroll came back in-house, and the vendor got paid off. That never happened again.
The penalty for leaving a bad vendor is a number on a page. The cost of staying is your payroll. – Richard LoweShare on X
Is it worth paying a penalty to get out of a vendor contract?
Yes, when the vendor keeps failing at something your business can’t live without. Cancel the contract and pay the penalty, because the penalty beats everything else on the table.
Any penalty is a fixed number you can put in a budget. A failing vendor costs you an unknown amount every month, in overtime and in hours you spend on hold with a support queue.
Run the numbers the way your finance department would. Add the remaining months of the contract, the termination fee and what it costs you to bring the work back or move it to someone else. Then price the failures, down to the staff hours and the payroll run somebody redid by hand. If the second number is bigger, leave.
And don’t fight the penalty yourself. Your legal department will deal with it, so let them. That’s their job.
Your job is getting the system out of the vendor’s hands and running properly again. Every week you spend arguing over the termination clause is a week the bad service continues, and the employees keep paying for it.
I’ve been stuck with a vendor for three years, and I hated them. Why would you do that to yourself? A skill you hand to a vendor is far easier to give away than to get back.
What should a vendor contract include before signing?
Every vendor contract should include a way out, and you should read that part first.
Salespeople lead with the discount for a longer term, and a three-year deal at a lower monthly rate looks great in a budget meeting. Three years is a long time to be tied to a vendor whose service falls apart in month four.
Ask for a termination-for-cause clause tied to specific, measurable service levels you can check yourself: uptime, response time on a critical ticket and on-time delivery of anything that touches money. Spell out what counts as a breach and how many breaches it takes before you can walk away without a penalty. Get the exit costs written down in dollars, so nobody surprises you later with a fee schedule buried in an appendix.
Data ownership and data return belong in writing too. Your data belongs to you, it comes back to you in a usable format when the contract ends, and the vendor deletes its copies on a stated date. A vendor who balks at any of that has already told you how the relationship will go.
Contract length should match how embedded the vendor is. A vendor running one replaceable service can have a long contract, because you can rip it out in a weekend. A vendor wired into your payroll, accounting or customer data deserves a short term and a clear exit, because pulling it out takes months. Companies were doing digital transformation before it had a name, and a vendor can dig deep into a business long before anyone notices.
Can a mid-size company negotiate with a big IT vendor?
Yes, if you’re willing to go somewhere else and you mean it.
A threat to take the work to a competitor got a giant vendor to give ground. They weren’t very happy with me, but what did I care? They were going to sell the product, come in, install it and leave. That one was fun to negotiate, because partway through it became obvious there was nothing to lose and plenty of room to push.
Most buyers walk into a big vendor’s meeting feeling small. They assume a company that size won’t bend for a customer like them, so they accept the first quote and the standard contract. Big vendors count on that timidity. A salesperson with a quarterly quota bends a long way, and a believable alternative moves him faster than any argument.
Get two real competing quotes before you open any serious negotiation. Know your walk-away point before the meeting starts, and say it out loud when you reach it. Ask for concessions that cost the vendor little and protect you a lot: a shorter term, a cap on renewal increases, a free exit if service levels slip. Then stop talking and let the silence work.
Should IT managers accept gifts from vendors?
Not without permission, granted in advance, by someone with the authority to grant it.
Where I worked, we had a no-gifts policy, and every IT department should have one. A vendor courting a big deal will offer you things, and the bigger the deal, the nicer the things get.
The nicest offer came from a security software vendor that wanted a signature on a million and a half dollars. They got me into Club 33, the private restaurant in Disneyland’s New Orleans Square. Entry normally takes a membership with a steep annual fee, and the meals cost extra on top of that.
So I went to my boss and said, “I know we have a policy of no gifts. Can I take this anyway?”
He said sure and made an exception.
Two seats came with the invitation, so a friend with a fanaticism for Disney came along. Club 33 was the dream of her life. When she heard where we were going, she said, “Club 33? You’re kidding me.”
The food was great, a six-star restaurant by any measure, and the vendor was paying, so nobody at the table worried about prices. My meal alone came to about six hundred dollars on top of the membership, and hers ran four or five hundred more. I had a great time. I’d never pay for a membership myself, though. Club 33 is a status symbol, plain and simple.
The permission made the difference. Accepted without a word to anyone, that dinner would have broken the policy and put a shadow over the deal. With the boss’s approval in hand, it was a business dinner the company had signed off on, and the contract decision stayed on the merits.
One simple test covers every vendor gift. If an offer would embarrass you to describe to your boss, describe it to your boss before saying yes. Workplace ethics gets tested on small, pleasant offers like that one, and those tests never stop coming. My book The Ethical Workplace deals with the everyday situations where those principles get tested.
What the buying side teaches anyone who hires help
Those rules travel well beyond IT.
A writer hiring an editor, a small business owner picking a web host and an executive hiring a ghostwriter are all buying from vendors. Find out whether the person doing your job will answer your call. Ask what happens if you need to walk away halfway through, and read the exit terms before you look at the price.
When the move from technology to writing books for other people came, those years as a buyer shaped my contracts. A client can back out of a project partway through when life gets in the way. People change jobs, people get sick, and once in a while somebody dies in the middle of a book. A contract that traps a client would turn me into the vendor I once paid to get rid of, and that’s never going to happen.
It was a long road from the computer room to the IT director who wrote 113+ books, and the buying side of IT taught a rule that still applies on both ends of a contract: watch who picks up the phone.
Small vendor or big vendor: how to decide
Choose the big vendor when the product is a commodity and so standardized that you’ll never need the owner’s cell number. Email, office software and raw cloud storage fall into that bucket, and a giant handles them well enough.
Choose the small vendor when the work is specific to your business and an outage at the wrong hour would cost you something you can’t replace. Then protect yourself with exports, escrow, your own backups and a contract you can leave. That’s how I bought for years, and the service was better.
If you’re weighing a vendor, a platform change or a migration, you’ll find more from those IT years in the technology of writing hub. My digital transformation process explains how I help leaders turn that kind of hard-won experience into a book. Big vendors handed out plenty of comment cards over the years and fixed very few breakfasts. Eat at the diner where the owner works the register, and never sign a three-year lease on the chain.
