How to Fire a Technology Vendor.
Writen by on December 13, 2021
Breaking up is hard to do. Several factors keep mortgage lenders in shit vendor relationships that make them feel trapped. It can be easy to build a friendship with an account executive that manages the vendor engagement. You don’t want to let your friends down, hurt their feelings or impact their paycheck. There are also a couple of core technology platforms that significantly impact a mortgage lender’s everyday business. Point of Sale, Loan Origination System, and Customer Relationship Managers are the major technologies that are utilized by almost every person within a mortgage company. Changing these platforms takes careful planning, time, and the right technology professionals. Lastly, it can be easy to get caught by a bad deal. Software companies must construct long-term contracts to make money. Most business-to-business SaaS companies don’t turn a profit in an engagement until about the 6-month mark. Despite legal review, it can be easy to get stuck in an engagement or be forced to pay penalties for terminating the arrangement before the term runs out.
Navigating this dynamic can be complicated and there are several reasons that a mortgage lender may need to terminate a technology service. Vendors need to understand these reasons just as much as lenders need to stay aware of them. Here are the main reasons a vendor needs to be shown the door.
1. Budget Cuts. This one is rough, because sometimes solid-performing vendors may get fired simply because they haven’t quite quantified their value to the lender. Budget cuts occur for many reasons: business complications, market shifts, reprioritizing, strategy changes, or new management.
2. Performance. The vendor hasn’t met its obligations or hit its goals. We’ll get into this a little deeper in a bit, but if a lender simply feels that the tech vendor isn’t doing as promised – that is the ball game.
3. Competition. There is a bigger, better, cheaper solution than the current tech vendor. Technology competition is fierce in the mortgage industry. Wanting to change vendors to take advantage of new technology happens when it is believed there is a better solution that will improve the business.
Alright – we’ve ironed out why pink slips are handed out to tech vendors. How can you make sure to rid yourself of a vendor that isn’t a fit for your company’s future? You must lock up these 3 things:
1. OPT-OUT CLAUSE – Pay very close attention to both the length of term, the termination reasons acceptable, and the time frame needed to opt-out of a contract. You can have a lengthy-term, but make sure you can opt-out quickly. The reasons are important too. Some companies have a provision where they get to attempt to make you happy 47 times before the contract can be terminated. This very much sucks. If you’re done, you want to fire a vendor as soon as possible.
2. Pay the Implementation Fee – Implementation fees are expensive. They sound expensive, they feel expensive, and they don’t give anyone any satisfaction (not even the vendor). The reason tech vendors have this fee is because it cost them considerable resources to implement their solution into your platform. They are rarely making money on this. They sometimes will waive the fee if you extend your term. You also might find the opt-out clause to be challenging, and other items contentious if you don’t pay an implementation fee. If things don’t go well, you will likely have a vendor that is simply haunting your P&L.
3. Vendor Performance – You must connect the vendor engagement to goals, objectives, key performance indicators, and overall performance. The vendor should work with very clear objectives and regularly report against their work, so you understand the value every month. If these objectives are not met, you may be able to quickly exit the engagement. It is the easiest termination conversation ever; “Hey, we told you we wanted XYZ done, and you didn’t do it, you’re fired, and see ya around!” You can be kind if you want.
While business continues to be about relationships, it must also be about business. It is hard to think through all the variables that are involved in these types of engagements, especially when you are dealing with technology. Most of us learn from experience, mistakes, and losing money, so I hope these words are helpful. These are the lessons from plenty of failures, false starts, mistakes, and company losses. Remember, fail fast, and sometimes it’s best to cut your losses before someone cuts you.