What to Do When a Vendor Goes Out of Business

Here are seven steps IT and business leaders can take if a vendor critical to enterprise operations collapses.

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You finally think you have your hands around the impact of COVID-19 on your business, and then you get a dreaded call that ruins your day. One of your vendors isn’t going to make it. And perhaps it’s a vendor that is crucial to your business operations or a company that you’ve built an entire offering around. Bottom line: Them going out of business is going to impact your business and it requires a response. So, what do you do? You do what you do best. You create a plan.

Step 1: Communicate with the vendor

It’s important to take the time to understand what is going on with the vendor, how they are responding, what their timelines are and what trigger points will create actions on their part. Are they shutting the lights off and closing doors? Or are they transitioning services and people over a period of time? When will services cease? Do they have a transition plan for clients? Really take the time to investigate how the vendor can help support your transition. And if they can’t support you, it’s best to know right up front.

Step 2: Make a list and check it twice

Make a list of everything that is affected by the vendor going out of business. Start with the obvious and document the services or products they provided that will require a replacement solution. Then move to ancillary impacts like workflows and processes of which they were an integral part. Finally, look at the people equation and create a list of every employee and customer whose job, processes or work product will be impacted by the change in vendor. Create a complete list with every potential touch point the vendor had internally and externally with your customers.

Step 3: Communicate with employees

Next, you’ll need to let your employees know what to do considering the situation. Should they keep using the vendor until you have a replacement? What are your expectations around a transition? How should they handle customer questions? Should they still talk to the vendor? Ultimately, you need to give them a short-term game plan on what to do and how to do it until you have a long-term strategy.

Step 4: Find a replacement vendor or bring offerings in-house

Once you understand all the areas of impact, it’s time to move to finding a replacement vendor. Ask the outgoing vendor if there are any competitors they would recommend as a starting point. If your contact doesn’t have an answer, ask their sales team. They most certainly ran into competition in the sales cycle. Then do a Google search for the “company name” with “competitors” and see what pops up. In most cases, you’ll end up with a nice list of competitors that you can start interviewing. When you are interviewing, ask questions about the financial stability of the company. Chances are if one company is struggling in today’s economy their competitors are too. You may be in a position to bring these offerings in-house as an alternative. In that case, consider what resources you’ll need to add and which resources you already have in place. Look at the gaps and see how you can fill them to ensure your supply chain remains intact.

Step 5: Communicate with customers

This is probably the most challenging part of the process. If the vendor going out of business will have an impact on your customers, it’s important to communicate and communicate early. It’s okay to come out of the gate saying you aren’t 100% what the solution is but let them know what’s happening and that you are building a long-term game plan. Customers appreciate honesty and will be more likely to stand by you through the transition if you are upfront and honest. Once you have a solution, wrap back around and tell them the transition plan and what they can expect. If the customer needs to be involved in the transition plan, then include them at every step of the way that makes sense.

Step 6: Consider an acquisition

If your vendor is going out of business and their product or service is critical for your business, you might want to consider acquiring the company. If the vendor is at the point where they are telling customers they are going out of business, you might be able to negotiate a pretty good deal. Many will be willing to negotiate just to keep their own staff employed, and you’ll have a great opportunity to acquire assets considering that there is a viable business in the long run. In today’s market, companies are going out of business due to cash flow shortages. So if you’re in a cash flow positive situation, you could be in a position to create an even better market position for yourself and your business.

Step 7: Build a transition plan

You’ll need to have a transition plan that includes tasks for finding a replacement vendor, sunsetting the old vendor, on-boarding the new vendor and communications plans throughout the entire process. You’ll need to make sure you have tasks allocated to individuals with reasonable timing and due dates. When a large transition like this happens it’s important to increase collaboration and track tasks in a project management system like BaseCamp or Asana. This will also give insight into what’s happening and when so you can keep track of progress without bogging the team down.

It’s inevitable that a vendor going out of business will have an impact on your business and that your team’s focus will go through a short-term deviation from the original plan. However, if you play your cards right, chances are you will come out with a winning solution. This includes customers who are even more loyal than they were before because you involved them in creating the solution. As they say, teamwork makes the dream work.

Nichole Kelly is the VP of Growth at Windward Consulting where she focuses on elevating and demonstrating value and competitive advantage to Fortune 1000 companies. Nichole also holds leadership positions at RedMonocle and Helix Market Research and is an organizational change expert and thought leader who created The Bipolar Executive to be a voice in the conversation on mental wellness in corporate America.

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