How SaaS Startups Can Overcome Regulatory Compliance Challenges

By Metin Kortak, Rhymetec

With the number and severity of cyberattacks growing daily, software-as-a-service (SaaS) organizations are under pressure to ensure their defense protocols can withstand threats. The SaaS marketplace, projected to expand by almost 26% CAGR by 2028, is a focus area for cyber defense concerns. For new SaaS startups entering the market, getting regulatory compliance in the industry they intend to serve is vital to show competence.

The Pressure To Prove Compliance

A 2021 report from DoControl indicates that 40% of SaaS assets are at risk for data leaks because of poor management. Even the big players are vulnerable, with popular SaaS applications like Microsoft Office 365, Salesforce, Slack, and Zoom being primary entry points for breaches and ransomware.

Many startup founders think compliance is only necessary for healthcare, finance, or other highly-regulated industries. In truth, in addition to legal requirements, compliance is a successful way to grow a company’s market share. A SaaS startup intending to serve enterprise companies will be required to prove its compliance with potential customers. Few organizations with established cyber defense strategies will accept non-compliant vendors.

New SaaS businesses can use existing compliance frameworks to establish security processes that deliver a safe, dependable customer environment. The ability to prove compliance generates new marketing opportunities, enables companies to increase sales, protects customer data, and establishes trust that drives renewals.

A Challenging Process

Developing a remarkable software product is just the first step in establishing a successful SaaS company. The challenge arises when the company starts preparing to market the product. With compliance now a “catchphrase” in technology, a startup must implement the relevant regulatory processes before expecting prospective customers to beat a path to its door. Even if compliance is not a legal requirement for going to market, companies that don’t comply will not possess credibility.

Achieving compliance with any primary frameworks requires startups to implement multiple complex processes. Companies must employ (and pay for) the system audits required and complete dozens of application forms. This can be a formidable operation for a startup founder, and hiring a full-time compliance staffer at this early stage is often unfeasible.

Primary Compliance Frameworks

Most governmental and commercial organizations have established privacy policies and controls that outline the ideal cyber defense requirements for SaaS operations. Attaining compliance with these regulations shows that a company or product applies the controls necessary to reach these standards.

This achievement also indicates that a company’s software solution and underlying technology stack support the appropriate privacy, access, and confidentiality levels. The main compliance frameworks applicable to SaaS companies are:

1. SOC 2

The Service Organization Control (SOC2) Standard is a well-established regulatory compliance framework for companies that collect and manage customer data in the cloud. It applies to information security, availability, processing integrity, privacy, and confidentiality. SaaS startups typically fall under this category.

2. ISO 27001

ISO 27001 is an internationally recognized accreditation for Information Security Management Systems. It’s the only auditable certification relating to overall information security, instead of just the technical controls. 

3. HIPAA

The Health Insurance Portability and Accountability Act (HIPAA) prohibits the unauthorized disclosure of patient health information by any organizations involved in healthcare.

4. FedRAMP

The Federal Risk and Authorization Management Program (FedRAMP) is a compliance program developed by the U.S. government. It provides a standard for authorization, security assessment, and continuous monitoring of companies offering cloud products and services.

5. GDPR

The General Data Protection Regulation (GDPR) Standard applies to firms distributing products across the European Union (E.U.), regardless of location. These standards mainly apply to privacy and data protection for E.U. citizens.

6. PCI

The Payment Card Industry - Data Security Standard (PCI-DSS), often called PCI, is a collection of security protocols developed for companies and programs that process and store credit card payment information.

Industry-Specific Regulations

In addition to these common compliance frameworks, agencies expect SaaS companies to comply with other industry-specific regulations before operating in their markets. For example, sustaining HIPAA and FedRAMP require organizations to work only with other compliant vendors. FedRAMP is a U.S. government standard, meaning any company that aims to attract government clients needs FedRAMP-compliance to do so. 

The healthcare environment is even more rigid. While HIPAA compliance doesn’t come with actual certification, any SaaS startup working with a non-compliant healthcare supplier can face liability if the noncompliance is reported to the government. As a company’s supplier network expands, the number of companies that must also comply increases, or they will not be authorized to operate in their preferred markets.

Conquering The Compliance Beast

Obtaining compliance is critical for every SaaS company, and failing to do so can result in significant financial and reputational damage. The entire process might seem intimidating for a SaaS startup founder, but these tips can help make compliance a reality.

To conquer the compliance beast, companies should start the process while their product is still in beta. Most SaaS products require SOC 2 compliance at least, which means bringing in accredited auditors or CPAs to carry out an official system audit. 

Automation offers a helping hand, too. In the past, setting up the security, availability, processing, integrity, and confidentiality policies and procedures required to achieve compliance was a laborious, manual process. Now, many of these tasks can be automated using readily available software solutions that save time and money. 

Reaching regulatory compliance depends on multiple factors. A SaaS startup can typically get SOC 2 certification in around three months, while PCI compliance takes six to 12 months. HIPAA, although it offers no formal certification option, can take three to six months to fulfill all the requirements. FedRAMP can take up to a year.

Pros And Cons Of Compliance

For SaaS startups aiming to operate in a specific environment or marketplace, it’s critical to comply with the latest regulatory requirements. Failing to adopt universal data regulations and specific policies affecting an industry can result in lawsuits, heavy fines, revenue losses, and even get a product banned from the market. The penalties can be stiff, depending on the degree of noncompliance. For example, HIPAA has four penalty levels, depending on the degree of negligence and its impact. Consequences for HIPAA noncompliance range from $100 to $50,000 per individual violation and can even include jail time for persons responsible for a violation.

Achieving compliance in all relevant areas is vital to any business strategy. Mitigate the risk of being non-compliant by addressing regulatory requirements head-on. An independent consultant specializing in cyber defense solutions can take the regulatory burden off a SaaS founder’s shoulders, enabling them to focus on building the business while they handle the compliance process. Additionally, it delivers multiple benefits for the company, including competitive advantage, industry credibility, and faster growth. 

About The Author

Metin Kortak is the Chief Information Security Officer at Rhymetec.