Software-as-a-service (SaaS) is in its fastest growth stage to date, with the global SaaS market projected to grow by 25.89 percent CAGR between 2022 and 2028. New products are popping up everywhere, but just having a superb application doesn’t mean it’s all smooth sailing from here on. To enter the market in a credible fashion, companies must meet the necessary regulatory compliance guidelines for the industry they plan to serve. Getting this done, however, can seem like an overwhelming and impossible task — but it doesn’t have to be!
SaaS Compliance Resources
- The Federal Risk and Authorization Management Program (FedRAMP®) provides a standardized approach to security authorizations for Cloud Service Offerings — https://www.fedramp.gov/
- American Institute of Certified Public Accountants (AICPA) & SOC2 — https://urlis.net/1k650iq
- Health Insurance Portability and Accountability Act (HIPPA) — https://www.hhs.gov/
- ISO 27001 is an international standard on how to manage information security —https://www.iso.org/isoiec-27001-information-security.html
Why SaaS Startups Need to Be Compliant
Many founders believe that only SaaS startups in health, finance, or another heavily regulated environment face compliance issues. The fact is, however, that in addition to adhering federal and state laws, compliance is also an effective growth strategy. For any SaaS startup aiming to sell upstream, especially to enterprise customers, compliance is an important factor in a company’s risk management.
Detailed compliance frameworks can help a new business set up useful processes and security measures. Otherwise, every user in the organization poses a potential threat, and daily business operations are vulnerable to security incidents. A 2025 forecast by Gartner estimates that 99 percent of cloud-based software security failures are the fault of users (meaning employees). A data leak or cyberattack in the early stages of a startup could be devastating to a company’s reputation and future.
In addition to the obvious benefits of compliance for their own companies, SaaS providers are also responsible for delivering a safe, dependable environment for their customers. Being able to prove compliance boosts their opportunities to enter new markets, helps them make quicker sales, establishes trust with customers that drives renewals, and protects their customers’ (and their own) data assets.
For many SaaS companies, by having early compliance in place, it opens conversations to larger enterprise companies that they might not otherwise have had the opportunity to speak with. Compliance also can speed up the sales process because it demonstrates that a company is meeting a specific set of standards, and in turn proves that there's a need for their product. In addition, when they get buy-in from more businesses, it also opens the door to attract the right investors. All these factors increase the company’s competitive advantage and support its ongoing success.
Types of Compliance
Most governments, industries, and organizations have created privacy laws and regulations that describe ideal security conditions for SaaS products. Achieving compliance indicates that a SaaS company or product has implemented the necessary controls to meet these requirements. This ensures their applications and the underlying technology stack maintain appropriate privacy, access, and confidentiality levels.
Types of compliance that apply to most SaaS startups include the following:
5 Important Compliance Standards
- SOC 2: The Service Organization Control (SOC2) Standard is a default regulatory compliance framework for SaaS businesses that store and process customer data in the cloud. It covers information security, availability, processing integrity, privacy, and confidentiality.
- PCI: The Payment Card Industry - Data Security Standard (PCI-DSS), usually referred to simply as PCI, is a set of security standards for applications that process and store credit card payment information.
- HIPAA: The Health Insurance Portability and Accountability Act (HIPAA) focuses on preventing unauthorized disclosure of patient health information by any companies involved in healthcare.
- GDPR: The General Data Protection Regulation (GDPR) Standard applies to companies marketing in the European Union (EU), regardless of their location. These standards focus primarily on privacy and data protection for EU citizens.
- ISO 27001: The ISO 27001 certification is an internationally recognized framework for Information Security Management Systems. Due to this structured nature, it's the only auditable standard dealing with overall information security rather than just the technical controls, meaning internal or external auditors can check whether the information security is implemented and effective according to the defined parameters.
In addition to these primary compliance requirements, a number of industry-specific regulatory agencies also demand compliance before a SaaS company can safely operate in their markets. For example, maintaining HIPAA and FedRAMP compliance requires companies to work only with other compliant vendors. As your supply network grows, so does the number of companies that must comply, or you will not be authorized to operate in your market. Since FedRAMP is a U.S. government standard, any company wanting to serve government clients must be FedRAMP-compliant to do so.
The rules are even more stringent in the healthcare environment. Even though HIPAA doesn’t offer certifications, a SaaS startup using a non-compliant supplier can be held legally liable if the noncompliance is reported.
The Compliance Challenge
Developing an amazing software product is just the first stage of the game. The challenge comes as a company prepares to bring its product to market. With compliance now a watchword across the industry, startups must fully embrace the regulatory processes governing the product before they can expect potential customers to buy in. Even if they don’t need it to get started, without the security afforded by compliance, the company won’t be able to move ahead.
Achieving any of the major compliance standards requires working through hundreds of steps, setting up (and paying for) the necessary system audits, and completing a multitude of application forms. This can be daunting for any new business owner, and typically hiring a full-time staffer to handle it at this stage is likely impossible. But the positives are that you have access to cutting-edge compliance automation technology, along with CISO services who can help you implement and manage the entire compliance process, while also connecting you with trusted auditors and external vendors to help you reach the finish line to compliance, and also help you maintain compliance after the fact.
How (and When) to Get SaaS Compliance
If you’re intimidated by everything I’ve said so far, that’s okay! In the world of SaaS startups, becoming compliant can seem extraordinarily difficult, but there are ways to simplify the process. Just remember that compliance is a critical issue, and lack of it can do substantial damage.
First, start early. The best practice is for SaaS companies to begin working towards compliance while their product is still in the beta stage. For example, most SaaS products require at minimum a SOC 2 compliance. Getting this requires bringing in accredited auditors or CPAs to conduct a formal system audit.
In the past, companies had to spend time and effort manually establishing their information security policies and procedures for the five criteria (security, availability, processing, integrity, and confidentiality of customer data). In 2022, however, much of this work can be automated.
With the variety of products and services available, SaaS startups can usually achieve full SOC 2 compliance within as little as three months. PCI compliance typically takes six to 12 months, and FedRAMP can take up to a year. Although HIPAA has no formal certification program, it can take three to six months to implement all necessary controls
Implications of Noncompliance
Failing to comply with universal data regulations and specific policies affecting your industry can result in lawsuits, heavy fines, reduced revenue, and even a ban on your product. Consequences can be stiff, depending on the degree of noncompliance.
For example, the penalties for HIPAA noncompliance, while subject to the alleged level of negligence and the impact, range from $100 to $50,000 per individual violation. HIPAA has four tiers of penalties, and punishment can even include jail time for people responsible for a violation.
The Bottom Line
For SaaS startups looking to establish their product in a particular environment or marketplace, it’s vital to stay on top of the latest regulatory requirements. Using an independent consultant specializing in security solutions can be an important first step, enabling you to focus on building your business while they take care of the compliance process. Achieving compliance in all relevant areas is an essential aspect of any business strategy, but it can deliver benefits such as a strong competitive advantage, industry credibility, and a faster growth trajectory.