Outsourcing has become a go-to option for many small and medium-sized businesses (SMBs) looking to scale efficiently. Many business owners prefer the idea of outsourcing specific business functions that eat up valuable hours and resources week to week, and given that it grants them access to specialized expertise and trained personnel, there are many pros to outsourcing versus hiring internally.
The benefits it can unlock can be incredibly liberating, allowing business owners and internal teams to focus on the business activities that matter, while outsourced third-party experts can oversee what they're specialists in. However, as outsourcing becomes more normalized industry-wide, business owners face a growing blind spot, which is the cybersecurity risks that come with widespread outsourcing.
It's not necessarily a question of whether to outsource, but more one of how it can be done while exercising proper security etiquette and not opening up your business to potential compromise or exploitation. With that in mind, it's prudent to break down the most pressing risk factors of outsourcing excessively, and how to address these proactively without affecting your organization's incumbent security posture.
When you outsource a function or department, you're doing more than simply delegating tasks. Every third-party vendor, managed service provider, virtual assistant, or consultant who requires access to your critical systems carries an element of risk; they're ostensibly a potential entry point into your business. It would be naive to ignore the statistics behind this: supply chain attacks increased 68% year-over-year according to Verizon's 2024 Data Breach Investigations Report.
Small businesses are not blessed with the budgets, robust infrastructure, or resources of bigger industry players with dedicated security teams and IT connectivity. Many ransomware breaches which occurred during Q1 2024 affected companies with fewer than 100 employees, and these SMBs invariably lack the resources for proper vetting, access monitoring, and incident response when a breach occurs through an outsourced partner. Therefore, it can be argued that your organization's security posture is only as strong as how seriously your vendors take it.
Access or credential exposure
If you, for example, hire a virtual assistant to manage calendars, emails, projects or tasks, or hire a bookkeeper to handle your incoming and outgoing financial information, you're giving them access to highly-sensitive business information, which must be properly safeguarded.
The problem intensifies as you begin partnering with more vendors, all of whom have their own incumbent security procedures (or potentially a lack thereof), training standards, or vulnerabilities. Even just one compromise of a vendor account can expose your login or system credentials across connected systems, making the breach even more challenging to isolate, detect, and source.
According to IBM's 2024 Cost of a Data Breach Report, compromised credentials remain one of the top root causes of breaches, with average costs reaching $4.88 million. For a small business, even a fraction of that amount could be irreparably damaging.
Unencrypted or poor integrations
Many business applications, software, and tools are designed to work seamlessly and collaboratively. For SMBs, having, for example, a smooth process across CRM, email, project management, and payment systems, the efficiency this creates is invaluable.
That said, granting vendors access to just one of these systems may be exposing your data and other connected tools to malicious actors. To avoid this, access pathways should be properly encrypted, using Secure Sockets Layer (SSL) or Transport Layer Security (TLS) certification and backed up with strong authentication processes, such as multi-factor authentication (MFA) or single sign-on (SSO). Identity Access Management (IAM) is also a vital consideration.
Compliance discrepancies
Some organizations are bound by specific, stringent regulatory frameworks and standards, depending on their sector(s) of operation. Some remote-working IT or marketing contractors may not be subject to the same data privacy laws that govern your organization, for example.
Similarly, an HR outsourcing provider may store employee information in cloud servers that are deemed security-compliant in some jurisdictions but not in others. These compliance gaps create additional security vulnerabilities that threat actors would actively exploit without hesitation if the opportunity arose.
AI complexity
As AI becomes more ingrained into business operations, the process of outsourcing becomes increasingly gray. According to recent statistics, more than half of businesses have experienced AI-related security vulnerabilities. What's more, cybercriminals are harnessing generative AI technology to escalate and amplify their attacks. This can include highly sophisticated and convincing phishing scams, spoofed and deepfaked audio and video messages from real people, and automating large-scale brute force attacks, to name a few.
If you outsource to providers who also use AI, even with the most ethical and innocuous of intentions, you're trusting that the vendor is clued into proper security practices and data privacy compliance. This is not to be ignored, as the World Economic Forum's Global Cybersecurity Outlook 2025 identifies ransomware and AI-enhanced threats as the most concerning risks for business leaders. If your SMB works with numerous outsourced vendors, each using a wealth of different AI tools, your attack surface expands profoundly.
The answer isn't to abandon the idea of outsourcing, it's to approach the process mindfully, with awareness of the risks and proper controls in tow.
The technical implementation of digital provenance typically involves several interconnected elements.
Evaluate your prospective vendors' security practices as much as possible. Validate their encryption standards, security audit regularity, incident response procedures, access control mechanisms, and more.
Implement secure methods like password management solutions, encrypted file-sharing platforms, and MFA, at minimum, to ensure any shared data is validated and cannot be accessed without your (administrator) approval.
Only grant your vendors access to the data and systems they need to perform their contracted services, with separate accounts with restricted permissions, as opposed to shared administrator privileges.
Segment your organization's network so that a breach won't compromise everything.
Invest in regular audits and risk assessments to validate who has access to what, and revoke permissions promptly once deemed acceptable to do so.
Any outsourcing agreements should include watertight cybersecurity compliance and breach notification clauses. Essentially, vendors must notify you immediately if they succumb to a security incident that could expose your data. Contracts should delineate liability and require vendors to maintain appropriate cyber insurance.
Growth-minded business owners rightfully recognize that outsourcing is essential to help their companies grow sustainably. However, approaching the process as a partnership requiring active involvement is preferable than viewing it as a handoff of responsibilities and duties. Investing in continuous improvement and cyber risk awareness training for all teams will collectively improve all parties' chances of staying secure in the face of danger.
The biggest danger that SMBs face when outsourcing is the assumption that someone else is now responsible for upholding security standards. As such, they must bear the weight of key decisions about employee and customer data and be selective about who could have access to said data, even if the arbitrary purposes have been defined and agreed upon. Fundamentally, business owners everywhere must accept that cybersecurity must be a core competency and value of your business, not "someone else's problem."
Therefore, embrace outsourcing, but do so without rose-tinted glasses. Vet vendors thoroughly, maintain vigilant oversight, and never assume that someone else is as proficient in security risk awareness as you are. Your business's cyber hygiene depends on your own practices as well as every link in your outsourcing chain.