As our world has gone increasingly online, so has our data. With this, the risk of it getting into the wrong hands has risen manifold.
As recently as June 2021, LinkedIn saw a breach that left the personal data—names, emails, geolocation, and more—of its 700 million users up for sale in a Dark Web forum. It exposed its users to a deluge of potential cyber attacks.
Such security threats exist not just for individuals but also for enterprises, especially those working with third-party vendors (such as SaaS providers). If third-party vendors mishandle data, enterprises stand vulnerable to serious security issues such as theft of proprietary secrets and intellectual property, extortion, and installation of malware and viruses.
No company wants to take information security lightly. No company wants to work with a service provider who cannot guarantee the safety of their data. This is where SOC 2 compliance comes in.
And this is why we wrote a guide to help you understand all about SOC 2 compliance and how to achieve it fast, just the way we did
What is SOC 2 compliance?
SOC 2 (Service Organization Control 2) is an auditing framework and a voluntary compliance standard applicable to SaaS and other technology service companies that store client data in the cloud.
The framework, developed by the American Institute of CPAs (AICPA), defines a set of criteria for effectively and safely managing this data. The benchmark is accepted globally.
A company that is SOC 2 compliant ensures that its controls and practices protect the privacy and security of customer data. It therefore earns not just the business but also the trust of its client organizations.
Why does a startup need SOC 2 compliance certification?
If you’re building a startup, you already have more than enough on your plate—from hiring the right candidates to finding a product-market fit and accelerating growth.
You might be wondering if acquiring SOC 2 compliance is as critical at such an early stage.
And the short answer is yes, it is.
Here are the top 3 reasons why SOC 2 certification is a must-have, even for early-stage startups:
- Demand. Your customers will require the SOC 2 compliance to trust you with their data. Enterprise-level clients will be ready to work with you only when their security concerns are addressed. You could lose prospective customers and big business if you’re not SOC 2 certified. Likewise, you can scale your revenue and growth faster by attracting potential clients with your compliance.
- Reputation. SOC 2 certification is synonymous with accountability and reputation. The U.S. reported its highest number of data breaches—1862—in 2021. The LinkedIn example shows how data breaches can erode trust and cause the reputation of a company to plummet, all while resulting in significant legal issues and reparation fees. No company would want to risk such damage willfully by working with a non-SOC 2 compliant vendor.
- Security. SOC 2 compliance at an early stage helps establish a security-first culture that trickles down to every department in the startup. Think of your development team building a more secure product, your marketing team complying with various data privacy laws, and your IT team ensuring security of all your systems right from the get go. Think also of the time and money you’ll save by pre-emptively dealing with security threats instead of addressing them later after the damage has been done.
What kind of startups need SOC 2 compliance?
If your startup provides technology services, including B2B SaaS and cloud computing, you should invest in SOC 2 compliance. While the certification is not legally mandatory, it is advantageous (and almost essential) considering the reasons above.
What are the SOC 2 compliance criteria?
Despite being a compliance standard, SOC 2 does not prescribe a set of processes, tools, or controls to be applied.
Instead, it lists 5 criteria — the Trust Service Criteria (TSC) — that a company should aim for in order to ensure information security. The companies are free to adopt the security practices and implement the controls that they like.
The 5 TSC are: security, availability, processing integrity, confidentiality, and privacy.
Out of these, only one (security) is a must-have for your SOC 2 compliance report. The rest are optional and can be included in the audit based on the stage of your startup and the category of services you offer.
Here is a glimpse of the 5 TSC:
A must-have for every SOC 2 audit, especially for early-stage startups, security criteria will include measures to safeguard your data and apps from cyber threats.
As the name suggests, the Availability criteria deal with operational uptime and performance standards. You can opt for these in case your customers require reassurance about avoiding downtime, having adequate backup plans, and ensuring that data recovery systems are in place in case of an emergency.
Processing Integrity criteria will be vital in case you have clients that demand accurate, reliable, and timely processing of data (such as a Fintech company).
If you work with customer data that is covered by a Non-Disclosure Agreement (NDA), you’ll need to include Confidentiality criteria into your assessment. This showcases your commitment to safeguarding confidential information such as intellectual property, proprietary/business-sensitive details, and financial information etc. disclosed to you by your clients.
Privacy criteria should find a place in your SOC 2 report in case your clients store Personally Identifiable Information (PII) such as medical records, birthdays, employment data, social security numbers etc. This demonstrates that you have controls in place to protect such data from breaches and unauthorized access.
What is the difference between SOC 1, SOC 2, and SOC 3 reports?
You may have come across various kinds of SOC reports on the internet. They include SOC 1, SOC 2, and SOC 3.
Here are the key differences between them:
What is meant by SOC 2 Type I and SOC 2 Type II compliance?
Not only are SOC 1, 2, and 3 reports different from each other, there are two different kinds of SOC 2 Compliance Reports as well.
While the SOC 2 Type I report signifies that security controls are in place at a particular point in time, the Type II Report validates the presence of the controls over a period of time.
In order to achieve the SOC 2 Type II certification, you have to ensure that the controls are being operated over three-six months for the first audit and over one year for the following audits. Yes, monitoring continues even after the first audit as your SOC 2 Type II compliance needs to be renewed every 12 months.
Tip: The Type I certification can be a good (and relatively inexpensive) starting point for your startup. But as you scale and expand, it’s likely that your clients would require you to produce the more stringent SOC 2 Type II certification as a proof of continued compliance and commitment to their data security.
How to achieve SOC 2 compliance as fast as possible — an overview
While it may take you anywhere between 2 weeks to a month to get your certification once the audit is complete, the preparation phase for achieving an SOC 2 compliance lasts considerably longer, depending upon the nature and scope of compliance you opt for.
1. Identify the type and scope of compliance
Now that you know what TSC are, you should decide which ones are most relevant for your business. These will be the scope of your audit report. You should also decide whether you need a Type I or a Type II compliance audit.
If you choose to go ahead with the Type II audit, remember to take into account the longer timelines associated with it.
Example: If your clients need a 6-month Type II report (evidence that your controls have been in place for 6 months) and your team needs 4 months to prepare for the audit, you’ll need to wait 10 months before you can start the audit. The wait gets even longer if your client needs a 1-year Type II report.
This is why it’s important to get started on your SOC 2 compliance as soon as possible, ideally long before requests for reports start coming in from your customers.
2. Choose a compliance platform for automating processes
Imagine manually scouring through every machine, every system in your company to gather the evidence of SOC 2 compliance. And then painstakingly uploading it for your auditors.
You probably won’t be able to get back to running your primary business anytime soon.
This is what makes a compliance platform indispensable. It can help you automate evidence collection, preparation of policy documentation, and security monitoring for smoother audits.
A good compliance platform is one that integrates seamlessly with your existing security tech-stack (and has the potential to adapt if your tools undergo a change in the future). This is essential for it to automatically and continuously gather monitoring information from your data systems to assess the status of your security measures.
To ease this step for you, here is a list of some compliance platforms to choose from, complete with their advantages and limitations.
3. Sign up an audit partner
After setting up your compliance tool, you would need to choose your auditor.
Your audit firm should ideally be a licensed CPA firm that specializes in information security and fulfills basic accreditation criteria such as being registered with the Public Company Accounting Oversight Board.
It is likely that your compliance platform has a list of partner firms to choose from or can recommend to you one that fits. The suitability of the firm will depend on the stage and maturity of your startup, your budget, as well as the relative experience of the firm in dealing with your industry and/or product.
4. Conduct an internal risk assessment
The preparation phase of SOC 2 compliance begins with a financial risk assessment. Together with your audit partner, you will quantify risks related to each Trust Service Criteria and identify if your existing controls are effective. This will help you discover vulnerabilities and potential hazards to your organization in case of a data breach etc.
Automated compliance platforms help in making most of this process painless.
5. Have a robust security stack in place
Once you have the compliance platform and the auditors figured out, you can get down to building up your security stack. Chances are you already have one in place, but it may be lacking the tools that will fetch you your SOC 2 compliance certification.
How will you know which tools are missing, if at all?
Your compliance platform will answer that for you by pointing out the missing security layers in your existing stack. Broadly you need the following types of tools to be SOC 2 compliant:
- Employee background verifier
- Vulnerability scanner
- Password manager
- Antivirus on all company assets
- Some form of MDM tool to manage every employee’s company assets
6. Establish audit readiness by closing security loopholes
Audit readiness is where the bulk of your and your team’s efforts will go during the SOC 2 compliance preparation.
After the internal risk assessment is complete, you’ll have identified some gaps based on existing and potential security threats. It is likely that you have some security controls already in place.
You will establish audit readiness by remedying these gaps and bolstering controls wherever required, as per the TSC you have chosen.
Or, if you’ve implemented the second step of outsourcing it to a compliance platform, you can simply sit back and relax as the software does all the grunt work for you — from writing policies to implementing the right controls.
Tip: Be mindful of the common security issues that can often surface while conducting audit readiness, including
- Defining core policies around data protection in the company
- Conducting adequate employee background checks
- Ensuring security compliance agreements are signed by all employees onboarded
- Creating strong password policies, access controls, and authentication procedures for accessing sensitive data
You should maintain the controls and processes in place right upto the official audit, especially in case of the SOC 2 Type II audit.
7. Write your SOC 2 security system description
After you’ve complied with all the above requirements of the audit, the last step is to write a security system description and submit it to your auditors.
Now you might ask us, What’s a security system description?
Simply put, it is a description or summary of the company and its systems. These are the components that you have in place to be able to carry out your business.
What does it include?
All the details regarding your company’s
- Infrastructure: the computing hardware, software, and SaaS components used in the infrastructure of your systems.
- Product or service: how your product or service is used, service level agreements, sporting databases, and applications
- People: which departments, functions, and teams support your product or service, including third-party vendors
- Customer data: the kinds of data that come into and move out of your product or service systems, its journey, controls in place to protect it against unauthorized access, and other risk mitigation measures
- Operations: the auditor’s opinion on the safety of the operations and protocols involved in delivering your product or service to your clients
For a detailed overview, check out this help article.
8. Receive your compliance certification
Once you hand over the system description to your auditors and give them access to your compliance platform, you are basically through with the process, at least for achieving SOC 2 Type I certification.
For the Type II certification, you need to ensure continuous compliance and leave controls in place over a six-month to one-year period, depending upon the choice of the observation period you made in step 1.
That’s it! You should receive your compliance certification once the observational period is over.
9. Share the good news with your (prospective) clients
As you celebrate becoming SOC 2 compliant, don’t forget to share the good news on your website, social media, newsletters, and basically everywhere else your (prospective) clients can get to see it. And where they can use it to trust you with their business.
It’s a laurel to flaunt. Trust us, we know ;)
How much does the SOC 2 compliance cost?
The cost of SOC 2 compliance for your startup will depend on a number of factors, including
- The scope of your compliance (TSC)
- Salaries for consultants (if you choose a consulting firm for compliance)
- License fees for compliance software (if you automate compliance)
- Your audit firm and their fees
- Miscellaneous legal fees
- (Cybersecurity) training for your team
- Cost of building up your information security architecture
- Renewal fees (recurring)
The total cost of SOC 2 compliance can be broken down into four phases (these are estimates).
As such, you can expect to pay anywhere between $50k (when automating compliance) to $200k (when not) for attaining your SOC 2 Type II compliance.
That’s it! This is the entire process for achieving the SOC 2 compliance for your startup. It’s a lot of effort whether you hire a consulting firm or do it on your own using automation software. You’ll need time, patience, and financial resources.
But it will all be worth it when your next big client asks you if you’re SOC 2 compliant.
We hope we have answered all your questions regarding SOC 2 for your startup.
And while you’re here, let us throw in a superfast way for you to bypass your busywork!