What is SOC 2?

You will likely hear this acronym thrown around the moment you try to sell your software to a mid-sized or enterprise company. SOC 2 stands for Service Organization Control 2. It is a reporting framework developed by the American Institute of CPAs (AICPA).

It specifies how organizations should manage customer data. It is not a government law or a regulation. It is a voluntary auditing procedure that ensures your service providers securely manage your data.

For a startup founder, this is essentially a badge of trust. It proves to the outside world that you have established rigorous policies and procedures to protect information. It moves you from saying you are secure to proving you are secure.

SOC 2 reports are based on five Trust Services Criteria. You do not always need to be audited on all five. You can select the ones that are relevant to your specific business operations.

• Security: This is the only mandatory category. It ensures your system is protected against unauthorized access.
• Availability: This checks if your system is available for operation and use as agreed or committed by contract.
• Processing Integrity: This ensures system processing is complete, valid, accurate, timely, and authorized.
• Confidentiality: This protects information designated as confidential.
• Privacy: This addresses how personal information is collected, used, retained, disclosed, and disposed of.

Most early stage startups focus heavily on Security and Availability. Adding more criteria increases the scope and cost of the audit.

There are two different levels of reports you can acquire. Understanding the difference saves you time and money.

A Type 1 report is a snapshot in time. It tests the design of your security controls at a specific date. It verifies that you have written the policies and that the systems are capable of meeting the criteria.

A Type 2 report is more rigorous. It observes your operations over a period of time, usually six to twelve months. The auditor tests the operating effectiveness of your controls. They want to see that you actually followed the rules you wrote down over a sustained period.

Getting a SOC 2 report is expensive. It requires auditor fees, penetration testing, and hours of internal engineering time.

You generally should not pursue this before you have a product in the market. The primary trigger for SOC 2 is usually a sales blocker.

If you are selling B2B software, enterprise procurement teams will eventually demand it. They have a vendor risk management process. Without SOC 2, you are a high risk vendor. With it, you pass the security review much faster.

Does your roadmap require moving upmarket? If so, you need to budget for this twelve months in advance.

Achieving compliance is not just about passing a test. It changes how you operate. You will need to implement background checks for employees. You will need to enforce multi factor authentication everywhere.

You will have to document how code is pushed to production. There will be requirements for vendor management and incident response plans.

It forces a level of maturity on your operations. The question you must ask is if your team is ready for that level of process rigor. Implementing these controls too early can slow down iteration speed. Implementing them too late can cost you major contracts.