Build vs. Buy, Part 1: When To Build

In today’s competitive landscape, technology can provide the edge a company needs to win. However, companies often fall into the trap of building, or buying and heavily customizing, technology that does not offer them an advantage.

No company has unlimited money to spend on technology, which means knowing where and how to invest the budget that is available is a critical skill for technology organizations to learn. In building this skill, one of the key things any company needs to be able to do is to differentiate when to build software vs when to buy it.

Buying software has many advantages, but they mostly boil down to “let someone else deal with the development and maintenance of this stuff.” In today’s landscape, Software as a Service (SaaS) offerings go one step further, and allow organizations to offload not only the development and maintenance burden of software, but also the associated infrastructure and (to some extent) security burdens.

A downside to buying software, of course, is that you do not control the feature road map, and may have little or no control over the direction of the product. This is where building your own solutions may look like a good idea. If you build your own solutions, you are in complete control over the product and what it does or will do in the future. In exchange for this control, you give up the cost efficiency of a “buy” solution such as SaaS software.

The problem organizations face is that making too many of the wrong “build vs buy” decisions can mean you have spent your limited technology budget on the wrong things. And mis-spending your money (in terms of actual dollars, or in terms of time and effort on the part of your employees) can kill your ability to win in the marketplace, especially if your competitors make better decisions.

Asking The Right Questions

There are many places where buying a technology solution makes the most sense. There are a great number of technology systems that companies need in order to operate at all, and most of these are the same, or similar, across companies, industries, and competitive landscapes. These can include things like accounting and general ledger software, HR systems, payroll systems, and even core transactional systems like e-commerce storefront software.

These systems are necessary, but the benefits of building them from scratch will never outweigh the cost of doing so (and maintaining them!) for most companies. This makes them a prime candidate for a “buy” decision.

This means that knowing when to build, when to buy, and when to invest in customization of purchased solutions, is key to getting the most out of your limited technology spend.

One way to help ensure you spend your money on the right combination of build vs. buy is to look carefully at where your company differentiates itself from your competitors. These are the places where a “build” call is more likely to be the right one.

Here are some questions you can ask to determine where you will get the greatest benefit from building software:

1. What are we trying to do? Knowing what your goals are as a company will allow you to focus like a laser on delivering technology that helps the company get there.
   

2. What sets us apart from other industries, market verticals, and competitive landscapes? Understanding the particularly unique things about the spaces in which your company moves is crucial to figuring out the answers to the following questions.
   

3. What makes us different from the other companies who operate in the same space? Is your advantage speed? Volume? Efficiency of process? Customer relationships? Something else? Answering this question is perhaps the most important of all, as it gives you the guideposts to knowing where you could best leverage your spend.
   

4. For each of our differentiating factors, how can techn measurably increase our competitive advantage? It may seem obvious that focusing efforts on the things that set a company apart from its competition is a good use of technology spend, but a shocking number of companies simply do not do so. But using a limited technology budget to its fullest potential means answering this question, and then acting on the answers.

The ultimate goal of these questions is to help the organization realize where its competitive edge lies, and focus the bulk of its effort there, and can be boiled down to a single maxim:

Make sure you only build where your “secret sauce” is, or where no good buy option exists.

Building solutions that do not measurable move a company towards its goals is not money well spent. Spend should be focused on areas where the company has (or can create) a competitive advantage. More rarely, solutions should be built where there is a need that no existing software offers.

This rule is intuitive, but it can be difficult to put into practice. In the next article, we’ll look at a real-world example of a company that made a lot of key strategic “build” decisions that allowed it to decisively develop and keep a dominant place in the market.