There are a number of factors, both financial and strategic, to consider when determining the best choice in each case. Of course, these are often difficult decisions which can impact a company’s bottom line.
To help guide you toward a decision, here are several tips for constructing a buy vs. build business case, whether for your own use or to present to management.
Reasons to Buy Pre-Built Solutions
1. Building software is complex and expensive. If this is a software product that you are going to roll out across the enterprise, it will require support and likely a commitment for the life of the product to feature updates and improvements.
2. Supporting products that your team might build is a significant commitment and typically is where the big bucks are spent. An MVP style product is unlikely to keep the masses happy for long, and you will need to budget for ongoing updates, improvements, patching and support. This typically multiplies the cost of building v1.0.
3. Commercializing a product built primarily for in-house usage is a great theory but in reality, rarely works. Such examples do exist but are few and far between. Building a new product company requires a lot more than just technology and execution risk is high unless it is to become the #1 priority for your company.
4. A long time to value of a new product venture means that you are often missing out on significant value which would be realized if an existing “off the shelf” (today that often means a SaaS solution) were selected.
5. Enterprise-grade software comes with the bells and whistles that enterprises need. This typically means lots of points of integration, single sign-on requirements, and security as a given. Home-baked products typically do not include these items which are considered “added extras” and not core to solving the problem at hand.
Reasons to Build Your Own Solution
1. An off-the-shelf product doesn’t exist to solve your problem. If you can’t buy a product, or hack together several different existing solutions, you are probably going to have to build your own software.
There is not too much “blue ocean” left out there, but if you have a need and no product can solve it, then it can make sense. Be wary and make sure you’ve completed your research before determining this is the case: perhaps the solution is called something other than what you’re searching or exists as part of a larger suite of offerings.
2. It will provide you with a significant competitive advantage over your rivals. This typically requires unique IP (some special sauce) that you can build into the product which other existing products cannot offer and which will help your company succeed.
3. You can see a business opportunity whereby not only can you use the product yourself in-house, but you will also be able to offer it to your customers, thus leveraging your company’s investment.
4. You have a team of engineers sitting on the bench with nothing better to do (i.e. minimal opportunity cost). This does actually happen from time to time, and such a project can make them productive.
5. The specialist knowledge already exists within the company and a natural product owner exists. This is not reason enough to decide to build, but without it, things are likely more difficult.
Create Your Business Case
If you work in an organization with access to technical resources (which today includes a lot of companies), there is often a desire to build when faced with the buy vs. build business case decision… simply because”because you can” and a sense that you can meet the needs in a more custom manner solving the precise needs of your organization.
Even if the opportunity cost of diverting resources away from other projects is low, there can be a tendency to overlook to include the longer-term maintenance, upgrade, and support requirements of enterprise-grade software.
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Additionally, we often encounter companies who have started on the journey toward building an in-house solution, only to discover additional complexity or seeing internal priorities change. In such cases, even when there are significant sunk costs, reappraising alternative paths and third-party solutions can still make sense.
Ultimately, every case is unique and weighing the relative pros/cons and building the business case to buy vs. build will require considering both financial and non-financial aspects to ensure the right decision is made.