By Simon Swords, Managing Director
It’s a question that many individuals are confronted with at some point in their career:
“Should we buy this software solution, or are we better off building our own?”
As the MD of a software company myself, I understand this dilemma very well. When you have the in-house skills and resources to develop your own bespoke solution to a problem, there will be a strong desire to go this route for reasons that include:
- You won’t be required to pay an annual fee to another company for the solution
- You wouldn’t become dependent on the supplier of said solution
- You will have produced something tailor-made to your exact needs
However, take it from me – in practically all scenarios, buying a solution is much more practical, cost-effective and sustainable than going with the build route. And in this article, I will explain why this is the case.
Why I choose ‘buy’ over ‘build’
Consider this – if someone asked you to build a dedicated email server for their 5,000+ employee company, you’d think they had lost their mind! With the advent of Office 365, G Suite, Zoho Mail and tons of alternatives email hosting is now commoditised, and it’s impossible to justify not outsourcing email hosting regardless of your company size.
Trust me, this is a path I’ve walked many times before. When our team has felt the urge to scratch our own itch and develop a solution in house, the story always ends up the same. It starts with a lot of enthusiasm and frantic whiteboard sessions exploring the ways this could be achieved. This passion quickly turns into pressure as you attempt to balance producing this bespoke software alongside your commitment to fulfilling work for clients.
Then, once the software is developed and the problem is resolved, that solution either stays static or will require maintenance or updates to remain effective. By this point, your team has already lost interest in it, because more pressing priorities have emerged and it’s not delivering any consistent ROI for your company.
The only in-house software that we’ve maintained after building in-house is our bespoke HR solution – and that’s primarily because we resell this technology to other companies. That resell value is our incentive to maintain and update this solution; without this, it would fall down the pecking order.
3 reasons why buying should be your default setting
- The investment of time and money
Typically, those with a ‘build-first’ mentality are looking to avoid the costs involved in a monthly subscription for a useful tool. Sure, the initial outlay might be a greater investment, but once the software is yours, there are no further costs to consider right? Wrong.
First, consider the time it will take to build the solution, and then the time on top of that to make necessary tweaks and refine the edges. This is time that your team hasn’t been able to devote to your core product offering, stifling its own development, for a piece of software that isn’t central to your company.
And, once it’s built, the costs don’t suddenly stop – your developers need to devote more time to maintaining the system. All the while this continues to generate no additional revenue (unless you offer this out to prospective customers), and technical debt mounts.
This adds up to a lot of resources devoted to this, often more than the cost would have been to pay for a ready-made solution. Plus, as off-the-shelf software gets better, it often gets cheaper.
For more on this, Josh Pigford’s article on Baremetrics is an excellent read on the costs of trying to save money with software building.
- Determining the total cost of ownership
It is easy to underestimate the total cost of ownership with a built solution. You might believe all the costs to be front-loaded, but realistically you must take into account the impact of numerous ongoing factors, including:
- Turnover of staff familiar with how the solution functions
- Producing technical documentation
- Updates and maintenance required over time
- Changing of tech stacks
- Depreciation of the technology over time
These are all difficult to predict, so calculating these hidden costs becomes more of a stab in the dark, which makes it risky.
Alternatively, by buying the software instead, determining the total cost of ownership is far more straightforward:
- Acquisition costs (implementation fees, buying a licence, etc.)
- Management costs (licence fees, hosting, ongoing maintenance, etc.)
- Operation costs (team members responsible for interfacing with the software, etc.)
With all these in hand, it will be easier to forecast the long-term financial impact of bringing this solution on board, and to sell this into your executive team.
- Expert knowledge and support
Great software isn’t built in a vacuum – it takes years of refinement and development. While you might feel an in-house solution will ensure your developers understand the technology behind it better than anyone, it will likely take time for them to fully get to grips with the new solution.
By buying the software instead, you become part of an ecosystem of other users benefitting from the same technology. Therefore, the onus is on the producers of this software to maintain it, refine it and support it to the best of their abilities, as they want to keep a range of customers happy.
Furthermore, this will give your team access to the guidance of experts who are fully familiar with the system you have purchased. Consequently, they will be able to resolve any issue you are facing efficiently, meaning your team doesn’t need to devote any additional time or resources on a home-built solution.
When is it right to build?
Is there ever a right time to build a solution as opposed to buying it? While I maintain that procuring a solution should be the go-to approach, there are still scenarios where the build route is more appropriate, namely:
- If the problem in question is closely tied to your core value proposition, and a built solution will enhance this or support sales of your main product.
- You intend to resell the in-house solution to others as a means to increase the ROI involved in maintaining it.
- Existing commercial products are not specific enough to meet your precise needs.
Of course, even if you fit into the above criteria, that doesn’t make the option to build a solution any less of a gamble, as you still need to consider the sustainability of the software. Nevertheless, these circumstances make the decision to build more viable, but should only be considered after thoroughly researching the purchasable solutions on the market.
What to look for in an enterprise-level solution
Now that I’ve established my stance in the ‘Buy vs Build’ debate, the last thing left to explore is what you should be looking for in a software vendor. In my experience providing ready-made solutions for the financial services industry, there are 3 standout characteristics that clients should see showcased by their prospective vendors:
- The vendor should have a strong understanding of the historic and current problems organisations in your industry encounter, and provide tangible evidence of how their solution has helped firms in your position overcome the problems they were facing.
- The vendor should have a healthy and stable client ecosystem. Rather than take a stack-them-high approach and demonstrating little in the way of customer support, your vendor should be able to showcase how they engage with their clients, provide them with up-to-date information relating to compliance and regulations, and support them in overcoming industry-related concerns.
- As well as helping clients meet today’s problems, the vendor should be looking towards the future of the industry, enhancing their solutions with changes to regulations and data proliferation in mind. At Fundipedia, this is something we take very seriously, as this commitment to helping our customers move forward with confidence is at the heart of the long-term partnerships our company is built on.
Bringing an end to the “buy vs build” dilemma
I hope that this has given you some food for thought concerning the whole ‘buy vs build’ debate.
The first port of call for any organisation should be to examine the commercial software solutions available to resolve the problem they are facing. Then, if you can’t find a solution that meets your precise needs, or if you’re planning to make this solution a fundamental pillar of your core product, the build option might be more up your street.
However, at the end of the day, the final decision comes down to you and the circumstances of your company.
If you would like to discuss whether the buy or build route is right for your unique situation, or you’re interested in the benefits of Fundipedia’s comprehensive fund data management solution, feel free to drop me a line or send a message.