Case studies

Making a build vs. buy decision

Eric Crane

Posted 1/16/2020

Our prospective customers often wonder why they should buy from us when they could develop their own data import solution. The question, however, is not whether or not you can build something: it’s about finding the best solution to your problem.

Market trends

According to Deloitte’s 2018 survey on global outsourcing, 9 organizations out of 10 are considering or adopting cloud solutions they cannot quickly build on their own to gain a competitive advantage. The right software drives success, but should we build those products ourselves or should we buy them?

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If every employee works eight hours a day, and they spend an hour each day reading emails, something as simple as an inbox filter can increase their productivity by 12%. The same principle applies to any task, and this is why we create software in the first place: to automate activities that are not worth someone’s time. A company could build its own inbox filtering app, but what about more complex pieces of software?

According to Deloitte still, a third of the companies surveyed expect cloud services contracting to decrease their operational costs by at least 11%. Buying ready-to-use software removes the need for hiring, research, development, and maintenance costs. In the U.S. in 2017, software developers made a median salary of $50 per hour, so paying $5 per month per employee for something as complex as a project management tool like ClickUp becomes a no-brainer.

Why buy?

More than a cost-saving strategy, buying a software solution drives innovation and increases operational speed: employees spend less time on each task, and it helps them adopt the industry’s best practices right away. We often underestimate the domain expertise going into a single piece of software, but the underlying complexity is still there.

Making great software is hard, though. It's not as simple as patching up some code and hope for the best: most projects take months to complete, and there is a non-negligible chance that the product requirements will change over time. A real estate brokerage building its own SaaS solution is like an elite sprinter making their own shoes: even if competitors are less talented, they reach the finish line sooner because they let people with the right expertise do their work and focus instead on training. An easy mantra to follow would be to outsource anything that's not part of your core activities.

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When you’re not a tech company, buying a software product is generally the most effective solution both in the short and the long term. That being said, there are specific reasons why building a custom solution can make sense at a strategic level.

Why build?

If you cannot find a solution to buy, and the problem needs to be solved, you just roll out your own. Perhaps the available products don't align with your company values. Or you have demanding service-level agreements that cannot be met by a third party. Maybe a business partner doesn't have the same dedication towards solving your problem and it's hindering your organization's growth. For any of those reasons, you might need more control over the solution, making a home-made software product necessary.

Addressing your specific business needs by making by-products (intellectual property, content, domain knowledge...) can also generate unforeseen business opportunities. Basecamp started as an in-house tool used by the web design firm and ended up as a standalone business: "we tried a few tools, but they were complicated and too hard to use [...] Frustrated, we decided to build our own simple project management app," says Jason Fried, CEO of Basecamp.

Alphabet is the most notable example of a company driving innovation thanks to its aggressive product development strategy. Even when Alphabet buys a product, they make it their own. The main reason why Google’s parent company builds almost everything in-house is straightforward: the scale is too big. Google’s engineers are the only individuals with enough know-how to solve Google’s problems. But the building is also a matter of corporate culture: Google’s 20% time policy gave birth to Gmail, for example. It’s an investment in the company’s future. Uncertain, but exciting for employees and founders alike.

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Even if building your own tools might hinder your growth and won't save costs in the short term, it doesn't have to significantly increase your burn rate either. Thanks to globalization, outsourcing your software development activities has never been easier. The talent pool is bigger and more qualified, and the costs are flexible.

Looking ahead

On the other hand, building vs. buying might soon become an outdated debate. With the rise of the no/low-code movement led by companies such as Zapier, IFTTT, or TrackVia, it's never been easier for anyone to build an app that gets things done. Programming becomes visual and intuitive. With a few hours of training, it's within anyone's reach to create basic software without knowing how to code.

The tech industry is constantly pushing toward more abstraction. You still had to assemble your own hardware 50 years ago. Software isn’t much different. You can now buy low-code solutions (libraries, API services...) that will do all the heavy lifting for you, and let a smaller team of developers innovate from there. Want to build a website? Wordpress helps you do it in minutes. Need to bill customers for your services? Chargebee's APIs will take care of that for you. The border between buying and building is blurred, and the successful company of tomorrow will have the flexibility to do both in accordance with the issue at hand.

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Finally, here's a template you can use for build vs. buy decisions. Leverage this into a discussion with your team about what the right route might be!

Sources:

  1. Deloitte's 2018 survey on global outsourcing
  2. Average developer salary
  3. Basecamp's story
  4. HBR, Reverse Engineering Google's Innovation Machine

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