Building vs. buying software is a critical decision—we’ll help you make the right one.
Imagine that your business needs a new delivery vehicle. Consider these two options:
- You could buy a new truck off the lot at a dealership, choosing the available vehicle that best fits your needs.
- You could build a new truck from the ground up, customizing each part to your exact requirements.
While the benefits of building a completely customized vehicle may sound enticing, the strain on time and resources would make such an endeavor impossible for most companies.
Building customized software, on the other hand, is an option that most companies can—and should—consider.
How a real business decided to build or buy software
Meet Neil Andrew, CEO and founder of PPC Protect, a fraud detection tool for pay-per-click campaigns.
When Andrew was running a digital marketing agency, he went looking for software that would help detect fraud on a client’s account. None of the solutions on the market quite fit their needs, so they decided to build their own—and the tool ultimately became PPC Protect.
“We weren’t happy with any of the solutions and decided to build our own in-house platform,” Andrew said. “Fast forward a few years, and we’re now a venture-funded SaaS tool with over 500 users.”
While the decision to build was a success for Andrew and PPC Protect, it isn’t the right decision for every company.
Factors to consider when deciding to build or buy software
The key factors to consider when you’re deciding whether to build or buy software can be summarized as cost and capabilities. Here are some questions to answer while considering these factors:
- How much will it cost you (in time and money) to build your ideal software from the ground up?
- How much will it cost to buy software that fits most of your needs (i.e., a workable solution)?
- How much will it cost to maintain either option over the next five years?
- What do you need the software to do?
- Is there already a product available on the market that can fulfill those needs?
- If not, is your team capable of developing software that can fulfill those needs?
It’s critical to account for the total expenditure of resources of building or buying new software.
For example, if it takes a month to purchase and implement a new SaaS product, and a year to build your software, you may be inclined to think that buying is less time consuming.
But what if you have to replace that software you bought every two years because it can’t adapt to the changing needs of your business? And what if the software you built to meet your specific needs lasts you five years with minimal upkeep?
“This means you should evaluate how much it would cost to build in house and compare that to a two-year subscription,” according to Andrew. “If it’s cheaper, then it’s probably worth building in-house.”
On the other hand, if you decide to build your own software but you don’t have capable development and project management teams (either in-house or contracted out), you’ll likely find that the development time and maintenance lift cost you much more than anticipated.
In other words, you should only consider building your own solution if you are capable of doing so without major foundational work. While building may sound like a good idea, it’s important to remember everything that entails, from project planning to testing and documentation, all the way through to maintenance and support.
Pros and cons of building or buying software
Most companies would choose software tailored specifically to their business if it was an easy option. But in reality, the ease of purchasing a ready-to-use solution makes buying the better choice for most businesses.
But every business has its own needs, and there are real advantages and disadvantages to both buying and building software.
Let’s look at each.
|You own the code, which means that you can even market and sell it for profit.||Building software takes a great deal of time, resources, planning, expertise, and effort, and that’s with an established development team. Beyond development, you are also responsible for maintaining the code and supporting users year after year.|
|You can build it to work seamlessly with all the other software in your stack.||There’s a strong possibility that someone else has already developed software very similar to what you’re planning. If that’s the case, you will be wasting a lot of time and money by duplicating their work.|
|If you find that it lacks a feature that your business needs, you can prioritize adding that feature.||Even the best planned projects are susceptible to scope creep, going over budget, and past deadline.|
|When buying, the time to implementation can be as soon as a few months or less, as opposed to potentially a few years or more when building.||When buying software, you become completely dependent on the vendor that developed it. If you find that it doesn’t integrate well with a critical tool, or if it’s lacking a feature that you need, all you can do is make a request and hope that the developer can work with you.|
|Upfront costs are typically much lower when buying software.||While building your own software can cost a lot more upfront, it can also cost a lot less in the long run. Buying software, especially a SaaS product, is the opposite. Monthly or annual subscription fees can add up to tens or even hundreds of thousands of dollars per year, especially if you need to expand capacity and features.|
|When buying, everything from training to hosting to maintenance can be handled by the SaaS provider, allowing you to focus on your business.||When you buy off-the-shelf software, you’re using the same tool and features as many of your competitors, reducing your opportunity to gain a competitive advantage.|
Use these pros and cons, along with your own individual business situation, to run a SWOT analysis.
Consequences of making the wrong decision
Now that we’ve looked at the key factors to consider when deciding whether to build or buy software, as well as the pros and cons of each, let’s look at what can go wrong if you make the wrong decision.
In short, if you decide to build software when you’d be better off buying, you stand to lose a great deal of time and money, and as a result, you will likely fall behind your competition.
On the other hand, if you decide to take the easier route of buying software when you have the opportunity and resources to build something truly useful and unique, you could be missing out on a valuable opportunity that could set your business apart from the competition and maybe even give you a marketable asset.
Case in point, Andrew of PPC Protect.
“We’re glad we decided to build our own software,” he said. “If we ended up buying software instead, then we’d most likely still have angry clients suffering from fraud.”
Andrew’s case is unique, though, and it’s critical to be realistic about your own chances of developing something that is better than what is already available.
“The truth is that in many cases the best software on the market already exists,” says Ryan Masten, founder of Earn2Trade LLC. If you try to build something that is already available “you will be starting so far behind that by the time you catch up (your competition) will have widened the gulf between you.”
A note on hybrid solutions
If the option of building or buying software seems too limiting, you may want to consider selecting a customizable solution (for example, open source software) to build upon an established framework and get the best of both worlds.
This can be done by selecting the available option that is the closest fit for your needs, then customizing it to fill any gaps.
You’ll still need a capable development team to do this, and you won’t get all the ownership benefits of developing your own proprietary tool, but you will end up with a tool customized specifically for your business needs with a significantly lighter lift.
According to Gartner research, more than 95% of IT organizations worldwide use customized open source software on mission critical IT projects. For more on the benefits and risks of using customized open source solutions, read “What Innovation Leaders Must Know About Open-Source Software” (full article available to clients).
Whichever solution works best for you and your business, Capterra is here to help you through the software buying process whenever you need it.
Here are some recent articles from our Software Buying Tips blog to get you started: