You’ve identified breakdowns in your business, and now you’re looking for a flexible software solution to automate a workflow, streamline your analytics, improve how your team works together, or perhaps it will be the basis of an entirely new offering. Whatever the use case, the ideal software solution doesn’t exist within your company yet.
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Contact Us Today!Choosing between building custom software or buying third-party software is a tough decision.
- Do you opt for the convenience and quick setup of an existing SaaS solution from an external Vendor?
- Or do you invest time and resources into developing bespoke software either internally or through outsourcing?
It’s a big decision for any business. In the past, ‘building your own’ was the only way to get new software. Few options (other than monolithic solutions) existed for critical business functions, and if you had a specific tech stack or use case needs, building software became a no-brainer. But times have changed—fast forward to today and there’s an explosion of all kinds of SaaS solutions available—which makes the age-old question of ‘build vs. buy software’ increasingly tricky for IT decision makers.
So how do you decide?
In this post, we’ll walk you through the pros and cons of building vs. buying software as well as tips to help you determine which approach is best suited for your business.
What Value does Software Provide to Businesses?
The saying ‘time is money’ really rings true in business. Businesses can improve efficiency, productivity, and competitiveness by using the right software tools. In addition, software can help businesses streamline processes, reduce errors, and make better decisions.
Let’s look at some specific benefits of using software programs in your business.
- To save time on tasks that can be automated
Software can automate tasks that would otherwise take up valuable time, such as data entry and accounting. This can free up employees to focus on more important tasks and improve efficiency.
- To improve communication and collaboration
Software can improve communication and collaboration within a company. This can be helpful for team projects and brainstorming sessions.
- To keep track of inventory, customers, and sales
Software can help businesses keep track of inventory, customers, and sales. This information can be used to make decisions about stock levels, marketing campaigns, and more.
- To make better use of data and analytics
Software can make it easier to collect and analyze data. This information can be used to improve decision-making, understand customer behavior, and more.
Building Software In-house
Building software refers to the process of creating custom software solutions tailored to the specific needs and requirements of a business. Instead of purchasing an out-of-the-box solution, you take the time to design and customize everything exactly to your specifications and preferences. This approach is often pursued when existing commercial software solutions do not support the unique demands or use cases of the entity.
Historically, build solutions required some amount of engineering or development lift to be deployed as an intended solution. However, advancement in low-code/no-code and GenAI technology has made build solutions less reliant on professional programmers and more readily adoptable within lines of business.
The Benefits of Building Custom Software In-house
The main benefits of building custom software are:
Tailored to your Exact Business Needs
Custom software is designed to meet your specific business needs. You have complete control throughout the development process, from its features, design, functionality, to deployment.
While there are off-the-shelf products that allow for varying degrees of customization, building your own allows for complete creative freedom with the design. You may even choose to customize integrations of pre-existing software for further control—for example integrating a new analytics platform with other existing systems such as databases and APIs. In such a case, building custom software ensures compatibility and can eliminate potential issues related to integrating third-party solutions.
Greater Control Over Security and Data
When you build your software from the ground up you’ll have complete control over your data and security measures. For industries with strict security or regulatory needs like Finance or Health, custom software provides greater control over security and compliance, minimizing risks tied to some third-party solutions.
On the other hand, when you buy third-party software, you don’t own the data, and you need to sign data processing agreements. So it’s a tradeoff between not owning the data versus owning the data but getting compliance. For young startups, this can be a disadvantage as getting compliance is not cheap.
Another point to take into consideration is that SaaS solutions are often targeted by hackers, so there is a slightly elevated risk of leaking data.
If your data is a core competitive asset or if you require top-tier security, building your own solution gives you full control, privacy, and security.
Competitive Edge
In today’s world, cutting edge technology is shaping just about every industry. The bigger the impact new software can have on your business, the more likely you are to want to build it yourself, especially if you have the skills, available resources, and time to do it justice.
At Next Idea Tech, we have a general rule, ‘Buy for parity, build for competitive advantage.” The more in-house technology you have, the more ahead you are of the copycats, and the harder it is to copy your in-house technology the safer you are.
A good example is the TikTok algorithm which is valued at over $100 billion. If TikTok relied on an open-source or commercially available recommendation algorithm—others would do the same and run them out of business.
The Trade-offs of Building Custom Software
Developing custom software can come at a cost to your internal resources. Whether it be time, money, or team bandwidth. Let’s look at some potential challenges you might face when building custom software in-house:
Higher Upfront Costs
The hallmark of a build software solution is that it typically involves a higher upfront cost than buying pre-built software, which, depending on the size and profitability of your business, can be a deal-breaker. This includes expenses related to hiring skilled developers and designers, as well as investments in infrastructure, tools, and technology.
With the average US developer salary clocking out at $90k per year, building features in-house can make a significant dent in your company budget and hurt your profitability.
You’ll want to ensure that the revenue your business generates can comfortably cover the costs of building, maintaining and upgrading custom software and that there’s significant ROI to justify a build solution.
Longer Development Times
Compared to implementing out-of-the-box software solutions, creating software from scratch generally takes longer. The development timeline can be extended due to various factors, such as the complexity of the project, time needed to map your processes and plan the software build, the need for extensive customization, and unforeseen challenges encountered during the development process.
Ongoing Maintenance
Once the custom software is implemented, it’s far from the end of the road. Bug fixes, security updates, and new feature development to address evolving business needs will be an ongoing process if you decide to build in-house.
Ongoing maintenance can skyrocket the total cost of ownership (TCO) when you build software in-house. Failure to allocate resources for ongoing maintenance can lead to issues such as software vulnerabilities, performance degradation, and compatibility issues with other systems.
If crucial developers leave your company, you may lose all resources and expertise to handle ongoing maintenance. And it leaves you with an even larger hole to fill.
Buying Third-party Software
To buy software refers to the solutions that are available to the general public for purchase from a vendor or SaaS provider. These software solutions are designed with a broad user base in mind, catering to the general needs of a particular sector or function, rather than the unique needs of a single organization.
Buying third-party software is quick, easy, and requires little effort. You simply choose a suitable software that checks all the boxes, pay for it, and start using it right away. All the hard work designing, developing, and deployment is already done for you.
The Benefits of Buying Third-party Software
The main benefits of buying third-party SaaS solutions are:
Lower Up-front Costs
Third-party software is usually cheaper than custom software since the development costs are spread out among multiple buyers. If you are working with a lower budget, then buying software may be the best option in the long run.
Quick Setup and Deployment
For many businesses looking for an immediate fix to a pressing business problem, opting to buy new software rather than building it in-house provides an advantage in terms of quicker implementation timelines. Since the purchased software is already developed, it can be quickly installed and put to use thus avoiding the lengthy development cycles inherent in creating software from scratch.
If your data and process needs are static and generic, and you don’t mind a one-size-fits-all approach, buying software could be the perfect solution for you.
Easy Access to Proven Solutions
Established software has a track record of reliability and performance, having been tested and used by a broad user base, ironing out many bugs and issues.
Regular Updates and Free Support
Typically, third-party software includes updates and customer support provided by the vendor. This provides a sense of security knowing that you will have automatic updates and system maintenance provided by the SaaS supplier.
SaaS vendors specialize in creating and maintaining software solutions, providing a level of knowledge and experience that may not be available in-house. This offloads the burden from your internal IT team as the vendor takes on tasks like updates, bug fixes, and user support. Something you wouldn’t have when building your own solution.
The Trade-offs of Buying Third-party Software
While buying software offers efficiency and cost-effectiveness, there may be a few trade-offs to consider.
Limited Customization to Adapt to Business Needs
If you’re in need of a software that is tailored towards all your unique business requirements, buying software might present limitations. Pre-built software is pretty rigid in its functionality and capabilities. These solutions offer standard features that are common across all businesses (think CRM or CMS) and they may not fully align with your unique workflows or demands.
Buying third-party software also won’t be your best bet if you want a solution that accomodates regular updates to keep pace with the ever-changing needs of your business or customers. There isn’t much wiggle room—what you see is what you get.
These constraints can stifle productivity, innovation, value, and growth. It can also put you at a competitive disadvantage. Your canned software won’t stand a chance at outperforming the competition if your rivals are using custom-tailored solutions.
Limited or no Integration Functionality
While not always the case, pre-built software may struggle to integrate seamlessly with the existing tools and systems your team is already using, like Salesforce, QuickBooks, GitHub, Asana, or Jira, potentially making custom software the better option for precise integration in such cases.
Vendor Dependency
While relying on a vendor for support and maintenance can be advantageous, it can also pose risks if the vendor is unreliable. Purchasing software means depending on the vendor for feature updates, support, and maintenance, which may not always meet your expectations or adhere to your timelines. However, you can mitigate these risks by selecting a reputable vendor and establishing clear expectations from the outset.
How to Determine Whether to Build vs. Buy Software
There are very clear benefits and drawbacks to each approach. One can be a much better option than the other depending on the needs and constraints of your business.
When facing the build vs. buy decision, many turn to Gartner’s Pace-Layered Application Strategy as a helpful decision-making framework.
The Gartner strategy categorizes software into three layers:
- Systems of record, which handle essential data and manage core transactions.
- Systems of differentiation, used to support workflows that give companies a competitive edge.
- Systems of innovation, which include customer-facing models, platforms, or applications that drive business growth.
Each layer may require a different build vs. buy approach. For example, companies typically license a Customer Relationship Management (CRM) system (systems of record). However, they may choose to develop custom customer-facing apps (systems of innovation) because they are central to the brand and offer unique features.
Determining whether to build or buy new software requires a thoughtful evaluation that’s unique and personal to your team’s needs. Every company’s organizational composition and business needs vary significantly, and that decision should be made on a case-by-case basis.
Here is a selection of key questions that can guide you when making that decision for your business:
What are your business’s specific needs and requirements?
What problems are you trying to solve? What goals do you aim to achieve with the new software? Does your business operate in a way that pre-built software can fulfill, or do you require custom features and functionality to meet your unique needs?
If your team’s needs align closely with available commercial options, purchasing software may be a cost-effective and time-efficient choice. However, if your requirements are highly specialized, involve intricate workflows, or demand a tailored solution to address specific challenges, building custom software may be a better option.
What is the scope of the software?
How many stakeholders will need to interact with your new software?
If the user pool is limited to a minimal number of internal users and processes, buying a pre-built solution may suffice. If the function a new solution is meant to address requires input from multiple data sources and access for external users, a broader, custom build makes better business sense.
What is your need for customization and flexibility?
Is the issue you intend to solve isolated to one function or a part of broader company inefficiencies? Will you need any new software features to evolve over time?
If the problem is isolated, buying software is a quick solution. If multiple functions need roll up into one program or you intend to fold more processes into your solution over time, custom building software is the route to go
Are there existing third-party software solutions that fit your needs?
Often, software already exists that meets your requirements, though it may require a few minor adjustments. Before diving into development, define the problem(s) you need to solve by documenting the required features and make sure you thoroughly research and evaluate existing software offerings in the market that closely align with your team’s requirements and goals. There’s no reason to reinvent the wheel if you don’t need to.
Here are a few things to consider when making a buy decision:
- Assess whether the software offers the features and functionality your team needs.
- Evaluate whether the software requires extensive training for your team to use effectively or if it comes with onboarding and training support.
- Research the vendor’s reputation for reliability, customer support, and ongoing maintenance.
- Assess software security and compliance with industry regulations. Look for features like encryption, access controls, and certifications to protect sensitive data.
- Check whether the software integrates smoothly with your existing systems and tools.
- Consider all costs involved, such as upfront fees, recurring charges, implementation, training, and support.
This evaluation phase helps you understand the available functionalities, assess how well they align with your team’s goals, and determine if customization is feasible within existing solutions.
Is there a competitive advantage to building custom software?
Custom software can offer unique functionalities that differentiate your business from competitors, potentially streamlining operations in a way pre-built software cannot.
If the problem at hand is not solved by existing solutions, you have a clear opportunity to build.
We have a guiding software acquisition principle that we apply to these situations. “Buy for parity, build for competitive advantage.”
Meaning, if this is simply supporting a capability that isn’t considered strategic in nature by the enterprise, buy it, as chances are a vendor software can provide this functionality at a lower TCO and your staff resources may be better invested elsewhere. Your talent should always focus on solutions that deliver your unique value in the marketplace.
BUT, if this is a situation where building it provides a substantial competitive advantage to the enterprise, the TCO is more easily justified.
Does your team have the requisite expertise and bandwidth to develop and maintain custom software?
Many buy vs. build software decisions come down to whether you have the expertise in-house to build it.
Creating software requires the right pool of expertise. Map out how your team members’ skills match up to the challenge, and be realistic about what you can accomplish in the desired timeframe.
If your in-house developer team is capable, creating custom software might be a viable option. Otherwise, buying off-the-shelf software might be more practical.
Conversely, if your team lacks the technical skills required for custom development, purchasing eliminates the need for extensive.
That said, even if you don’t have the in-house development resources but know there is a significant competitive advantage to acquiring custom software, you can look into acquiring them through hiring, training, or outsourcing with a software company.
What are the cost implications associated with both options?
What’s your budget? What resources do you have available to adopt software? How much time do you have to devote to developing software?
Consider both the upfront and long-term costs. Buying software might seem cheaper initially due to lower startup costs and spread-out expenses like licensing fees.
However, custom software could be more economical over time, especially if it eliminates unnecessary features and ongoing fees.
Include the cumulative impact of these expenses in your cost-benefit analysis, considering:
- Capital Expenditure: If built, think about the extra infrastructure you’ll need to scale. If bought, consider additive licensing expenses.
- Maintenance Costs: External vendors often handle maintenance and updates, which can reduce staffing needs. Solutions built internally require maintenance overhead.
- Staff Expenses: Whether the solution is purchased or built in-house, think about the long-term and short-term headcount needs this will create.
- Obsolescence: Custom solutions may require more resources to stay current, while purchased software could limit scalability and tie you down to vendor dependency.
In one product I worked on, the organization purchased a solution that helped them quickly get to market but came with a small transaction charge. Fast forward a decade, and the cumulative expense has become shockingly high. We ultimately decided to replace this service with an internal solution. Although the cost was high to build, we could easily calculate long-term savings.
When building your cost-benefit analysis for each solution, look out as far as you believe the solution will bring value. If this is unknown, three to five years is a reasonable estimate.
What is your timeline for software delivery?
Consider urgency when deciding between building or buying your software. Are you looking to stay relevant in the marketplace? Is there a narrow window of opportunity? If you are stuck in the decision-making process, timeline can be a key factor.
If all you need is a quick solution, purchasing existing software in most cases offers faster deployment and time to market than in-house development. Some platforms offer deployment and onboarding support, providing a quick and seamless setup and ensuring your team is up to speed on how to incorporate the platform into their workflows.
But if you have an immediate need for a software solution, buying pre-built software may be the better option as it has already been developed and tested.
While your near-term timeline is important, you also need to be in alignment with your long-term strategy. Consider whether the software is a core aspect of your business that demands ongoing customization and control. Evaluating the software’s role in your organization’s plans ensures that the chosen solution supports growth and adapts to changing needs.
In the long run, build always wins. But surviving until that crossover point is what matters
Should you Buy or Build Software?
After learning about the benefits and drawbacks of the build vs. buy decision and what relevant factors to consider in the process, it leads to the ultimate question—what should you choose?
The right solution for an organization is determined by their unique business requirements. When you recognize it is time to buy enterprise software technology to address a problem in your organization, you must consider a host of factors to pick what makes the most sense for you.
When to Build vs. Buy Software
You should consider building custom software when:
- You require a personalized feature to give you a competitive advantage.
- You expect substantial growth that requires software with flexibility.
- You have existing systems that have unique compatibility requirements.
- You have the internal resources and budget.
When to Buy vs. Build Software
You should consider buying software if:
- You have budget constraints.
- Your in-house team is stretched thin or lacks the expertise.
- You have a pressing need for a solution and time is a pressing factor.
Final Considerations
The role of technology is changing fast, and competition is fierce. Whether you build or buy, ensure the decision reflects your team’s abilities, your company’s needs and your industry’s challenges. Ultimately, the choice between building vs buying software, or a combination of both depends on:
- How specific and complex your needs are.
- How much time you have.
- Available resources.
- Financial constraints.
Build Reliable Software with Next Idea Tech
If you want to scope out what it would look like to build a custom software solution, at Next Idea Tech we offer business software development services to help teams optimize their business processes and accelerate business growth.
Our nearshore software developers are ready to tackle projects that will transform your business. From initial concept to deployment and ongoing support, you get comprehensive software development services, leveraging cutting-edge technologies and industry best practices to drive innovation and success.
Contact us to learn more about how Next Idea Tech can help your team today.
