Build or Buy? How to know if you need custom software

I met a woman yesterday who asked me if we could build some software for her business. I told her yes, we could, but it probably wouldn’t make sense. Let me explain.

Building custom software is an investment, and that investment usually doesn’t make sense unless you’re going to sell multiple copies of the software, or it’s going to give you a significant competitive advantage in your business. And I do mean significant.

For example, I spoke with a company not too long ago that was thinking about developing some software to help them with an internal business process. They had done their research, and there were packages on the market, but they didn’t exactly meet their needs. I spent enough time with them to give them a ball park quote, and it turns out the custom solution was seven times more expensive than the off-the-shelf solution. Frankly, this isn’t even a lot. Think about it – if the vender of the generic solution spent the same amount of money developing their solution, they would only need to sell seven copies to break even. I realize it’s more complicated than this, there’s distribution, support, marketing, overhead, etc. but what if they sold 70 copies? You can see how this kind of investment could pay off. And if they sold 700 – wow!

So this company decided to buy the off-the-shelf product that met most of their needs. In my opinion, that was the right decision. It only makes sense to build custom software for internal use when you can get a significant competitive advantage. Before you think about investing in custom software, look at what’s already on the market to meet your needs. It may not meet all of your needs, or meet them perfectly, but ask yourself how much would it be worth to have that perfect solution? Would I be willing to pay ten times the cost of this package? More? Often the answer will be no, and in that case, just find the product that meets your needs the best or allows you some ability to customize.