The “Build or Buy” Decision

Growing companies are often faced with many tough decisions on how to reinvest in their company to reach the next level. One typical reinvestment comes in the form of upgrading or acquiring new IT infrastructure or systems. This commonly takes the shape of a move from QuickBooks to GreatPlains or even SAP in the accounting department, and various other moves from Excel / Access to real integrated systems in other departments. In any case, the business is faced with a decision. The decision is sometimes easy (in the case of commodity decisions) and other times more difficult, as is the case with ’Build vs. Buy’ decisions.

For this post I’m considering anything under a few thousand dollars to be a commodity decision. Need a word processing or spreadsheet tools, go buy Office. Need basic accounting function, go buy QuickBooks or one of the dozen other accounting packages. I am talking about decisions that impact the core of your business…what sets you apart from your competition.

If you find yourself or your business finds itself facing a build vs. buy decision, how do you proceed?

First, identify that you are facing a build vs. buy decision. More often than not there is an off-the-shelf product that does 80%+ of what you need. Do your homework and find those products. If you can get all your core and most of your desired functionality for a few hundred or couple thousand dollars…buy.

Faced with a true build vs. buy decision here is a list of items to keep in mind when making your decision:

  • Cost. Roughly all aspects of this decision affect or are tied to cost in some way. In general though, this includes both initial acquisition cost and on-going support cost.
  • Timing. How fast do you need a solution (typically there is a cost in both hurrying a solution and prolonging a solution so don’t forget to factor that into your cost). Buying and customizing tends to be faster, but also typically locks you into a single development service provider. Determine their availability to deliver before pulling the trigger.
  • Intellectual Property (IP) Protection and Control. If you are facing a build vs. buy decision it is most likely because your business has special needs. This might be your competitive advantage in the market place. If you buy and customize who owns that IP? You or the company that owns the product who just customized it for you? Losing your competitive advantage is bad enough, paying to have it sold to your competitors is worse.
  • Capabilities / Functionality. While last on this list it is as equally important to keep capabilities and functionality on top of mind. Where your company is today is probably different from where it will be in 5 years. Does the software you are purchasing or building have the ability to grow with you, or will you be forced into a similar decision a few years down the road? While building always gives you endless capabilities and functionality (you are not boxed in by what the software provider feels like adding) it comes at a cost. Be sure to weigh those cost against the value they bring before jumping in.

Depending on your particular situation and need there are dozens of other factors to consider but the ones above are always part of any buy vs. build decision.