Build vs buy – 3 things CTOs should know

Your customers need new features or services. Do you build them in-house, or buy something ready-made from a software vendor? It’s a choice that Patrick Tierney, Software Development Manager at Trade Ledger, has faced many times. He shares his knowledge here.

The question of build vs buy is older than software itself, and has always been an emotive one for engineering teams. Getting it right is of critical importance to commercial success. Getting it wrong gives you a millstone around your neck, and for smaller companies it can become an existential threat.

There has often been a bias among software developers towards building. After all, it's what they do, and they should always deal in the art of the possible. In addition, teams have been burned in the past by technology vendors that proved more trouble than they were worth from both a cost and a delivery point of view.

Build vs buy – what to do, and when

However, times have changed and continue to change rapidly. In an ecosystem transformed by cloud technology and SaaS providers, it is a critical skill for engineering teams to know what services are available to fit their needs and how to evaluate them: the ability to choose what software to buy, and when, is as important as their ability to build.

Over the course of my career in technology I’ve advocated multiple times for both buy and build. Three questions that have always helped me make good decisions are as follows:

1. Is our use case unique? – The saying “there is nothing new under the sun” is almost always true, and we need reasonable proof for whether our use case is unique and absolutely necessary. If it isn’t, then sharing the cost by buying or partnering is likely the right call. But if the use case is unique, we are in essence adding value by inventing – see the next question.
2. Can we add value? – We must be inventing, improving or reducing the cost of a service. The bar is high, but if we are sure that we really can invent, improve or reduce, we go ahead and build.
3. Is this core to our mission? What do we want our company to be? – Check whether this is a good use of our energy and that it will advance our core mission rather than distract from it.

Have you stumbled upon a commercial opportunity?

If you find yourself looking at something that is not core to your mission, but you still believe you can add value, you may have stumbled upon a commercial opportunity to explore - but beware of opportunity cost and ensure you use partners strategically.

In addition there are two important criteria where I feel the game has changed in the recent past.

• Cost of ownership: In almost all cases, when you build software you own it, you may keep it in house, you may open source it - but to some extent whatever you build will always be with you. It’s very difficult to predict the cost of ownership. It’s frequently underestimated, and continues to rise due to factors such as security threats, dependency management, regulatory change and so on. The good news is that, just as cloud providers have done for infrastructure, SaaS providers have transformed the cost of ownership considerations for software. There are no more hidden or unpredictable costs. They figure out patches and upgrades, and they’re almost always included in the cost and applied automatically. You can now get a fully baked in cost of ownership and get on with your core business.
• Integration costs: It takes time and effort to integrate vendor software and it’s often very difficult to estimate the impact of these. The risk of disappointment and lost opportunity when your chosen new vendor takes twice as long as expected to integrate is considerable. Once again in this area the industry has matured and righted itself in impressive ways in the last few years. With open API standards and industry-standard messaging protocols, SaaS providers have now fully recognised that ease of integration is paramount.

In conclusion, recent changes in the marketplace mean now is a better time than ever to be a buyer of software. If buyers get it right they can integrate faster, manage their costs more effectively and focus more intensely on adding value to their core mission.

We’ve talked through the options with many banks and business lenders, and would be happy to share our knowledge of the pros and cons. Just get in touch.

Further reading

• How Covid changed build vs buy: read the article by James Varga, CEO and Founder, DirectID, on p13 of Trade Ledger's Business Finance Predictions 2022 report
• Ensuring your business benefits: our Buyers' Guide looks at the pros and cons of build vs buy, including timings and the questions to put to potential suppliers

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