Buy vs. Build

– Mark Schmidt 13 May 2014

On the Dialogs team, I’m one of the “graybeards,” and my time with business application sotware dates back to a time when software was standalone on a single workstation. Over time, these solutions advanced to small, local networks then further to wide area network use. Specialized, vertical-market software was closed to developers, and your choice was to either buy a package that was a general fit for operations similar to yours or to build your own software.

If you chose to buy, you shopped for the closest fit to your needs. That fit may have been fairly close to how you ran your business, but often it was not. The buy option required a lot of workarounds and compromises. Often you bought features and functions that another business might use, but you didn't need them. That part of the software was a wasted expense for you.

If you chose to build, the price tag was extremely high, and the result was a non-standard solution that only your software vendor could maintain, with an accompaning high annual maintence agreement. Of course the upside was that your software precisely matched your business.

In today’s world of business process solutions, the technology and terminology has changed. The concepts? Not so much. The biggest change is that many business solutions are now web-based.

The buy option still has the same downsides:

• it is still a (potentially large) capital expenditure with a long ROI
• you still have to akwardly shoehorn your business into the application
• if your business processes are considerably different from the software’s assumed business model, you have made a poor investment in features and functions you may never use.

The change-up on leasing is what is now called software as a service (SaaS). Generally, these applications are web-based. As a customer, you rent these applications based on various criteria:

• by the month (sometimes pre-paid for a longer period of time)
• by the number of seats (number of authorized users)
• by use and feature set – a customer relationship management system might have different levels of functionality, with a single account charge for each sales person plus an additional charge for each sales manager, etc.
• by the usage volume, as in, the number of customer accounts allowed.

This can get pretty pricey at the higher functionality levels and use volumes. If you currently utilize SaaS solutions, you should calculate your breakeven point compared to building a custom application. If you are just starting with an SaaS application, the low start up costs may be attractive. However, forecast your realistic use, and you may find you will hit a build breakeven in a very short time.

The core problem with SaaS at any price is still the same as the buy option: the product was designed for a variety of businesses to use—none of them yours. You have to compromise to make your business fit or pay to extend functionality. In addition, integrating with other components of your operation can be very expensive or just impossible.

So that brings us to the current build option in the context of today's market. The good news is that the build option has overcome many of the earlier obstacles:

• building is more affordable and faster to market than in past years; projects can be modular, launched in months, and matched to budgets
• applications are more modifiable than purchased software – the degree of "modifiable" is specified by you
• there are standardized methods of sharing data and communicating between applications; it is feasible to integrate components – even from different vendors – into one easy-to-use system
• the build price can be less than one or two years of leased SaaS solutions – a rapid ROI
• the ongoing costs are minimal; no more high annual maintenance

Building business process software is the best way to capture exactly how your company runs. As the build cost approaches breakeven with the cost of buy or SaaS options, the decision to build becomes almost a no-brainer. Why pay for solutions designed for the way somebody else runs their business? For about the same price, you can have applications that specifically reflect your operations.

For an industrty veteran, this is an exciting time – when modest-sized businesses as well as mid-market companies can have with process solutions that truly fit at affordable prices.

This is what Dialogs does. We help our business customers build solutions that make sense – both functionally and financially. We can help you understand what is right for you, including solutions that tie everything together (even the older legacy software from my early days). Call us at 800-707-0106 x:123 or contact us if you’re ready to customize your business processes.