Should You Buy or Build Your Software?

Is your organization better off buying or building its next piece of software?
Chris Young
Chris Young
May 20, 2024

The idea that all businesses are software businesses is so much less provocative today as compared to when it was first being thrown around, roughly two decades ago. There are few businesses that have escaped the tentacles of software, let alone the new surge thanks to AI. The pervasiveness of software in all aspects of business is deeper than ever.

Every business is a software business.

Organizations still have the ability to choose to tolerate software, or to embrace it. However, ignoring it is no longer a viable option. So, regardless of your feelings toward software, your organization needs to form a clear view on its relationship with software and how it is expected to contribute to the bottom line.

The infiltration of software is a whole other dimension. All of the software that is now an integral part of your organization, how did it come to be? Was it bought or was it built?

Buy it or Build it?

One of the forcing functions for defining this relationship occurs when an organization is looking to acquire a new capability and has the option to buy commercial-off-the-shelf software (COTS) or build their own. Building might be done in-house, outsourced to a partner or a combination of the two.

This is one of those decisions where there is unlikely a single "right" choice, rather, there are many choices with many tradeoffs. The reality is, the organization is likely to follow the path of whatever decision it made the last time (even if that path is to absolutely avoid that path!).

There are plenty of examples of organizations building something that seemed like an obvious purchase as well as cases where something was built and it definitely should not have been. In all scenarios it is critical to remember that the software will likely engrain itself into your organization much more deeply than you would expect. This is why thinking through the organization's strategic relationship with software is critical, so that investment doesn't quickly turn into a burden.

Your Strategic Relationship with Software

The main driver of the decision of whether to build or buy should be your organization's overall strategic relationship with software. What does this mean? Well, first off, is software or IT management one of your core competencies? This includes procurement all the way through to implementation and sustainment. Are you a research or software company that has the benefit of being really good at experimenting and building things to begin with? And finally, is the purpose that the software is going to serve a differentiator in your organization?

I'll offer a small example of how we approached this at Harled Inc. We're a small software company that is dedicated to creating opportunities for growth and development of our team. We also have a large number of opinions on running high performance organizations, but we'll save those for another time. Our company serves production clients and loves the Ruby on Rails web framework. This raises the natural question of how does our team experiment and learn without doing so on a client's dime and with added risk to their project?

Our solution? We very carefully decided to develop a production application that gave us a playground to explore and experiment but had to be done in a realistic way, since at the end of the day it was responsible for the successful operation of our company. Yes, the capability we ended up building could have been pieced together by purchasing a number of software offerings. However, in doing so, we would have developed expertise in procurement and systems integration which are not our core areas of focus. Instead, we created a place where the entire team could learn that was perfectly aligned to our core business, which is building amazing web applications for a few very special clients.

Buying Software

If your organization decides it does want to buy software, the heroes of the day will be the business analyst and project management functions (making sure requirements are realistic, defined and mapped to vendors), procurement (to secure the right products with the right terms) and in-house IT and champions to integrate and drive adoption.

Sounds like an enterprise-only affair? Well, it isn't. It works the same for teams of five looking to buy really "simple" things like chat software (Slack, Microsoft Teams, the Web3 one, the new AI one ..). Expectation management in this realm is critical as it is very easy to confuse what used to be the process of Microsoft Word licenses with modern cloud software or self-hosted services. This message isn't intended to discourage the adoption of software, rather, it is intended to help business leaders realize that to do it right is a lot more work than swiping a credit card.

Building Software

As a software development organization this option is always the most exciting but isn't always the right choice. This path really differs based on your organization's in-house capabilities. Do you have the ability to build, release and maintain software? Is building more software helpful for your business? If yes, then great, you probably know what to do!

If you aren't so lucky to have an in-house capability then you'll need to shop the market for a partner agency who can augment your team or run the entire project. This is always challenging as you're hiring a capability where you're without in-house expertise. An uncomfortable place to be.

A final word of caution, as they say when all you have is a hammer, everything looks like a nail! There is nothing that a software organization likes more than writing more software. This can go in a bad direction if custom software is built when perfectly good existing production offerings exist. This comes down to the core focus of the organization and if there is sufficient capacity to achieve the primary objective as well as tow along all of these not core (but critical!) side projects.

Need Advice?

Most importantly, we wish you luck as the software investment you are considering is surely exciting for the advancement of your organization. Congratulations!

If you are looking for some advice on any of the above, we'd love to sit and chat. If you are in the Kitchener-Waterloo area then we'd even love to do it over a coffee! Contact us if your interested in exploring your options given a buy or build scenario.

About the author

Chris Young

Chris is dedicated to driving meaningful change in the world through software. He has taken dozens of projects from napkin to production in fast yet measured way. Chris has experience delivering solutions to clients spanning fortune 100, not-for-profit and Government.