We get asked the question a lot…”Is custom software right for me?” or “Why do companies create custom software?” Plenty of businesses come to Vaporware to look for custom software, but we take on a very small percentage. Why? Because custom software isn’t right for them. Custom software solutions are ongoing investments. Custom software can only be successful and beneficial if the right qualifications are in place. Our goal is to help businesses make the right decision for their company.
Pragmatic Marketing and others have outlined the discussion under the common phrase “Buy, Build, or Partner.” After solving hundreds of clients (and non-client) problems, we’re in a good place to make some recommendations and share our methodology with you. We won’t cover the Partner option here, but if you ask these questions and get authoritative answers, you will be able to quickly determine if you should Buy or Build a solution to your biggest challenges.
Is my problem unique, or is it pervasive?
If the problem is truly unique to you, it will be difficult, if not impossible, to find off-the-shelf solutions to solve it. While you may still be able to find adjacent solutions, your uniqueness may be reason enough to custom solve the problem. That said, a custom software solution for your organization should not be invested in like custom software to sell to an entire industry. I would suggest looking to create custom integrations between existing software solutions. Check out API Integration tools like Zapier or IFTTT to help you connect data between systems without custom code. This hybrid approach to buy vs. build is usually considered a build answer, so continue to ask other questions.
On the other hand, if the problem is pervasive in your industry, continue asking other questions to see if you should look to custom software to solve this problem.
How much would it cost to adopt existing solutions to solve this problem?
While difficult to precisely determine, a quick online tool analysis will help give a ballpark cost for cloud-first solutions to your problem. Multiply that hard cost by 5, to account for your team’s time adopting the solution, and multiply it again by 5 years. If that number is LESS than you’re willing to invest (which is a totally different question), then you should seriously consider licensing the cloud-first software instead of building a custom solution.
Equation: ($ Existing Cost x 5 All-in Investment) x 5 Years = Ballpark cost
Ballpark cost > Willing Investment ---> Investigate cloud-first software
Ballpark cost < Willing Investment ---> Consider a custom solution
EXAMPLE: QuickBooks Online gives you 25 users a year for $150/mo. If you are just developing this solution for yourself, and you are not willing to invest $45,000 to recreate that functionality, then you should not ever consider custom software — and should look at adopting QBO. If QBO does not match your methodology (have you invented a better accounting model than GAAP?) then it may be difficult to adopt it. Look for other solutions. Google Sheets, while not providing all of the protections and rigidity to accounting, will allow you to create a prototype or intermediate proof of concept to the solution. You could even consider software from a completely different industry — maybe someone has solved small business accounting as an add-on to an invoicing platform!
Now, if you wanted to compete with QuickBooks Online, and were able to match their prices and acquire 100 yearly subscriptions (see our rule of thumb, later on in this article) within the first 5 years, then the cost of QBO to those customers over that time would be a whopping $4.5 million. While that may be beyond your initial budget, this is the economics of software subscription licensing and what the problem of proper bookkeeping is worth to just 20 companies over 5 years.
How urgent is this problem?
Have people been dealing with this problem for quite some time? Did some particular event cause the problem to surface? At Vaporware, we’ve seen clients be disrupted by new technology, government regulation, and industry shifts — sometimes with specific dates (examples: Brexit, HIPAA, and GDPR). These events are great drivers for urgency. If the problem has persisted for a long time, and an innovative force or new technology can still disrupt it, then custom software is a consideration. But these are usually found in waves instead of singular events.
EXAMPLE: Transportation has always been a problem. Waves of innovation in new technology come in strong, surges, and dissipate slowly as markets adapt to the new changes. The segway was suppose to be a huge disruption for personal transportation — and it has taken over 18 years for scooter adoption to disrupt the last-mile transportation in urban environments that we’re seeing today — all built off segway technology.
How much are other people willing to pay to solve this business problem?
While this is a great question you can ask yourself if the problem is unique to you, this becomes very important when considering solving problems for markets. By targeting segments of customers, you can extrapolate a potential return on investment before an investment is made. While this includes surveys and predictions, it helps determine a ballpark budget to solve the problem — which is not necessarily what you should spend on a solution — because a custom software solution may solve many problems or only part of the problem. In general, this is one of the easiest ways to do a cost/benefit analysis with potential solutions.
Since we have so much experience with SaaS applications, we’ve even developed a rule of thumb for B2B prices.
Multiply how much one customer will pay to solve their problem by 100. This should be a good estimate for the ROI over the first 5 years.
This assumes roughly 10 sales closed in year 2 of investment, with 100% YOY sales growth for the next 3 years. Unfortunately, B2C applications are not as predictive and require a lot more in-depth market analysis, so we haven’t developed a general rule of thumb.
Should I be the one that solves this business problem?
Even with a compelling market and need, we only recommend our clients solve problems if they’re aligned with their corporate (or startup) strategy. As custom software is an ongoing investment, it’s crucial that you’re willing to invest in the long-term success of it. You will be well equipped to solve the problem if the problem aligns with your strategy, is something you can do, and is something that you UNIQUELY can do.
A distinctive competency in your organization is something that you can do well that sets you apart from the competition. That doesn’t mean that you have to be experts at everything that goes into it from day one. In fact, the majority of Vaporware clients have never built custom software before. But it does mean that you will become a software company once you have custom software, so you should expect to hire technologists and compete like a software company.
Do I want to own the solution?
To counter some of our earlier points, the answer to these questions completely depends on your individual circumstances. If your industry is undergoing disruption, or a large change is on the horizon, owning the solution to the problem can make all the difference. If you’re just licensing the solution, the owner of the solution can control your destiny.
For example, the staffing industry is about to be completely disrupted by Artificial Intelligence, the Gig Economy, and changes to labor laws. While our staffing clients have already seen the impact of 10-week average retention cycles, Uber is entering the staffing space with on-demand shift work.
This industry-level disruption will separate the winners from the losers over the next 5 years, completely shifting the industry away from back-office sales deals to automated platforms and personalized staffing algorithms.
Our clients are well-equipped for this industry shift because they can compete at that level, as their technology is now a competitive advantage for them. If they were just “licensing” the solution from an external provider they would not be around 5 years from now, as it’s a key competency. They would not have control and ownership of the solution. This ownership allows them to compete in the new economy of staffing, where only technology owners exist today.
What’s my tolerance for risk?
Ryan Singer, the Head of Strategy at popular Basecamp, writes about placing bets based on risks in his new book, Shape Up. Any investment is a bet and it’s difficult to place a bet on something that is outside of your distinctive competencies. That’s where we can come in and help. Our product managers, developers, and designers are experts in de-risking projects through our Lean methodologies. Need some help valuing your solution risk?
Still not sure?
These steps will help you decide if custom software is right for your organization. We hope you found our methodology helpful in your decision making. If you’re still not sure or need help navigating the complexities of building the right solutions and building the solutions right, reach out. Vaporware offers a free consultation with one of our expert Product Managers, who can help you apply this methodology and more, to see if custom software is a good fit for you.