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Need some new software?

More than likely, someone out there has already developed something that fits your needs.  But perhaps you are wary of buying from another company.  You may think the solution doesn’t do exactly what you want, or that the price is too high.  You might be thinking about building the software on your own.

Don’t do it.

Building is risky and uncertain, time consuming, and more costly than you think.

An Example from Facebook

Facebook recently acquired Beluga, a mobile group messaging service that was experiencing 20% week to week growth[1].  Facebook could have developed the technology internally – likely in a short timeframe and at a cost under the $10 Million spent[2].

However, Beluga was ready immediately.  Their market share was skyrocketing, and Facebook didn’t have the time to wait.  By purchasing, Facebook got a tried and tested product that let them keep their best resource – the engineering team – focused on current work.

Now you may not be big enough to buy the entire company like Facebook did.  But that doesn’t mean there aren’t some lessons to be learned about building vs. buying.

Why building isn’t so great

One great reason not to build is the opportunity cost of your core engineering team’s time.  Instead of building something brand new to help your business, they could be focused on enhancing current core operations.

We often see staffing and recruiting firms who are considering building their own reporting solution because it is “cheaper”.  However, they usually don’t consider the cost of allocating an entire engineering team toward the development.  They usually don’t have a statistician in house.  And they usually don’t have the design expertise needed to make the product something that people can easily use.

The result: an understaffed team without the right tools building a very costly and unproven product.

Why buying can be the best bet

When you buy, the product is ready immediately.  Our software, like many other cloud-based solutions, can be deployed and fully functional on the day of purchase.

On top of that, the cost of support and ongoing improvements are covered by the vender (if you pick a good one).  We have our smartest people 100% focused on working to make the current product better every day.  We push new updates and add features weekly, and never ask customers to pay more for setup, improvements or maintenance.

Finally, buying keeps you in a position to make sound economic decisions.  Too often firms throw good money after bad in an attempt to improve their in-house solution.  The commitment effect prevents them from seeing it as a sunk cost, and in the end, the budget is blown out of the water on a product that isn’t very good.

What’s it all mean?

Generally speaking, buying is a better option than building.  Take a look at what is out there and make sure you are considering the full costs of technology support, design, and implementation before building in house.

[2] http://www.businessandsoftwarestrategyforglobalisation.com/facebook-acquired-snaptu/

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Sujay Tyle
Sujay recently completed his second year at Harvard University where he is studying economics, policy, and environmental sciences. He was recently named a Thiel 20 Under 20 Fellow. Prior to starting at InsightSquared, he was a summer analyst at the Blackstone Group and Arsenal Capital Partners. He also runs a 501(c)(3) non-profit, ReSight, Inc. He loves playing tennis, ping-pong, and rooting for the Buffalo Bills in his spare time.
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