Build vs Buy Software - Pros and Cons for Startups

After launching your startup, several variables will inevitably require your attention. While your focus lies on just a few responsibilities at first, it is best to build up a system that plays on your strengths as soon as possible. And that of course extends to the tools you use.

For many early-stage companies, working with subscription-based software is enough for most of their work. There are literally thousands of different software tools for all your needs.

But what happens when your company starts scaling rapidly? What if a customized approach is needed? Enterprise software can be so forbiddingly expensive that your team might start considering whether to build vs buy software.

Truth is, not many talk about this subject, as it isn’t all that common. However, by not doing so you risk jeopardizing the effectiveness of your systems and the funds of your investors. Therefore, we will be delving into this topic to help you prepare in case it ever comes up.

Each Startup Has Different Software Needs

Not all early-stage businesses operate in the same manner, follow the systems, or aim to reach the same goals. Since the startup field is so versatile, the combination of your software tools will match this as well. This is especially true for the processes of internal communication, project planning, and customer acquisition.

Some startups may be hyperfocused on generating leads through a certain medium, like email, in which case email marketing software becomes essential. Others focus on organic SERP traffic, spending a large part of their budget on keyword research tools. The unique combo of tools that your business requires is the first thing you need to clarify before you can confidently decide to build vs buy software.

Aside from the tool selection, you will also need to consider:

The short and long-term vision of your startup
The level of involvement (and convenience) you wish each team member to have
The budget (to buy) or time available (to build)

Build vs Buy Software - What is Best?

Choosing to build or buy software is not always a simple or straightforward decision, even if you are experienced with the unpredictable world of startups. There are pros and cons associated with each option, which is why you should research your options first. As soon as you gather the information discussed in the previous chapter, brainstorm on the most important questions you need to answer to help you make a decision. Here are some to consider:

What is the potential ROI of using (X) software for my business? If it saves time, how much is the time worth? If it leads to more customers, how can we estimate the growth in conversion rates?
What type of features does (X) software need to have to be able to scale together with the business? Is there an existing option in the market (or tool add-ons to consider) and if not, what would it take for my team to develop?
If there are no existing solutions in the market, where are current options lacking? Is there any way to make up for it by using additional software tools? If not, are the missing features really necessary?
If I choose to buy custom “enterprise” level software, will the cost be sustainable or increase over time? For example, when using email marketing tools, as your list grows, so do your MoM costs for the tools you use.
What is my budget and what are the current rates in the market [for (X)-type software]. How much would it cost if I choose to buy the software in-house or outsource its development to a capable partner?

Building Custom Software

Back in 2008, Facebook co-founder Dustin Moskovitz and ex-Google engineer Justin Rosenstein wanted to improve the productivity of Facebook employees. At that time, there were no effective collaboration tools, and the best available solutions were not nearly good enough. After building and tweaking their new internal planning tool, the team came up with a product today known as Asana. A decade later, the product would be valued at $1.5 billion.

Building customized software is born through technological innovation. The rapid pace of change in the tech world leads to new challenges that need to be resolved for growth to continue. Covid19 is a good example of such a need for adaptation into the “new normal”. Of course, to be the first in something, you need to have both the belief and the funds to make it work. While this is a limiting factor for many startups, there are several pros and cons to consider.

Benefits of building custom software

Ability to customize UI (interface)
Tailor its function to the needs of your business
Invest more upfront but less to maintain
Understand the product better and improve it based on internal feedback

Drawbacks of building custom software

Requires specific skills which can be very expensive to obtain, especially for early-stage businesses.
It might be unnecessary in the long-run, as existing tools improve at a rapid pace.
The tool might not perform as intended, which in turn will affect your workflow.
There is no customer support team to help with any questions or issues that may arise.

Using Existing Software Solutions

This is the most common approach for most startups, especially those that are still in their earlier funding stages. While the costs may ramp up based on the selection of options, the subscription-based models can be canceled at any time, which offers more flexibility.

Aside from that, the tech world is full of innovative thinkers who have already found solutions to improve all aspects of your business, from managing employees to tracking invoices. Most of these tools are designed to scale together with your business, offering a tiered pricing model with a freemium foundation.

Benefits of using existing software solutions

Pricing flexibility with optional short-term plans.
Start using it instantly, without large upfront costs.
No need for a technical development team or regular tool improvements.
Top-tier security and encryption when handling customer data and transactions.
Customer support available at all times to help you with questions and training.
A large number of integrations to customize the tool based on your needs.

Drawbacks of using existing software solutions

Fewer customization options, especially when it comes to UI
The onboarding process for the team can be longer and more complex
The subscription can become very expensive when your business grows
Work within the product’s limitations

Let Others Build Software for You

If you are not interested in purchasing ready-made options but are also not capable of developing software on your own, consider outsourcing. By doing so, you let other, more experienced professionals build the software you need.

Hiring an external team to build the software you need is one way to save time and, in some cases, even money. This is especially true when your internal company structure does not require a team of developers for its day to day operations (for example when selling white label software, or a particular service).

Aside from the above, you will most likely gain access to a whole team of developers instead of just one or two professionals. This can be beneficial for many reasons, but mainly for the diversity of their skillset and the time required to build the product.

While this seems like the best, keep in mind that only a handful of startup teams might need to follow that road. If your team already consists of technical talent, outsourcing can become unnecessarily expensive, even for larger companies. And the process of choosing the right partner can be challenging as well, especially when you decide to search overseas.

Criteria That May Determine Your Final Decision

So, now that you have a better understanding of the differences when you build vs buy software, what are some final factors to consider when making a decision? This question will have a different answer for each startup. However, there are some common factors that come up with most businesses:

Available timeline

How much time do you have to build your software, test it, and deploy it for the launch of your startup? Do you intend to launch your software at a specific point in time? If so, what is the timeframe for ensuring your software is ready to go? Are you willing to remain flexible with your timeline, or are your dates set in stone? Having a better idea of the time you can allocate to the process will help you decide whether to buy vs build software.

Unique features

How unique does the software for your startup need to be for it to satisfy your needs? What purpose is the software going to serve and are there any existing solutions that can help with this? Build a blueprint of all the features your tool should include and share it with the core team to understand what they think about it.

If there are many variables that are hard to handle in-house, it might be best to outsource product development. If your developers are skilled enough and have enough time to allocate, they should able to handle it in-house

Staff & Expenses

Your available manpower (and their skillset), combined with the available budget will likely be the largest factors contributing to your final decision. We already looked at the benefits and drawbacks of each option when it comes to this, but you will need to take a deeper look on your own as well.

The goal here is not to think where you stand at the moment, but rather where it is you’re headed. While something may seem expensive right now, it may offer you a lot more in the long-run, which would make it a worthwhile investment (albeit somewhat risky). In any case, it might be a good idea to start with ready-made software, to better understand its limitations and your unique needs before making a decision to build your own software. After all, choosing whether to build vs buy software is a responsibility that requires a good level of experience with existing solutions.

Aside from the three factors described above, consider the following factors as well:

Conclusion

Looking to build vs buy software may be a challenge for some founders, but it signals the growth of your startup. While there may be a need to create customized software to meet your expectations, there are many different ways to experiment and see what works for you. In this article we looked at the following:

Pros and cons of building software
Pros and cons of buying software
Outsourcing as a third solution
What factors to consider when making a choice

Frequently Asked Questions (FAQ)

If you want to know more whether you should build or buy software, then make sure you check out the Q&A section below. We regularly update this section to add the most relevant questions and answers, helping you make the right decisions.

Build vs buy software pros and cons?

As mentioned in our article above, build vs buy software decision comes mainly from considering the pros and cons of both - depending on your startups size, necessities and industry. Building a software can be a really expensive decision, and unless your startup has the necessary funding to back it up, it will be best to buy a software solution. Hence, we recommend going through the benefits and drawbacks listed above and weighing them against your needs and individual situation.

What are the most important buy vs build software pros and cons?

The most important buy vs build software pros and cons are the ones that help you make the best financial decisions in the long term. Therefore it is crucial to first understand the direction of your business. A few of the most important benefits of building a software internally include the constant testing and tweaking of the software, getting immediate feedback and fixing any potential issues instantly. This would also be the con of buying a software - there's not much flexibility of tweaking fallbacks and there's limitations you have to adapt to. The most important con of building a software are the resources in terms of manpower but also technical expertise - it can be a blessing in disguise, but will take a much longer time to develop and test before the final product is ready. The most important benefit of buying a software is the speed and cost effectiveness it comes with.

Buy vs build software applications - What can be outsourced?

For the most part, the decision to build versus buy software will impact your business significantly enough, for you to geek out on absolutely every detail involved with the decision. However depending on the size and function of the software, there might be ones which certainly don't need to be backed up by hours of research. If it is a software application and not a solution on which your business is based, the application can be outsourced as it will save resources and time.