Building vs. Buying Software: A Decision Framework for the Modern Enterprise

The Strategic Considerations That Matter Most

Every technology leader faces this pivotal decision: should we build custom software or purchase an existing solution? With increasing options in both custom development and SaaS offerings, this choice has become more complex yet more consequential than ever.

At Leverture, we've guided numerous organizations through this critical decision process. While there's no one-size-fits-all answer, there is a structured framework that can help you navigate these waters with confidence.

Core Business Function vs. Supporting Process

The first question to ask: Is this application core to your competitive advantage or merely a supporting function?

Build when: The software directly enables your unique value proposition or competitive advantage. For example, Amazon built its logistics software because supply chain efficiency is fundamental to its business model.

Buy when: The function is necessary but not differentiating. Human resources information systems, accounting software, and email platforms typically fall into this category for most businesses.

Unique Requirements vs. Industry Standards

Build when: Your business processes are unique, proven to be effective, and would require significant compromise to fit into an off-the-shelf solution.

Buy when: Your requirements align with industry standards and best practices that are already well-established in commercial products.

Time-to-Market Considerations

Build when: You have the luxury of time and the long-term benefits of a custom solution outweigh the immediate need for implementation.

Buy when: You need a solution deployed quickly. Most SaaS products can be implemented in weeks or months, while custom development typically takes months or years.

Available Expertise and Resources

Build when: You have access to technical talent (either in-house or through trusted partners) with the relevant expertise and bandwidth.

Buy when: Your organization lacks the technical capabilities required for custom development and ongoing maintenance.

Total Cost of Ownership Calculations

The true cost of either approach extends far beyond the initial investment. Here's how to calculate the total cost of ownership (TCO) for both options:

For Buy (Commercial Off-The-Shelf Software):

1. Licensing/Subscription Costs: Annual or monthly fees, often based on number of users
2. Implementation Costs: Setup, data migration, integration with existing systems
3. Customization Costs: Modifications to meet specific requirements
4. Training Costs: User education and change management
5. Ongoing Support: Internal resources needed to administer the system
6. Integration Expenses: Connecting with other business systems
7. Upgrade Costs: Expenses associated with new versions and features

For Build (Custom Development):

1. Initial Development: Design, development, testing, and deployment
2. Infrastructure: Hosting, servers, and other hardware requirements
3. Maintenance: Bug fixes, updates, and security patches
4. Enhancement: Adding new features and capabilities over time
5. Support: Technical staff to assist users and manage the application
6. Knowledge Transfer: Documentation and training for internal teams
7. Opportunity Cost: Resources directed away from other initiatives

It's crucial to consider these costs over a 5-7 year timeframe, as the economics can shift dramatically over time. While custom solutions typically require higher upfront investment, subscription costs for commercial products accumulate and may exceed custom development costs in the long run.

When to Customize Off-The-Shelf Solutions

Sometimes the optimal approach is a middle path—customizing a commercial product to better align with your specific needs. This approach makes sense when:

The 80/20 Rule Applies: When an off-the-shelf solution meets approximately 80% of your requirements, and the remaining 20% can be addressed through available customization options.

The Platform Is Extensible: The solution offers robust APIs, extension frameworks, or customization capabilities designed for enterprise use.

You Need Some Speed Advantages: You can leverage the ready-made features while focusing customization efforts only on the truly unique aspects of your business.

Cost-Effective Compromise: When full custom development is prohibitively expensive, but a standard solution without modifications would create significant operational inefficiencies.

However, be cautious of excessive customization. We've seen organizations modify commercial products so extensively that they encounter the worst of both worlds: the high costs of custom development combined with the constraints of a commercial platform. A good rule of thumb: if customization will exceed 40% of the product's core functionality, a custom-built solution might be more appropriate.

Future-Proofing Your Technology Decisions

Whether you build or buy, technology decisions must account for future business evolution. Here's how to maintain flexibility:

Modular Architecture

If building custom, design with modular components that can be updated or replaced independently. This allows for gradual modernization rather than complete rewrites.

For commercial solutions, prioritize those with modular designs and clear upgrade paths that won't disrupt your customizations.

API-First Approach

Ensure any solution—custom or commercial—offers robust APIs for integration. This provides flexibility to connect with new systems and replace components as needed.

Data Portability

Your data is your most valuable asset. Ensure you maintain ownership and easy export capabilities to avoid vendor lock-in with commercial solutions.

Scalability Planning

Anticipate growth in users, transaction volume, and data storage. For custom solutions, design for scale from the beginning. For commercial products, understand scaling limitations and associated costs.

Technology Stack Longevity

For custom development, choose established technologies with strong community support rather than bleeding-edge options that may not stand the test of time.

A Decision Framework in Practice

To illustrate how this framework can be applied, consider a mid-sized financial services firm that needed a client portal for their wealth management clients:

1. Strategic Assessment: Client experience was central to their competitive advantage, suggesting a build approach.
2. Requirements Analysis: They needed portfolio visualization, financial planning tools, and document sharing capabilities integrated with their proprietary investment models.
3. TCO Calculation: A five-year projection showed that while a custom solution required higher initial investment, the total cost would be lower than a heavily customized commercial option with ongoing licensing fees.
4. Future Considerations: The firm anticipated expanding into new service areas, requiring a flexible system that could evolve with their business.

The decision: A custom-built portal with a modular design that could incorporate third-party components for standard functions while allowing for proprietary elements that differentiated their service offering.

Conclusion: A Balanced Approach

The build-vs-buy decision is rarely black and white. Many organizations benefit from a portfolio approach—building custom solutions for truly differentiating functions while purchasing commercial products for standardized processes.

At Leverture, we help our clients navigate these decisions with a clear methodology that balances immediate needs with long-term strategic goals. Our experience has shown that the right decision isn't just about technology—it's about aligning technology choices with business strategy to create sustainable competitive advantage.

Whether you're considering your next technology investment or evaluating your current application portfolio, applying this framework can help ensure your decisions create lasting value rather than technical debt.

Ready to make more informed build-vs-buy decisions for your organization? Contact Leverture today for a strategic technology consultation that aligns with your unique business objectives.