The Build Vs. Buy Vs. Lease Paradigm
Disclaimer: I am a religious believer in the software-as-a-service model and have been since 2004 when I first implemented Salesforce.com seamlessly without an IT department.
One of the best things about my job is that I have the pleasure of regularly speaking with a broad range of clients selling online, from small venture-backed DNVB’s (digitally native vertical brands) to Fortune 1000 companies.
In recent months, I noticed a shift in these conversations, specifically the way that businesses large and small are thinking about digital strategy.
For example, I recently spoke with an innovative furniture startup who thinks of itself as a technology company creating digital experiences, as opposed to a “product” company.
It was clear their focus was on the customer experience beyond the product.
It’s not about couches, it’s about code.
Similarly, I met with a massive multinational corporation that now has an innovation group pushing lean startup methodologies of test-and-measure across multiple business units.
They are trying to get “they want to agile,” sobe a software startup as well.
It makes me think of when friends joke about if you have straight hair you’ll inevitably wish your hair was curly and vice versa.
Big companies want to act like nimble startups. Small ones want to get big.
All of them want to be technology companies because “software is eating the world,” and the list of the world’s most valuable companies is now dominated by tech.
At one point in my career, I was responsible for the teams building our software-as-a-service platform.
Owning product and engineering was an interesting challenge, and it forced me to create a framework for what to build, what to buy, and what to lease (i.e. integrating a partner or consuming a SaaS offering).
There are many great product thought leaders that have more eloquently captured how to best think about this challenge, and I’m confident I consulted them when thinking about it.
In other words, what follows is a synthesis of what I learned from speaking with and reading commentary from dozens of experienced product leaders that I trust and helped shape my thinking on how to approach decisions about technology investments.
So here’s how we made decisions.
When to Build, Buy or Lease
If the capability was absolutely core to what customers expected us to deliver or a key differentiator, we built it.
If it was a common capability that we could embed with off-the-shelf software or open-source code we usually went that direction assuming that the cost of development was not insignificant or the cost of purchase was not too significant.
Another consideration with utilizing 3rd-party software for a software platform was clearly the IP impact of building a platform whose value was intimately tied to a 3rd party.
Lastly, if it was a common capability that could be utilized via SaaS and plugged into the platform, this was a highly desirable approach because it gave us more flexibility in the future while keeping startup investment low both in license and integration costs.
Put another way – if it was core to our value prop or a differentiator, build it.
When it comes to ecommerce, businesses face a similar question.
It’s not completely out of the question to hire some developers to build a completely custom site from the ground up.
The cost may not even seem that daunting at first blush.
It actually isn’t the initial build that is the challenge, it’s the maintenance and continuous development to keep up with the breakneck pace of innovation in ecommerce technology.
A large, well-capitalized company could potentially afford to go this path, but I would argue it’s still not an intelligent investment.
The big question here is “Are you a software company or do you sell products?”
It’s hard to be a software company.
If it isn’t your core value proposition and focus (for instance, if you sell couches or t-shirts) then, I’d recommend you don’t try to be a software company.
What about buying?
I look at software licenses and open-source platforms as the equivalent to “buying” because of analogous characteristics such as high upfront costs and ongoing maintenance.
You’re not starting from scratch, but you now own the problem.
If the software vendor adds capabilities or requires a new security patch, your technology team needs to make those upgrades.
It’s a never-ending cycle of cost and attention distracting you from your core mission.
Again, if it’s absolutely core to your capabilities or you have extremely custom requirements, buy a software package and plan to continue to invest in maintenance and continual customizations going forward.
Now let’s talk “leasing” which in this case is referring to a SaaS subscription model.
It’s a bit more challenging when you’re building your own platform to incorporate SaaS technology into the core.
It is actually super helpful to keep coming back to the question of “what is our core value?” when trying to figure out what to build vs leverage a 3rd party.
But, this approach has a ton of benefits including faster time to market, easier integrations with open SaaS APIs, lower upfront costs, and it’s typically easier for business users to configure, thereby reducing the burden on technology and operations teams.
Often overlooked, the SaaS model also makes it easier to swap out technologies as new players and innovations come to market.
The general concern with SaaS is whether it will have all of the features or be customizable enough to meet the specific requirements you have.
In almost every situation, if we or our customer could consume a good 3rd-party SaaS application to solve the problem, we integrated instead of building it.
Don’t reinvent the wheel especially if it isn’t critical to your value.
So, what does this mean for an ecommerce business?
If you’re building your own custom platform, you’ll likely learn that the ongoing burden of caring for and maintaining proprietary technology will quickly outpace the benefits of absolute control.
I see this every day, when $100MM+ businesses with fully-custom ERP, PIM, and shopping carts give up on keeping up.
The pace of change has never been faster, and business agility is now the single biggest competitive differentiator in retail.
For the vast majority of merchants, your viable options today are buy (software) or lease (SaaS).
And the flexibility of the leasing option has grown tremendously with more and more openness in platforms, more APIs, and the headless approach to developing truly custom experiences while leveraging the off-the-shelf core commerce capabilities through a solid, scalable SaaS ecommerce platform.
Ultimately, when it comes to the recipe for a winning digital strategy, it doesn’t matter if you’re a startup or Fortune 100 business.
Hiring developers to build rich, custom front-end experiences in React.js or any other framework will only get you so far.
The burden is high for those that attempt to reinvent the wheel and try to be software companies.
Conversely, product-centric companies — regardless of whether they sell consumer electronics, apparel or ball bearings — that figure out how to make technology work for them, as opposed to slowing them down, are primed to shape the future of retail for years to come.
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