Custom vs. Off the Shelf Software — Mitigating Risks

The question of build vs buy is one of the toughest questions enterprises face. There is no easy answer, and in this post, I’ll talk about why this is even more complicated than you might think, with some hidden factors and risks that you should consider when making this crucial decision.

When we engage a client on this (or any) question, one of the biggest things we talk about is risk. Every decision has risk associated with it, and we always think it is important talk about how organizations can mitigate risks regarding their systems and software decisions. By approaching this from a risk perspective, it allows enterprises to fully understand the implications of the various paths, and to evaluate each properly.

The typical scenario that creates the custom vs. off-the-shelf decision point is when a company has developed an extremely specific workflow and process for a particular aspect of their business that works for them but isn’t served easily with off-the-shelf products. Sometimes they will be using simple tools like spreadsheets, low-end systems made for small businesses, or even completely manual tools like whiteboards. As they outgrow these tools, the hunt begins for a better solution.

The Off-the-Shelf Software Option

If you can find a solution that meets enough of your needs at a cost that aligns with your budget, an off-the-shelf system is often the best way to go. Off-the-shelf is an excellent choice when:

  • You have a limited budget.
  • The available systems functionality is remarkably close to your existing processes, and the differences are trivial.
  • You can adapt your processes and workflows easily (it was time for change anyway).
  • Your internal resources are stretched thin and taking on a software development project would be overwhelming.

If you fit into one or more of those scenarios, then off-the-shelf is probably your best choice, at least for the interim. It gets more complicated when the off-the-shelf solutions:

  • Do some of what you need, but not quite enough.
  • Are expensive, especially over time. (We’ll talk about the costs in a bit.)
  • Require you to radically change your proven, successful workflows and processes in a way that is disruptive or almost impossible (which often requires a secondary solution to solve that problem).
  • Are complex, with a lot of functionality that isn’t needed that just gets in the way.

Where it gets even more complicated is when there are several, or many, off-the-shelf systems that each do some of what is needed, but not all. It then becomes a game as to what system will be closest to what they need without compromising too much.

Customized Off-The-Shelf Software

Sometimes a vendor will offer to customize their core solution, typically for a fee. This can be a good opportunity to get something closer to what you need, and if the cost isn’t prohibitive it could be a smart choice. Of course, there are some risks (as always) associated with this path:

The vendor is in the business of selling their core system, and the lure of the sale may cause them to overcommit to what is easily done. In this scenario, those customizations that were supposed to take 6 weeks, could be closer to 6 months.

After delivery, development teams must now support that customized solution when they should be advancing their core product. Getting further help and support on those customized functions might not be easy, and they could be very expensive.

This next caveat is an immense potential problem, and this risk is one that is often overlooked during the decision process. You now have a system that has deviated from the core product significantly and might not be easily upgraded when new versions to the core product are released.

This problem is far more than just not getting that shiny new functionality — critical bug fixes and security patches might break your customized system. This ugly scenario won’t come to light until much later when you have enmeshed this solution into your enterprise tightly, and the cost and time to pivot to another solution might be enormous. The vendor’s sales team will rarely discuss this (or might not even be aware of it). But you as the customer should address this at the highest levels with your potential vendor prior to the sale.

Comparing the Costs

Evaluating the costs of your software systems isn’t always easy and clear cut. A custom solution that is $75k compared to an off-the-shelf product that is $1500 a month might sound like an easy decision. If we are just evaluating these two choices on cost alone, we typically look at a time window of 7–10 years and would do the math this way:

Custom Solution Scenario
Development $75,000
Maintenance $5000 / year = $35,000 for 7 years
Total 7-year cost $110,000

Off-The Shelf Solution Scenario
$1500 / month = $18,000 / year
Total 7-year cost $126,000

Those calculations are very simple and of course are not the only costs associated with each path such as price increases for the canned system, or costs for developing major new functionality for a custom solution in future phases. But it is illustrative of how the cost comparison has more risk than you would initially anticipate. The point is the cost analysis needs to be calculated over a reasonable time window and with as many considerations as you can anticipate.

The Custom Software Option

In this article I won’t talk about all the advantages and disadvantages of a custom solution, but I am talking about it from a risk perspective. And while there are factors that introduce risks for custom development, there are clearly scenarios where the custom solution dramatically reduces risks when done correctly.

Custom software can reduce risk when:

  • No off-the-shelf system can meet your needs close enough, requiring you to radically change your processes and workflows.
  • You are growing and changing rapidly, and your systems need to adapt quickly.
  • There are multiple groups or divisions within your organization where a custom solution that can share data and dovetail with their requirements is advantageous.

Custom Software Risks

The horror stories of custom software projects gone wrong are legendary and endless. While you can’t totally eliminate the risks of developing your own software, there are things you can do to greatly diminish your risks and increase your chances of success.

SMBs often face the highest risk of going the custom software route, and for some particularly good reasons:

  • The organization’s experience is limited or nonexistent with the scoping, planning and documenting process required for a successful software development project.
  • They often don’t have a technologist such as a CTO or CIO in place to evaluate development teams and vendors, and proposed technology. So, non-technical management is making technical decisions without the requisite experience.
  • Resources are limited, and there is no “product owner” within the organization who can drive the process.
  • Internal IT teams also don’t have enough experience with custom development processes to make good decisions. And they may view an outside team as treading on their turf.
  • Budget constraints often encourage shortcuts that can be disastrous, such as the “I know a guy who can do this cheap” scenario.

So again, while you can’t eliminate all risks with custom software, there are things you can do to greatly enhance your chances of success. The good news is that modern software tools and frameworks make it far easier to develop fantastic software than it was just a few years ago.

You can reduce risk of custom software development by:

  • Dedicating the necessary resources to complete the project. This isn’t just about allocating sufficient money, but you must have an internal team that understands your workflows and processes and can take ownership of the project. This includes documenting workflows, business requirements, data requirements, etc.
  • Being cautious of going for seemingly inexpensive solutions such as off-shore teams, your internal IT staff that thinks they can handle it, or someone who will be doing this as a side project. While the rates and promises sound great at the outset, the disruption and cost of a terrible experience can far outweigh any perceived initial savings.
  • Vetting your software vendors carefully. Make sure they have a good track record with projects of this scale and scope, and that they have a team of people that can do systems architecture, design, proper planning, UX/UI, and project management.

In upcoming articles I’ll be writing more about how SMBs can take advantage of custom software development, and how to reduce your risks and ensure success. And feel free to reach out to us for a no-cost consultation on your project. We love talking about problems and pain points, and we strive to responsibly guide you with your decision.

Sr. Strategist / Startup Mentor / SaaS Coach / Sr. Partner at Alliance Systems