How to Know If Your Business Needs Custom Software vs. Off-the-Shelf Tools
Introduction
You have software requirements for your business.
The question is:
Or, should you build it or should you buy it?
The most obvious answer for many of the founders is "buy.
Why build something you could get up and running with an existing SaaS product in an afternoon?
This is usually a very good rationale.
But not always.
As a business grows, the tools it's using may start to cause more issues than they are solving. Teams begin transferring data from system to system. Spreadsheets are used by employees because the software doesn't support a specific process. Users are compelled to go through the mechanisms of another business model.
Finally, the question becomes:
“Would it be possible to adapt the use of an existing tool?”
to:
How does our business lose as we squeeze our processes through someone else's software?
This is where it is important to consider custom software vs. off-the-shelf software.
Custom software may sound more advanced but it's not the right choice.
It's a matter of whether the software should change, or the business should change.
What is the definition of an Off-the-Shelf Software?
Off-the-shelf software – software which is designed for a wide market.
Examples include:
• CRM platforms
• Accounting software
• Project management tools
• HR platforms
• Email marketing systems
• Inventory management tools
• Customer support software
• Analytics platforms
The greatest benefit is that it is quick.
You don't have to write all the requirements, recruit developers, architect the system, create features, test the system, and maintain the application.
You subscribe, set it up and begin using it.
This is very useful in a startup's early stages when they're looking to prove out an idea in a short period of time.
Off-the-shelf software is typically best when:
• Your workflow is fairly standard.
The software is required as soon as it is available.
• Your team is small.
You are still in the process of change.
The product is already connected with your other instruments.
The software doesn't differentiate the business.
Resources used in building in-house would be better spent elsewhere.
For instance, if a startup is a five-person business, they likely aren't going to need to develop their own email marketing system.
An existing solution is more quickly, less expensively, and is easier to maintain.
The key message is that there are not all the business issues that call for custom-made software.
What Is Custom Software?
Custom software is developed to meet your company's needs.
Instead of asking:
What characteristics does this product have?
you start with:
What is required for our business?
The gap can be great.
Assume a logistics firm has a workflow which involves:
• customer orders
• warehouse inventory
• route assignment
• driver availability
• payment status
• delivery exceptions
• customer notifications
An array of irrelevant SaaS products could deal with each individual task.
However, this doesn't mean that they play well together.
Transferring information between systems will require manual work by employees.
Those processes could be melded into a single process by a custom platform.
This software is not a separate tool in the business but a part of the business.
Custom Software vs. Off-the-Shelf: The Real Trade-Off
When you don't compare software on a feature-by-feature basis, the decision becomes easier.
Rather, evaluate it based on six components.
1. Speed
It's typically a no-brainer that off-the-shelf software is going to win in the beginning.
Subscribe, configure, train employees, launch.
Custom development requires more time as there are requirements definition, design, develop, test, deploy and improvement.
There's a business cost associated with that time.
But speed isn't the only metric that matters.
A tool which gets you live fast but makes your employees work inefficiently can incur long term costs.
2. Flexibility
This is where custom software really shines.
Suppose that your company has a pricing workflow that needs:
1. Customer segmentation
2. Regional pricing
3. Contract-specific discounts
4. Sales Manager's approval
5. Automated invoice generation
6. Integration with your accounting system
Many of those six requirements can be met with an off-the-shelf product.
Now you have 3 options:
• Change your process.
• Create another software product.
Implementing missing functionality.
There is no right or wrong to any of those options.
When exceptions happen over and over, it's a red flag.
If your team regularly utters the words:
“It's not a software thing, we need to do this manually.”
It’s time to consider custom software if you’re on the verge of needing it.
3. Integrations
In today's world, businesses are hardly ever operated using a single application.
You might have:
• CRM
• Payment gateway
• Accounting system
• Mobile app
• ERP
• Analytics platform
• Customer portal
• Internal dashboard
• Communication tools
The more systems that you have, the more critical it will be for you to have integration.
Standard integrations can be found in off-the-shelf products.
That is useful.
However, your business might have an unusual workflow between systems that requires this.
For example:
Customer makes order → payment is successful, inventory reserves increase stock → warehouse receives task, delivery partner is assigned, customer receives status messages, accounting system records a transaction.
If current solutions are not capable of reliably coordinating that process, it's not a problem of "missing features".
It's a problem of architecture.
Custom software can be used to create a central layer of functionality to link the systems on top of your real business process.
4. Scalability
What is effective for 20 employees might not be effective for 2,000 employees.
Scalability isn't simply about more users.
It can also mean:
• more transactions
• more locations
• more products
• more integrations
• more permissions
• more automation
• more complex workflows
A business may need to expand beyond the capabilities of an existing platform due to its increased operational needs.
This doesn't mean that you have to get rid of everything.
Solving the bottleneck can sometimes be achieved through a targeted custom application that will be able to coexist with existing tools.
This is frequently better than the rebuild of the entire technology stack.
5. Cost
This is one of the top mistakes made in the discussion of custom software vs off the shelf software.
People often compare:
Monthly subscription
against
Development cost
Conclude that the use of off the shelf software is cheaper.
This comparison is not complete.
The overall cost of ownership should be taken into consideration.
Costs could include:
Subscription, Monthly/Yearly
• Premium feature upgrades
• Per-user charges
• Additional integrations
• Data migration
• Training
• Manual workarounds
• Multiple SaaS subscriptions
• Vendor switching costs
• Operational inefficiencies
Custom software may consist of:
• Discovery
• UI/UX design
• Development
• Testing
• Hosting
• Security
• Maintenance
• Feature enhancements
• Monitoring
In most cases, the cost of custom software is greater at the outset.
However, under the right conditions it can offer more favourable long-term economics.
The question is not, then, "The right question is:
Which choice is cheaper?
Ask:
Which option generates more value for the business as a whole for its cost?
6. Competitive Advantage
This could be the most crucial.
If your competitors have the same CRM, the same accounting software, and the same email marketing platform, what could you do to stand out?If your competitors are using the same CRM, accounting software, and email marketing platform, what can you do to get noticed?
Those are tools that are needed for the operation of those tools.
They don't always constitute competitive strengths.
Now suppose you have a proprietary system that enables the following:
• process orders faster
• personalize pricing
• automate approvals
• reduce operational mistakes
• predict demand
• provide customers with a more positive experience
That may be one of the unique processes that set the company apart.
However, when the software offers that differentiation, custom development can turn into a strategic investment, not an IT expense.
While this might sound like a daunting task, it is not necessarily so. Here are some signs your business is ready for custom software.
The magic numbers for employees and revenue don't exist to determine when to opt for custom software.
Focus on the issues rather.
Sign 1: Software gaps are being filled by your team with spreadsheets.
Spreadsheets are not evil.
They pose a problem when the mission critical processes rely on them.
For example:
The issue is that when the data is exported from CRM to CSV, it is not in the same format as it appears in ERP.The problem is that the data exported from CRM to CSV does not match the data in ERP.
That process is a potential for automation.
Sign 2: Many tools are trying to accomplish one task ineffectively.
Do you have one SaaS product that supports customers?Have one SaaS product that serves customers?
Another handles payments.
Another handles inventory.
Another handles reporting.
Another one is for internal approvals.
Now it's your team's turn to get them talking.
In some cases, the business has actually established its own bespoke software system — although without the ownership of the framework.
Sign 3: Employees Repeatedly Do Manual Work
If employees repeatedly:
• copy data
• rename files
• reconcile records
• approve repetitive requests
• generate similar reports
• update several systems
Inquire if software can take care of the workflow.
Sign 4 - If you have a business process that is unique.
If your business is unique for some reason – maybe your customers, pricing, logistics, or processes – the generic software can get more and more restrictive.
Sign 5 – Workarounds are becoming normal.
One of the most costliest sentences in a growing company could be “that's just how we do it”.
As workarounds get to be a habit of the day, the company begins to spend money on software waste, by way of employee time.
When it would be better to use off-the-shelf software.
Not all custom software is created equal.
Existing software is probably better to stick to when:
• Your requirements are standard.
• Your team is still validating the business model.
• Your workflows are changing rapidly.
Once the SaaS product is in a mature stage its solution resolves most of the problem.
The process is not important strategically.
• Creating software would take you away from your main product.
• You don't have the resources to maintain a custom system.
A startup is not more sophisticated by developing infrastructure that doesn't need to be developed.
Sometimes it's best to purchase than construct.
A Better Decision Framework for Founders
If you are not sure, rate your situation on this list of questions.
Ask 1: Is this process core to our business?
Custom development gets more interesting when the workflow has a direct impact on revenue, customer experience, operations, or competitive advantage.
Ask 2: What is the amount of manual work today?
Approximate the actual number of hours spent each month.
Then approximate the cost to the business of those hours.
Ask 3: how many workarounds they have.
A remedy might be simply non-harmful.
A systems problem typically has 10 workarounds.
Ask 4: Is there software that already exists that can help us grow in the steps we are taking next?
Do not just inquire if this software functions on the present day.
Do you think it will still function if:
• users double
• transactions increase
• locations expand
• new teams are added
• integrations multiply
Ask 5: “Is the workflow a competitive advantage?”
If that is the case, having the software could be a strategic benefit.
Ask 6: What happens if the vendor changes its product?
Dependency risks can be caused by pricing changes, feature removal, API changes, acquisitions, or platform restrictions.
The Hybrid Approach: Sometimes the right answer
There is no need to pick one or the other:
Buy everything
and
Build everything.
A hybrid approach is more usual.
For example:
Existing CRM
↓
Custom Business Logic Layer" has been adopted by the company.
↓
The payment, inventory and internal systems are all tied together.
↓
Custom Customer Portal
In this approach, you retain the fully matured SaaS products, and only develop the parts that are unique to your company.
This can help you to save money, but still provide you with control over processes that are important.
This is a far more achievable goal than the complete change-out of all the existing tools for many expanding companies.
A Simple Example
Suppose that you have a business that sells furniture, and it is expanding.
It currently uses:
• Shopify for ecommerce
• an accounting platform
• a CRM
Deliver a delivery management tool
Books for custom orders
The ecommerce store is in perfect working order.
The accounting system functions.
The CRM works.
Custom orders pose challenges to accommodate various dimensions, materials, pricing, approvals, production instructions and delivery timelines for each order.
The company doesn't have to create their own ecommerce platform.
This would be unnecessary.
Rather, it might create its own internal order-management system, which would cater to the special workflow and connect with the current tools.
This is a lot more worthwhile software purchase.
The greatest error: Building too much too early.
But there's one more piece to this puzzle.
When some founders hear “custom software”, they think of a big platform.
That's rarely necessary.
A custom system begins with the problem that is the smallest "meaningful" problem.
Instead of building:
"Our complete company operating system"
build:
The current workflow that takes 40 employee-hours a week.
Solve that first.
Then grow by tracking the business value that is measured.
This helps to minimize risk and opens up a more viable route to software modernization.
Then, Which One Should You Choose?
When problems are familiar and speed is important, use of off-the-shelf software is preferable.
Use custom software for problems that are unique, important, costly to operate, or not well supported by current solutions.
Think about a hybrid setup if there's a part of your business that's common that can be handled by standard tools, while there are parts that have critical workflows which require specialized functionality.
Then there is one question that should be the determining one:
How much is software, a tool for your business, and how much is it the business itself?
If software is the backbone of your business model—how you sell or operate your business, how you serve your customers, or how you scale your business—then having the right software can be much more valuable.
Final Takeaway for Founders
Avoid developing custom-made software for the sake of impressing people.
Avoid purchasing pre-made software – it may not be the most current, and perhaps it will not even work on your computer!
Consider how inefficient it is, how valuable flexibility is, how vital your processes are, and where your company wants to be in two or three years.
The ideal software solution is the one that provides your business with the right speed, control, cost, scalability, and value.
At KarmaKoders, we are able to assist business with understanding which issues should be addressed with custom development and design software, and what workflows are important to focus on — and not what is just easy to recreate.
Want to know if you should construct, purchase, or go with a combination strategy? Check out our Custom Software Development services.