Building vs buying: when to invest in custom software

The question every company faces

Sooner or later, every growing company faces the same decision: do we buy an existing solution or build a custom one? The answer isn’t universal. It depends on context, strategy, and an honest analysis of total cost of ownership.

What is universal is that the decision is frequently made poorly. Companies that buy when they should build end up adapting their operations to the software’s limitations. Those that build when they should buy end up investing disproportionate resources in solving problems that are already solved. Both mistakes are expensive.

This whitepaper proposes an objective framework for making this decision.

The mirage of initial cost

The most common mistake is comparing a SaaS license cost with the development cost of a custom solution. This comparison is misleading because it ignores the total cost of ownership (TCO) over the system’s useful life.

Hidden costs of buying:

• Customization: adapting the tool to your processes (which never fit 100%)
• Integrations: connecting with your existing systems
• Training: teaching the team a tool designed for a generic use case
• Limitations: the opportunity cost of features you need but the tool doesn’t offer
• Lock-in: data migration if you decide to switch vendors
• Scaling: license cost increases as you grow

Hidden costs of building:

• Maintenance: updates, patches, security, infrastructure
• Evolution: new features the business requires over time
• Talent: hiring and retaining the development team
• Technical risk: architectural decisions that may prove suboptimal
• Time: the opportunity cost of not having the solution running today

The framework: 5 decision criteria

Criterion 1 - Competitive differentiation. If the process you need to automate is your competitive advantage, build. If it’s a generic function that every company in the sector needs (accounting, email, basic CRM), buy. Simple rule: don’t build what doesn’t differentiate you.

Criterion 2 - Process fit. If an existing solution covers 80% or more of your needs without significant customization, buy. If you need to customize more than 40%, the adaptation cost may exceed the building cost. And most importantly: when you over-customize a generic tool, you lose the vendor’s updates.

Criterion 3 - Rate of change. If your processes evolve rapidly and you need to iterate with agility, building gives you full control. If your processes are stable and predictable, buying a mature solution is more efficient.

Criterion 4 - Integrations. Analyze how many existing systems the new solution needs to connect with. If integrations are critical and complex, a custom solution designed for your technology stack may be more efficient than forcing integrations in a generic tool with limited APIs.

Criterion 5 - Time horizon. For a 1-2 year need, buy. The building investment doesn’t amortize in short timeframes. For a 5+ year need that’s core to your business, TCO analysis usually favors building, because cumulative license costs exceed development costs.

The third way: compose

The decision isn’t always binary. There’s a third option that increasingly makes sense: compose. Use existing solutions for generic functions and build only the pieces that differentiate you, connecting them with integrations.

A concrete example: you buy a standard CRM for contact management and pipeline, but you build a custom lead scoring module that incorporates your operational data and domain knowledge. The CRM handles the generic. Your module handles what differentiates you.

This approach requires a robust integration layer but significantly reduces both cost and risk.

Signs you should build

• Your process is your competitive advantage and no tool replicates it
• You’ve tried 3+ market tools and none fits without massive customization
• Your integration requirements are complex and the tools’ APIs are limited
• Your sector has specific regulations that generic tools don’t cover
• The cumulative 5-year license cost exceeds development + maintenance

Signs you should buy

• The functionality you need is generic and well solved by multiple vendors
• You don’t have a development team or budget to maintain a custom solution
• You need to be operational in weeks, not months
• The process you’re automating is not your differentiator
• The tool integrates natively with your current stack

The cost of deciding wrong

Building when you should have bought means months of development to replicate functionality that already existed, an engineering team dedicated to maintaining a commodity, and penalized time-to-market.

Buying when you should have built means adapting your processes to the software’s limitations, losing competitive advantage, and paying a growing cost of customization and licenses for a solution that never quite fits.

Both mistakes are avoidable with an honest analysis of the five criteria. The right decision isn’t always the same. But the framework for making it is.