Succumbing to Customized Software in a SMB

There is a debate among small business owners regarding building your own custom software to run sales or operations versus buying or subscribing to existing tools. Well respected friends of mine argue that it’s wiser to simply buy the SaaS tool that is built for your industry or problem. They’re successful and the proof is justifiable in that outcome alone. It works. I’ve also investigated numerous successful companies that were early adopters and saw the SaaS tools transform their growth trajectory. They place the credit there, but also reap great rewards. Unfortunately, I’ve toured many struggling companies that have custom software. Their love for their own tools have blinded them to the streamlined systems available nearby. There are no extra credit points for taking the hard road to the top of the success mountain. Or, are there?

In my personal experience, there are times when custom software unlocks tremendous value within a small business. In almost every single hyper successful company I have interviewed, they ALL have custom software. If you limit yourself, pragmatically, to only buying that which already exists, you depend entirely on the combination of tools you have assembled, and the order in which you enforce their usage. This approach can work. A simple change in the order of operations can unlock tremendous margin. In my 20’s I figured out how to pre-load GPS coordinates in field sampling machines before arriving on-site. This unlock used existing tools. It simply required a dedicated person in the office which my competitors were unwilling to invest in. The approach enabled numerous other operating efficiencies to be arranged around this insight. It also drove our price point higher as we could prescribe more specific testing protocols than our competitors could enforce. None of this required custom software.

Custom software is justifiable in a small business when a handful of criteria are met. They include owner’s ambition, internal design engineering talent, meaningful return on invested capital & lack of alternatives. I have sorted these in descending order of importance, from most important to least. They also sorted in ascending order of stupidity. You are an idiot to custom build something that already exists in the market, which is cheap relative to its output, of which you lack design talent. Waste your money at your own risk. Or, as I like to say, “software is a black hole into which you can throw limitless amounts of money.”

Owner’s ambition – without copious amounts of ambition, the business owner should not oversee development of custom software. Typically checks on this idea are 10 year vision that is 10x present company size. Anything less than this is probably wishful/wasteful thinking.

Internal design engineering talent – is required by the sales leader, who is ideally, also the owner. With adequate ambition, this person must also be the lead salesmen, and have an eye for designing terrific customer experiences. Where is the value to be derived? What is the most simple way to solve this complex problem? How can it be reduced to the least complex process, but without hemming in the scalability to meet your ambition? If you cannot answer this questions intelligently, do not proceed alone.

Meaningful return on invested capital – is the pervasive mindset of the ambition entrepreneur. If you have the ambition and engineering mindset you’ve also got to have an empirical data set of sales calls that justify the margin increase and you will gain, and/or the unit increase that will move through your business.

Lack of alternatives – Before you drop tens of thousands of dollars –or hundreds of thousands, be sure you go shopping. Ask around. Go to tradeshows within your industry, or adjacent, like kind places. See if you can retrofit something that gets you nearly the full ROIC by understanding the fundamental design, value proposition and fit and finish for your vision. An exact fit is not required to get 90% of the ROIC. Make the compromise on the system if it’s not a pure unlock. Heck, build a custom bridge between the tools if able –instead.

In a world exploding in no-code tools, the above approach is still viable. The value proposition is lower ROIC. But, who inside your team as the above criteria but yourself? Is your energy focused on that which matters most?

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