If you’ve got a new product idea that requires software you’ve probably researched off-the-shelf solutions. Some popular off-the-shelf products are Pipedrive, a CRM tool, or Shopify, an ecommerce tool. Many companies find buying off-the-shelf software to be a workaround to developing a custom solution; others believe that off-the-shelf software is harder to scale, as it may not integrate well with home-grown systems. In the buy vs. build dilemma, it’s difficult to make the right choice.
Startups often find themselves between a rock and a hard place when it comes to making long-term vs. short-term decisions. On the one hand, as a startup with small amounts excess capital, it may be a good idea to take a conservative approach to costly business initiatives like software. On the other hand, investing in long-term systems with growth potential can be wise. So, how do CTO’s decide? They answer these two questions.
- Can custom software provide your company with a competitive advantage over your competition?
- Can you disperse the cost of a proprietary software over your large group of clientele?
The Argument for Custom Software
Always keep in mind that building custom software, either in-house or outsourced, requires team resources, time, and effort to be valuable. Because of the upfront resources that must be dedicated to custom software development to see it be successful, many startups shy away from this option. There can be several reasons, however, that make custom software a better fit.
- Out-of-the-box software simply cannot meet the needs of every implementation.
- The rigidity of canned solutions can create more work as companies grow.
- A home-grown software can integrate with a broader set of APIs.
- Scaling an out-of-the-box software solution can break existing efficiencies.
Main Benefit: Start by building an MVP (Minimum Viable Product) and scale up as needed. The MVP you build is completely customizable and tailored to your business.
The Argument for Off-the-Shelf Software
Canned software solutions are without a doubt more cost effective. But is that reason enough to buy off-the-shelf software? Like anything else, it’s circumstantial, especially for startups.
- Custom solutions are costly because they are built to function exactly as the company needs. If budget is limited, a canned solution may be the only option.
- A team lacking technical chops may suffer when faced with an in-house build out or giving direction to an outsourced tech team, resulting in a subpar product.
- Businesses/owners with limited bandwidth for providing the guidance needed to develop a proprietary product should opt for an off-the-shelf solution.
- Software that won’t create a competitive advantage. If custom software won’t provide the business with higher quality service or a lower cost product, it is not worth it.
Main Benefit: SaaS means ready-made with no installation of hardware or software.
Many companies have succeeded and failed with both custom software and off-the-shelf software. As it turns out, it’s more important that what the company offers is useful to its consumers than whether or not it has custom software. Your company’s choice to build or buy will be based on many of the factors mentioned above and more from your perspective. Be cognizant of where your business is at financially, what systems are working, and develop your plans for growth before you move forward with either option.
Whether you’ve decided to buy or build, you might still need a developer. If you’ve thought about outsourcing but still have some hesitation, then this one is for you.
The Pros and Cons of “Off-the-shelf” Software
According to a recent survey by IBISworld, $59.3 billion in revenue will be generated in the US for business and enterprise software this year.
Companies are spending money on this type of software because it has become critical to their success. Tools like Customer Relationship Management (CRM) systems, Project Management, Marketing Automation, Enterprise Resource Planning (ERP), and Accounting packages are being joined by data mining, artificial intelligence, and Business Intelligence (BI) solutions to make organizations more efficient and effective. These tools are required to be competitive, and how well you implement them can be a significant driver in a company’s productivity.
Knowing that these tools are essential is just the first step. To gain their full value, leadership must choose the right system of tools for their organization. That is where a choice comes in: choosing between existing “off-the-shelf” solutions from outside suppliers and creating your own custom solutions, or some hybrid between the two.
An excellent place to start in making that decision? Understand the positives and negatives of off-the-shelf software.
Off-the-shelf is a term coined by the US Government to refer to items sold in large quantities by a commercial company. The term comes from the past practice of walking into a retail store to pick the product off a shelf and purchase it. We don’t go to stores for our software anymore, but we do have a wide variety of virtually packaged software solutions that people buy and use with no modification.
Examples of off-the-shelf products include:
- Microsoft Office
- G Suite
- Salesforce
- HubSpot
- Jira
- Oracle
- Wordpress
- Skype
A 2016 academic study revealed that about half of the business software investment by companies is on proprietary systems and half on off-the-shelf. They also found that companies plan to continue this trend through 2021.
Let’s summarize those pros and cons, offer advice on how to understand the full cost, and provide you with some first steps your organization can take if you can’t find an existing solution, to have the advantages of commercial off-the-shelf (COTS) software with a custom-built solution.
Pros: The advantages of off-the-shelf software
Before jumping into how commercial tools can benefit your company, remember why business software is so critical to your organization: to drive more business and lower costs.
It can do this by automating a task, giving access to needed data, or by making employee tasks and business processes less painful. When looking at the advantages and disadvantages, keep this in mind for your company.
Here are the five pros that we have seen in working with our customers:
- Quick implementation
There is no need to write code or plan strategies. Once you buy you get a complete solution allowing your team to start using it almost immediately
- No up-front cost (and costs are well known and predictable)
In most cases, business software is now sold under the Software as a Service (SaaS) model. That means you pay a monthly or annual fee, which spreads out the cost of ownership over time into a predictable, recurring expense rather than a large lump sum for each new release of the software product. Note that, in this model, license fees can still apply.
- Support from vendor and user community
Off-the-shelf tools come with support and training from the company that wrote the software, and the user community for that tool. This comes with the software as part of the SaaS fees. The power of support from other users can be significant because they are facing the same issues your employees may encounter. Many also offer community support from their active, thriving user base.
- Regular updates and upgrades
Vendors regularly release new versions of their software that fix bugs or add functionality. As long as they have paying customers, they will continue to improve the tools they sell.
- Quality is handled by the vendor
Quality assurance is a part of software development that end-users only notice when it is done poorly. With Off-the-shelf solutions, the significant effort to do QA is handled by the vendor.
Cons: The disadvantages of off-the-shelf software
Purchasing a proven commercial solution comes with some negatives. Going back to the reason why you are investing in software, increase business and reduce costs, there are some obvious and hidden penalties with off-the-shelf tools.
Here are the five that we see most often:
- Does not match your business processes or specific needs
The primary reason why companies develop custom software tools for business is that commercial packages do not meet their unique needs (51%), and the processes that are presented are not efficient enough (53%).
- Integration with other software is non-existent or difficult
Integration between tools is becoming better and more common—but it can still be difficult, and in some cases, non-existent! Because of this, organizations spend astronomical resources on in-house software developers creating data connections between products and data stores that often break with new releases.
- You are dependent on someone else for features and maintenance
The second reason cited by companies for writing their own tools was that they needed to make enhancements (46%) not delivered by the vendor. With off-the-shelf systems, users are dependent upon the decisions of that vendor and the demands of the customers as a whole.
- Cost over time can be considerable
Although the initial cost for a commercial solution can be low, especially with SaaS, those payments do not go away over time and can be significant. The advantages of off-the-shelf solutions come at a price, and that price is a repeating fee that never goes away. Additional costs exist because of the customization needed to fit a generic solution into the processes and needs of your company.
- No competitive advantage
This can become a large hidden cost. When you buy a piece of software that is available on the open market, every other user of that software has the same advantage you have. Any unique technology, breakthrough algorithm, or time-saving automation is shared with your competitors.
Capturing the actual cost of proprietary software
Understanding the pros and cons of off-the-shelf software is an important first step. The next task is to determine the full cost of purchasing an existing commercial solution over multiple years. The purchase price, implementation fees, training, and monthly SaaS fees are just one part of the equation.
A great way to do this is with a risk-adjust value assessment of the off-the-shelf system. Or you can take a more fundamental approach of looking at the ROI by subtracting three types of costs and three categories of benefits:
+ Value:
Increased Revenue generated through new customers, customer retention, and higher transaction values.
+ Value:
Decreased labor and infrastructure costs from improved efficiency and automation.
- Cost:
Initial and over time, external and internal
- Cost:
Competitive and productivity advantage of having control over your critical software tools
- Cost:
Lost productivity changing processes to fit or labor cost to customize a standard solution to address your needs.
=
Full added cost or value
Every company’s ROI will be different, but the only way to really know the pros and cons of an off-the-shelf solution is to estimate the cost and value.
Getting the advantages of off the shelf solutions in custom software
When you add everything up, you may find yourself in the situation many companies face when they want the advantages of commercial software, but don’t overcome the downsides. That is where well-designed and implemented custom software applications can deliver.
In our opinion, the biggest downside of a proprietary solution is that it doesn’t do what you need or will force you to change your processes. Or, you may not want to share critical functionality with your competitors. In these cases, there’s a better way.
Document those needs, processes, and features, and then partner with a custom software development company that can deliver the solution you are looking for. You’ll get the functionality and almost all the advantages of off-the-shelf software.
With a great software development outsourcing partner, like Zibtek, you get more than a great development team. They replace the SaaS provider to deliver domain expertise, quality assurance, support, and regular upgrades and enhancements. All directed by your business needs instead of every potential user.
If you’re considering a bespoke software solution, or perhaps still aren’t sure about how an off-the-shelf software package might be better for your organization, reach out to us.
We’re experts in custom development, especially for ERP and CRM systems—but we’ll always point you in the direction we believe is best for your business, even if that’s a COTS product or another software vendor.
Take advantage of our free consultation to help companies like yours determine their options.
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