Choose Wisely: The Buy Vs. Build Dilemma for PMs
This article first appeared in Medium.
As product managers and leaders, we often get pulled into the infamous “buy vs. build” conversation. This dilemma typically involves deciding whether to buy/license a solution or build it in-house and can apply to enabling technologies, back-office applications, or customer-facing product elements. It’s a challenging discussion because product people are builders by nature. When you believe in your product and engineering teams and want tightly integrated solutions, it’s easy to lose objectivity. Having navigated the buy vs. build scenario — and landed on both sides — I hope to offer some clarity.
The Most Important Consideration
Let me share two real-life scenarios to illustrate the buy vs. build dilemma. Years ago, I led a multimedia team creating interactive learning experiences for online courses. As the team grew to 25 people, including supervisors and writers, we became more strategic, developing narrative-based simulation experiences as a program differentiator. When the company hit an economic soft spot, leadership questioned whether we should license similar multimedia resources from third parties instead. The build vs. buy debate was on.
Granted, I was leading this team, so I had a bias. However, our main argument was that, while licensing off-the-shelf content would save us money, we could create unique content & experiences that differentiated us from the competition with the team we already had. We could tightly integrate learning experiences with the course material. Furthermore, these narrative-based simulations created compelling marketing opportunities. Meanwhile, our competition could license the same 3rd-party content as anyone else. And since it was off-the-shelf, we could not integrate it as tightly with the course content. Long story short, we decided that building these unique narrative-based simulations was better than buying them from a 3rd party. Decision: build.
Fast forward several years, and I was on a team at another company looking at a critical enabling technology/platform. The problem to solve was linking customer identities with data across several systems and lines of business. Solving this complex problem would give us a 360-degree view of the customers and serve them in the best way possible, let alone help us consolidate user data and streamline customer journeys. The core of this solution is the underlying data infrastructure and software used to match customer data.
When I joined the organization, the decision had already been made to move from the legacy tech stack purchased/licensed as a 3rd party solution to a proprietary, state-of-the-art data infrastructure and software we would be building in-house. However, as time (and changing company dynamics) proved, this was a complicated — and expensive — capability to build in-house. A few significant organizational changes suddenly spotlighted this initiative, and leaders began to revisit the original build decision.
The main factor we examined was the advantage (or not) we would achieve by building this technology in-house, especially for such a significant investment. The answer was not clear. To be sure, it was a critical capability we needed to enable a great customer experience. However, we eventually concluded that there was no unique need that an existing 3rd party solution couldn’t meet. We needed to connect the customer data across the org to provide a smooth journey through our products and services… and the platform had to meet high-performance standards. Other than that, there was no obvious competitive advantage that building this technology in-house would provide for the company. Decision: buy and upgrade to a more modern solution.
As you can see, two buy vs. build scenarios with different outcomes. However, the common theme was whether or not building the solution would unlock differentiating features and experiences for the product. If the answer to that question is “no,” it does not necessarily mean building is out of the question. However, there would need to be a compelling case for why to build vs. buy when an obvious, differentiating competitive advantage is not a realistic outcome.
Your Company’s Core Competencies
One closely related factor to the competitive advantage/differentiation consideration is your company’s core competency and the competency needed to build the solution — how much do these overlap? Even if creating the solution yourself provides a competitive advantage, you have to examine if there is a core competency gap. Addressing that gap to build a solution should not be taken lightly. It’s more than hiring the right engineers and product managers. Developing a core competency is also about your company’s culture, leadership subject matter expertise, and ability to sustain this competency.
I’ve seen build decisions at companies struggle because the knowledge needed to create and maintain this technology was not a core competency for the company. Simply hiring the right engineers is not enough if leaders do not fully understand the business decisions needed to support the product teams or if the culture does not currently support the processes and type of thinking required to ensure success. In a sense, then, this is a two-step set of questions:
Does building vs. buying this technology enable product differentiation? Is there a competitive advantage that gets unlocked by building this ourselves?
Does the company have the right core competencies across engineering, product, business, and design teams to ensure success?
There are other essential considerations in making the decision, but these are where the conversation needs to start. Once you can answer these questions, you can dig further into other considerations to help you decide.
There are other factors to consider in the buy vs. build conversation once you get past the differentiation question. The total cost of ownership is an obvious one. Buying or licensing a solution undoubtedly means planning for support and upgrades. Building yourself means continuously funding a product team for support and maintenance. Other considerations include data ownership needs, scalability, vendor dependency risk, speed-to-market, and the product’s long-term vision.
The “Can We” vs. “Should We” Question
I once had an engineer say to me in a meeting about instrumenting a new Web application we were about to launch, “Why would we pay for an analytics application… we can just build that ourselves?” I started laughing when he first said it because I thought he was joking — he wasn’t. My immediate response was that I didn’t want to waste his team’s time on a problem other companies had already solved and gain us nothing by taking a DIY approach — I wanted his team to focus on the unique problems we needed to solve. Needless to say, we licensed our analytics solution.
I share this anecdote because the question is rarely, “Can we build this ourselves?” Good engineering and product teams see any challenge as solvable. Optimism is a healthy trait. However, as the saying goes, it’s not “Can we?” but “Should we?” build this ourselves.
At the end of the day, it comes down to the fundamental questions when considering buy vs. build. The most important is whether building a solution or capability gives you a competitive advantage that differentiates your product and how that aligns with your company competencies. However, one final consideration you must consider is what direction best positions the company to adapt and evolve with the ever-changing landscape? There is no easy answer to this, but at least part of your buy vs. build decision process has to include an attempt at predicting the future.
Getting the buy vs. build decision right has huge ramifications for your company. You must weigh establishing a competitive advantage with your company’s core strengths and be able to anticipate where technology and the market will be in several years while also calculating the total cost of ownership. Making the best decision you can with the information you have today will allow you to double down on your company’s competencies and unlock differentiated experiences for your customers that your competition cannot replicate. You must choose wisely!
