Build vs Buy: One Aspect That No One Talks About
Use this one simple question to reduce the complexity of build vs. buy decision,
What if build vs. buy debate could be simplified with a simple question?
When companies grow, it encounters build vs. buy decisions in every phase of their journey. This is one decision that’s made over and over by different people within the same organization.
Some of these build vs. buy decisions are easy. For example, in 2022, for most companies, it makes sense to buy infra from cloud providers instead of building their own. In other cases, it's not straightforward. Do you build your platforms for observability, data, authentication, finance, emails, communication, developer tooling, etc.?
I have been fortunate to lead and make many such decisions several times in my career to date. And one thing is for sure, they are never easy.
I've also seen engineers and leaders struggle to make such decisions. And rightly so as these are significant investments for the company.
If the company decides to build, then they need to consider:
Engineering Cost
Infrastructure Cost
Maintenance Cost
Time to market
Ability to scale
Getting it stable enough to support core business
Hiring the right expertise
Ability to deliver the product to meet business requirements
And many more
If the company decides to buy, then they need to consider:
Finding the right vendor
The ability of vendors to scale
Vendor SLA
Integration with vendor
Cost of contract
The engineering team that owns the integration
The ability of the vendor to grow with company needs
Security clearance
Data compliance (GDPR)
And many more
These are not comprehensive lists. Many things go into making a build vs. buy decision that are not captured above.
But there is one thing that almost every builds vs. buy decision-making process skips during the initial investigation. And that's the COST-CENTER or source of funding.
Cost Center 💰🏦 ❓
A cost center in an organization is where the money comes to fund the project. It doesn't matter if you are building or buying. In both scenarios, the project needs funding from somewhere in the organization. And surprisingly, this factor is not considered till the very end.
Why does identifying cost center matter?
For small companies and startups it doesn’t matter as funds usually come from one cost center.
In medium-big organizations, the cost centers are different. If you decide to build in-house, the cost center is usually within the organization building the tooling. For example, data-orgs own data platforms costs, financial systems are owned by finance org, etc.
But when you are buying, the cost center becomes debatable. Here are some questions that never get discussed:
Does the organization that's integrating with the vendor own the cost? Or should the cost be attributed to the consumer of the service? If yes, how?
Who is responsible for continuous funding for the vendor budget year-over-year?
Who owns the cost when there are multiple service consumers but in different organizations?
How hard is it to procure the funds from different organizations to pay for vendor services?
Engineers reading this will be wondering that "none of the above is an engineering problem. I only care about build vs. buy from a technical standpoint."
The technical challenges of integrating with the vendor should be the least of the worries. Most vendors follow standard API formats, authentication models, etc. All vendors will gladly spend their resources integrating as long as they get paid. And that's something that no one talks about when they start discussing build vs. buy.
When making a buying decision, if the source of funding for the vendor is identified, a lot of questions in debate in build vs. buy becomes moot. In some cases, there won’t be a debate at all.
I hope you enjoyed reading this and give evaluating cost-center as a deciding factor before you make next build vs. buy decision.
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