To build or to buy? Q&A with Origami Risk’s Steve Schmutz

Steve Schmutz is a successful entrepreneur with an extensive technical background and more than 20 years of experience in software design and implementation. He has founded and run two software companies, including Origami Compliance (formerly, ClaimWire, LLC), which integrates with any claims management system to provide automated workers’ compensation forms, compliance resources, and regulatory information.

Q: Why is the “build or buy” question important to consider?

A: The “build or buy” decision isn’t limited to software. It’s a question that has been around forever. Homeowners evaluate whether to pour their own patio or have a professional do it. Budding artists wonder if it would be best to create their own website or have a more experienced web designer do it. But when it comes to enterprise software, the stakes are much higher than many other situations. Making the wrong decision can cost millions of dollars and put your project years behind. We’re talking about the type of mistake that can, quite literally, take a company down.

Q: Where should an organization begin?

A: They should start by creating an exhaustive requirements list. Making the build-buy decision before knowing its requirements is like arriving at the airport before knowing where you’re going. The list should be as thorough as possible. Creating this is absolutely worth the effort. Doing so provides a true picture of the scope—breadth, depth, and length—of a project. Without an understanding of these details, it’s impossible to make an informed decision.

Q: After nailing down the requirements, what’s the next step?

A: Once an organization has its requirements clearly and completely defined, it should identify several commercial software vendors in the space and send them a Request for Information (RFI). Sending an RFI puts the onus on the vendor, makes them check the boxes, and yields a treasure trove of information. If at least one vendor checks the majority of the boxes, this may indicate that buying is the right decision for your organization. The next step is to invite qualified vendors in for a presentation. This provides an opportunity to evaluate the software and also to meet the team. If a vendor’s responses fall short of meeting your organization’s requirements, building may be a more viable option.

Q: If an organization chooses to go the “build” route, what should it consider?

A: Those responsible for making the decision should ask themselves, “What business are we in?” They should realize choosing to build your own software is essentially choosing to start a new business, and any new business is going to involve a steep learning curve. Consider just how steep that learning curve might be.

Custom software projects often take longer and cost more than planned. The process can take thousands of hours, at least several years, and cost hundreds of thousands of dollars. All the effort put into gathering and identifying requirements still may not uncover everything. New stuff comes up all the time. An organization should ask if its IT team has the bandwidth for such a project, and be very thoughtful about where those “extra” hours are going to come from.

Q: If an organization decides to go the “buy” route, what should it look for?

A: They should keep in mind the “track record factor.” Has the software developed by a vendor worked for others within the same general market? Or for companies with similar requirements? One question that will likely help during the exploration process: Why has a particular vendor been successful?

I suggest gathering the team together in a conference room with a whiteboard to consider some important questions. As the conversation flows, allow room for both positives and negatives. Here are a few questions to ask:

Why are these software vendors successful?

  • What are the differentiators and unique aspects of each vendor/solution?
  • What do they offer that would be most difficult to replicate if we built our own solution?

How many years, on average, have these companies been in business?

  • How much have these companies spent on R&D to get their systems to where they are today?
  • How many customers do they have? Are they satisfied?

Who leads and who works at these companies?

  • Are the company founders from our organization’s industry?
  • What is their background and expertise?
  • What about the employees? Are they also from our industry?

Q: What’s your opinion on whether build or buy is better?

A: Over the course of my career, I’ve consulted numerous companies on whether to build or buy a software solution. And as a matter of full disclosure, I believe that, most of the time, it makes more sense to buy. Yes there are cases where building is better. There just aren’t many.

A lot of people see custom software as a way to make their organization more competitive because they can add specific features into their system to make it work just the way they want. But most of today’s enterprise software systems are highly configurable. An organization’s implementation will be very different from its competitor’s. It doesn’t even matter if the competitor uses the same software vendor. Thanks to configuration, an organization can make it work just the way it wants, in what I consider a much more manageable way.

Bottom line, in my opinion: If there’s a system currently on the market being offered by a successful software company, and if that system is configurable so that it can meet the majority of an organization’s requirements, it would be a mistake to choose to build.