Build vs. Buy
lessons
Build it if it’s part of your company’s competitive advantage
Buy it if it’s not
If you buy, don’t customize; if you build, don’t outsource your differentiators
When scaling a business or developing a product, one of the most pivotal decisions you’ll face is whether to build technology in-house or buy off-the-shelf solutions. This choice isn’t just a matter of resources; it directly impacts your competitive advantage, scalability, and long-term sustainability. Let’s unpack the principles behind this decision, why it’s rarely black and white, and how to navigate the spectrum between building and buying effectively.
At its core, the build vs. buy decision hinges on competitive advantage. If a tool or technology is central to what sets your company apart, you should lean toward building it in-house. Custom-built tools allow you to craft solutions tailored to your specific needs, making it difficult for competitors to replicate.
Conversely, if the technology isn’t directly tied to your competitive edge—such as infrastructure tools like CRMs, collaboration software, or accounting platforms—purchasing a third-party solution is often the smarter choice. Vendors offer economies of scale, faster implementation, and standardized processes that free up your team to focus on what truly matters.
Why Buying Makes Sense (Until It Doesn’t)
Buying technology comes with a slew of benefits:
Speed and Efficiency
Off-the-shelf tools often require minimal setup and can automate repetitive tasks, allowing your team to operate more efficiently. Why reinvent the wheel when someone else has already built it?Economies of Scale
Vendors distribute the development costs across their customer base, meaning you benefit from robust features at a fraction of the cost it would take to build and maintain them yourself.
One of Porter’s Five Forces (a strategic analysis framework) is Bargaining Power of Suppliers, or essentially how much power your suppliers have over you in a negotiation. For those that don’t use this framework regularly, this is something not often considered. So, even when buying makes sense, over-reliance on a single vendor can lead to vendor lock-in, where switching providers becomes prohibitively expensive or complex and gives the vendor all the power in future negotiations. Take Salesforce as an example - they have an incredibly powerful business model and a fantastic platform that provides a lot of value to customers. However, it’s also incredibly difficult to switch once you’re in their ecosystem (which is why it’s such a powerful business model). This is also why you get economies of scale by buying technology, so it’s something I stay keenly aware of, but also something I only try to avoid if I need to - i.e., it’s a necessary evil. If you’re looking to mitigate this though, you can:
Diversify Suppliers
Tie a couple suppliers together to fulfill your needs. For example, you may use all of your CRM vendor’s functionality except for their file sharing solution, so you maintain some leverage.Vertical Integration
Consider bringing certain vendor-provided capabilities in-house over time. This is especially relevant if the vendor’s service becomes mission-critical.
So, buying has its advantages, however there are hidden pitfalls to buying, especially if the purchased tool requires significant customization to meet your needs. Excessive customizations increase maintenance overhead, reduce standardization benefits, and potentially lock you into vendor-specific solutions. Strive to keep customization minimal to preserve the scalability and reliability of the purchased product. In fact, I usually recommend that although challenging, it’s much more efficient to change your business processes to meet the vendor’s out of the box functionality than it is change the tool to meet your processes.
The Case for Building: Defending Your Turf
Building technology is resource-intensive, but it pays dividends when the result aligns with your strategic differentiation. Homegrown solutions are harder for competitors to copy and easier to evolve alongside your customer’s unique needs.
For example, let’s say your competitive edge lies in a proprietary recommendation algorithm for e-commerce. Outsourcing this to a vendor risks commoditization; if your competitors use the same vendor, your “secret sauce” loses isn’t so secret afterall and you’ve immediately lost your differentiation. Building that algorithm in-house ensures control, adaptability, and defensibility.
That said, building comes with its own challenges—higher upfront costs, longer development cycles, and the need to maintain a robust engineering team. When choosing this path, focus on creating something truly distinctive and avoid layering in third-party dependencies that dilute your differentiation.
The Spectrum: It’s Rarely All or Nothing
The reality is that most companies operate on a spectrum between building and buying, often integrating elements of both. For instance:
You might buy an analytics platform but extend its functionality with custom-built dashboards.
You could build a customer-facing app from scratch but use third-party tools for backend functions like payment processing.
This hybrid approach often strikes the right balance, but it requires discipline. For tools you purchase, resist the temptation to over-customize or risk losing the benefits of buying. For tools you build, minimize reliance on external dependencies to preserve your competitive advantage.
Strategic Examples in Action
Let’s illustrate these principles with two scenarios:
Scenario 1: Collaboration Tools
Your team needs a messaging and file-sharing platform. This isn’t a core differentiator, so buying a solution like Slack or Microsoft Teams is the obvious choice. Customizing beyond superficial branding should be avoided to ensure the tool remains scalable and easy to maintain.Scenario 2: Customer Experience Platform
If your business prides itself on delivering a unique, seamless customer experience, you might build a custom portal tailored to your audience. However, you could integrate third-party APIs for supplementary features like payment gateways or chatbots to avoid wasting resources on commoditized functionality.
Another important example at present is Large Language Models (LLMs). At present, most companies are looking at LLMs as an opportunity to differentiate themselves from their competition whether that’s through operational efficiencies via LLMs taking on various work internally, or through surfacing externally through portals or websites. However, they then go and buy this technology from a vendor like OpenAI or buy the licensing for the functionality from their existing vendors like Salesforce. This may be a competitive advantage right now because adoption is still relatively low, but so are the barriers to entry, making it incredibly temporary. As adoption increases rapidly, so does the advantage decrease rapidly. The only way to sustain this advantage is to build a model(s) that are superior to anything anyone can buy. Which would of course be a monumental task.
Here’s where some may point to companies that are building tools on top of vendor models like OpenAI or even open source models, and claim that they’re competitively advantageous. To this I would say that these companies have placed all of their advantage in the hands of a completely different company, does that sound like a recipe for success? So long as the partnership stays amicable, vendor prices remain reasonable, and you can sustain leveraging that model in ways no one else can, sure it’s competitively advantageous, but that’s a tall order. And yes, these factors exist even if you build things in house, but they are significantly mitigated by the fact that your competition doesn’t have easy access to the exact same underlying technology. So be careful what you assume is a competitive advantage.
Playing the Long Game
Both building and buying come with trade-offs. Buying delivers speed and efficiency, but risks commoditization and vendor lock-in. Building fosters differentiation but demands significant time and resources. The key is to align your decision with your long-term strategic goals and to periodically revisit the balance as your business evolves.
Ultimately, successful companies excel not just in building or buying, but in assembling a cohesive, strategic ecosystem of tools that drives both innovation and operational efficiency. It’s not about how much you build or buy—it’s about ensuring that every choice contributes meaningfully to your competitive advantage.