Should I license technology or build my own?
May 2017 | Jonny Edser
Should I license technology or build my own?
This is a great question and one which I have been asked many times before and which I shall attempt to answer…
We made a decision back in 2010 to fund the development of our own app to bring to life the traditional paper-based treasure hunts that had become the core of our business here at Wildgoose since 2004. The idea was to combine GPS with live maps and exciting content to ride off the back of the iPad revolution that was just hatching at the time.
At the time I did go to Vienna to meet a tech-company who had built a similar app but we decided against licensing from them because we felt that it’s functionality provided too many limitations and also because it was a public app, all of our content would be shared with other users. That would not work for us! A friend of mine was in IT and he felt that he could build something for me which wouldn’t be that expensive. Over a couple of beers, the idea was born and we went for it!
Now I can honestly say that I do not have a single regret about developing our own app (and the two enhanced versions that we have launched since), even though it has cost us a small fortune and a huge amount of stress. Under different circumstances, I may well be sitting here with a very different opinion, and I guess the purpose of this article is to give you some food for thought so that you make the best decision for your business.
Think about the value of your time, not just the cost of development
If you are a business owner and generate (for example) £250,000 worth of business a year for your company then the value of your time is £1,086 per day (based on 230 working days a year). If you spend 30 days of your time designing, project managing, testing your app, and generally getting distracted by the process then that is a cost to you of £32,580 on top of the ACTUAL cost of the app. Generate more than £250k for your business? You do the math (gulp).
Think about the cost of any delay
Our first app ended up taking one year to build because the technology was new and we were learning on the job. What is interesting is that if we had licensed a product we could have been ready to go to market from Day 1 but instead, we were not ready until Day 366! Now consider this – we grew our Gross Profit by 40% in year 1 of launching the product and then 40% the year after. Now imagine if we had launched 1 year earlier then we would have had 40% growth a full year earlier. Just say we had Gross Profit of £100k in Jan 2010. In Jan 2011 we would have increased that to £140k and then in Jan 2012 we would have increased that to £196k. Instead, we were at £140k in Jan 2012, costing us £56k in lost Gross Profit. The cost of delay cannot be ignored and has to be taken into account.
Cashflow and up-front development
We have developed three versions of our app since 2011 and added countless improvements in between. Not only is this expensive both in terms of time and money, but it also requires large upfront sums of cash. There have been times when it has felt like I have just dug a large hole and thrown a pile of money into it, such has been the investment required.
We looked at building a customised CRM in 2014 and the upfront cost of initial development would have been huge. In the end we ended up going with Salesforce which is on a license fee model with some initial upfront development to fit with our needs. The model is that we pay quarterly license fees so whilst over a 5 year period we will probably spend more with Salesforce than if we had built our own, we did not have to find such a large initial investment of cash. Cash (as we know) is King.
Using Salesforce also saved us a huge amount of time, it is world-class and it is constantly evolving. There is no way that we could have built anything close to as good so in that instance, licensing was the correct choice for us.
But you want to own the technology, right?
As entrepreneurs, we all like the idea of owning a product; something to call our own. I 100% agree with this theory but on one condition….the product has to be exceptional! If you own a market leading app then you will no doubt have added significant value to your business and it will be a great decision. If however, it is not very good then quite frankly, you have wasted your time and your money as it will not deliver the quality that your customers expect.
Stick to what you are good at
There is a good argument to sticking to what you are good at and to outsource the rest. Fear not because we do this all of the time – you outsource your car building to one of the major vehicle manufacturers; I am pretty sure that you didn’t build your own house and that you got a contractor in to do that; you probably allow Microsoft or Google to do the heavy lifting on your computer based programs rather than come up with your own spreadsheet technology. The list goes on….
Think about the volume of use and the ROI
This is the crucial question for me and is why I ultimately believe that I made the correct decision to build our own app rather than license. This app is the cornerstone of our business and we ran approximately 1,700 events in 2016 which made the ROI very high.
However, if your volumes are low then the decision to invest in your own app starts to become borderline at best.
Our marketplace is littered with poorly built apps. Their owners probably felt that it would be cheaper and better to build their own but the reality is that if the volume is not there in your business then you will be reluctant to continue the investment after the initial build. Failure to continually invest will see you slip further and further behind the competition and all you will be left with is an app that is worth nothing and that you don’t want to use because it is not good enough. The knock-on effect for you in terms of time wasted, lost revenues, and damaged reputation is very costly and not worth the risk.
If you are hugely ambitious, deliver huge volumes, have deep pockets and a strong team, and wish to build an app to top all apps then go for it. It could be the best decision you ever made.
If you cannot wholeheartedly agree with every point in this last sentence then think long and hard about whether you can commit fully to building your own app. Instead, my advice would be to think about what you could achieve by licensing the best product on the market and focusing your time, money and energy on what made your business great in the first place!