In their earliest stages, most young companies manage their data, information, and processes in some combination of Excel, Dropbox, and Google Drive (at Algothic, we certainly did). But as these companies grow, so does the volume of operational data they need to manage. As this data outgrows the homegrown, Excel-based systems, they start to switch to a combination of systems that may or may not fully integrate with one another — one to store and sort customer data, another to automate marketing emails, a third for document management, etc.—until suddenly the teams find themselves spending more time managing disparate systems than building their products or deepening their customer relationships. Data gets lost, relationship touchpoints fall through the cracks, incorrect information gets shared, customers start to get frustrated, and the bottom line begins to slip.
By this point, the need for an Enterprise Resource Planning System is evident, but the companies are so far down that slippery slope that, whether they choose to build their own platform or purchase an existing one, the transition will be costly and messy.
At Algothic, as we’ve looked at our recent growth, our big-picture vision, and our projections for the next five to ten years, we’ve realized that it’s time to start thinking about building the proper foundation now — before we find ourselves in that spiral of disparate, patchwork systems and lost opportunities.
After we committed to investing in a fully integrated ERP System, the first decision we had to make was whether to build our own or buy a readymade system from one of the many vendors on the market. Our choice: we’re going to build our own. I know that we’re just one of hundreds — even thousands— of companies out there in similar stages of growth, so I wanted to share our thought process in order to help other businesses understand the implications and come to the best decisions for themselves. (And, of course, we’re more than happy to discuss the process further with anyone who’s considering building their own system, as well.)
First Off, What Is an ERP, and Why Might Your Business Need One?
An enterprise resource planning system (ERP) is a software-based solution that integrates and manages all the facets of running a business — from HR to finance to procurement, distribution, and other departments across the company. Operating from a single database, these systems keep all the business’s processes running smoothly and all the teammates up to speed.
These ERP solutions may be composed of dozens of different but fully integrated systems, or they may be one single solution, like SAP or Microsoft Dynamics. Either way, a fully functioning ERP system can do wonders for an organization’s efficiency and productivity — and it can be a true competitive advantage in a crowded market.
From calendar management to financial reporting to resource optimization through machine learning, the ERP takes the legwork (and the human error) out of a huge range of business processes. This load off improves margins and leaves team members free to devote their time and energy to their primary job functions and the core services of the company.
While the idea of an ERP usually brings to mind a huge global Solutions with thousands of employees and dozens of departments, we firmly believe that, as the foundation of operations, an ERP is a critical addition to any growing company, and we are eager to build our own.
Why Build When You Can Buy?
Yes, we know building this kind of system from the ground up is complicated. We know it requires significant investments. And we know there’s a long list of “prebuilt,” configurable ERPs on the market — Microsoft, SAP, and Oracle, to name a few.
So why build?
We didn’t take our decision lightly. We carefully analyzed the benefits and drawbacks of purchasing and configuring an existing system versus building our own. Here’s why we chose to build:
1. Customization Costs
Every technology — even the ones branded as “out of the box” — require at least a modicum of work before they’re ready to use. Best case scenario, this would mean just an installation and basic configuration. Many SaaS solutions, such as Twilio and Stripe, are close to that best-case scenario. Buyers have access to all the system’s features and may submit feature requests to the developers if they need something else.
Worst case — and more likely considering the complexity of a fully integrated ERP versus a smaller system — it would require thousands of man hours to rewrite half the code base to tailor it to our own needs (assuming we even have the luxury of access to the source code and licensing to edit it).
We’ll give ERP vendors credit: in order to reach a broad market of potential buyers, they manage to create systems that are flexible enough to meet every conceivable business need — that is, if users have the resources, expertise, and coding ability to configure them properly. The problem is that, in most cases, the configuration needs are so complex that they require almost as much programming as starting from scratch. And often, businesses end up hiring consulting companies and paying them significant sums to handle the system integration.
The way we see it, if you have the resources to manage all that custom coding, configuration, and integration, why not spend them on a system built just for you? By building rather than buying our ERP, we give ourselves the satisfaction of knowing our system was built specifically for our needs, rather than adjusted from mass market specifications, and that we own the resulting product.
2. Vendor Lock
With any proprietary software product, one of the major drawbacks is that your success depends on the success of the company behind the system. The risk of a vendor disappearing altogether is greater with smaller, older companies than, say, Microsoft or Oracle, but it’s no less a risk. At Algothic, we’ve had many clients come to us to revive ten-year-old systems that had been abandoned by their vendors — but without access to the source code, and with the original developers long gone, there’s only so much anyone can do.
Even with the bigger companies, vendor lock poses a risk. As I mentioned, there’s the conflict between unification versus customization. Since the company’s goal is to make the product as appealing as possible to as many businesses as possible, clients who don’t have the capability to modify a system themselves often have to wait several months for the vendor to implement features that are critical to their business.
By acting as our own vendor — by owning the product — we give ourselves the power to make changes we need as soon as we need them, and we give ourselves the insurance that our system developers won’t walk away until we do.
3. Licensing Costs
As we’ve discussed, the cost of buying and customizing an ERP is significant — hundreds of thousands of dollars, if not a million or more — but it doesn’t end there. Businesses that purchase off-the-shelf ERPs are saddled with ongoing, regular licensing fees in order to keep using their systems—and those fees are likely to increase dramatically over time, regardless of how much each client is getting out of the system.
With a custom product, on the other hand, businesses have more control over their investments, not paying a penny over minimum operating costs until they’re ready, and paying only for modifications they make to meet their own needs — not added features the vendor uses to appeal to a wider market.
4. Cloud Technologies
Many of the ERP systems available for purchase today were originally conceived before cloud technologies became available to the mass market. While many of these providers are in the process of moving their systems into the cloud — and many have been successful—simply migrating a product to the cloud is not as effective as designing the solution for cloud use from the ground up. With a cloud-first approach, developers can take advantage of a much broader range of managed design and build services, creating a product that harnesses the cloud’s full potential. (Read my recent article for a refresher on the advantages of a cloud-first approach.)
5. Our Own Expertise
At Algothic, we’re a software engineering company that’s well-versed in building custom systems, so we believe it would be a waste not to use our talented team of developers and our industry best practices to build our own system with the same care and quality we use to build software for our clients. (After all, if we were hesitant to use our own services, how could we possibly promote them to our clients?)
Granted, we recognize that we’re unique in this regard — not every company that needs a custom ERP solution is a software developer with the expertise on site. However, if your company falls in this category, there are plenty of vendors you can hire to build the system for you. The difference between hiring a vendor to build a system and simply buying an existing system is that, in the former scenario, the client retains full rights to the system itself, including the source code, the right to modify the system as necessary, and even the right to seek support from a different vendor if necessary.
For these reasons, we’ve decided the best thing for Algothic’s business is to build rather than buy. Of course, the “right answer” may be different for others, and the decision will come down to each organization’s specific requirements, including use cases, hosting restrictions, compliance needs, and more. But for us, the choice is clear: by creating our own system, we can design and build a product capable of doing exactly what we need, exactly the way we need it to do.
