Buy vs. Build at Startups

Startups use leverage to make things grow. A lever, like a crowbar, is a force multiplier.

You can leverage money, of course, that’s the traditional definition. You can leverage people, by hiring the best. And you can leverage technology to make a process perform better.

Build the things that are core to your process and product. Buy the things that are not. Don’t build a QuickBooks clone, unless your accounting is genuinely different. If your business is providing a better accounting sytem, please do.

The rise of SaaS and APIs may mean that you can also leverage by extending existing services. This can be a great time saver, if the API is easily consumable or the SaaS data can be easily worked into your process. Time is always a scare resource in startups. Make sure that the tools you choose to buy instead of build actually save you time.

Turning fixed costs into variable costs is the conventional wisdom with outsourcing, because fixed costs remain steady no matter how much you sell, and variable costs grow with each product sold. The lower variable costs you have, the more that an increase in revenue will result in a larger change in operating income (the faster the profits will increase with sales).

Of course, you have to have enough money for the fixed costs. It will increase your burn rate. But there will always be some fixed costs in a startup, especially the salaries of the founding team.

Assuming you already have technical talent on staff, that’s a fixed cost. Use the talent to build things that give you competitive advantage. Improve your process, your execution, or your customer experience.

Disclaimer: I am a programmer. I love building stuff. I have an inherent bias towards leveraging technology, because I can. Let me know your thoughts in the comments, please!