Product Manager Delimma: Build or Buy
As Product Managers, one of the biggest decisions we face is whether to build or buy certain product features or components. This choice affects our control, cost, time-to-market, and ultimately, the product’s competitive position. This guide breaks down the build-or-buy decision across four types of product boundaries.
1. Core Product: The primary value proposition and main source of revenue.
2. Outer Core Product: Complements the core product, essential for an end-to-end (E2E) core product cycle.
3. Value-Added Features: Enhancements that indirectly support or enhance the core product and impact the revenue.
4. Ancillary Features: Delightful extras that respond to user preferences but are not essential to the core product.
Let’s explore the pros and cons of building vs. buying for each product category.
1. Core Product: Main Business, Primary Source of Revenue
👷♀️Build
👍Pros:
a) Lower risk of business disruption.
b) Full control and autonomy over prioritization.
c) Predictability in forecasting and scaling.
👎 Cons:
a) High operational and maintenance costs.
b) No fallback options if issues arise.
🛍 Buy
👍Pros:
a) Manageable costs, negotiable based on services.
b) Shorter time-to-market.
👎 Cons:
a) High risk of vendor-driven shutdowns or service changes.
b) Limited control over prioritization and customization .
🔊 Recommendation:
For core products, I strongly recommend building. It provides full control over product evolution, avoids dependency on third-party providers, and aligns with revenue goals.
Metrics to watch out for build approach :
* Development Costs and Budget Adherence: Track actual development expenses against projected costs to ensure the project stays within budget and prevents overspending.
* Time-to-Market (TTM): Measure the time from product conception to launch to ensure timely delivery and competitive advantage.
* Quality and Performance Metrics: Monitor system uptime, defect rates, and load handling to maintain high product reliability and customer satisfaction.
2) Outer Core Product: Complements the Main Product, Essential for E2E Product Cycle
👷♀️Build
👍Pros:
a) Enhanced control over core E2E processes.
b) Tailored customization for critical business needs .
👎 Cons:
a) Increased development time and higher costs.
b) Requires long-term support and maintenance
🛍 Buy
👍Pros:
a) Faster deployment for less-critical features
b) Lower initial development costs
👎 Cons:
a) Limited customization options
b) Dependency on the vendor for updates and potential service changes
🔊 Recommendation:
For outer core products, a hybrid build-and-buy approach is often optimal. Break down the outer core features into critical and non-critical elements. Build the essential core components where differentiation or integration is vital (e.g., main chargeback processing), and buy the supporting elements where rapid scalability and cost-efficiency are priorities (e.g., bulk processing for chargebacks).
Metrics to watch out for for a hybrid build-and-buy approach:
* ROI (Return on Investment): Measures the overall profitability of both built and bought solutions, ensuring the investments deliver sustainable value.
* Total Cost of Ownership (TCO): Tracks the true cost of ownership over time, including both upfront and ongoing costs for both internal and external solutions.
* Time-to-Market: Assesses how quickly the solution can be developed and deployed, impacting your ability to capitalize on market opportunities.
3. Value-Added Features: Indirectly Impact Core Product, Enhance Revenue
👷♀️Build
👍Pros:
a) Full ownership and alignment with the brand.
b) Flexibility to adapt as market demands evolve.
👎 Cons:
a) Higher development costs with no guaranteed ROI.
b) Adds to maintenance and operational complexity.
🛍 Buy
👍Pros:
a) Faster time-to-market with mature, tested features.
b) Reduced investment in development .
👎 Cons:
a) Integration challenges may arise.
b) Limited influence on future enhancements or updates
🔊 Recommendation: **Buy** is typically more practical for value-added features, especially for widely available enhancements. **Build** only when these features uniquely differentiate the brand or are crucial to user retention.
Metrics to watch out for for a hybrid build-and-buy approach:
* Customer Retention Rate: Tracks how well value-added features contribute to keeping existing customers engaged and loyal.
* Revenue Uplift from Premium Features: Measures the increase in revenue generated from users upgrading to premium features or additional services.
* Feature Adoption Rate: Monitors the adoption and usage rate of value-added features, indicating their relevance and impact on user experience.
4. Ancillary Features: Delightful Extras Based on User Needs
👷♀️Build
👍Pros:
a) Full customization aligns with unique brand needs.
b) Opportunity for highly tailored features to delight users.
👎 Cons:
a) High cost with limited impact on core revenue
b) Increases product complexity and maintenance requirements
🛍 Buy
👍Pros:
a) Low upfront cost if partnership-based.
b) Quick to implement, allowing focus on core priorities .
👎 Cons:
a) Limited customizability
b) Risk of dependency on SaaS providers, particularly if they adjust their offerings in ways that may not align with user needs |
🔊 Recommendation: Partnering with SaaS providers may be ideal. Collaborate or partner with external vendors to reduce costs and foster flexibility. Alternatively, explore providing users with recommendations for third-party solutions if full integration isn’t necessary. This approach can help reduce up-front costs while offering ongoing value to users.
Metrics to watch out for for collaborate or partner approach:
* Cost-to-Value Ratio: Measures the return on investment for building vs. buying ancillary features, ensuring that the cost justifies the impact on user satisfaction.
* Vendor Dependency Risk: Tracks the level of reliance on external SaaS providers and assesses the potential impact of changes to their offerings on your product.
* Feature Integration Speed: Evaluates how quickly ancillary features can be integrated into your existing product without disrupting core functions.
Final Thoughts
There is no rulebook for making build-or-buy decisions, but keeping certain strategic factors in mind can guide you toward a balanced choice. Here are some key aspects to track as you evaluate your options:
- Cost and ROI Evaluation: Assess initial and long-term costs of building in-house, including operational, maintenance, and scaling expenses, to ensure a favourable return on investment.
- Competitive Edge and Customization: Evaluate whether building or buying offers a competitive advantage. If custom features can differentiate your product or if purchasing allows you to focus on strategic priorities.
- Risk Management for High-Revenue Features: Carefully assess the risks of vendor dependency for high-revenue features, where building in-house minimizes external risks, but buying offers scalability and speed.
- Vendor Dependency Mitigation: If buying, implement contingency plans such as flexible vendor terms, backup providers, or modular architecture to reduce risks from potential vendor changes.
- Lean, Flexible Approach with A/B Testing: Maintain a lean, flexible model that allows for pivoting between build or buy decisions, using A/B testing to validate features and continuously adapt based on user feedback and performance data
Regular evaluations ensure alignment with strategic goals, operational feasibility, and market changes. What works today may not be effective long-term, so staying lean and agile is key to success and recovery from setbacks.
If you have any thoughts or would like to chat over a coffee, I’d be glad to connect!
Email : nidasaleem333@gmail.com
