Why Custom Software Development?
A famous silicon valley venture capitalist made a bold statement that ‘software is eating the world‘. There is no doubt that companies that invest in custom software development outperform their peers.
There are numerous benefits to creating your own intellectual property that will fuel the growth of your business.
This page will outline how your business can take advantage of these unique opportunities.
Amplify your point of difference
A compelling point of difference
Leading businesses often have a strong point of difference that their customers love. Their customers are willing to pay a premium for their products or services. They don’t even consider the competition as an option.
However, packaged software can make this difficult.
The nature of packaged software is that it is designed to cater for many businesses and not your unique value proposition. Packaged software vendors will often say you should change your business processes to ‘industry best practice’.
This is acceptable for business processes that do not affect your point of difference. Examples of this could be for your accounting systems or your HR systems. These systems are not normally creating a point of difference for your business. Selecting an off-the-shelf package is often the best solution for these requirements.
When to create your own software?
However, if you have a point of difference then you should use custom software development to amplify this point of difference. An example could be where you are a ‘fintech’ company and your point of difference is that you can credit assess a customer much faster than the competitors. In this instance, you should invest in custom software development that amplifies your point of difference.
Another example could be you supply equipment or parts to other businesses. You could use custom software development to streamline the ordering of the equipment or parts directly from your client’s systems. This not only streamlines the ordering process for your client, it also creates a ‘lock in’ effect. Why would your clients use another supplier when it is so much harder?
Intelligently leverage software development
The key is to apply custom software development where it makes sense to do so. Where it doesn’t amplify your point of difference, off-the-shelf packages may be a better option.
It wouldn’t make sense to write your own accounting package when there are so many available that should meet your requirements.
Increases financial performance
A strong business case for custom software development
As with all investments, there should be a strong business case for custom software development. The business case should demonstrate an acceptable return on investment.
Increased Revenue
Custom software should increase your revenue.
Amplifying your point of difference sets you apart from your competitors. This should result in more customers.
You could also increase your prices because your customers value your point of difference.
A better value proposition may also result in better customer retention. This increase in customer lifetime value should result in increased revenue.
Decreased Costs
Improved efficiencies delivered by software development should lower costs.
For example, you may have integrated different systems that make your business processes more efficient. The increase in efficiency results in lower costs that leads to higher profit.
This could also result in non-financial benefits such as an increase in morale. As your staff are doing less manual work, their job satisfaction is higher. This can also have a positive impact on employee retention.
Increases the value of your business
Increased valuation based on financial performance
Increasing the financial performance should increase the value of your business. Whether you apply a multiple based valuation method (e.g. Price to Earnings ratio) or a cashflow based mechanism (e.g. Discounted Cashflow formula), the value of your business should increase.
Improved Balance Sheet
The added benefit of custom software development is that you own all intellectual property rights to the software. This should be capitalised as an asset on your balance sheet. From a balance sheet perspective, your assets are increasing resulting in great value to your business.
The additional benefit is you are creating a ‘barrier to entry’ against competition. It will not be easy for your competitors to copy your point of difference or replicate your operational efficiencies.
They would need to invest in custom software development themselves to achieve these benefits.
Custom development vs packaged software
The section above outlined the benefits of leveraging custom software development. However, in certain situations, packaged software may be a better option for your business.
This section will highlight the points to consider when making the decision between custom development vs packaged software. We can also assist in this process in a completely impartial way.
Consider the following points when evaluating whether to use custom software vs packaged software:
One of the key characteristics of businesses that outperform their peers is they have a strong point of difference and their customers love it. Therefore, will this project enhance your point of difference? If the answer is ‘yes’ then you should consider leveraging custom software.
If the project makes your business run more efficiently, then you should consider custom software development. For example, your employees maybe performing manual tasks that could be automated.
Another example could be where you have a number of systems that are not integrated causing manual handling. Integrating these systems could significantly improve the efficiency of your business.
Reporting and data analytics is a good example where you can gain insight to run your business more effectively. Creating custom reports may allow you to understand the operations of your business so you can increase efficiencies. Insight on your customers allows you to target your sales efforts on the customers that will return the highest revenue.
If your project has passed the criteria above, then there is a good chance that custom software development will deliver a positive return on investment for your business and should be evaluated further.
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