Build or invest?

James_Dearsley2James_Dearsley2 Member, Administrator admin

I'm interested in the mentality of some firms I see that want to build their own tech rather than simply invest in existing tech solutions.


Any thoughts on the positive and negative of each scenario?

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  • Knowing whether to buy or build software is dependant on your understanding of where competitive advantage lies. By definition anything you buy is not a competitive advantage. Anyone else can buy the same functionality. In areas of commoditisation that does not matter; no-one is going to build their own word processor, or spreadsheet. The flip side is that in areas of pure innovation you will have to build your own, as it obviously does not currently exist. In the middle (and one should think of the business S curve) you have areas where software can be heavily customised to suit your particular needs. This might give you a temporary advantage. However any customisation that is applicable to a wider customer base will end up being incorporated into the suppliers base product. So advantage is fleeting.


    So, at a fundamental level, if you buy your software it intrinsically will not provide you with a competitive advantage. However that is not to say this is a route you should not follow; how one exploits, leverages and optimises software can definitely be a competitive advantage. Everyone can use that aforementioned word processor, but there is only one Tolstoy.


    Whether you buy or build software is only part of the equation; as ever technology is but a part of your value proposition.

  • James_Dearsley2James_Dearsley2 Member, Administrator admin
    edited March 29

    Agreed on buying software so my question then is whether you "invest" in that technology @Antony_Slumbers.

    Take this example popl.ink/Mn6hgW from the Build to Rent sector - have have taken a stake in a platform they are using.

    A sensible alternative?

  • Sally_HoldwaySally_Holdway Member

    Can be a very sensible approach in my opinion, but not without risk for the tech start up.

    Investing in new proptech innovations can be a win win for existing companies. They dodge the risk of the initial dev stages (time and money), but then get first dibs on it, together with the opportunity to influence direction of travel of future, iterations by virtue of their skin in the game.

    For the proptech start up, it's potentially a quick route to scale up, with a customer sitting at the next desk. But they do need to chose their investing partner carefully. With such a fragmented market there is a risk of limiting the potential market share far too early on, and worse still what happens if the investing company decides this new tool is not for them? The 'next big thing' which the proptech company has sweated blood and tears developing could just end up being mothballed.

  • Mete_VarasMete_Varas Member

    That's a generic question applicable to almost all industries and was asked/answered million times I guess. There is no straight answer. It really depends on the case.

    • Thanks to cloud technology and SaaS models, accessing/using software becomes much affordable
    • If the tool/function/sw/hw is mission critical and is perceived as the core part of the business/company then developing internally makes sense. However, that's usually the case for new economy companies. It's an incumbent we're talking about here. The answer is much more difficult.
    • There is also another type of deal structure called "acquihire" which is the process of acquiring a company to recruit its employees, without necessarily showing an interest in its current products and services—or their continued operation. Expect to see more in the future from the proptech companies themselves
  • Proptech is still very much in its infancy, but its growth is rapid. My personal suggestion to businesses wanting to develop their own tech stack is to shop around first. Innovative companies with recently developed systems may well be open to tailoring their offering to suit your needs, and their API could be easily integrated. This may prove a faster and more cost effective solution than building your own tech from scratch.

  • I remember andy at Coyote wrote a great piece about this subject a little while ago

    https://coyotesoftware.co.uk/proptech-news/why-dont-we-just-build-our-own-property-software/

  • Darryll_ColthrustDarryll_Colthrust Member
    edited April 6

    There are so many facets to this fairly open question, some of which have been explored above. I'm going to focus my opinion specifically to differentiating business capabilities. If you're not buying commodity business capabilities, you're confused about what differentiates you from your competition and you have a bigger problem than buy/build/invest.

    For the majority of 'traditional' property companies, I would dissuade building because the reality is there is no experience. You would have to buy that experience. Even if you bought that experience, a 'traditional' property company does not embody the culture required to keep that experience or ride the waves of difficulties that come with development. Failure is not a learning opportunity. It is a dirty word. Even if none of the above applies, it takes a special property company to recognise the cost associated with development and stay the course, even during hard times. It's not impossible, but improbable.

    Well what about investing. As suggested above by @Sally_Holdway startups need to choose wisely because everything that glitters isn't gold. I fear for startups getting in bed with a 'traditional' property company. Unless that company has actually changed their culture or is siloing the investment from the day-to-day business, startups run the risk of getting short term requirements and undue pressure because the 'traditional' company doesn't understand the culture and nature of what is required to nurture that investment.

    'Traditional' property companies, just buy off the shelf. You'll be able to maintain your status quo for the moment and at least gain some business efficiencies.

    All a bit savage, but I mean well. 😁

  • ChrisSChrisS Member
    I have some thoughts on this.

    Buy
    There is nothing wrong with buying off the shelf products - as long as there is an option to tailor them to suit your specific needs. However, the problem comes with the 'tailoring'. I am thinking here of a company I worked with once. They bought into Salesforce then found it was way off from what they needed in terms of data capture and so on. So they invested in staff training to 'tailor' it (£££thousands at a time). The staff left and they invested in their new staff and so on. It became very costly. The company had over 1000 staff and were paying millions for the use of Salesforce, then more money to train more staff, and more for other features and so the cycle goes on. Not all products cost so much, but hopefully you get my point.


    Build
    So on to my second example. I worked for an organisation that had it's own in house developers. This worked really well (again until the key staff from the original development team moved on to 'better paying pastures new' and took their tacit knowledge of the 'system' with them. Yes they documented things, but it wasn't enough for the newcomer to truly understand the 'system'. Tacit knowledge is a crucial yet overlooked part of building your own systems in house. Let the original developers go without 'a true snapshot of their knowledge' and you are lost). There is a story called In Fred's Head that was covered in my degree that I have never forgotten which epitomizes this (apparently it is a true story but can't confirm this). The London underground had loads of issues with trains de-railing at certain points. For years they couldn't figure out why. Then it stopped. For over 20 years it ran smoothly, then suddenly trains started de-railing again. They invested millions into consultants, troubleshooters - you name it. Nothing fixed it. Then one day someone asked one of the workers a simple question. "Why has it worked for so many years and started to fail now."? "Ask Fred" was the reply. So they did. It turned out Fred solved this problem many years ago by lubricating the areas where the trains de-railed (a bit more than but you get what I mean). He did this daily until he retired. When he left the old problem re-surfaced.

    Invest
    Depending on how you mean with invest, there is a worry for startups in that if they take on investors too early they not only give away far more than they would like but also become controlled by the investor. As investors are mostly only interested in making a profit they may not let the startup fully develop their product to their original vision. Although an investor may often know better, I don't believe they should stifle the original vision and should instead let the startup see it through before they adapt and change it. This has many benefits. Quite often startups are a little muddled in their thinking when building something new (it is amazing to watch ideas flourish and grow from nothing). It is their version of their world and needs to be explored before being ruled out. If you leave them to finish their idea then it may result in a better more innovative product by the end of the process.

    A fourth option is to Collaborate & Partner
    Speaking from the 'proptech' side of things I think this is more win-win. No one has to part with cash but both sides work together to work on something that benefits both parties. Startups definitely need cash injections, but I think collaborating is worth far more to them.
    The difficulty with this is finding companies willing to 'partner' with startups. If Unissu wants to do something that truly helps us Proptechs it would be to make this part of the process easier. It could be as simple as getting all the agents (and other providers) to stick their hand up across the UK and say "I am happy to work with a startup". They could be an independent local agent, a solicitor, property developer or whatever. The other problem most startups have is costs. To attend events for example aimed at proptech startups (the most recent costing close to £400) is just not possible. Most startups live hand-to-mouth when creating and working on their ideas. So organisations who run these events need to make them more accessible/affordable to the innovators of the future - else you will only ever see those 'who can afford to attend' and how does that help or encourage innovation?.
  • ChrisSChrisS Member
    Hi, how do we edit/delete content on here? Be good to know.
  • I think you can only edit content within the first hour of posting a message. Not sure if it can be deleted.
  • Eddie_HolmesEddie_Holmes Administrator admin

    I know we can delete on your behalf!

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