Ep. #651 - Buy or Build at Your Startup?
In this episode of Startup Hustle, tune in to Part 27 of “How to Start a Tech Company” as Matt DeCoursey and Matt Watson discuss if it’s better to buy or build at your Startup.
Covered In This Episode
When it comes to technology, as a founder, you always have to decide whether it is better to buy or build at your startup. There are many factors to consider in making this decision, from cost to complexity and length of development. To help determine the best course for your startups, listen to the Matts talk about buying or building at your startups.
The Matts share the benefits of both buying and building technology. They also share their own experiences and how their decisions affected their businesses.
Listen to Matt and Matt discuss the pros and cons when you buy or build technology at your startups in this Startup Hustle episode.
Missed the previous episode? Click here to listen to the 26th episode of the “How to Start a Tech Company” series. Or join the Matts in the 28th episode here.
- Introduction to Part 27 of How to Start a Tech Company series (0:14)
- Buying vs. building (1:08)
- Open-source is another option (3:48)
- You have to own proprietary technology (7:55)
- Things that are both buy and build (11:13)
- Don’t be so fascinated with cheap or free that you blind yourself to your future needs (14:06)
- The pros of building techs (17:32)
- The pros of buying techs (20:51)
- There’s just so much information out there everywhere (28:31)
- Margins matter to investors and acquirers (33:27)
- Are you a buyer or a builder? (35:01)
- Wrapping up (39:18)
Now saving money is making money, yes, but you shouldn’t spend millions of dollars in R&D if you can just buy something off the shelf unless there’s a really damn good reason. Because we talked about this all the time, right? For everything you do, you have to carry your backpack around and support it. So if you’re going to build it yourself, you have to support that damn thing forever now. So a lot of times, it’s smart just to buy it.Matt Watson
You have to stop and change clothes, basically. And then get moving again. So if you think you’re going to get it, don’t be so fascinated with cheap or free that you blind yourself to your future needs.Matt DeCoursey
I think both are right. You want to build things that are innovative, they’re gonna drive revenue, give you a competitive advantage, all those sorts of things, and you want to buy things that are a very low operational expense. Whenever you look at this stuff, you always have to just look at the pros and cons of both sides. And it’s different for every company. Everything, every phase of the company, always changes. But more often than not, if you can buy stuff, if it’s not like a really big competitive advantage to it, you’re better off.Matt Watson
Still like a snowflake, man. It’s going to be different in every single situation. It’s a decision you have to make for yourself. And if you’re in that MVP phase, do everything you can to buy before you are forced to build because once you start building, you will never stop, and yeah, there is no stopping. So that is why our tech people are crazy because it’s like the frickin post office, like the mail never stops coming.Matt DeCoursey
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Following is an auto-generated text transcript of this episode. Apologies for any errors!
Matt DeCoursey 0:00
And we’re back. Back for another episode of Startup Hustle, Matt DeCoursey, here, with Matt Watson. Hi, Matt.
Matt Watson 0:06
Hey, what’s going on, man?
Matt DeCoursey 0:08
Matt Watson 0:11
Matt DeCoursey 0:14
No, part 27 of 52. But that was a good guess. And actually, both are divisible by three. So take that however you want to take it, but we’re, if all useless connections listeners that you can make, there you go. So, Matt, we’re here, part 27. And we’re getting things back on track. You know, we’ve, we’ve fallen a couple of weeks behind in our 52-part series. But our goal is to bring our listeners a real look at what entrepreneurship and startups are about. And part of that is trying to get things out on time. Well, in the spirit. Well, in the spirit of getting things out on time, many tech platforms have to make a very, very important decision. About so much of their own technology along the way. Would you like to break the news about what that decision is?
Matt Watson 1:08
Well, first of all, I think this relates to these podcast episodes, we’re behind on can we just buy them instead of building them ourselves?
Matt DeCoursey 1:18
That’s always the question. Always the question. No, probably not. Because well, now then how would we spend so much valuable time together? Now? I would miss you. I know you would. And there’s something I want you to know before we talk about whether you should buy or build. Because today’s episode of Startup Hustle is brought to you by FullScale.io. That’s a company we own together, everyone, and we can help you build a software team quickly and affordably. If you choose to build it, we will come. That’s how that goes right now. If you want to buy it, that’s a completely different thing. But now, when you think of barbell, like, why don’t you go ahead and get us up to the launch pad here? And what does that even mean?
Matt Watson 2:01
Well, I think I think it could mean a lot of different things, a lot of different levels, right? So, for example, I was having lunch with a guy today. And they have some developers actually with Full Scale, and we help them build some stuff. But he also pays for some third-party things, right? So it starts with say, like, Microsoft Office, should you build your own version of Excel? Or should you buy it? Bye, bye. For his his business, he uses some third-party tools to help automate some tasks doesn’t make sense to try and rebuild that himself. Now, really, ah, and the thing is, he should invest in things that are innovative, that are going to drive revenue, not things that help operational expenses or costs. Now saving money is making money, yes, but you shouldn’t spend like millions of dollars in rd probably if you can just buy something off the shelf. Unless there’s a really damn good reason. So that’s where you get into that buy versus build if you can buy it. So you know, because we talked about this all the time, right? Everything you do, you gotta carry around your backpack, and you got to you got to support it. So if you’re gonna build it yourself, you got to support that damn thing forever now. So a lot of times, it’s smart to just buy it.
Matt DeCoursey 3:18
The buy versus build conversation has, in my opinion changed dramatically over the last 10 years, meaning like 10 years ago, there weren’t the options and things and stuff that’s out there. So sometimes you did just have to build it, because, but but now and here in 2021, I mean, there’s like there’s a platform that that does something for everyone. Well, and there’s I mean, it’s so many things, so many, there’s no new idea of ever yeah,
Matt Watson 3:48
There’s no new ideas anymore. For a lot of this stuff, right, there’s also a third option here, we actually should throw into the mix. And that’s open source. So that’s, that’s kind of its own thing, you don’t buy it need, you don’t build it, but you use it. And
Matt DeCoursey 4:05
once you kind of build it, you kind of got it, you got to work it, work it a little bit.
Matt Watson 4:11
That’s another option too.
Matt DeCoursey 4:13
It’s still on the build side of the line like buy as is okay, so Well, let’s we’ll use some real life examples. So, you know, you look at we talked about GigaBook a lot, and sometimes we pick on it. But if, if a simple part of your platforms process is scheduling a call with someone that works at your company, you shouldn’t be building an entire booking system. Yeah, you can use Yoga Book or Calendly or some of the things that are out there that make that really easy for and I’m for the reasons you mentioned, like Dude, it’s 15 bucks a month or maybe even free. Yeah, in some situations. It’s the same thing with Zoom like you should. You shouldn’t be building your own video conferencing technology because you want people to talk to each other and your platform and like Last few are well well funded, and you need the proprietary nature of it, which is what we should mention is, is a strong reason for building something. Well, and
Matt Watson 5:11
there’s also open source stuff that sometimes can meet your needs like so use an example, let’s say at Full Scale, we spend $1,000 a month on a time clock software, right? Well, maybe there’s an open source one out there, that’s pretty simple, that does what we want, maybe we can download it and use it hell, we got some developers, they could probably spend a day setting it up. And then you know, it’s open source, hopefully other people can contribute bug fixes and make improvements to it and stuff. So we don’t have the full burden of doing that ourselves. And maybe from in or out, we can continue to use it, and then we don’t have to pay for it. So I mean, open source is another option. And a lot of large, large companies do that, right. Especially they get real big like we spend $1,000 a month on a time clock, what happens when that gets to 10,000 or 100,000, then all of a sudden, it makes more sense to build it yourself. But instead of building yourself, you might be able to still take an open source version off the shelf and make some changes to it. And that’s still way cheaper than buying it.
Matt DeCoursey 6:07
Yeah. So I think you have a great a great point there. And the time clock example is a good one. Because you know, so this is this is what happens. It’s so I think so many startup founders, and entrepreneurs in general are so obsessed with preventing the sky from falling, that sometimes there’s not much vision on what happens when everything goes right. Yeah. So So some of that is, you know, like so there are a couple of things there, though, if you are growing in a hyper fast way, like we are at Full Scale, there might be other priorities that are way better off blade that are served and way more important than trying to build a time clock come back to that later. So it’s like technical debt. Yeah, well, right. And the thing is, though, at the same time, though, so the time clock, as you mentioned, that we pay for is $5. A person, it wasn’t a big deal when we had 10 people, but now we have 220. And we’re according to the meeting that I was in the other day, we’ll double in size in 12 months and possibly do it again, and 12 more months. And now all the sudden we’re spending 5060 grand a year on a frickin time clock. Yeah, so but at the same time, time is money, and we sell development and software tech services. So if we take someone and put them on building a time clock, that might mean that we don’t have someone that can provide services to a client. So there’s an opportunity cost there as well. Yep. Yeah, so you got to kind of look at it like so. So forfeiting $5,000 a month in revenue to use that person to save $1,000 a month in expenses, that math doesn’t add up, right?
Matt Watson 7:52
Matt DeCoursey 7:55
I mean, overall, I mean, this is this is in so many of these situations, they’re, they’re like snowflakes, they’re all going to be different. Now, I do want to talk about the proprietary nature of things, because we’re talking about how to start a tech company. And there are certain things that, you know, in your tech platform, you okay, you can, you don’t want to just necessarily build a Franken app. You know, like, if you just end up, you’re gonna run into problems with that later, and an MVP stage, I think you’re okay with that. But eventually, you do have to have something proprietary, otherwise, you’re snapping their legs. So you have the same kit that anyone else can have, and no one really wants to buy that are unnecessarily invest in it. You know, we’ve made investments and we’ve had people that have showed up and you’re like, What do you own here? What’s proprietary, what’s yours? And some of it’s like nothing. Okay, well, so theoretically, I could just start tomorrow and put the same shit together myself. You don’t have any advantage there? You don’t own anything? Yeah, we have some of those licenses and agreements. So II up over time.
Matt Watson 8:59
Yeah, we have this conversation actually in Netreo recently. And we’re like, oh, well, we could just use some analytics, you know, dashboard tool and integrate with it and, and be like, That’s literally what our tool is. So you’re saying we’re gonna like, all of our proprietary value that we really provide, we’re just gonna license from somebody else and build on top of right, like, doesn’t really make any sense. Like, you’ve got to own you know, the key, the key thing that makes sure your software unique and proprietary.
Matt DeCoursey 9:29
So there’s a lot of stuff out there right now and a ton of venture capital and just just resources in general that are flowing into the no code environments. And yeah, I see a lot of ads for like bubble.io. And I checked it out. And I looked at it and I think it’s really it’s a cool platform, and it’s superduper useful for a lot of stuff. But one thing you do have to consider is that you don’t own that you don’t own that code, like on some levels like you. You just don’t Yeah, and those are some of the things like I was kind of poking around her website and looking at it, and people are asking those questions, you know, like, can I export this? Can I? Can I take it away? And the answer’s no. And so some of that you got to make some decisions on because if you don’t, if you don’t have a proprietary lock on it, I mean, now you’ve sold to two software companies before you turn 40. You owned the technology, you built it, right?
Matt Watson 10:26
Absolutely. And, you know, actually bubbles a good example of something that could help solve, like our time clock issue, right? Like, what if we just had somebody make like a really simple little time clock app using bubble? For us internally, we wouldn’t care, right? If it just worked if it did what we needed to do for some little internal thing. Fine. Or like, if we want to use bubble to make something to track like, new employees, when they started, we have like a little list and a little workflow, a little database thing or something we did in bubble will probably work fine. Right. But that’s different than creating like a full blown, you know, business and SAS app that has all this complexity to it that you actually sell to somebody, but for a little internal things. Yeah. I mean, it could be a step up from a spreadsheet.
Matt DeCoursey 11:13
Yeah, well, it’s the same thing, like you mentioned, like data visualization and stuff like that. I think a lot of people don’t realize we have a completely custom software platform, that stuff doesn’t just get built. And like, that’s not like a three day project. No, you know, like that there. There’s a lot, there’s a lot that goes with that. And it but in some cases that data can travel back and forth to I mean, there’s a whole lot of business intelligence tools that are that are out there that you can get into that will prevent you from needing to buy stuff now. So I guess if you look at things like bubble that’s like buy, build or rent. And yeah, that’s why it’s kind of DIY of buying it. Yeah. Yeah. It’s like, it is kind of like a rental building. It’s one of the issues that well, and another thing I think that everyone listening needs to consider is that oftentimes, I mean, we’ve done it, we had no people that have done it, I think any successful tech entrepreneur will say that they’ve started with something and then you just you just kind of are married to it forever. Yeah, oh, we’ll do something different later. But then you never are like nine years later, you’re still using it,
Matt Watson 12:23
you got a great example of this.
Matt DeCoursey 12:26
Tell, please tell.
Matt Watson 12:27
So when you get some things that are both buy and build, and they fall right into what you’re describing, and they’re the worst, like things that get their vampire teeth, and you and you’re stuck with them forever, and you know what it is? Salesforce, and things like that, you buy Salesforce, and then you customize the shit out of it to do all these different things. And then you never can get rid of it like event solutions, we had like three or four full time employees that did nothing, but manage Salesforce, and make changes to it. Like it was so deeply embedded in what we did. And we paid so much shit for that it was insane. And, yeah, so you get into something sort of like that, you buy it, and then you build on top of it. And then you are stuck with that thing forever, it’s really, really hard to get away from it.
Matt DeCoursey 13:18
That’s a great example. And if you’re from Salesforce, sorry, it’s true, like that shit super complex. And it’s really, really expensive. Like, and while that might fit in some in some budgets, you can also be on the flip side of things, though, you can like, be so fascinated with cheap, like we said Giga buck and Calendly. And a previous conversation Well, Calendly is made to be cheap light, it’s just basically a bridge to Google Calendar. But it’s not going to do all the like wild shit that Gigaba can do and regards you just a lot of it. And so also make sure that if you do choose to buy or slash rent, in this situation, that you’re going to be able to grow, that what you’re looking at meets what some of your future needs are,
Matt Watson 14:04
Well, or no, you’re gonna grow out of your them.
Matt DeCoursey 14:06
Well., that’s my point. You have to stop and change clothes, basically. And then get moving again. And then and that’s where that’s where technically, you know, the last episode we were talking about technical debt, that’s a that’s operational debt, which is kind of technical debt. So if you think you’re gonna get it, like don’t be so fascinated with cheap or free that you blind yourself to your future needs, because well,
Matt Watson 14:34
Well, I would say when you think about buying things, this is absolutely true. And it applies to a lot of things, right? Like, for example, QuickBooks is really cheap, and we use it and it cost you know, 50 bucks a month or 100 bucks a month, whatever. But at some point in time, you may outgrow it because you need to do some advanced things and that’s okay. And as a young startup, that that mentality actually applies to a lot of things right like, I want to use like this really cool. complicated CRM tool or marketing tools are all this stuff that could be 1000s of dollars, or 10s of 1000s of dollars a year, and I can’t afford them. So for now, I’m using some like cheap, crappy version that costs like $400 a year. And that’s okay and eventually outgrow it, and I get to that Enterprise feature set that I needed. And I go by the Big Boy tools that are really expensive. And that’s okay. And that’s just part of you know, what happens, you know, as you as your company grows.
Matt DeCoursey 15:26
So let’s, let’s talk about like a measuring stick, meaning like some pros, some pros of building and buying. Now, before we get into that, a quick reminder, today’s episode of Startup Hustle is brought to you by full scale.io, helping you build a software team quickly and affordably. We’re going to help you build it. That’s what we do. And I guess if you want to buy it, we could, I’d like to think our team could probably help you install it, if and when needed. So all right, so we’re, let’s start with a few pros that come with building like, well, we use the time clock example. So we like in that example was in the company system that we have been building. Now I don’t want to say built because that would be final, but we continue to work on as our company grows. We found that there just because well, I mean, quite honestly, the services that Full Scale offers aren’t unique. I mean, we sell web development services. But there wasn’t there wasn’t really anything that out of the box, we didn’t have a buy option that met all like the needs of what the company would grow into. So one of the things for example, is we have some technical profiles and basically resume type builders that we have for all of our employees and and that help us match people up with their needs. Now, on the flip side of that there’s a testing platform hacker rank where we use for that we use for assessments, I don’t want to rebuild that shit. No, instead, we integrated by that. And then it integrates with our own system. So it’s the same thing with things like QuickBooks, like but the customization and the scale. Are there when you’re building? I mean, they’re limitless. I mean, theoretically, you can have it do whatever you want it to do you have a greater control over things, but at the same time that greater control is often limited by your by how fast can you customize it?
Matt Watson 17:32
Absolutely. I mean, that that the biggest pro to building is customization and indoor scale, right at some point in time. Like I always joked about this in automotive, you know, we’d sell our software to car dealers for like $2,000 a month, right? Well, there were car dealer groups that have like 200 stores, does it make sense for them to spend 400 grand a month or at some point in time? Is it cheaper for them to build it themselves. And it’s sometimes things get to economies of scale like that. But the problem is, even then a lot of times they don’t have the expertise, they don’t really know what to do it. I mean, it’s the dirty rotten stepchild that never gets attention. They never can create a market leading product. And so even a lot of times, it still doesn’t make sense to build it because you just don’t have the in house expertise. And it takes away focus from something else that you could be spending your time on.
Matt DeCoursey 18:19
Yeah, and I think you have a good point. Because when you’re, as you were saying that I’m just sitting there thinking, is this what we do?
Matt Watson 18:26
Matt DeCoursey 18:27
Right. Because like you because you like and I think a car dealer is a perfect example. Like, they I don’t know, car dealers that just have like a dev team. Nobody knew of metal, you know, like, yeah, right, right. And that’s the thing, though. So it’s like, if you don’t, if you’re gonna build stuff, you need to be prepared. It’s never done. If you’re sitting there listening, thinking, Oh, well, I’ll just hire developers until it’s done. It’s not; it’s never frickin done.
Matt Watson 18:54
And the other thing is, it could be a strategic, it could also be a strategic advantage to you, right? And so you have somebody like Tesla comes along, they’re like, no screw all the way all this shit is done. Now we’re going to plow a totally different way of doing it, and a totally different business model. And because of that, they did have to build it. And that happens to
Matt DeCoursey 19:13
So competitive edge, it can be a big competitive advantage. You can have a competitive edge. You do you do create Tech, we talked about technical debt, but you also can create technical assets like depending on what it is that your company does. Well, we’ve sold licenses of GigaBook. Yeah, so you know, like so there is value and stuff there for someone else that wants to customize it or deal with it or do it however, and you know, now it’s funny because our notes here for the pros of building say guaranteed integration, and I’m thinking hell no, that’s a whole nother project on top of your project, more work to do. And that’s something that really tells me on the buy side of things is, you know, the world of connected If it is such a must, amongst all these different platforms is like think about it, you’re like, oh, yeah, so we’ll build our own shit. And then you’re like, Okay, well, I want it to connect to Google Calendar to QuickBooks to Slack, like right there, those are three hefty projects, depending on what it is you want to do. And then here’s the thing, all three of those platforms are going to change something about how they do anything. And you’re gonna have to support them, fix them, change them, make them better, wake them up from the dead. And by the way, Google doesn’t usually usually miss that message that’s like, Hey, we’re changing the API. And then next thing, you know, you got 20 People that count on that feature mad that it doesn’t work. So okay, Matt, what is what are some pros of the by? Where are we out on by?
Matt Watson 20:51
We write the check. And the next week, we’ve got the shit we need, we start using it. And let’s go.
Matt DeCoursey 20:57
It’s a now thing. So yes, if you have if you have X amount of powder, gunpowder, you got to figure out where you want to shoot where you want to shoot, shoot it, you know, and it’s just like, and that’s the thing is, is look, that’s where, okay, so earlier we were we were talking about Salesforce, but at the same time, if that gets you selling and creating revenue, and doing it in an organized and efficient way, like that’s way more valuable than $400 a month in most cases. So you just got to think about what you need and what you’re getting yourself into. So rapid deployment is what you’re mentioning, like, hey, it’s ready now.
Matt Watson 21:38
And honestly, this whole buy versus build thing relates to a lot of things, even with developers, like I had this conversation with one of our developers this week, he was setting up a server and want to install, you know, database queuing thing on it. So we get tested and do all this stuff. And I’m assuming a lot of work and I’m like, Dude, you need to be lazy as fuck. Go to AWS and sign up for their service that does the exact same thing he’s like, but that cost money. I’m like, dude, but it’ll be done in like three minutes. Be lazy. Do go the lazy route, right? It says spending all this time trying to save money, like be lazy and spend a few dollars and save your time. Time is money.
Matt DeCoursey 22:18
I think you have a great, I think you have a great great point, Matt. So you know, you, you’re you’re basically giving the comparison we’ve used that we’ve used the example of the shopkeeper that never opens the store because he’s too busy cleaning the store. This isn’t the example of someone that spends $10 in gas to use a $5 coupon. Yeah, sure. So but and they’re like, and so you already have a negative five there, but or maybe it’s $5 of gas for a $5 coupon? What’s your time worth? What’s your energy? What’s your focus? What’s your team’s energy and focus? So there’s a thing here, I want to talk about something that you can’t put a price tag on? How about peace of mind? Yeah, like, I mean, peace of mind as an entrepreneur is a rare thing on so many days. And by the way, speaking of peace of mind, you know, you didn’t have much peace of mind. And that picture that I posted in the Startup Hustle chat was from our Vegas trip a few years ago, where you have a slip a cash out receipt for six cents. That was my waiting to point it or you’re losing. So that was what you have left. But yeah, that sums up what it’s like to feel like and what it feels like to be an entrepreneur on so many days. So, you know, as I’ve gotten older, or more experienced, as I like to say, I mean, I have a newfound appreciation for peace of mind, meaning, there are things that I’m much more willing to buy and Okay, so right now HubSpot is a good example. Yeah, HubSpot, honestly, kind of expensive for what it does. But at the same time, it’s sophisticated. It has a lot of support. It’s customizable. And you know what, like, it just it’s just it, the organization and the thought that they’ve put into the way that it’s structured, is getting it now look, I don’t have peace of mind while I’m customizing it, because it’s honestly a lot to think about. But after it’s done in true automation and business process, business process automation environments, like if it’s done well it will turn out not only turn into our most productive employee will also be our most reliable employee because as we like to say software shows up every day. Well, so peace of mind is at the end of that.
Matt Watson 24:39
Well, and this hits directly to someone else. I just thought Have you ever heard of that? That that old saying that nobody ever gets fired for buying IBM? Or nobody ever gets fired for buying Cisco. It’s the exact same thing right? Like I buy HubSpot or IBM or Cisco because I have peace of mind that the shits gonna work and if it doesn’t work, I know they’ll make it work that thought out, it’s an I don’t have, I’ve outsourced this problem to the expert at what they do. And I know that they’re gonna make it work and it’ll work.
Matt DeCoursey 25:12
You know, I think you bring up a good point, though at the same time, though. So we’re, you know, we’re talking about our use of HubSpot, which by the way, I really like I’ve really enjoyed it. But it doesn’t create high level strategy, it doesn’t know what my business really needs, it gets a lot of suggestions and templates and stuff like that. But you still have to put a lot of thought into it properly using a lot of the tools that you’re going to buy. Yeah, I mean, and that’s, and that’s, that’s where the challenging stuff comes in. Now, you know what, let’s let’s, I want to switch lanes for a second here. Because we were talking about no code platforms like bubble. I think stuff like that is quite honestly, the future of MVP building. Like, yeah, just proof of concept, to show it, see if anyone gives a shit about it, you know, demonstrate it do a lot of things. And then you’ve created, I mean, theoretically, with HubSpot, the same thing, like once that’s fully customized and going, if I did need to scale it, it is it is a working blueprint for what might need or want to build later. So you can use a lot of these other things to really kind of get the kinks out. You know, and then other things, too, I just think a lot of that stuff. You know, and here’s a guy that sells developer services, but I talk to potential clients all the time. And anytime I see an opportunity for them to keep money in their pocket, I tell them, it’s people appreciate that shit. You know, like, there’s times when you’re ready to do stuff and art like, so if you’re trying to build an MVP, or just prove a basic concept about something. A lot of those things are that that happy medium, and in between, it’s technically buying. It’s not totally building, but you get something demonstratable that you don’t have to sink a shit ton of money into building the MVP.
Matt Watson 27:06
Yeah, absolutely. And we’re ready to go to the next level.
Matt DeCoursey 27:11
Have you tried any of that stuff? I’m just curious.
Matt Watson 27:14
No, not really.
Matt DeCoursey 27:16
So, you know, in some of it, I mean, it’s, it’s, it’s still a lot of that stuff is still formative in nature, but a lot of it. So I think that. So I think some of the things like bubble are they’re pretty general. It’s kind of like GigaBook. It’s like fully customizable, but you got to learn how to customize it and know what you want and how to do it. And then I think that that’s going to a lot of that’s going to evolve into a lot of industry specific solutions.
Matt Watson 27:43
And none of this is new. I mean, think about Microsoft Access. It’s been around forever. 20 years ago, I saw some pretty complicated shit built Microsoft Access that blew me away. And it’s also not too different than like Salesforce, right? You can customize Salesforce to do all sorts of stuff and add fields and screens and views and triggers. And, and, you know, there’s, there’s a lot of solutions out there to the sort of a hybrid of this stuff, right? Like you buy Salesforce and you can customize it to do all sorts of different things. As far as you want to go with it. So
Matt DeCoursey 28:13
yeah, I mean, in HubSpot, it’s been that same thing. It’s less sophisticated. But I also don’t need a developer to I don’t need admin, and a lot of different stuff. So I mean, really, in the end, I think the caveat is if you do choose to buy just know what you’re getting into, you know, and like and think about it and you know, and then there’s, there’s things. There’s just so much information out there everywhere like Google, there’s a zillion there’s everyone’s talking about everything. If you can’t, and if you can’t find it on Google, then it probably just doesn’t exist. Speaking of building things I saw I saw a news feed the other day that Google had like that they’re super computer had built like a time crystal and I’m like, Yeah, I saw that. I read that. I don’t like how does that work? I don’t even know what that means.
Matt Watson 29:02
I think it was I don’t think they actually did I think it was all conceptual that that they like thought that they could or proved that they could but I don’t think they actually have.
Matt DeCoursey 29:12
So you know, I think the things that let’s talk for a second about things that I think are easy buy easy buys and never a build first scheduling and calendars. Like a book. It’s every language, right? Emacs, slang, email, video conferencing, video project management
Matt Watson 29:32
tools, CRM rules,
Matt DeCoursey 29:37
Matt Watson 29:38
Accounting, Business forecasting tools. Oh, yeah, credit card processing, billing, invoicing, payment
Matt DeCoursey 29:46
processing. I mean, do they probably go on and on and on
Matt Watson 29:53
marketing, work marketing,
Matt DeCoursey 29:55
any anything and the G Suite that just
Matt Watson 29:59
we just pull up there? credit card bill and we see all these little charges every damn month. It’s all that shit that adds up.
Matt DeCoursey 30:05
Well, I mentioned like the G Suite like you have like anything that makes a document, a spreadsheet, a calendar, chat, chat, any like chat or messaging, meetings, CRM, like there are components of CRM that you may build into your platform. But there’s just a zillion solutions. Hosting. How about hosting?
Matt Watson 30:31
Yeah, that was one of those get hit on like, AWS and Azure and stuff. Yeah, like buying your own servers and hosting your own servers at this point is a pretty stupid idea.
Matt DeCoursey 30:43
Matt Watson 30:44
Yep, there’s lots of things like tight Chrome or
Matt DeCoursey 30:46
I’m currently in love, I’m currently in love with Typeform. And I’ll tell you why. Because for like 50 bucks a month, I don’t need a front end developer to create my own custom forms that I can also change without having to ask anyone wait or do anything. And for 10, for 10,000 submissions, it’s like 50 bucks. And you go back to that, like the developer wanting to save money, dude, how you need to build something really frickin fast for me to save the 50 bucks a month, that’s $600 a year. That is like, a couple of days worth of dev time for most programmers.
Matt Watson 31:24
Yeah. And I’ve also used like, just Google, Google forums, which integrates with Google Spreadsheets works great, or Survey Monkey, like, there are so many of all these tools out there. And so I mean, one of the biggest pros of buying any of these things is that they continually provide you new updates and features and maintenance, it’s their responsibility to make sure this stuff works. Versus if you build it yourself. You mentioned earlier like peace of mind, right? Like now you got to worry about like maintaining this thing, and having employees that can maintain it, keep it alive, deal with all of that, versus if you buy it from somebody else, you’ve outsourced that problem to somebody else.
Matt DeCoursey 32:00
So as we begin our descent into the into the world of buying and building, and once again, today’s episode of Startup Hustle is brought to you by FullScale.io helping you build a software team quickly and affordably. You know, recently I’ve had people ask me, they’re like, are you worried that like, you’re we’re not, you’re not going to need developers in a few years. Hell now there, the global enterprise, just enterprise software industry generated $517 billion in revenue last year. This is enterprise, the markets there, it’s not going anywhere. There’s a ton of stuff out there. But you know, there’s just still, people are always going to have innovative ideas that are going to that need to and want and should and could be built at that point. Like there are if you want to sell it down the road, like meaning like as technology, you do need to build it on on many levels, because you’re not going to sell your your bubble integration to to a third party. That’s not how that works. Because you don’t own it. You don’t own it. You know, and I mean, now how much of that has come up and your and your two big exits in your life like, I mean, you’ve gone through a lot of that, like, heavy duty technical.
Matt Watson 32:06
They’re buying intellectual property, they want to know what the intellectual property is, right? And they also don’t want to buy something that has a ton of cost of goods. It’s like, Hey, you sell this thing for $300 a month, but you actually pay somebody else $200 A month, because you’re like really packaging their thing. So your margins are terrible, right? So all of that stuff goes into it.
Matt DeCoursey 33:50
So when it comes to investors, or acquirers looking at your software platform, man, how big do they want those margins to be?
Matt Watson 34:00
Usually 70, 80 plus percent. And I think that the key to the buyer is crazy. And that’s high. But for software, but for software, like especially SaaS based software at 90% Plus is pretty normal. You know, Stackify was a little lower, because we deal with a lot of data. So we have a lot of servers and data. But for a lot of a lot of applications very, very few people ever log into them. And they don’t run on very many servers, like the actual cost of hosting the application and stuff is very, is very low. So the margins are very, very high. It’s great, like GigaBook, what you spend like $300 a month on a server. Regardless of how much money it makes, the hosting is $3 a month. So it’s cost of goods.
Matt DeCoursey 34:42
So So you know, if you hear a child screaming in the background of my mic, it’s because that child actually decided to build technology and then later realized what they had gotten themselves into.
Matt Watson 34:57
I was gonna say you build her and you built her right to
Matt DeCoursey 35:01
The other child screaming is actually went and bought it and now has some scalability issues in this dealing with that. So and you know, I think that’s where I want to wrap up because I want to give some perspective. So you know those when you do decide to buy. So we look at let’s, we’re going to use our company Full Scale and the sponsor today’s show, go to FullScale.io. We really do want to help you out, but alright, so we have 220 employees, so eight bucks a month each for slack. Yep. Oh, wow, that’s already a lot. Five bucks apiece for a time clock five bucks apiece for Google Suite. Right there. I mean, that’s six grand a month, seven grand a month, right there. Not to mention, there’s other things and stuff. And so some of that, and what we have to look at as a business is like you mentioned earlier, what happens when we get to 1000 employees? Or what if we get to 10,000 employees, 10,000 employees at five bucks a head for the fucking time clock is is a signet. Now sure, you can probably negotiate some bulk or enterprise rates, which means, which means you’ll only then spend a quarter million dollars a year, maybe, and in some cases. So with Slack, the enterprise price is more. It’s not cheaper. Yes. It’s actually more so some of these things. For the enterprise level tools, double your price, they try to stick it to you. Yeah. So it is on many days, when you look at the credit card statements, it’s death by 1000. Tiny charges, not cuts. But you know, all that stuff matters. All right, Matt. So let’s sum this up. So are you are you a buyer or a builder?
Matt Watson 36:47
I think both right. You want to build things that are innovative, they’re gonna drive revenue, give you a competitive advantage, all those sorts of things, and you want to buy things that are very operational expense, like there’s not a lot, a lot of differentiation to them. I mean, at some point in time, you could consider building something if there’s some cost savings to it, like the little time clock thing or something. But there was one other analogy I thought we should go through that I think is interesting is think about how cars are made today, right? Like General Motors or somebody, they don’t really build anything, they assemble cars, they buy all the parts from other manufacturers, and assemble them and build them, which has its pros and cons, right? They were able to shed a lot of labor expense and stuff like that and, and buy the best brakes from the best company that makes brakes all that stuff, right? But also had cons because they can’t make changes very quickly. And then you have something like Tesla that comes by that says, You know what, we’re gonna build a lot of this in-house because we want to move way faster. And we want to control the supply chain, and made it a competitive advantage, right? And so, whenever you look at this stuff, you always have to just kind of look at the pros and cons of both sides. And it’s different for every company, everything, every phase of the company size company, it always changes. But more often than not, if you can buy stuff if it’s not like a really big competitive advantage to it, you’re probably better off.
Matt DeCoursey 38:07
And I think you have a great point I’m actually glad you brought that up because so I used to work for a company rolling the world’s largest maker of electronic musical instruments, they do like 5 billion a year and musical instruments sales just a juggernaut. They make 100% of their own parts. Because you know if something breaks like six or 10 years later, they might not be able to get a similar transistor somewhere or whatever and then also you have supply chain issues now, one thing to consider as well is when you are buying you can’t make Microsoft fix a bug faster. Yeah, or our Slack add a feature like you are definitely you’re you’re in line on that shit you can’t like and trust me you don’t have the buying power to make them change their mind. So I mean overall like I mean that is something so that’s part of that is on a huge that’s like a huge consideration and something that so you mentioned like with so just Tesla make all their own parts is that a lot of them they do cars, okay, okay, I didn’t know that. So,
Matt Watson 39:12
But you also need like 20% as many parts as a internal combustion engine car does.
Matt DeCoursey 39:18
Well, but the thing is, is those those cars need 100% of those parts because if one of them are missing, so our COO, at Full Scale, Darrell has parents used to own a transportation company that was just they they dealt with the trucks but they primarily delivered to Detroit to car makers and there’s like an every contract they have like anytime a truck would break down it was like a state of panic because if those parts weren’t there, their contracts were like, like devastating like yeah, because if you have to stop the assembly line and forward, yep, the expense with that, but, but here but think about all the interdependencies. So this is why Ford had to cancel plans to build over 400,000 cars this year. Yep. Because they don’t have a frickin microchip. They don’t control any of it up short, and they don’t control it, and they can’t. And then what’s going to happen as well. And I don’t think this has been publicized. But so there’s two major chip foundries in the world to write and yeah, to do. And so here’s the thing is like some of these companies with, they’re probably in a really, really bad spot. So they’re calling that place up, and they’re going, Hey, how much do I need to pay to get moved up in line? Right? So some of this is like, I mean, this is just the
Matt Watson 40:41
Opportunity cost for somebody like Ford, right? It’s a good example of Ford’s got a ton of opportunity cost, they’re losing money by the day, because they can’t build a car because of this small little piece.
Matt DeCoursey 40:50
And they have shareholders to answer to they got a whole lot of stuff to answer to an overall like, that’s the thing is, there’s a lot of moving parts dynamics, and also you can’t get people to fix it faster. And then another thing too, is like sent, what you buy might not do everything you need, which is normal. I think if you get 90% of what you need out of any software platform, you’ve done well. And you know, somebody who really doesn’t do everything I need, I’m like nothing does. Yeah, you might not ever see that feature, we see that with GigaBook all the time, people request the weirdest shit. And I see it come through and tickets, and I’m like, There’s no way we’re ever going to do that. Because you are the only person that cares about that is so far down the list of priorities that will never happen. And, and so that you can’t control that in a bi world you can. Overall I’m a buyer and a builder myself, I think that as I mentioned earlier, you know, like I just I do you have a newfound appreciation for being on the buy side of things. But I also have a lot of experience. So I feel like I have a lot of understanding about what to expect and what I can get and where that’s a good play and where it’s not. So yeah, overall, still like a snowflake, man. It’s going to be different in every single situation. It’s something you have to decide, you have to make for yourself. And, you know, once again, if you’re in that MVP phase, do everything you can to buy before you are forced to build because once you start building, you need to never stop and yeah, there is no stopping. So is that why y’all saw our tech people are crazy, because it’s like the frickin post office like the mail never stops coming.
Matt Watson 42:31
Pretty much. There’s always work to do. And the users always screw up everything, so.
Matt DeCoursey 42:37
If the users would just get it right, we’d never have to fix anything.
Matt Watson 42:41
Matt DeCoursey 42:43
That’s a great place. And Matt, I’ll see you next week.
Matt Watson 42:45