We often are taught that a company is only as good as its talent. While I’ve found this to be true, in recent years, investing in tech has become equally important. Every aspect of your business will be impacted by the technology you source and how you choose to incorporate it — from what solutions you OEM into your product to the tools you choose to drive efficiency, productivity and financial standing.
SaaS (software-as-a-service) and cloud software have drastically improved in terms of variety, quality and availability. But given today’s harsh economy and reduced VC spending, startups need a critical eye when purchasing SaaS and cloud infrastructure. It would seem advantageous for startups to slow down investing in tech until the economy turns around, but investing in the right tech with the right financial strategy is the best choice you can make for your startup today.
Consider the economics of buying vs. building your stack
One of the biggest financial mistakes founders make is opting to build out their own technology as opposed to buying it. They are eager to reflect their own innovation and assume that having full control over their stack will fuel growth faster and more efficiently. They are financially biased thinking that avoiding spending on external vendors will save them money. In almost any industry, tech has advanced in such a way that building out your tech is not the fastest, most efficient option anymore — it’s actually the more expensive choice.
Given today’s harsh economy and reduced VC spending, startups need a critical eye when purchasing SaaS and cloud infrastructure.
Especially when you are a small company operating on small volumes, the price to purchase OEM technology is fortunately small. External APIs are also easier to integrate because your platform may not be as complex and robust. So, instead of building out the entire stack from scratch, you can focus your efforts on building out the proprietary components that are truly unique to your business. For instance, at my current fintech company, I chose to OEM more than 10 platforms, and each provided 3x savings compared to building it out ourselves.
Tesla, which today manufactures many of its car parts in its own factories, actually started by OEMing many of its components from external manufacturers, including traditional car-related components, sensors and microchips for its autonomous driving, as well as batteries and open source capabilities for its robust software platform. It was only later on, when Tesla became a huge company, that Elon Musk decided to bring many of the outsourced elements in-house. The moral of the story is don’t be mistakenly inspired when looking at “not invented here” type companies, like Google, Apple and Tesla. This is not necessarily where they started.
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