Choosing Software: Boxed v Bespoke v SaaS – Understanding the Risks

I remember reading an article many years ago in the Harvard Business Review. It researched entrepreneur’s attitude to risk. Contrary to popular opinion, entrepreneurs weren’t wild eyed risk takers. In fact, one of the attributes that characterised the successful ones was how disciplined they were about the risks that they took.

I find it fascinating to think about this in relation to the customers of my own business providing ecommerce packaged software and services. As software becomes more central to business operations, you would think that risk management would be a key driver of decisions. I need to declare an interest. My company, Actinic, supplies both an online ecommerce service, and sells packaged ecommerce software.

Choices for software now range from buying a package and installing it on your PC, renting it over the web, or getting something written just for you. Each has a different risk profile, but some business owners make the choice without understanding the risk.

When purchasing packaged software, the biggest risk is that the package won’t meet the needs of the business. The associated problem is the cost of the software license and wasted time.

With bespoke software, there is the risk of cost and timescale over-run. Over time, costs may be prohibitively high, and you don’t know if the person who wrote the code will still be around.

Finally, you can purchase software as a service online, paying monthly. This is where risk is most under-rated. The risk lies around the possibility of costs being raised by the supplier, or your particular service being withdrawn, or the supplier going bust. You ideally need some contractual protection, escrow clauses etc., which is unlikely unless you are large, as true protection would come with a big price tag.

You may think I am exaggerating on the point about the risks of rented service over the net. Here is a tale from a few weeks back. An online provider of ecommerce solutions ran into trouble with the banks, and announced that a fundamental aspect of its service would be changed with just a few hours of notice, although this notice was subsequently withdrawn. One of its customers was outraged by this, and strongly criticised the company on its public forum. Shortly afterwards, the comments were deleted and the complainer’s online store closed by the supplier. Bang, the door of the shop had closed, and all of the investment and value was lost. Tax records, anyone?

A few years back, Intel closed its online storefront offering at 90 days’ notice. No doubt the buyers had felt safe in dealing with such a large company. Lycos and AOL have done the same this year.

Being in business is exciting. But let’s carefully think through the risk, so that the exciting part can outweigh the stress part. When you take on software solutions, there is a balance of risk. One size doesn’t fit all. If software is fundamental to your business, you need to understand that with some of the options, you take on all of the business risk of your suppliers. And as the Harvard Business Review article showed, assessing such risks is one of the key traits of a successful entrepreneur.