Build a More Valuable Business with Custom Software

Creating Long Term Value In today's competitive business landscape, generating revenue—even substantial revenue—is just the beginning. Many businesses achieve good sales figures yet struggle to build lasting value or create sustainable competitive advantages. The most valuable businesses aren't just those with the highest turnover; they're the ones that have built robust barriers to competition, created unique market positions, and developed assets that generate value well into the future.

Understanding what truly drives business value is crucial context for any strategic investment decision—including the decision to invest in custom software. While standard industry solutions might help you keep pace with competitors, they rarely help you pull ahead of them. The most valuable businesses are often those that have found ways to differentiate themselves through unique capabilities and proprietary systems that competitors can't easily replicate.

Understanding Business Value

When investors or acquirers evaluate a business, they look well beyond the current revenue and profit figures. They're searching for businesses with sustainable competitive advantages and strong barriers to entry that protect future earnings. Several key factors drive business valuations:

Predictable, Recurring Revenue

Businesses with predictable, recurring revenue streams are inherently more valuable than those relying on one-off sales. This predictability allows for better planning, easier scaling, and more stable cash flow. Consider the contrast between a restaurant and a commercial waste collection service. A restaurant must win customers daily, deal with seasonal fluctuations, and constantly compete for discretionary spending. Even excellent restaurants can have unpredictable revenue. In contrast, a waste collection service, once it secures commercial contracts, has highly predictable recurring revenue—businesses always need waste collection, contracts typically renew automatically, and the service is a necessity rather than a choice.

This principle explains why Software-as-a-Service (SaaS) companies and essential services businesses often command high valuations—their subscription or contract models provide clear visibility into future revenue. Similarly, businesses that secure government contracts for essential services or those providing critical maintenance services to other businesses tend to be more valuable than those relying on discretionary consumer spending.

Profit Margins

High-profit margins indicate pricing power and operational efficiency. More importantly, they suggest a business has something unique that allows it to maintain these margins despite competitive pressures. This uniqueness often stems from proprietary processes, intellectual property, or superior operational capabilities that competitors struggle to replicate.

However, not all successful businesses operate with high margins. Supermarkets, for instance, typically operate on very slim margins—often just 2-3%—and create value through high volume and efficient operations. In these cases, operational efficiency becomes even more critical. A supermarket chain improving its margin by just 0.5% through better operations can see a significant impact on bottom-line profit due to their high turnover. This is why large supermarket chains invest heavily in proprietary inventory management systems, supply chain optimisation, and automated procurement processes.

Whether your business operates on high or low margins, the key is having systems and processes that allow you to maintain or improve those margins consistently. High-margin businesses need to protect their premium position, while low-margin businesses need exceptional operational efficiency to remain profitable. In both cases, custom software can play a crucial role—either by enabling unique high-value services or by creating operational efficiencies that improve margins in high-volume, low-margin operations.

Barriers to Entry

Perhaps the most crucial factor in business value is the presence of strong barriers that prevent competitors from easily replicating your success. These barriers might include:

Proprietary technology or processes
Unique intellectual property
Network effects
High switching costs for customers
Economies of scale
Control over key resources or channels

The stronger these barriers, the more valuable the business becomes. This is where strategic investment in custom software can play a crucial role.

Beyond Efficiency: The Strategic Value of Custom Software

While many businesses view software primarily through the lens of operational efficiency, this perspective misses the broader strategic value that custom software can deliver. Custom software isn't just about doing things faster or cheaper—it's about doing things in ways your competitors cannot easily replicate.

Creating Unique Operational Capabilities

When you rely on off-the-shelf SaaS products, you're essentially renting standardised capabilities that are available to anyone willing to pay the subscription fee. While these tools can be effective, they don't create meaningful differentiation. Your competitors can simply subscribe to the same services and match your capabilities overnight.

Custom software, on the other hand, allows you to build unique operational capabilities that align perfectly with your business model and market strategy. These might include:

Automated workflows that embed your best practices
Integrated systems that enable unique customer experiences
Proprietary algorithms that optimise your operations
Custom interfaces that make your team more effective
Unique data collection and analysis capabilities

These capabilities become part of your intellectual property portfolio and can create significant barriers to competition.

The Hidden Costs of SaaS Dependency

While SaaS solutions offer quick implementation and minimal upfront costs, they come with hidden strategic costs that can limit your business's long-term value:

Loss of Control

When you rely on SaaS platforms, you're fundamentally subscribing to someone else's vision of how your business should operate. SaaS providers make decisions based on what benefits their business and their broader customer base—not your specific needs. This creates several significant risks:

Feature Deprecation

SaaS providers regularly deprecate features that aren't widely used, even if those features are crucial to your operations. If only 5% of their customer base uses a feature you depend on, it might be removed or changed despite its importance to your business. When this happens, you're forced to either adapt your processes (often at significant cost) or frantically search for alternatives.

Vendor Viability

No company has the right to exist forever. SaaS providers can go bankrupt, get acquired, or simply decide to shut down services that aren't profitable enough. Recent years have seen numerous examples of established SaaS platforms shutting down with relatively short notice, leaving their customers scrambling to find alternatives. The question every business needs to answer is: "What's our backup plan if our critical SaaS provider disappears overnight?"

Price Control

SaaS providers often use pricing strategies that can trap businesses:

Starting with low entry prices that increase significantly once you're dependent on their platform
Introducing new tiers that move previously included features into more expensive packages
Adding user-based pricing that becomes exponentially expensive as your team grows
Changing pricing models entirely (for example, from user-based to usage-based pricing)

Once your business processes are built around a SaaS platform, these price increases often must simply be absorbed—the cost of switching may be even higher than paying the increased fees.

Innovation Constraints

Your ability to innovate and adapt your business processes is limited to what your SaaS provider allows. Want to modify a workflow to better serve your customers? You can only do so within the constraints of the platform. Need to integrate with a new system? You're dependent on whether your SaaS provider supports that integration.

Data Limitations

Many SaaS platforms impose limits on data access, storage, and export capabilities. This can affect your ability to:

Analyse your business data effectively
Migrate to different systems if needed
Comply with data protection regulations
Respond to customer data requests
Back up your business information adequately

Limited Differentiation

When your business relies on standard industry software, you're essentially accepting that you'll operate in the same way as your competitors. This creates several strategic challenges:

Industry Standardisation Trap

Standard software enforces standard processes. Consider the trade services industry, where most businesses use the same off-the-shelf job management software. This leads to nearly identical customer experiences: similar booking processes, similar job schedules, similar status updates, and similar payment systems. In such an environment, businesses struggle to stand out and often resort to competing solely on price.

Feature Race to Nowhere

When a SaaS provider releases new features, they become immediately available to all subscribers. What might seem like a competitive advantage on Monday becomes an industry standard by Friday. This constant equalisation of capabilities means businesses must find other ways to differentiate—usually through unsustainable price competition or marketing spend.

Innovation Ceiling

Standard software creates an innovation ceiling that's difficult to break through. If your industry's leading software doesn't support a novel way of serving customers or streamlining operations, neither you nor your competitors can easily implement it. This limitation stifles innovation and keeps businesses operating within predetermined boundaries.

Customer Experience Commoditisation

When everyone uses the same software, customer experiences become commoditised. Take estate agencies as an example: most use the same property management platforms, leading to identical property listing formats, similar viewing scheduling systems, and standard communication processes. In this scenario, it becomes extremely difficult to deliver a genuinely distinctive customer experience.

Market Position Vulnerability

Relying on standard software makes your market position vulnerable to anyone willing to pay for the same tools. A new competitor can effectively replicate your operational capabilities overnight simply by purchasing the same software subscriptions. This lack of structural competitive advantage means you're constantly vulnerable to new market entrants.

The result is a kind of operational sameness that makes sustainable competitive advantages hard to build and maintain. Your business becomes one of many similar operations, all confined to the same operational boundaries, all offering similar services in similar ways.

Cumulative Costs

While individual SaaS subscriptions might seem affordable, the cumulative cost over time can be substantial. Moreover, as your business grows, per-user pricing models can lead to rapidly escalating costs without corresponding increases in capability or competitive advantage.

Building Lasting Market Advantages

Custom software allows you to build lasting market advantages in several key ways:

Proprietary Processes

By encoding your unique business processes into custom software, you create a proprietary operational platform that competitors can't easily replicate. This platform becomes more valuable over time as you refine and optimise it based on real-world experience and data.

Customer Lock-In

Well-designed custom software can create positive switching costs for your customers. When your systems integrate deeply with customer operations or provide unique capabilities, switching to a competitor becomes more costly and risky.

Scalability

Custom software can be designed to scale with your business in ways that align with your specific growth strategy. This scalability isn't limited by the one-size-fits-all constraints of SaaS platforms.

Data Advantages

Custom software allows you to collect and analyse data in ways that are specific to your business model. Over time, this can create significant competitive advantages through better decision-making and optimisation.

Strategic Independence

Perhaps the most valuable aspect of custom software is the strategic independence it provides:

Control Over Your Destiny

When you own your core operational systems, you control your technological destiny. You can adapt quickly to market changes, pursue new opportunities, and optimise your operations without waiting for SaaS providers to catch up.

Building Long-term Value

Custom software becomes a valuable business asset that contributes directly to your company's valuation. Unlike SaaS subscriptions, which represent ongoing expenses, custom software is an investment that builds long-term value.

Competitive Moat

The concept of a competitive moat—a sustainable advantage that protects your business from competition—is crucial for long-term business value. Custom software can create and deepen this moat in several powerful ways:

Unique Customer Experience

When your systems enable you to serve customers in ways that aren't possible with standard industry software, you create powerful differentiation. Consider a property maintenance company that develops a custom system allowing real-time job tracking, instant photo updates, and automated scheduling based on property-specific maintenance patterns. While competitors using standard software can only offer basic scheduling and updates, this company delivers a premium, data-driven service that customers come to rely on. The more customers adapt their operations around these unique capabilities, the harder it becomes for them to switch to competitors.

Process Innovation

Custom software allows you to operate in ways that break industry norms. While your competitors are constrained by the limitations of standard software, you can create entirely new approaches to serving customers. This might mean automating complex processes that others handle manually, offering unique pricing models, or creating service combinations that aren't possible with off-the-shelf solutions.

Accumulated Intelligence

Over time, custom software accumulates valuable operational data and insights specific to your business model. This creates a powerful feedback loop: your unique processes generate unique data, which informs system improvements, which further enhance your competitive advantage. This accumulated intelligence becomes increasingly valuable and impossible for competitors to replicate.

Barrier to Entry

The combination of your custom systems, unique processes, and accumulated data creates a significant barrier to entry. A competitor would need to invest substantial time and resources to replicate your capabilities, and even then, they'd be starting from scratch without the years of refinement and data that make your systems so effective.

Network Effects

In some cases, custom software can create network effects that strengthen over time. As more customers interact with your unique systems, the value of your service increases for all users. This could be through shared data insights, improved automation, or enhanced service delivery capabilities that become more effective with scale.

Market Leadership Lock-in

When you're operating with capabilities that others can't match, you create a form of market leadership that's hard to challenge. Competitors using standard industry software will always be playing catch-up, and by the time their software providers add similar features, you've already moved on to the next innovation.

This competitive moat becomes deeper and wider over time as you:

Refine and enhance your systems based on real-world experience
Build stronger relationships with customers who value your unique capabilities
Accumulate more operational data and insights
Develop new features and capabilities that further differentiate your service
Create increasingly sophisticated processes that are harder to replicate

The result is a sustainable competitive advantage that adds significant value to your business and becomes increasingly difficult for competitors to overcome.

Making the Strategic Choice

The decision to invest in custom software should be viewed through a strategic lens rather than purely as an operational expense. Consider:

How unique capabilities could differentiate your market position
The long-term cost and strategic implications of SaaS dependency
The value of building proprietary operational assets
The potential for creating sustainable competitive advantages

For ambitious businesses looking to build lasting market value, custom software isn't just another IT project—it's a strategic investment in building barriers to competition and unique operational capabilities that drive business value.

Wrap-up

In today's technology-driven business environment, the strategic value of custom software extends far beyond operational efficiency. For businesses aiming to build lasting market value, custom software represents an opportunity to create unique capabilities, build strong barriers to competition, and own critical operational assets rather than renting standardised capabilities.

The key is viewing software investment through the lens of business value creation rather than just cost and efficiency. When approached strategically, custom software becomes not just a tool, but a fundamental driver of business value and competitive advantage.