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Should You Build a Custom ERP for Small Business?

by Katerina Reshetilo
Should You Build a Custom ERP for Small Business?

Let me guess what brought you here… Is it your addiction to spreadsheets that you know is unhealthy? Or, perhaps, is it having to switch between 100+ apps that you use to run your company? Or, maybe your current ERP system is driving you crazy?

Either way, we hear ya! We’ve seen it with our clients, and we are also a small business ourselves which means we share a lot of your pains.

When done right, cloud ERP for small business can become a great reliever and springboard for your company’s growth. But the question is which route to go: buying an off-the-shelf solution or building a custom one. It seems there are tons of ready-to-use ERP solutions for businesses of all shapes and sizes, so why would you want to develop your own system?

It turns out there are a number of serious reasons to consider custom development. Let’s take a look at them.

What’s the Problem with Off-the-Shelf Enterprise Planning Software for Small Business?

The problem with canned systems is the obvious one – there is no one-fit-all solution. Businesses differ per industry, location, business model, size, etc. The differences are so great that no single solution can accommodate all of them.

Sure, many of the products you see on the market have some kind of specialty. For instance, some solutions are more fit for manufacturing, some for retail, some for providing services, etc. Also, you’ve probably already noticed that there is ERP software for small business as well as for large corporations. In addition to that, each vendor usually has a list of industries they target.

SAP ERP, List of Industries

 

However, this is still not enough since each industry has so many segments and niches and therefore types of businesses.

It is a bit like seeing a poorly targeted Facebook ad: “Kateryna, you are a Sagittarius! Buy this pair of shoes!” It’s a very long shot.

So, vendors attempt to overcome this in two ways:

  • Offering highly specialized ERP solutions
  • Allowing customization.

Let’s see what each of them means.

Specialized ERP Solutions for Small Businesses

One way vendors try to solve this problem is by offering highly specialized niche products. A good example of this is e-Automate, a small business ERP for companies that service and support office equipment. These type of companies have a very distinct mix of operations: Procurement, Inventory Management, Order Management, Field Service Management, among others. Hardly any standard product would fit their needs, so no wonder someone decided to develop an exclusive solution for them.

e-Automate

 

However, this doesn’t mean that specialized solutions work well for any company in their niche. The thing is, there is an infinite number of ways to do the same thing. A company may have a unique business model, which often means a unique set of business processes. And sometimes this uniqueness is the source of competitive advantage for a company, so it is important to keep and even cultivate it.

This is the case with one of our clients, Atlantic Coast Brands, a leading cosmetics company in the US. ACB has their own business model, part of which is their 360-degree approach to marketing and distribution. That is why, from day one, they opted for a custom ERP. Nowadays, this solution is responsible for processing six-figure revenue daily and is used by hundreds of employees from various departments.

ACB

 

Another good example of a case for a custom ERP is ExoticsRacting (EXR), a company that lets you drive supercars on special race tracks. They’ve carved out a very specific niche for themselves and built a very successful business model. You cannot put it in any box, as it is neither a car rental company nor a driving school. So of course, there is no ready-to-use specialized solution to serve them.

That is why, they’ve decided to develop their own system, which is built around their proven business processes. The system includes Feet Management, CRM, HRM, Order Management, Inventory Management, Reporting and so on.

EXR

 

So, the problems with specialized ERP solutions are:

  • There might be none in your niche
  • If there is one, it may not match your unique business processes.

Customization of Canned ERP Solutions

You may ask, “But how come so many companies are still spending millions of dollars on ‘standard’ small business ERP systems?

They do! However, most of them don’t use these systems right out of the box, they invest in customization first.

In 2017 as much as 70% of organizations moderately customized 11-25% of their off-the-shelf ERP systems. While in 2018, 37% of companies invested in significant customization, changing up to half the system (26-50%).

ERP customization statistics from Panorama
ERP customization statistics from Panorama

 

The problem with customization is that, like with food, almost everything is ok in moderation, but harmful when overindulging. You may start thinking, ‘oh, I just need a few changes here and there’, then add some and some more until you end up with an unrecognizable beast. No one will know what to do with it, because it will be nearly impossible to maintain.

The Tribune

 

When much of the ‘native’ code of a canned system is changed, each system update from a vendor will have unpredictable results. You will never know what’ll fall off and when. And who knows what kind of consequences these system failures may have. What if your orders get messed up? Not to mention how costly it is to put out such fires.

This causes many companies to stop updating their customized systems, but it is not a good solution either. Each system should undergo regular updates and upgrades, failing to do so will result in the premature death of the system. Employees won’t get access to new features and possibilities, vulnerabilities won’t be patched, performance won’t be optimized and so on. You’ll end up with an outdated, slow and unsafe system that is more of a burden than an asset.

That is why it is highly recommended to customize in moderation, so as not to change half the functionality. Not to mention that customization bears additional costs for you. In some cases, the costs can be so high that it would have been cheaper to build a custom ERP system from scratch than to buy an off-the-shelf one.

Problems of overcustomization:

  • Very difficult or impossible to upgrade
  • Additional costs to implement and to support.

Pros and Cons of a Custom ERP for Small Business

So, why would anyone reinvent the wheel and build a custom ERP for a small business?

You can derive the benefits of a custom system from the above problems of canned solutions. But let’s sum them up and go over them one by one as some of them are not so obvious. And to be fair, let’s balance them with the disadvantages, which of course are also present.

Greenice

 

 

Pros

  • 100% Fit

This is the most obvious one. When developing cloud ERP systems for small business from scratch you can build anything you want – even a rocket ship that converts into a submarine, if that fits your purpose.

Building your system from the ground up is the only way you can get a 100% match to your business processes. With canned solutions it will always be a compromise, it just depends on if it is going to be tolerable.

  • Flexibility

The only thing constant nowadays is change. Everything is moving so rapidly, consumers change their preferences, competitor landscapes change, technologies change… Your business needs to adapt, and so does your ERP system.

When done right, custom systems are best at accommodating change. You can get rid of some features, even modules, and build new ones, whatever is necessary to move the needle.

  • Lower Total Cost of Ownership

In the long run, a custom system can be cheaper than an off-the-shelf one.

Depending on the solution, pricing of many ERP systems for small companies can look very attractive from the first sight, but when you look closer, you’ll realize that you need to pay:

  • For each user
  • For each module
  • For customization

And so on.

All of this is per month, so when you add up everything, you may arrive at an unexpectedly large number.

Just to give you an idea of what this amount can be, let’s make a simple calculation.

Scoro

Scoro is a good example of an ERP system for small business. Its most basic price plan is $22 per user per month, plus an onboarding fee starting from $899. Let’s say you have 20 employees that have to use your system: how will your costs accumulate in 5 years?

((($22*20)*12)*5)+$899=$27,299

That is already quite a serious sum. You could have built your own custom solution for this amount. Try upgrading to more pricier plans, add more people, customizations and see that number grow exponentially.

Of course, every case is unique, but the point is that you need to calculate and compare the Total Cost of Ownership of all the alternative solutions you consider.

Have an idea for a custom ERP? Get a cost estimate!

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  • Higher Security

With the best ERP software for small business, only you and your team will have access to the code. This significantly decreases the chances of your system being hacked.

In the case with any off-the-shelf solution, many people can get access to and study its vulnerabilities. This allows hackers to attack a multitude of systems at once.

A good example of this is when on May 2016 hackers found a vulnerability of an SAP ERP and used it to exploit SAP systems of many large scale organizations. As a result, ERP applications of at least 36 organizations in the US, the UK, Germany, China, India, Japan, and South Korea have been compromised.

Whereas in the case with a custom solution, it simply isn’t worth investing so much effort into hacking just one ERP system.

  • Faster Learning Curve

Since custom systems are designed to fit an organization’s processes and not the other way around, their implementation requires less change and they are more intuitive for employees. This can significantly reduce your investment in training.

Cons

  • High Upfront Investment

You do need to spend a considerable amount to develop an enterprise software for small business from scratch. In our experience, the cost of custom ERP starts somewhere at $25k, which is about six months of development time. At the same time, the cost of a canned solution can start from $22 per user, sometimes even lower, depending on what you need. That is obviously a big disadvantage of custom solutions.

  • Cannot Start Right Away

Another big disadvantage is that you need time to build it. Although we recommend delivering software in working parts/modules, rather than the whole thing at once. This does make things faster and more agile, but it still takes time to get each part up and running. One module can be delivered approximately in 1-2 months, while an entire ERP can take up to 6-10 months to build.

With a canned ERP, you usually don’t need to wait that long, just 1-2 weeks to set up and you can hit ground running, which is great!

  • Risk of Not Getting What You Want

With canned solutions, you already have a real product in front of you with its advantages and disadvantages (which you can see in demos and during trial periods).

But when building something that’s one of a kind, you are bound to face a lot of uncertainty. No one has seen it yet, no one has used it yet, no one knows if it’ll work.

That is another reason why we recommend delivering systems in iterations. This allows to test each module in real life and fix things as promptly as possible so that by the end of the project you had as little surprises as possible.

  • Risk of Vendor Lock-in

Another often sighted risk is in being stuck with the development team that has developed the system. The logic behind this is that it will be hard for anyone else to figure out how everything works and do the upgrades and fixes for you.

This can be true when developers don’t use frameworks and don’t follow the best practices for programming. That is why it is important to hire only competent teams (duh!).

We are speaking from experience here because we’ve picked up projects where other developers have left them on multiple occasions. It isn’t ideal, but totally manageable when the other team has used one of the programming frameworks that we work with (Yii, Symfony or Laravel, in our case) and had things in order.

What Kind of Small Business ERP Software is Right for You?

It depends!

Each situation is unique, but here are the general recommendations:

  • If you’ve found an off-the-shelf system that covers 90% of your needs, go with it! Unless it is a crazy-expensive enterprise product, it’ll likely give you a better ROI than a custom solution.
  • If you have no idea what you need and no experience with ERP solutions for small business, start with the cheapest canned solution. This will help you figure out what you want and what you don’t want, and therefore, you will know what to look for.
  • If you have a unique niche, unique business model, and/or unique business processes that are a source of your competitive advantage, go with a custom solution. That is the only option that will guarantee a perfect fit.

 

Thinking of developing a custom ERP? Get a free consultation with experts!

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