Ask a CTO: Building your technology investment strategy
December 10, 2023
Author: Ahmad Nassri, Fractional CTO and Advisor
Every software company relies on technology — AI and machine learning, cloud computing, integrations, etc. — to drive product functionality and business operations. However, many software companies struggle to build or license technologies that align with their long-term product objectives. Ahmad Nassri, a fractional CTO, startup advisor, and investor, shares key considerations that should form the basis of any technology investment strategy that helps you maximize revenue and avoid costly failures.
1. Focus on what's core to your customer
For many modern software businesses, technology is at the core of their innovation. However, that doesn't mean customers are buying the technology itself. Rather, they are purchasing the services and outcomes offered by the technology. For example, an employee engagement platform relies on technology, but its customers come to them to enhance employee satisfaction and productivity.
A common mistake technical leaders make is sinking too much time and money into their infrastructure. They hire inexperienced developers, which creates a hammer-and-nail situation where every problem needs to be solved with code. Suddenly, these companies are building a whole infrastructure deployment or a framework system from the ground up. They waste expensive resources on something that isn't core to their customers.
Focus your technology investments on your customer — how do you make your customer journey seamless? Don't just write code for the sake of writing code.
Now if you're a company where technology is core to your customer, such as a developer tool, investing in your infrastructure more extensively makes sense, but even in this scenario, you still need to focus on serving your customer first.
2. Don't build from scratch if you don't have to
Don't build from scratch. Even if technology innovation is at your company's core and you have to consider IP defensibility, there are several alternatives to building internally, from cloud-computing platforms to third-party APIs, that can extend your product's functionality without having to invest significant development resources.
Amazon Web Services (AWS) is an excellent example of this. We used to launch servers, install operating systems and do a whole bunch of foundational work to get our baseline systems running. Nowadays, we don't do that anymore.
There are now various levels of abstraction that have been facilitated for us. For instance, should you go straight to Visa or Mastercard's transaction systems if you need a billing system? Probably not. Should you use Stripe? What if a layer above Stripe is more abstracted for SaaS products? This is where the integration layer comes in.
Instead of building your code directly with Stripe or Amazon, use out-of-the-box products that are more abstracted, so you can get the highest quality solutions and go back to focusing on your customer journey.
3. Consider your time to market
Whether you're choosing to build internally or leverage third-party technology, it's crucial that you have a grasp on your industry and how easy it is for customers to switch to a competitor. You want to ensure your technology investment allows you to execute at a pace that helps bring value to your customers and make your product irreplaceable.
For instance, integrations, as I mentioned earlier, can help you avoid building from scratch. For example, instead of building email functionality internally, you can use SendGrid. Customer-facing integrations can also create product stickiness, meaning your customers will be more engaged since your product is compatible with the technology they already use. As a result, you'll effectively increase your lifetime value (LTV) and reduce churn.
However, if you're in a competitive market, like the HR tech industry, you can't afford to spend six months or a quarter every year building one integration at a time. You will never have enough integrations, you won't have the internal expertise to support every integration, and you won't have time to focus on your core value.
So, consider a technology investment that does all the heavy lifting for you, such as allowing you to deploy several customer-facing integrations in a much shorter time frame.
4. Calculate your total cost of ownership
One of the biggest problems I see companies make is not thinking about the total cost of ownership (TCO), which means taking a bird's-eye view of the technology investment and its value or costs over time.
In software, whether you're deciding to build internally or buy, there's always an ongoing cost around security, dependency updates, code rot, and other activities that are part of continuous, never-ending maintenance. It's not just about headcount or subscription costs. Not factoring in maintenance or even shutdown costs will lead to questions down the line like, ‘Why is the engineering team so slow?' or ‘Why can't we build more features?'
Think beyond the cost of implementation for your technology investments, but calculate the TCO by assessing factors like security, opportunity cost, and scalability.
You don't want to be the one apologizing to your board of directors at the end of the year because of all the unaccounted maintenance costs and tech debt from your technology investments.
Summary
Technology investment is heavily nuanced and depends on your company's industry and long-term goals. However, these four critical considerations can help you plan strategically and make technology-buying decisions that maximize ROI.
- Focus on your core and delivering customer value, don't waste time and money on technology investments that your customers won't care about
- Avoid building from scratch by using out-of-the-box products that have the level of abstraction you need for your use cases
- Leverage software investments that accelerate your time to market and keep your costs down
- Factor in the total cost of ownership (TCO), so you're not caught off guard by expensive maintenance, support, and shutdown costs
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About the Author
Ahmad is a Fractional CTO, Startup Advisor, and Investor. Leading up to the acquisition by GitHub in 2020, Ahmad served as the CTO for npm, taking over the critical mission of ensuring the Open Source JavaScript registry remains stable, reliable and sustainable for the millions of developers that rely on it daily.
Prior to joining npm, Ahmad led the platform engineering team as Chief Architect for TELUS Digital. As VP of Engineering at Kong, his focus was on powering API-driven development, and open-source technology for the enterprise.
Ahmad founded REFACTOR Community — a developer community of over 17,000+ members, operating 4 annual tech conferences in Canada.