There are a fair number of articles on whether to choose a platform or a point solution. But what if you’re choosing to build one or the other? Some startup work I’ve been doing lately has wrestled with this challenge. So I thought I’d share some of the considerations.
As a Software / SaaS Business, Which Should You Build?
Spoiler Alert: You probably want to be a Platform.
The longer term profit is more likely in platforms, with customer lock-in and higher lifetime value. This better retention also means higher ROI on acquisition costs. But can you jump from zero to platform? Maybe. If you’re in a new market with few or no existing options, you could be The One.
Your main issue might be that the marketplace and your own goals are screaming, platform, Platform, PLATFORM, but development and marketing require more runway than you currently have.
Platforms
A platform is a full, integrated solution to a business challenge. It can be a monolithic system or a collection of tools and services, designed to support multiple applications.
Examples include enterprise software like ERP systems (e.g., SAP), cloud platforms like AWS, Google Cloud, and development platforms such as GitHub.
Platform Pros:
- Integrated Ecosystem: Tools in one place with seamless workflows.
- Scalability: Should scale more easily as business needs grow.
- Cost Efficiency: Bundled pricing can save more than separate management and integration.
- Comprehensive Support: Centralized feature / integration support.
- Unified Experience: Consistent interfaces and user experience.
Platform Cons:
- Complexity: Broad features may be harder to manage
- Higher Initial Costs: Probably higher upfront investment.
- Less Flexibility: Might lack specialized features.
- Vendor Lock-in: Heavy single vendor reliance, difficult switching.
- Overlapping Features: Some features may be unnecessary.
Point Solutions
Point solutions address specific needs and focus on solving one problem. Their value proposition is focused. They’re sold as “best of breed,” usually have fast implementation and should cost less than larger scale platforms.
Examples include Sales pipeline / CRM systems like Pipedrive, Calendly for calendar bookings, MailChimp as an email marketing platform, and so on.
Point Solution Pros:
- Specialization: Deep functionality for specific tasks.
- Ease of Use: Simpler to implement and manage.
- Cost-Effective for Specific Needs: Targets specific issues without broad investment
- Flexibility: May be easier to customize.
- Quick Implementation: Faster to get started.
Point Solution Cons:
- Integration Challenges: Maybe complex integration with other tools.
- Scalability Limits: Often difficult to scale as business needs expand.
- Multiple Vendors: Managing several vendors can be overwhelming.
- Higher Long-term Costs: Multiple solutions may have high costs.
- Disjointed Experience: Different tools may result in bad UX.
Who Cares? What’s Really the Difference?
Theoretically, point solutions do their one thing best, while platforms offer a range of tools. Sometimes it’s hard to tell which is which. Salesforce is a platform, but the core functionality feels like a point solution. (I’ve seen up close how one could easily spend months and six figures on consulting doing an implementation when customizing the platform.) HubSpot began as a point solution but has grown into a platform. Shopify started as simple shopping, then evolved. And there’s Zendesk, a customer service point solution that has grown into a platform with additional modules. Platforms also acquire point solutions to expand, such as Salesforce buying Tableau. Strategically, this might work out for a large platform, but could also struggle over time. There’s plenty more examples of such evolution. Exactly where point solutions end and platforms begin may be unclear. (Consider Intuit… QuickBooks, MailChimp, etc. are arguably point solutions. But all offered by the same company.) Here’s a vintage Saturday Night Live skit if you really need help deciding which is which: Shimmer: Dessert Topping or Floor Wax.
Client Perspective
Clients range from startups to enterprises, and the right solution depends on size and capabilities. Startups may move fast with smaller teams, while large corporations have longer procurement cycles. All clients want quick onboarding and ROI, but larger companies usually better understand the need for additional professional services and integrations.
What They’re Buying
Clients are buying time, expertise, and operational efficiency. They are looking to escape legacy hardware, software, and outdated processes, often moving to the cloud. This shift also usually moves CapEx to OpEx, creating cost advantages While platforms aren’t always best at every function, they can still win deals due to easier integration and lower long-term costs. Clients also expect strong service and support.
How can expensive platforms be less expensive overall? Think about your own tools and costs. When you deal with critically important vendors, you go through a significant search process. The value proposition has to come first of course, but that’s tied into costs as well. The cost of the search itself, security, privacy, compliance reviews, technical reviews, time itself, and so on are all going to be non-trivial. And your ongoing Total Costs of Ownership play a role so this isn’t just about initial price and fees. Over time, all need to show ROI, (likely in 6 – 12 months or perhaps longer for large-scale implementations), and – all in – platforms may be better here then onboarding and integrating multiple point solutions. (See: How to Measure Software ROI For SaaS Products and Time to Value.)
This is how a platform might win a deal even if not best of breed. (Though this is not an excuse for building lousy software.) Either way, clients also expect solid customer service. And Increasingly, “customer success” might also be a function at your company that maintains stronger relationships than the occasional bizdev check-in. See: The rise of customer success 2.0: Driving innovation and growth, and 14 Customer Success Statistics That CS Teams Need to Know.
Client Preference
According to the 2023 G2 Software Buyer Behavior Report, “84% of respondents would prefer to purchase one tool to solve multiple business problems rather than multiple tools.” You can get the report, or check out this excellent summary Platform vs. Point Solution: Which is Better? from CloudRatings CEO, Mat Harney.
Most companies, especially larger ones, prefer platform solutions because they simplify integration, even if it’s not perfect. Point solutions may excel at one task, but platforms provide a more unified solution.
Building Platforms vs. Point Solutions – Your Path
While building a platform might be your end goal, starting with a point solution can help you tackle simpler pain points and target smaller clients with shorter sales cycles. Twilio, for example, began as a voice communication point solution but rapidly expanded into a full platform. See: The Insider Story of Twilio. The Bottom Line is it’s also possibly you might not have a choice. That is, if you’re a startup burning cash fast, you might have to start with something small and specific, even though there’s some risks in doing so, especially if you’re forced to do a lot of custom work for early customers. This could lead to useful learnings, but there can be somewhat of a trap here.
The Product Company vs. Dev Shop Trap
Early-stage platforms often struggle with feature requests that may not scale. The temptation to build for one large customer can delay your roadmap, but sometimes it’s necessary to maintain cash flow. This is a dangerous, and possibly company killing issue. Balancing these decisions is critical to your long-term success. There’s ways out of this trap. Maybe. If your core is microservices or APIs, you can perhaps build something custom on top of that for a client without touching your core codebase. It’ll still cost development cycles. But won’t overly fork up your core codebase. Agreeing to do this can be a tough call. It might be perfectly fine and even beneficial to create some features and benefits demanded by early prospective clients. Just take care and do so intentionally. if you burn too many cycles doing this repeatedly, or build out core services in ways that don’t scale from a product perspective, you could be headed into a dead end with limited runway to recover.
So What Do You Want to Be When You Grow Up?
Point solution or platform? It’s your call. Regardless of the answer, it’s a critically important early on strategic question. And it’s perfectly fine if your long term vision and mission takes you though what might be a painful grind up the slope. After all, most the the happy overnight success stories you hear were many years in the making. Entrepreneurs may look enviously at some of the growth charts of some of the fastest marketplace diffusions of some startups. A lot of these had the benefit of network effects, (such as Facebook/Meta, Uber, AirBnB), but they had to pay for that with some fairly high burn rate and risk. (See the book, “The Cold Start Problem” by Andrew Chen.) Most of the time though, you’re going to need to wedge or lever your way in somehow. Whichever approach you take, it’s critical to be intentional about it. And take your risk only as your capitalization sensibly allows.