‘Homemade’ is for cooking not your billing system
Startups are naturally buzzing with curious minds and entrepreneurial spirit. So it’s no surprise when they opt for building in-house solutions. You have a couple of spare geniuses who can throw some code together, and build a functioning tool out of thin air, and voila!
You’re open for business.
It’s a tale as old as time. Okay, not that old, read on.
Over time, as you achieve product-market-fit and start scaling your business, your in-house solution needs to upgrade as well. So you keep adding workarounds and devoting full-time developers to maintenance and debugging. It’s a little clunky but it gets the job done right?
It’s like using a broken ladder. We think it’s “fiinnneee” until one day we fall. Similarly, you convince yourselves that your in-house billing system is fiinnee, until one day – you send your customer the wrong invoice or your pricing change goes horribly wrong, or one of the other hundred things that could go wrong in a complex subscription business.
The tale of build vs buy is one you’ll find all around you in startup circles as well as in established giants. As the scale increases, the stakes become higher, the errors become deadly, and the bottom-line impact becomes acute. The unfailingly optimistic build-it-yourself attitude leads you into a quagmire of technical debt and pesky bugs that you’re confident you’ll come out of if you kick just a tad harder. But alas, you don’t.
Even armed with all the business advice in the world, the decision to build vs buy isn’t always an easy one. You need to go through the deliberation process and arrive at that decision on your own. This process can even look like the 5 stages of grief. Don’t believe us?
Here’s a story of an ed-tech platform that learned this (education pun) the hard way. Read on carefully because this could be your story too.
Denial – “Of course, we can build it ourselves!”
This ed-tech platform had achieved scale in 2021 and had over 450,000 accounts bringing in a revenue of $25mn/year. They had a great product on their hands and they were thriving. They had plans to scale up to other knowledge-based products and explore international markets. Like in most growth-stage businesses, they had 20 other immediate priorities, and evaluating a subscription billing tool wasn’t one of them. Since they had significant engineering muscle, they decided to build an in-house billing system to handle their customers’ payments, checkout flows, and recurring billing, integrating heavily with Stripe behind the scenes.
Anger – “Why isn’t this working?!”
But with scale, their in-house billing system that had brought them this far was starting to act up. Scrambling between multiple systems having the same information, they constantly tackled bugs and errors.
“Stripe is excellent for the early part of scaling but a risk analysis from a finance level would suggest that you need to separate your billing from your payment processing.”
– VP of Product
After their initial set-up, they hadn’t experimented with their pricing and packaging. While they knew their current setup was functional enough to manage subscriptions, they wanted to maximize their revenue using price optimization. However, with an inflexible system, even simple pricing changes proved to be nefarious. Without a robust product catalog, executing pricing changes for multiple products across multiple currencies was a hassle. They couldn’t grandfather their customers and in case an experiment didn’t perform well, they couldn’t roll back the changes easily.
To make matters worse, they had trouble nailing down a reliable source of data for their revenue engine. As the volume of their transactions increased, data discrepancies cropped up between what their payment recovery system was reading from Stripe and what their own database revealed. Without the right numbers, their product decisions and financial forecasting were grossly misled.
Without accurate reporting, they were piecing together insights and decisions like a poorly made jigsaw puzzle with 5 extra pieces!
Bargaining – “Let’s try some workarounds”
As they started getting more enterprise deals, they had to accommodate custom discounts, extra add-ons, consolidated invoicing, and complex billing terms. Opting for a quick fix, they began using coupons and workarounds to manually reconcile revenue from high-value deals. Clearly, it didn’t scale well. Despite extensive efforts, every month’s end brought with it more questions.
Another critical project they had in the works was their plan to move from a freemium model to a trial model. They realized that implementing such a monumental change in their infrastructure affecting their entire user base was more complicated than adding extra plans on Stripe. As they sat down to define the execution, they discovered that slip-ups in this pricing experiment could cost them revenue; they couldn’t afford to hack it.
Their lack of preparedness for a standard pricing experiment had promptly thrown light on the glaring inadequacies of their homegrown system. And without a streamlined subscription management system, their goal to target international markets seemed downright overwhelming.
“We do crazy trickery with coupons. But as you know, there’s a difference between being on a free plan, coupon paid plan, or on an actual legit free trial of a paid plan.”
-VP of Engineering
Depression – “We’re losing revenue”
They finally had to face the facts. Despite the substantial efforts and innumerable hours they poured into their homegrown system, they were still drawing up short.
They needed help because
- The execution of their upcoming change from a freemium model to a trial model needed more than workarounds.
- They couldn’t accept payments for multiple billing terms and couldn’t grandfather customers.
- They didn’t have reliable reports which meant they didn’t have visibility into their revenue engine.
- Their plan to move upmarket to institutional customers would require highly customized billing.
“We need to move subscriptions to a real platform because guess what, we were on a homegrown thing – the thinly veiled Stripe with inaccurate data and revenue recognition was a nightmare.” – VP of Product
Acceptance – “We need a subscription management platform”
The team realized that their plans to target international markets depended on solving problems at home first. On an ordinary Wednesday, during their weekly leadership team meeting, they arrived at what is known as the ZMOT – the Zero Moment of Truth.
They had come to an irrevocable point in their growth journey where they could no longer deny that their in-house system was holding them back from their goals. It wasn’t just unhelpful, it was actively stealing revenue.
When they could no longer dismiss the glaring holes in their system as ‘nice-to-have’ features, they were finally ready to accept that they needed a real subscription management platform.
“The main reason I want to explore this is that our market expansion opportunities for 2021 and 2022 are around internationalization and moving up-market. Both of these will require flexibility from our subscription management system that home-grown just won’t keep up with.” – VP of Product
So what stage are you in?
If you found this ed-tech platform’s story familiar, you’re not alone. A billing system is an integral part of a subscription business and building one is as effort-intensive as building a product within a product.
Are you building your billing system? Here’s all you need to know.
As your business grows, your internal tool must stretch to work with different products, multiple payment gateways, different currencies, accounting and revenue recognition, third-party integrations, and of course the full-time maintenance of such a robust feat of engineering.
If you’re still torn about the decision, here are the top 5 factors you should consider:
- Cost – We often undervalue our own efforts but when you think about it, building your own tool costs significantly more than buying a billing solution. Do the math, it’s $289K!
- Time – Are you willing to pause your GTM timelines while you wait for your in-house tool’s features to be developed?
- Quality – Your business deserves a professional billing system and your core product deserves all of your attention.
- Storage and Security – A billing tool handles a lot of sensitive customer data. With an in-house tool, the onus of building a secure server room is on you.
- Maintenance – If you believe maintaining a tool isn’t as tough as building one, haha, talk to your developers.
If you want to avoid depression and skip straight to acceptance or if you want to avoid the grief process altogether and want to future-proof your business right away, schedule a call with one of our experts. Let’s talk.