How to Buy Standardised vs Custom Services
Anything you buy, whether it’s a product or a service, is either standardised or custom:
Standardised
Some services are standardised, like a HR agency that hires a junior software engineer for your startup. Every company that hires this agency gets more or less the same benefits. The risks (such as a hot market making good engineers hard to find) are more or less the same. The time taken to deliver is more or less the same.
Products can also be standardised, not just services. For example, a Creta1.
Custom
On the other hand, custom services are completely different for each client2. As a consultant, I’ve:
helped a SaaS startup conclude that the right path for them is to get acquired, resulting in a benefit of millions of dollars.
evaluated a full-time CTO candidate they were considering hiring.
set up an engineering team.
advised a CTO on how he can do things better, rather than me doing it for the startup.
These are as different as chalk and cheese. Different clients of mine got different benefits from hiring me. The amount of time needed was different. The risks in each project were different. The cost was different, not 30%, not even 100%, but 23x between the client who paid me the most and the one who paid me the least.
Products can also be custom, like the International Space Station, not just services.
When you’re buying something custom, you gotta pay before it’s built. You can’t see another one of it, because there’s no such thing3. There may be a lot of variability in the time and cost of delivery, to the extent that these can’t be guaranteed. There may be risks in your project which can’t be foreseen4. The success of the project can’t be guaranteed in all cases, such as when we’re researching new technologies, not just implementing existing ones. The price can be determined only after extensive conversations over weeks for both parties to scope out, communicate and understand what they’re going to do.
When you’re buying a standardised product or service, you should see it for yourself after it’s fully made. Take a test drive of the Creta. If you’re buying an apartment, let the construction complete, including the club house, and the builder hand over the complex to the owners’ association. Then go and see what the apartment complex is like, and make your decision based on the completed work. Buying an apartment based on a rendering is dangerous, because the final result looks worse than the artist’s impression5. The time taken to deliver, and the cost, should be predictable for a standardised service. The risks should be low. The price should be listed on the website. If not, don’t buy, because it’s a waste of time to be pitched by a salesman, and because the seller isn’t competent enough to determine the price without wasting your time.
As you can see, the way you purchase a standardised vs a custom service is completely different. Using one strategy for the other kind of purchase is like pedalling your car while wearing a seatbelt on your bicycle. Next time you buy something, think of which category it falls in and use the appropriate strategy.
If the provider offers multiple options that you can pick from, but you can’t suggest anything beyond the options offered, I’d still consider that standardised. For example, a weeklong Thailand vacation package may cost 1 lakh, but you can choose to stay in better hotels for 10K more. But you can’t skip Phuket, nor can you add a cruise on the sea. You can only choose from the options given. That still counts as a standardised service.
Notice that even the word used — client — is different for a custom service.
A client of mine who was into med-tech (medical technology) asked if I worked with another med-tech company. I replied yes. He moved on to other topics. What he missed was that the work I’d done for them (hiring iOS engineers) had nothing to do with what we’re going to do. In fact, hiring iOS engineers for a travel startup would have been exactly the same for me. When it comes to custom work, you can’t see another of it, because there’s no such thing.
Maybe some risks can be foreseen, but the majority can’t. Or maybe the risks can be foreseen only vaguely like “The technology may not do what users want, and users may not want what the technology can do.”
If you’re countering that it will be much costlier to buy it after construction has completed, yes, but risk and reward always go together in finance. Be cognizant of that, and ask yourself if you’re able to suffer that loss. If not, don’t take a risk you can’t afford. Instead, buy an apartment in a complex whose construction has completed.