What is product customization and configuration, and when should you do them?

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I was speaking with an entrepreneur the other day and the topic of how to configure or customize the product came up. Customers often feel their business/situation is unique and want your product specifically tuned to their business. So how far down the customization path do you go? Let’s first define the difference and then talk about how to apply to product decisions.

Customization

Customization occurs when a customer makes a product request and you build something completely for them. This requires additional product/dev work and sometimes you can charge an additional fee. The work may be specific to the unique data/platform of the customer and have no applicability to other customers. However, occasionally that custom work could be something that could apply to other customers. While customization can satisfy customers and deliver incremental one-time revenue, it can also be a distraction to limited resources and often takes longer than initially scoped with limited reusable benefit.

Configuration

Configuration occurs when you have built a product with different modules or feature groupings that are relevant to different needs. For example, your product may have an analytic module, a loyalty module, an ordering module, etc. When the customer signs up, they can select whichever modules they want and that functionality is already built and just turned on. Configuration can be easily turned on/off based on customer needs and is scalable across multiple customers. It takes time to understand the right modules to build out.

What to do

As a general rule, I prefer to configure products vs. customize them. You are building products to solve problems, and those problems should be relevant to a large customer base if you are finding authentic demand in a great market. With configuration, it helps you scale the product and customers at a much faster level without the distractions that customization brings. That is not to say a certain situation may require customization for an important customer. However, that customization should be the exception and hopefully should be functionality to test a hypothesis that it could soon become a configuration for other customers.

Be careful working on endless customizations as that can change your business model to more of a services/development shop vs. a pure software company. Both are viable business models, but have different implications for growth, margins, and valuations.

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