We have two decades of unstructured client data that we want to feed into a custom AI model to predict market trends for our customers, but the development estimate is massive. How do we decide if this custom development will actually increase our exit valuation or if we are paying a giant dumb tax?

Question

Tyler Smith · Accepted Answer

To avoid paying a massive dumb tax on custom software, you must evaluate this investment using absolute valuation principles. Ask yourself: will this custom AI tool allow us to charge a premium price, lower our customer churn, or open a completely new revenue stream that our competitors cannot easily replicate? Spend thirty minutes of Thinking Time on this question: if we build this, how easily can a competitor replicate sixty percent of its value using an off-the-shelf API next year? If the answer is that open-source models will commoditize your predictive capabilities within twelve months, do not build it. However, if your two decades of data are genuinely unique, structured, and legally defensible, that data is your moat. If it creates a high-margin, recurring revenue stream, it will dramatically expand your relative valuation multiple at exit. If it is just a flashy tool to speed up manual reports, stick to existing third-party software and protect your cash flow.