Our competitors are screaming about their new AI features in their marketing, and we are feeling pressure to build our own proprietary AI tools to protect our market share. How do we use multiple business valuation principles and Keith Cunningham's Thinking Time to determine if custom AI will actually drive a higher multiple or if it is simply expensive table stakes?

Question

Tyler Smith · Accepted Answer

Building custom software is a fast way to pay a massive dumb tax if you do not understand how business valuation works. Buyers do not pay a premium for custom technology just because it is custom. They pay for high, sustainable profit margins and defensible competitive advantages. If a generic, off-the-shelf software subscription can deliver eighty percent of the results for a fraction of the price, building proprietary AI is a waste of your capital.

To make this strategic decision, use your Thinking Time to answer this question: How might we deploy third-party AI tools to maximize our EBITDA while spending our development capital only on the ten percent of our workflow that represents our true intellectual property? This ensures you are not building what you should be buying.

When preparing for an exit, look at your business through multiple valuation methods. A market approach looks at comparable transactions. Buyers in your industry will evaluate your margins and your customer retention. If your custom AI does not directly lower your customer acquisition cost or increase your lifetime value, it is not an asset, it is an expensive hobby. Focus your proprietary development strictly on the unique data loops and proprietary workflows that actually drive customer retention. Let third-party vendors build the rest of your technology stack while you focus on scaling your absolute valuation.