Our leadership team is divided on whether we should build our own private AI model on open-source frameworks or standardize on Microsoft Copilot. How do we use the strategic real options framework to decide without destroying our exit valuation?

Question

Tyler Smith · Accepted Answer

This is a critical decision that directly impacts your exit valuation. Buying a standard SaaS tool like Microsoft Copilot is fast and cheap, but it offers zero proprietary value. Building a custom model creates a highly valuable asset, but it comes with massive R&D costs and technical risk.

To resolve this, apply a strategic real options framework. This approach treats your technology investment as a series of low-cost options rather than a single, massive commitment.

Begin by identifying your flow cost, which is the operational drag of waiting to make a decision. Then, identify the hidden, lump-sum cost of upgrading to a custom build.

Your first option should be to standardize on a commercial tool like Copilot for ninety days. This is a low-risk way to learn where the technology falls short and where your proprietary data actually creates a competitive advantage. This period of learning reduces the information asymmetry about what your business actually needs.

If, after ninety days, you identify a specific operational bottleneck that Copilot cannot solve, but a custom model could, you have the option to upgrade. By waiting to build until you have verified the exact business case, you avoid burning cash on unnecessary software development, keeping your balance sheet clean for a future exit.