Contents
- Every PE operating partner has run a build-vs-buy analysis.
- A 28-month operational dataset from a solo operator running AI-enabled development infrastructure provides the counter-evidence.
- The cost inversion is driven by three compounding factors.
The Setup
Every PE operating partner has run a build-vs-buy analysis. The framework is familiar: estimate the cost of building custom software internally, compare it to the annual licensing cost of a SaaS platform, calculate the breakeven, and make a call. The math usually favors buying — because the build estimates assume traditional development economics.
Those economics assume a 4-6 person team, 12-18 months of runway, and per-developer costs of $150K-$250K fully loaded. According to Accelerance's 2024 Global Software Outsourcing Report, mid-market US development shops bill $150-$250/hour, with full-stack platform builds running $500K-$2M depending on scope. Keyhole Software's 2025 benchmarks place custom enterprise platforms at $200K-$1.5M for mid-complexity builds. The numbers are large enough that most portfolio companies default to SaaS licensing without questioning the assumption.
But the assumption is wrong. The build-side cost has collapsed — and most PE operators haven't updated their models to reflect it.
What the Data Shows
A 28-month operational dataset from a solo operator running AI-enabled development infrastructure provides the counter-evidence. The operator built 10 production systems across 7 verticals, totaling 596,903 lines of code and 2,561 commits, over 116 calendar days of active development.
The total build cost: $67,895. That covers $62,731 in contractor support (CON-02: $40,700; CON-03: $22,031) plus $2,664 in AI tooling (Anthropic, OpenAI) and $2,500 for an initial website build from CON-09.
The market replacement value for the same portfolio, benchmarked against Keyhole Software, Qubit Labs, and COCOMO II models: $795K-$2.9M. The flagship operations platform alone — PRJ-01, 194,954 lines of code — carries a replacement estimate of $780K-$1.56M at mid-market agency rates.
That is a 12x-43x cost differential on the full portfolio. On PRJ-01 specifically, the multiple is 46x-93x against the $16,800 actual build cost.
The cost trajectory is equally significant. Monthly infrastructure and contractor costs peaked at $8,367 in September 2025 and fell to $825 by January 2026 — a 90% reduction in four months. Per-project build costs fell from $7,995 for the first product to $0 for the ninth. The marginal cost of a new system approached zero as the foundation deepened.
No investors. No venture capital. No equity sold. 100% retained ownership across every asset.
How It Works
The cost inversion is driven by three compounding factors. First, foundation reuse: by the late portfolio, 95%+ of infrastructure components — authentication, database schemas, admin interfaces, API structures, deployment pipelines — came from proven patterns built in earlier projects. New products only required the 5-20% of logic that made them different.
Second, contractor displacement: the operator moved from 70% contractor dependency in October 2025 to 100% solo execution by January 2026. The $34,473 investment in external support during the transition phase bought a permanent capability shift, not a one-time deliverable. Monthly contractor costs hit $0 in December 2025 and stayed there.
Third, SaaS displacement: PRJ-01 replaced six external SaaS platforms (Konnektive CRM at $583/month, TrackDesk at $499/month, and four others) totaling $1,565/month in recurring subscriptions. The 28-month SaaS spend displaced: $19,909. Combined with eliminated contractor costs of $62,731, total cost displacement reached $82,640.
What This Means for Decision-Makers
The build-vs-buy math has changed. The old calculation assumed building required a team, 12+ months, and six-to-seven-figure budgets. The new calculation — validated across 10 production systems with QB-verified financials — shows a solo operator with AI-enabled infrastructure can achieve the same output at 2-8% of market cost.
For PE portfolio companies evaluating technology infrastructure, this means the breakeven on building versus licensing arrives dramatically sooner than legacy models predict. A $67,895 build that replaces $1,565/month in SaaS and $6,312/month in average operating costs pays for itself within 10 months — and then compounds. The ROI on the $34,473 direct support investment: 23.1x-84.1x, measured against replacement value.
The question is no longer "can we afford to build?" It is "can we afford not to, given the compounding cost advantage of owned infrastructure?"
Related: [C7_S145 — The Compounding Software Portfolio] | [C7_S143 — Contractor Dependency to In-House Development] | [C7_S148 — 28 Months of P&L Data]
References
- Accelerance (2024). "Global Software Outsourcing Report." Benchmarks for mid-market US development shop billing rates and full-stack platform build costs.
- Keyhole Software (2025). "Custom Development Benchmarks." Enterprise platform build cost estimates by complexity tier.
- Qubit Labs (2026). "Developer Cost Analysis." Global developer cost comparisons and outsourcing rate benchmarks.
- Keating, M.G. (2026). "Case Study: The Cost Inversion." Stealth Labz. Read case study