Building Open Source Businesses

Mikko Puhakka has posted the main three success and failure factors when building an open source business and launched a meme by challenging some entrepreneurs and experts to give their opinion. Well, my name appears on the list and Marten Mickos and Stephen Walli already answered. If I don’t want to be the last one I better hurry up.

I won’t try to play the expert I ain’t, but I will answer from a different point of view, giving the do’s and dont’s I learned while building a startup from members of the open source community, instead of business people:

1. Listen to business savvy people

It is true that open communities have very different dynamics than traditional companies but building an open source business needs different priorities than building an open source community. It is business and you must pay your staff at the end of each month or there will be no staff to run your business. It is not necessary to be an expert in business management but you need a clear business vision and good trusted business-savvy advisors

-1. Do not follow all their advices

Open source is disrupting many ways businesses are carried out and not every established rule is still valid. Try to judge by yourself and do only what makes sense. It is very likely you find some of the advices from your good trusted business-savvy advisors better not to be followed. For example, get a good financial advisor, as money is always money (even the open source one). But don’t invest in an army of salespeople just because “it has always been the way of doing business”

2. Be careful when choosing your business model

There are lots of proven business models and an infinity of unproven ones, but you have only one company/project and it is not clear which model (or which combination of them) will succeed. The best way to choose it might seem simple to explain but it is difficult to do: give the highest value to your customers at the lowest cost for yourself. For example, your business will remain stagnant if you are based in pure support and consultancy services (high costs) but also if you rely on donations or club memberships (low value).

-2. Don’t monetize at the expense of your own community

Your community is your best ally. It will help enormously in the promotion and improvement of your project and will probably bring you business opportunities at no cost. Lose it and your product will be worth almost nothing. Worse, turn it against you, make it fork your product and you can kiss your thighs good bye. There are two rules when forecasting a community reaction to a new business model: 1) community members don’t like paying for services 2) community members want all the software available for free (and open). Think, for example, whether dividing your software in commercial and community versions will bring more benefits than the predictable loss of community support for your project. And if you have to do so, try to explain thoroughly why this is the only way.

3. Dream high, be ambitious

Open source is the natural step in the evolution of software development within an Internet-centric environment. Or put it another way, it is software development 2.0. Thanks to collaboration through Internet communities it is possible to challenge large well-established companies with a small team of enthusiasts locked in a garage in the most remote corner of the world. It is possible to do so with very tiny budgets that any average geek can afford. It is also possible to accelerate it with relatively small seed investments, not only from VCs

-3. Don’t do it at any price

On one hand, I am convinced being ethical in your business activities does not only help you sleep at night but it is also good for business. And it is specially so in the IT industry, and particularly in the open source, where everyone is connected, participating in communities, blogging, … Bad news travel fast if you mistreat your community, your employees, your partners, etc. On the other hand, and apart from these ethical matters, there is always a price you pay when you let investors into your project. It stops being yours the moment somebody else comes in. There is a moment to scale it up and make it really big, but don’t try to do it too soon or you might lose it completely.

And now it is time for tagging the next people to follow the thread. Even at the risk of warping the spirit of the meme, I would like to include a couple of non-corporate open-source-wise guys who can bring their own vision:

• Javi Vazquez, CEO of Igalia, a very much Warp-like company from Galicia (Spain)
• Ricardo Cavero, General Director of New Technologies at the City Council of Zaragoza and responsible of all the open source initiatives in the city
• Queru, President of Hispalinux, one of the largest linux user communities and the largest in the Spanish-speaking world

There are also two more guys from which I would like to hear their opinions, though AFAIK they have no blog to follow:

• Unai Labirua, Head of R&D Centre at Vodafone, and
• Alfonso Lahuerta, innovative and entrepreneurial spirit from Zaragoza

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1. Report On The Traditional Business Sector » Blog Archive » Good to Great: Why Some Companies Make the Leap… and Others Don’t. — 8 June 2007 @ 12:25 pm

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