Published
June 16, 2023
This article was originally posted on
Hackernoon
As the open source movement continues to gain momentum, a growing number of entrepreneurs are launching startups centered around commercializing open source projects. However, the journey from open source project to profitable startup is fraught with potential pitfalls. In fact, according to various sources including Forbes, Investopedia, and Harvard Business Review, it is estimated that around 90% of startups fail.
This guide aims to equip startup founders and open source companies with insights into ten common mistakes made during this process, and strategies to avoid them. From undervaluing the power of direct questions to losing sight of core metrics, these mistakes can undermine the potential of your startup. By avoiding these common missteps, you can pave the way for the success of your open source startup.
Success in the world of open source projects is indeed a feat to be proud of. A thriving community and the sense of achievement derived from it can often give you the confidence to think about building a successful business around your project. But let's hit the brakes a bit. While it's a strong foundation, it's no guarantee of commercial success. While growth and adoption are indeed vital, they're insufficient on their own for a sustainable business model. In the face of exciting opportunities, you need to be prepared to capitalize on them strategically.
The path to turning an open source project into a profit-making business isn't about waiting for your community to grow so large that monetization magically sorts itself out. Growth and adoption are fantastic, but without a solid plan to monetize your project, they might lead to missed opportunities. The real deal is to have a crystal-clear vision about how you'll earn revenue in the future. What offerings are you planning? Have you verified if there's a market for it?
Even in the early stages of a company, it's crucial to identify potential revenue streams. Investors initially put faith in your ability to figure this out. But as your funding needs increase, your business model becomes pivotal. Start preparing answers to key questions: Who are we targeting for our commercial offerings? How many of these potential customers exist? What are they willing to pay for? What will be our revenue models? What is our product-market fit? Remember, even tentative answers are better than no answers at all. And don't forget to involve your community in these discussions, their insights can be invaluable.
Also, don't fall into the trap of assuming that securing early investment equates to your open source project being easily commercializable. In recent years, investors have backed individuals they trust to navigate the challenges, but sometimes, despite best intentions, the product itself might not translate into a viable commercial offering. Always remember, investment is a vote of confidence in your potential, not a guarantee of your product's commercial viability.
Hate to break it to you, but if you're not asking questions, don't expect a winning outcome. A common oversight among many founders, particularly those in the open-source space, is neglecting to pose the difficult, pointed questions - especially when it comes to the commercial side of things. Asking someone to part with their cash for a feature or a service can be tough, particularly if your comfort zone is code rather than commerce. But as a founder, you've got to wear every hat in the business, no matter how unfamiliar or uncomfortable it feels.
Asking your user base (or potential users) probing questions is a responsibility you can't shirk. Sure, you can delegate or hire out, but verifying your assumptions about what people will shell out for is crucial. Let's say you're building a security-tight offering for highly regulated industries. You may find that public cloud offerings are a no-go for banks, financial institutions, medical companies, etc., who may require private cloud offerings with certain security bells and whistles. It's much better to uncover these quirks early. Similarly, figuring out if there are features you could reserve for a SaaS or open-core offering requires a genuine understanding of your user base. Will they open their wallets for it? You need to ask.
Founders, CEOs, and exec teams often fall into the trap of constructing their vision of what users want, which may not align with the market reality. In a surprising twist, many open-source founders might not even spring for their own product, opting to use the open-source version instead. This is often because they themselves are not the target customer. Remember, it's not about what you want; it's about what your users are willing to pay for.
Got dreams for your company? Awesome. But dreams without a roadmap are just fantasies. To move from wishful thinking to reality, you need to ask yourself some pointed questions. What's your vision of success? What are your 3-month, 6-month, 12-month targets? What are the key milestones on your company's journey? Remember, we're not just talking about project management here, but the actual shape of your company's future. Like any trip, you need to know your destination and the path to get there. Without clear alignment, especially in remote teams, your goals can start looking like a game of telephone, with everyone marching to a different beat.
Let's say you're aiming for 1M in ARR. Sounds exciting, right? But it's too broad. You need to dissect that goal, understand the specifics. Selling T-shirts and selling subscriptions both could fetch you 1M in ARR, but they are radically different paths. So, what are the mini milestones on your route to that 1M?
For example, to reach 1M in ARR in 12 months, you might need:
The takeaway? Break up the mammoth task into smaller, digestible bites. Every startup should have a clear vision, a tentative roadmap to get there, and a team that's aware of it and is hustling towards the same goal. After all, Rome wasn't built in a day, but they were laying bricks every hour.
Don't fall into the trap of thinking, "if you build it, they will come." Simply having an open source offering doesn't guarantee a flood of users who find it, use it, or deem it valuable. Heck, even successful projects wrestle with this challenge. So, don't bank on the idea that just because you've spent sleepless nights developing your masterpiece, users will automatically show up and start throwing money at it. The reality is a tad more complex - you've got to strategize, market, engage, and repeatedly prove your value to win customers.
Just like Captain Ahab in Herman Melville's "Moby Dick," some startups get entangled in the pursuit of a solitary vision or customer, often deviating from their core mission. It's relatively easy to say 'yes' when opportunities or requests come your way, particularly when they come bearing a promise of immediate cash flow. Companies might dangle a hefty cheque in front of you to implement specific features or to rejig your roadmap according to their whims. While this might appear tempting, it's a two-edged sword.
This might lead you down a rabbit hole and distract you from your original goal. On the upside, it could help you understand your market better, or even realize that your initial alignment was off. However, it's more often than not a mere diversion. The vital question to ask yourself when developing features to secure a deal or two is - "How valuable will these features be to the community? Will our core audience use them? Would they be willing to pay for these features?"
If you find that these additions have limited appeal for your primary market, you're probably chasing a white whale. And just like Ahab, your obsession with this elusive 'big catch' can cost you your mission and business. So, choose your battles wisely, align your product with your vision, and focus on creating value for your primary audience.
The mantra "go big or go home" holds allure for many startup founders. However, while it's a great rallying cry, it often leads to the pitfall of overextension, and in the worst-case scenario, running out of money and collapsing. As a small business with limited resources, having a grand vision is beneficial, but focusing on realizing a slice of that vision bit by bit is more cost-effective and sustainable. Too many companies start with a broad, ambitious vision, trying to push forward on multiple fronts at once, which can lead to slowed progress and a dilution of focus.
Imagine your business as a plate at a buffet. The vision is the sumptuous spread of dishes laid out before you. The temptation to fill your plate with everything at once is strong, but it might lead to indigestion or, worse, food going to waste. The smarter approach is to start small, pick the dishes (read: tasks) that seem the most appetizing (read: impactful) and focus on savoring them first.
If you are lucky enough to have the resources and funding to move multiple features and initiatives simultaneously, that's great! But remember, it's often more beneficial to do a few high-impact things exceptionally well rather than juggling a multitude of tasks in parallel. Being selective with your 'menu' choices not only ensures steady progress but also allows you to concentrate your resources where they can make the most difference.
In the open-source world, it's easy to get star-struck by contributors. After all, they're the ones who bring an electrifying sense of energy, initiative, and validation to your project. They're the folks talking up your product at conferences, blogging about it, or even creating some buzz on social media - all of which are vital for continued growth. But here's the kicker: while contributors get the spotlight, it's the users who keep the lights on.
Contributors, as valuable as they are, represent a subset of the user base. They're the motivated, tech-savvy types who are eager to roll up their sleeves and dive into the nitty-gritty of open source work. But in many instances, they don't perfectly represent your target customer. These highly engaged contributors might lack the willingness or even see the need to pay for premium features or services because, well, they're happy to DIY their way around. Their perspectives and feedback are undoubtedly important, but they don't always align with the needs of the majority of your users, particularly those who might be willing to pay for enhanced features or a more streamlined experience.
This isn't to downplay the importance of contributors. They are, without a doubt, an integral part of any open-source project. But it's crucial to remember that not all users are contributors. As a business, it's vital to keep your finger on the pulse of the broader user community. Be mindful of their needs, feedback, and experience, because it's often these users, not just the contributors, who could turn into paying customers and thus drive the commercial success of your project.
In the open source community, where the ethos is rooted in accessibility and freely available resources, many startups grapple with the challenge of monetization. Two prominent pitfalls are delaying the initiation of charging for a product and underpricing their offerings. The hesitation to ask for money in a culture that extols the virtue of 'free' is a hurdle many open source companies need to overcome. Further, the anchor effect of '$0' in open source could lead companies to undervalue their product, setting a price point that's too low. It's crucial to remember that while the software's source code may be free, the innovation, support, security, and convenience a company provides through its commercial offering holds considerable value. Charging for your product not only contributes to your sustainability but also signals to customers that your product has worth. Balancing the spirit of open source with the necessities of a business requires thoughtful pricing strategies, and overcoming the fear to charge for the value provided.
The temptation in many startups, particularly those in the open-source community, is to bring in a "world-class" executive team as soon as funding hits the bank. Founders, often first-time executives, scramble to hire seasoned pros from larger companies to fill roles in areas they're less familiar with, like operations, marketing, sales, or product development.
But this approach often triggers a series of problems. It's not that these new hires are incompetent; on the contrary, they usually come with sparkling resumes and proven track records. The issue, however, is that they may not mesh well with the company's culture or its current growth stage. The dynamics of running a 20-person company differ vastly from those of a 100, 200, or a 5,000-plus-person enterprise.
These experienced executives, with their polished methods and reliance on structured programs, often bring approaches designed for much larger companies. It's like recruiting an executive from Oracle to run a 10-person database startup: they're used to hefty budgets, established procedures, and resources that a small startup might not have. By hiring such an individual, you risk a significant shift in the company's culture.
Remember, bringing an executive on board is not just adding one person to the team. Their preferred working style and culture influence hiring decisions and shape the wider team culture. This could potentially trigger drastic cultural shifts in your company. Therefore, it's crucial to be cautious and protect your company culture when hiring executives. Look for leaders who have experienced your current growth phase and the unique challenges of companies your size.
However, this doesn't only apply to people coming from larger corporations. Employees used to leading small teams may struggle to scale their management skills to larger teams. Each size demands a different skill set.
Lastly, be aware that this trend can lead to early bloat in your company, often resulting in layoffs when ROI isn't realized. For instance, a new marketing head from a bigger company might increase spending on events to generate leads. They're used to seeing the power of marketing at a large scale, but the results might not match the increased costs in a smaller company. A startup might not have the resources to sustain this kind of spending unless the ROI is swift and significant.
As a company expands, certain processes and strategies that once worked seamlessly start to crumble. Systems that functioned smoothly with a 10-person team can fracture at 20, break completely at 50, and then shatter all over again at 100. Recognizing and preparing for these growing pains is crucial to successfully navigating each growth plateau.
With every growth phase, there's a risk of losing efficiency and spinning wheels due to outdated processes. It's important to constantly reassess your operations and strategy, anticipating potential chokepoints as your team grows. By identifying potential issues in advance, you can adjust your strategy and avoid operational breakdowns that slow progress and frustrate your team.
Maintaining open communication lines is key during these growth periods, but equally important is clarifying roles and responsibilities. As the company expands, tasks may overlap or fall through the cracks without clear delineation of duties. By ensuring that everyone understands their specific areas of focus and responsibility, you can maintain productivity and morale even during periods of rapid growth.
In conclusion, while the journey from an open source project to a successful startup is a challenging one, it's far from impossible. By avoiding these common pitfalls, you can increase your chances of commercializing your open source project successfully. Each step of the way, remember to engage your users, align your team with your vision, hire the right people who fit your culture, and keep track of your core metrics. Your open source project has the potential to grow into a thriving business, and with careful attention to these critical areas, you can navigate the path to success.
This is the end of this article about 10 errors that many founders commit and how to prevent them. I hope you enjoyed it and found it helpful. But before you go, I have a question for you: have you ever been part of a company that suffered from one of these mistakes and failed? Which one was it and what happened? Follow us on LinkedIn and let us know.
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