The 6 Fundamental Truths of Starting a Company Based on an Open-Source Project

So, you’ve built an open-source project that has greatly improved developer productivity and the community loves it – thousands of GitHub stars, contributors, and pull requests. Everyone’s chatting about it on Discord and Slack . Congrats. 🏆

It’s only natural that you’d think about taking the next step and building a company around the project. Your code could be the basis for the next Confluent or Databricks . Or could it? I wouldn’t get ahead of yourself just yet. 

I’ve partnered with a number of founders who’ve made that leap and scaled their open-source companies. This is the first of three posts where I’ll share what I’ve learned from those experiences to help you assess your chances of commercial success. 

First, here are some fundamental truths to hopefully give you a clear-eyed understanding of the opportunities and challenges for your solution.

1) A product is not a market. 

A market exists when you have current or prospective customers who:

• face similar problems
• can afford – and are willing – to pay for a solution
• exist in numbers sufficient to generate meaningful revenue

2) Consider the extensibility, a point solution alone will struggle.

Open-source software is often developed for a specific use case, which won’t necessarily dovetail with the needs of other organizations.

3) Never underestimate the cost factor. 

Open-source software is popular partly because it’s so easy to acquire and work with – i.e., free. But it’s a very different proposition when users need manager sign-off on a 5-, 6- or 7-figure PO to adopt a product. (That’s why I’m adamant that product-led growth [PLG] is a marketing channel, not a sales channel. Longer conversation for another time.) 

Open-source software is popular partly because it’s free, but it’s a very different proposition when users need manager sign-off on a 5-, 6- or 7-figure PO to adopt a product.

4) It’s hard to truly know how and by whom open-source projects are being used. 

Most users are anonymous, employing obscure usernames. They leverage the software in various ways, making it difficult to identify typical use cases that could be mapped to commercial applications. Open-source software doesn’t call home, making it very challenging to reconcile who the users are. 

5) A perfect product/market fit is rarely achieved at the outset. 

You’ll need to keep iterating and adapting to the needs of the market.

6) I’ll say the quiet part out loud. 

If you've already raised some money, that doesn't necessarily mean you have a viable long-term business; it just means you sold an investor on the vision.

It’s a high bar, I know, but not insurmountable. Just consider these companies and their founders who did it.

• Mark Fussell and Yaron Schneider at Diagrid
• Ganesh Pai and Uma Reddy at Uptycs
• Mitchell Hashimoto and Armon Dadgar at HashiCorp

They once were where you are now. Making the leap started by wrestling with those truths.

Next month, I’ll share my thoughts on what I look for in a potential #oss company investment. 

Have questions in the meantime? Don’t hesitate to comment below or reach out.