It’s crazy. How giving away your code for free can be a competitive advantage. Successful companies like Hashicorp, JFrog, Elastic, MongoDB and Gitlab have demonstrated the power of open source models.
Like typical enterprise software companies, open source startups must go through two journeys to find product market fit: first, building a product that users can download and use for free, and building features that users pay for.
Effectively, open source startups must build two product roadmaps and companies. Since successful open source projects can have hundreds or thousands of free users, They have potential customers of all shapes and sizes. A challenge for open source startups is how to define an ideal customer profile (ICP) for paying users and how to convert free users into paying customers reliably and repeatedly.
In their early days, startups should serve customers with similar common characteristics because a narrow ICP definition helps them focus.
In the early days of product-market fit (PMF), it’s important for open source startups to identify a narrow ICP and figure out how to frequently find and close paying users. Revenue attraction alone is not a sign of product-market fit.
The beauty of open source software is that anyone can download and use it for free. This allows open source companies to access a wide and free user base. With freemium models (like Zoom or Slack), users can view the source code and configure it with their environment. This is especially helpful in influencing enterprise infrastructure purchasing decisions, where it can be difficult to convince a large customer to trust a young startup to run their infrastructure.
However, if the client has many developers using the free version of the software and can see the code and test and configure it to their needs, it will be easier for the CIO or CTO to trust the startup. Users go through a six- or 12-month journey with the software.
