It’s crazy how giving away your code for free has become a competitive business advantage. Successful companies such as Hashicorp, JFrog, Elastic, MongoDB, and Gitlab have demonstrated the power of open source models.
Unlike typical enterprise software companies, open source startups have to go through two journeys to find a product-market fit: first build a product that users would download and use for free, and then build features that users would pay for.
In fact, open source startups need to build two product roadmaps and businesses. Since successful open source projects can have hundreds or thousands of free users, they have potential customers of all shapes and sizes. The challenge for open source startups then becomes how to define the ideal customer profile (ICP) for users who would potentially pay and how to reliably and repeatedly convert free users into paying customers.
In their early days, startups need to serve clients who share a similar set of common characteristics, as a narrow ICP definition will help them focus.
In the early days of achieving product-market fit (PMF), it’s critical for open source startups to identify and operate a narrow ICP and learn how to repeatedly recruit and shut down paying users. Revenue traction alone is not a sign of product-market fit.
The great thing about open source software is that anyone can download and use it for free. This allows open source companies to acquire a vast, free user base. Unlike freemium models (such as Zoom or Slack), users can view the source code and configure it for their own environment. This is especially useful for influencing corporate infrastructure purchase decisions, where it can be difficult to convince a large client to manage their infrastructure while depending on a fledgling startup.
However, if the client already has many developers using the free version of the software and can see and test and configure the code to their needs, it becomes easier for the CIO or CTO to trust the startup. Users have already gone through a six or twelve month journey with the software.