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Is developing open source software a viable route for a startup?
7 points by runarb on Dec 3, 2012 | hide | past | web | favorite | 10 comments
The startup where I work is developing enterprise type software. The software itself is great, and have been selling ok in our home marked (Scandinavia). But now we want to venture out in the wider world. Unfortunately we are having a hard time reaching out to potential customers that are located far away.

We feel that we basically are left with two choices:

* Hire more sale and marketing staff to get the sale pipeline going. This is a known and safe route, but may require more VC.

* Make our software open source and hope that it spreads in the wild.

Does it make sense to follow the open source route for a startup? Can it somehow come back to haunt us (for example making it harder to get VC founding in the further, because we got no ipr)?

I'm a big supporter/user and small contributer of free software. That being said...

Make our software open source and hope that it spreads in the wild.

This is not a business strategy. You are going to give away for free what you are currently selling? How would that help?

Agreed, Naner raises a very good point. Just uploading it on GitHub won’t help much. However wouldn't I be right in thinking that it would be easier to get press, adoption and attention to something that is open source?

Maybe my question instead should be something like: Given relative small resources, is it easier to succeed as a startup if your product is open sourced?

For business strategy so are we leaning towards the usual rout of releasing the software as open source, to encourage a more rapid adoption, while the company sells ongoing support contracts, custom integration, services and consultancy.

By making the software open source you can sneak into enterprises under the management radar. You can make friends among ordinary developers in the enterprise. They can recommend your additional plug-ins, services or whatever you are selling to the management. However, at that point you'll need strong sales department to make the sale actually happen.

So, the two options are not alternatives, rather they complement each other. You'll need sales staff in any case. Making the product open source can help the sales staff to sell related products.

Whether it's worth it is up to your consideration.

Is he trolling us? I can't tell. It's such a ridiculous scenario/question that I just find myself unable to take it seriously. On one hand, I want to help - to answer with good info - but on the other hand I don't want to waste my time with a joke of a question. I'm choosing to believe that he's trolling.

Sorry, but it was not my intention to troll anyone. I am fully aware that both open source and propertarian software models are viable business models. However most successfully open source projects were probably open source from the start.

I am more wondering if open sourcing propertarian software are a good way to reach the masses? And if so, what risk would we be taking on?

I don't think I am the only on wondering about this. Tom Preston-Werner (Cofounder & CEO at GitHub) has written about some of the same issues at http://tom.preston-werner.com/2011/11/22/open-source-everyth... .

Fair enough...

I probably disagree with your premise that you likely have to hire VC to go a more sales/marketing approach (hard to say w/o more context). Of all the jobs/areas, sales is the easiest to hire without a large cash outlay. If you had said, "We likely need VC money because we need to rewrite a huge chunk of the code", I would've bought that but to say you need that money to build a sales team doesn't make sense to me.

For example, let's say I have a $1m/yr enterprise software company and we have no sales staff. If I want to go hire a sales person, what is it they want out of the deal? They want a product that meets marketplace needs, is well supported, is easy to demo, has a track record, and then I want to get paid as much as possible for each sale. You've proven that you have a saleable product and a track record, it seems. The next important part is the last part: "for each sale". You pay them commission - maybe not 100% commission at the start but, by month six, they are likely no less than 50% commission. It's far from a no-risk strategy but it's far cheaper than hiring engineers and having to pay 100% salaries w/ no add-on to sales. You could hire a sales manager and three sales people who, after six months, are on 50% commission. Within a year, they're on 100% commission plus bonuses.

With all that being said, yes, I'm making it seem simpler than it is. But, at this stage (and without knowing more about your business), it seems like the above hasn't been considered. A good sales person will drive your marketing for you, at least initially. He/she will say, "I need x and I need y to sell this product." You can then contract out x and y. The big cash outlays are going to be buying lists for the sales people and sending them to conferences.

Lastly, I would say that, if you find it tough to hire/find salespeople willing to work on commission, that either (a) your product price isn't being seen as profitable from a commission salesperson's POV, or (b) they believe either your support or product/market fit are just not good enough for them to make a high commission.

Sorry - I just don't see that as a big deal for a company selling enterprise software.

Naner raises a very good point but there's more to it. Your problem right now is reaching customers, a github repo is going to suffer the exact same problem.

If you're able to market your github repo to your potential users/customers why not market your software instead?

If you aren't currently offering support and training with your software, that might actually be a reason why companies are reluctant to start using your product.

Redhat has been selling service contracts to support their free software for more than 10 years.

Red hat started out selling their software. Their transition to a services company was facilitated by Linux software being integrated into enterprise in a mission critical manner.

Most software is less critical to an IT department than an OS, and few things justify the scale of support within enterprise.

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