How to turn an open source project into a profitable business

Despite the premise that open source software distribution is "free", multi-billion dollar companies such as RedHat, MongoDB, GitLab y Elastic they have already led the way in building profitable businesses with open source at their core.

But Is it possible for a smaller open source project to find its way into this land of commercial opportunity?

The COSS accelerates

In general, the trends in commercial open source (COSS) are encouraging. new products like meilisearch y superbase are gaining traction exponentially faster than COSS legends like MongoDB, which were founded long before.

Let's contextualize the previous graph a little more. From 2010 to today, the number of GitHub users has grown from 500.000 to 103 million. It might be tempting to suggest that this influx of new users into the community would be the driving force behind the rise in stars.

Your open source project can start out like a pet project, but only if you can put the time into it.

But, at the same time, the number of projects (repositories) has grown at an even faster rate: from 600.000 to 359 million. And investments in open source products have nearly tripled, from 58 deals in 2015 to 144 in 2021.

It is important to note that the average number of users per repository has been reduced from 0,8 to 0,3. This means that the competition for GitHub stars is now greater than ever, suggesting that the aforementioned superstars are indeed outliers and will be hard-pressed to repeat their success.

Judging by these numbers, the investments and the dynamics of the stars, COSS is in for a sweet spot.

That being said, keep in mind that COSS and developer tools still occupy only a niche. After all, there are only 25 to 30 million software developers in the world. Although productivity in this sector is much higher than in many others, this figure is only a fraction of that of other large markets such as finance or retail.

Also, monetization of products built for developers is still, to some extent, an open question.

How to monetize open source

There are multiple strategies to earn money with free software.

Let's start with a simple one: crowdfunding and donations. Grant money falls into the same category as donations, the only difference being how the money is raised. Foundations are a vehicle for collecting donations from large sponsors or a large number of sponsors.

Unfortunately, those revenues are unlikely to cover the costs of a growing COSS. Take PostCSS, an extremely popular CSS framework created by Andrey Sitnik, as an example. Through an Open Collective hub, with 27.000 stars on GitHub, it only raises about $12.000 a year, despite the fact that large companies like Meta or Google use PostCSS and could potentially support the product.

The second option is consulting and support. While this model has lower margins and is more difficult to scale, consulting paying users of your open source solution has many benefits. Solving your problems provides a unique exposure of your pain points, which in turn reveals areas for improvement.

Although this may change in the future, SaaS is the standard for packaging and distributing software. It is the most common means of marketing, as customers pay to run, scale, and manage the software. This approach has its limitations, concerns, and costs, but using SaaS is easy, and people value simplicity and convenience.

Another way to commercialize an open source product is create one special extended version with a commercial license. To decide what goes in the paid version, think about the customers who would get so much value from your product that they'd be willing to pay for it, and then build features specifically for them.

Often your most important customers will benefit from additional performance optimizations, scaling and clustering capabilities, enhanced monitoring, and special integrations to improve developer experience and productivity.

To find your way, talk to your customers and understand their goals and problems.

How to turn an open source product into a business

Find a pain point and try to solve it
If a problem is not unique to one project, try repeating it in other projects and ask your colleagues about it. If you find that a problem is common, open up the code for your solution. Many sustainable COSS companies, like Bullet Train, started with that philosophy.

Spend time on your project
Your open source project can start out like a pet project, but only if you can put the time into it. About 10 hours a week for a set period of time (three to six months) is a good starting point.

get a partner
Find a co-founder who can complement your skills and experience. Your contacts, friends, co-workers, and Y Combinator's co-founder search service are good starting points. If you're an engineer, you need a business-focused partner, and vice versa.

Split the capital 50/XNUMX, but use a vesting approach with a seven to eight year schedule. Find someone enthusiastic who is willing to put in the same time and energy as you.

Talk to potential customers
Connect with potential customers as soon as you can. There is nothing more useful than talking to people and correcting your ideas about what they "should" think, want or do. Learn to help them.

define success
Try to define a measure of success. What would show you that it is worth leaving everything to focus solely on this? GitHub stars? Income? A consulting contract? Fame?

Monetize
Choose a strategy and start monetizing immediately. Create a simple landing page or publish your product on a marketplace.

Start trading
Let people know that your product exists and the problems it solves. Write content and promote it on platforms like Twitter, Hacker News, and Reddit; participate in relevant communities; launch it on platforms like Product Hunt; talk about it at meetings and conferences; launch a newsletter; associate with other existing products in the same ecosystem and create your own community.